I’ve become pretty fascinated by the idea of disintermediating banking lately. It’s clear that the current system is broken and it’s also clear that the need for capital is not going away, so something’s got to give. Felix Salmon, as I’ve mentioned in the past, clearly thinks a big part of it is disintermediation. He wrote this in a post today about his anger with community banks not lending money:
I wish these loans could be disintermediated somehow: I’m sure there are lots of Americans — even Americans who know how to underwrite loans — who would love to get 2 percentage points over prime on $35,000, spread over six years. (Prime is currently 3.25%, and almost certainly won’t go any lower; that puts a floor of 5.25% on the interest that these loans throw off. Try getting that from a CD.)
Certainly sounds right to me. Clearly there is risk here, but with risk comes reward (in this example 2 percentage points over prime). The thing is, I don’t understand the banking system well enough to know why something like this isn’t happening. Can anyone fill me in?