They’re Everywhere II

I’m still trying to figure out how to use the new “Movable Type” system that manages my blog so please excuse the multiple copies and repeats you’ve been getting over the last few days. Hopefully it’s over and wasn’t too much of a bother.

A few weeks ago I noticed that there were three banks right next door to each other, occupying beautiful buildings on South Street in Morristown, New Jersey. I thought it odd and began to wonder why. This morning I took a photo of three banks in one image on South Street and, admittedly, I had to widen the lens a bit but it’s amazing to me that they would be so close together. After taking the shot I began to wonder how many banks there were on South Street and the Morristown Green. How does 14 sound? Peapack Gladstone Bank, TD Bank, Capital One Bank, Somerset Hills Bank, Bank of America, PNC Bank, Citi, Provident Bank, HSBC Bank, Wachovia Bank, Valley National Bank, Union Center Bank and 2 Chase Bank branches are all there in this short ¾ mile stretch.   

Why are there so many? I’m not a researcher by any means but I do pay attention to the news and think about it often. It occurred to me that the Cost of Good Sold in my printing company (i.e. the amount we spend on paper, ink, plates, chemistry and outside services) ranges around 20% in contrast to banks whose COGS is approximately 0%.  My product is printed matter and in order to produce it I buy the required materials, hire the people to do the work and deliver the product. I then send an invoice to the buyer and use the receipts to pay the workers and the vendors with the remaining money being used for equipment maintenance and upgrades, rent, utilities and profit. Banks on the other hand borrow money from the Fed at near 0% interest and accept deposits from customers who are paid a return close to 0%. So their COGS approaches zero. Their product is money which they rent to other customers for a rate of interest far in excess of 0%. They now charge between 5.5% and 8% for mortgage money and up to 30% for Visa and Master Card loans while auto loan and other such rates hover in the 10% range. This essentially means that their gross profit (revenue minus COGS) is close to 100%.
An old cohort of mine who was in the pants business used to say that “bankers are robbers”. I think he was right.
Posted January 8, 2010

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