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This Is Everything I Couldn’t Say About Finance When I Was a Banker (But Wished I Could)

by | Aug 7, 2023 | Money, Personal Finance

Banking is a strange career.

On the one hand it has perceived high status but on the other hand there’s a dark side to it. As someone who’s spent most of their career working in the industry, let me share a few things you may not know (that’ll surprise you).

Certain countries are discriminated against

The so-called diversity crowd loves to talk about racism and oppression. They never talk about financial inclusion though.

Many countries around the world are purposely locked out of the financial system (by design). I remember seeing a transaction come out of Iran for a legitimate business. It was blocked. No reason was given.

Everyone on the inside of the bank knew why. If the transaction came from London no one would say boo. This type of thing happens all the time. Blocks are easy to place on transactions.

Entire industries can be pushed out too. I saw plenty of crypto companies get locked out of their bank accounts with no reason given. Or nude services given to lonely men that got refused a basic merchant terminal.

Financial racism exists. No one wants to admit it.

Banks prevent businesses from growing

This is another truth bomb all bankers know.

Most banks are risk-averse. They treat businesses like crap and prevent them from growing. They have stupid dinosaur policies and create paper trails a mile long for no reason.

I recently read the book “Shoe Dog” by Phil Knight. It’s the story of Nike. The whole way through he talks about how annoying the banks were and how they hijacked Nike’s business.

He’s not wrong.

If you wonder why alternative finance and venture capital boomed, it’s for this reason. Banks are useless.

They only lend to businesses based on a sure bet. And they want rock-solid collateral like real estate to back up loans. The internet and blockchain will likely disrupt the banking fat cats at some point.

Until then, don’t fall for the lie that banks help businesses.

Asset prices are a joke

If you don’t know the true price of something, you can be fooled by the gains you think you made on an investment.

Many investors suffer from this problem.

When I worked in banking it got drilled into my head what the impact of inflation does. Expert Jeff Booth recently gave a great example.

He says the average person generally thinks their home went up in value. But they never ask the question, “Would my home have gone up in value over the last 20 years if there wasn’t $185 Trillion in stimulus?”

That’s the big question. That’s the difference between bankers and the general public. Bankers know asset prices aren’t what they seem and they invest accordingly in inflation-hedge assets.

Amateurs walk around and say they got rich off their homes.

The mystery of foreign exchange

Most people do not understand foreign exchange.

I didn’t either until I worked in a bank. The number one thing to know is there’s no centralized exchange for FX. With stocks there is. At any point in time you can see the price of one share of Amazon as an example.

You can’t with FX.

The price of FX varies everywhere you go at any moment in time. This lack of centralization makes it easy to get ripped off with FX. You can compare prices but it’s hard to know what the underlying true exchange rate is.

Advanced traders and Wall Street firms have complex tools that can give them a much more accurate rate, but the average person doesn’t have the same access. The bottom line is every day we get screwed on FX fees and we don’t even know.

A lack of transparency means it’s easy to rip you off.

FX is one of the ultimate forms of rent-seeking. Blockchain technology may fix it but don’t hold your breath.

Your savings account is the bank’s investment fund

Many normies on the outside think their savings account is holy.

Those of us on the inside of banks know that they are a joke. When we tell customers the interest rate we try not to laugh. The NII (Net Interest Income) the banks make is sweet as.

When customers give over their hard-earned money and place it in a savings account, the bank rubs their hands together. It’s money they can use to profit from with their knowledge — and the customer gets peanuts.

Stop worshipping savings accounts.

Learn how to invest so you can beat inflation.

Merchant credit card processing fees are extortion

There’s nothing wrong with making a profit.

But everyone in banking knows the cost for a business to process a credit card transaction is hilarious. Most bank fees are charged as flat fees. Credit card processing fees are a percentage of the sale value.

That means some corporation gets a decent percentage of every sale you make for simply putting the money in your bank account.

One old school banker once explained to me that one reason it’s a percentage — other than the credit card networks trying sh*t on and getting away with it — is that there is a small risk for every transaction that the goods or services aren’t delivered.

The credit card processing fee is a kind of insurance policy to protect cardholders. Still, even if this is true, the cost is stupidly high.

There’s no alternative so we just pay the fee and say nothing.

Bank loyalty is stupid

Some people love their bank LOL.

“I’ve been with them since I was 16. They gave me a car loan.”

Make no mistake, the bank’s only goal is to make a giant profit off you. They don’t care about you or your family — it’s a pretend act to get into your back pocket.

The moment a recession or financial crisis hits, they’ll leave you in the street with nothing. Forget bank loyalty. Be loyal to yourself. Shop around and always go with the bank that has the best deal.

Then remember every year to re-check rates and possibly move again. It’s just business (the bank’s motto too).

The gold mine of banking data

The best data in history is banking data.

It tells you exactly what people spend their money on and where. The banks get this data for free. The new Open Banking movement allows banks to monetize your data.

They disguise their ploy with “your banking data will be movable” and that’s true — and good. But the real aim of the game is to use your data to sell you stuff and get you into more debt.

People hand over their banking data without thinking twice. Don’t.

The true meaning of mortgage

In Latin the meaning of “mort” is death and “gage” translates to pledge.

People take out mortgages like they’re nothing. Like they’re just, you know, getting a home and their slice of the American dream.

But a mortgage is a death pledge. If you don’t pay then you owe the debt until death. The bank will do anything it can to get their money back.

Sure, we all have good intentions and hope to pay back our mortgages. The thing is layoffs and recessions can come out of nowhere.

One minute you can pay the mortgage no problem, and the next minute a crisis strikes and you can’t pay.

Of course the bank will give you some time to get back on your feet, although not much time. If you don’t pay, they sell your house for whatever they can get and you’ll likely go bankrupt.

There’s zero compassion, zero empathy.

So the lesson here is don’t get into too much debt with a bank. Take a more modest loan than everyone else and have excess cash to get you through hard times. That’s the final lesson I learned as a banker.

This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.

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