Shervin Pishevar ranks among the most noteworthy financial experts in the United States today. As the founder and CEO of Investment company, he has personally overseen the formation of some of the most important tech companies of the last decade. Some firms on which Shervin Pishevar has labored to form include Virgin Hyperloop, Uber and Airbnb. He has also formed a number of highly successful tech firms on his own, including Social Gaming Network, Ionside and WebOS.
But it is on Twitter where Shervin Pishevar has become known to many outside the cloistered world of tech venture capital. With more than 100,000 followers on his Twitter feed, Shervin Pishevar has helped to spark many conversations on some of the most important topics that are confronting the nation. One of the more frequent areas that he visits is the role of central banking and, indeed, the entire fractional reserve banking system itself.
Pishevar has repeatedly noted that the concept of maturity transformation — the matching of short-term deposits with long-term loans — is an inherently unstable thing. He says that the entire concept of maturity transformation can only work when there is an ultimate guarantor of the demand deposits that fuel the entire long-term lending industry. In the case of the United States, that guarantor is the Federal Deposit Insurance Corporation. But this creates two serious problems.
This first problem is that it leaves the government on the hook for potentially bad loans. This makes it easier for banks to lend to otherwise poor borrowers. This is precisely what transpired in the 2008 financial crash where banks suddenly made massive amounts of bad loans to borrowers who had little prospect of ever paying them back. If a bank suddenly became unable to meet withdrawal demands from depositors due to non-performing loans, the FDIC would step in and ensure that bank’s ability to continue operating.
The second problem is that such a system radically suppresses interest rates. To see how, consider what interest rate the typical person would need to charge to lend out $100,000 if they were unable to use most of the principle for 30 years. It would be far higher than current mortgage rates, possibly by 20 or 30 percentage points.