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"Disintermediation" Is the Real Threat

Depositors are refusing to put money into major banks because of the way that they are being treated. They are using credit unions or other repositories instead. This is called disintermediation.

Banks can't lend if they can't attract deposits. As it is, many can't lend TODAY, because they lent too much YESTERDAY. That, in essence is what a bubble is about. Borrowing from tomorrow so you can live better today.

Time was, when banks had too many deposits, and not "enough" ways to use them to make money. Then they embarked on a orgy of risky residential real estate loans. The process was fueled by "packagers," who would pay the banks for "packages" of loans.

The other result was that banks started treating depositers, who were often also customers (for credit cards and mortgages) in a heavy handed way. In so doing, they shot themselves in the foot; about both ends. Sources and uses.