Too Big to Fail, Too Dull to Grow: Investing Beyond Banks

Time hath, my lord, a wallet at his back, wherein he puts alms for oblivion, a great-sized monster of ingratitudes.
— Shakespeare, Troilus and Cressida

From Dot-Com to Dot-Gone: The SVB Implosion

Silicon Valley Bank (SVB)—an institution that took 40 years to build—recently lost $42 billion in 48 hours. 

The collapse resembled a Black Mirror redux of the holiday classic It's a Wonderful Life. Gone are the days of desperate souls clutching their withdrawal slips, jostling for the opportunity to spill their tears amongst warm bodies. In today’s version, the panic and pandemonium have been reduced to a furtive sterility—financial crisis by finger swipe. 

Modern Banking: Smoke, Mirrors, and a Spreadsheet

Traditional banking operates on what's called fractional reserve banking—a fancy way of saying they lend out more money than they actually have. For every dollar you deposit, banks can legally lend out about ten. This leverage takes a marginally profitable business and makes it OK. However, like a tower of champagne glasses, it only works if nobody sneezes.

Enter social media: the digital equivalent of giving everyone at the party a megaphone.

Source: Wikimedia

Fear Gets a WiFi Connection

Nobody at the Federal Reserve expected WhatsApp groups to drain a bank faster than they can draft a memo. The old playbook, written for a world of mahogany desks and three-martini lunches (how we miss them!), assumed that banking was about capital; social media makes banking about liquidity. 

In those halcyon days, the great unwashed had to line up in person to withdraw their deposits, leaving plenty of time for regulators to intervene, for phones to ring, for gentlemen in suits to have meetings, and for branches to conveniently close their doors.

But there's nothing polite about viral tweets.

The Department of Wealth Suppression Would Like a Word

Capitalism is the best invention humans have ever made for accumulating money. Unfortunately, it piles up in fitful and uneven ways. Thus, society needs a system, a mechanism, to smooth out the lumps. This used to be the banks, but now not so much.

The daring, testosterone-fueled swashbucklers of investment and merchant banking’s golden age are now eunuchs of regulation. Predictable. Cautious. Boring. Except when they’re not.

Compliance and Punishment: The New Face of Bank Stocks

Nowadays, when banks do something “exciting,” it will increasingly be a bad thing. Just look at the $3.09 billion USD in fines and regulatory onslaught TD Bank suffered after drug traffickers bribed its employees to launder up to $670M in fentanyl profits. 

The future of banking looks like this:

• Stricter regulation (more paperwork, less fun)
• Higher capital requirements (keep more cash on hand)
• Flaccid growth (limp, lifeless, and in desperate need of stimulus)
• Increased consolidation (marry or die)
• Back to the basics (checking accounts and mortgages… thrilling)
• Supersized fines for bad behavior (and as regulation squeezes profits, might not the temptation to misbehave grow?)
• Ever-increasing client fees (you pay more and more for less and less)

From Vault to Venture: A Story of Financial Exodus

As banks retreat into their regulated shells, paperwork may be one of the few remaining growth avenues. The interesting stuff—the risk-taking, the innovation, the profit—moves to private equity and venture capital. Money will still be available, but heavier regulation suggests it will cost more to access.

Imagine a river diverting around a partial blockage: the water still flows, but the path is less direct and the current choppier.

Big Banks, Small Ambitions: The Wealth Management Hustle

Let’s be blunt: many see bankers as having earned their reputation for rascality, so regulators chain them—Prometheus-style. But instead of divine fire, the bankers brought credit default swaps. And the eagle? Still hungry—just with a taste for compliance checklists over entrails.

Source: Wikimedia Commons

And those bankerly chains cost money, strangling returns. Boxed in, bankers push “wealth management,” prioritizing their survival with three simple rules:

1. Maximize fees

2. Dodge headlines

3. Don’t get sued.

ETFs and mutual funds are the perfect fit—for them. In our opinion, generating wealth for you is conspicuously absent from their playbook. It appears to us that you’re being sold safety—when what you’re really getting is underperformance. After all, poverty, even when wrapped in compliance paper, is still poverty. 

We think you deserve better. Wealth Preservation Management (WPM) offers a performance-focused alternative. Let’s work together to grow your wealth — contact us today.

Ka-ching, the check is in the mail.