Money for Nothing

Here is a question I sometimes ask people when talking about money and the terrific terror of it all: "When you put money onto your savings account - that is you lend money to your bank - for 2% interest, and the bank gives someone else a consumer credit for, say, 10% interest - what is the bank's profit?" Now the question ought to be easy enough to answer for it merely requires some rather basic math to solve it. The answer I usuall get from people of all educational levels is: Eight percent. Now this answer is as charming as it is scaring and wrong. The right answer is: 400%!! And this does not take into account potential interest accumulation.

Now wow! Where else does anyone in any trade have profit margins of such fantastic proportions? And why do we allow banks to cash in on such margins for services that damn closely border on doing absolutely nothing? A one or two percent margin ought to be enough for taking money from one person and handing it over to another one. When the bank borrows your money for two percent, that would result in loans with an interest rate of 2.04% Sounds far enough to me! A real estate broker here in my country gets a 3 percent commission, and he in fact does about the same actual work as the banker. A three percent commission for a credit (instead of 10% ongoing and exponentially accumulating interest) would be even nicer for the borrower - and still more fair. Let us say the bank borrows the money from you, and gives it away to someone else. The bank then receives a one time 3% commission for the whole sum. YOU get the ongoing 2% interest - or a bit more. After all it is your money, and why should the bank make most of the profit with it? And everybody is happy. Except the bank of course, which would be downscaled to what it actually is: a simple agent bringing together two parties. Otherwise banks do almost nothing other then providing the most primitive of services! There is absolutely no justification whatsoever for granting them the power and influence they nowadays have on almost every aspect of the world.