(00:05): If you had to guess, what do you think are the most profitable businesses in the entire world? Most people would guess the major tech companies like meta, Amazon, apple, Google, but there's an even more profitable business. Instead of businesses, a whole industry that's been around for thousands and thousands of years. Hi, I'm Amanda. And welcome to the wealth wisdom financial podcast, episode 1 11 1, 1, 1 secrets to the most profitable businesses. I can't believe we're at episode 1, 1, 1 already. Hey, and I'm Brandon. See if you can figure out what the most profitable business in the world is by following these clues, they are both big and small players in the industry, but you can find this type of business in most neighborhoods, sometimes multiple ones, and you can also participate totally online without ever stepping into a physical location.
(01:06): This business is essentially licensed by the government to be a middleman. They take a thing and then they give out that thing and they charge a fee in the giving out much larger than they pay for the taking it in of that thing. The entire business is built on trust without trust. The entire industry would crumble. If you caught, haven't gotten it yet. Here's the final clue that I think totally gives it away. The thing they take in and the thing they give out is money. Cash. It's banks. Banks are the most profitable business in the world. Today. We wanna pull back the curtain on how they really work, show you how they are increasing profits, even during a relatively low interest rate environment. And then we wanna discuss how you can apply their business model to your personal finances and business to increase the profits you get to keep for yourself.
(02:12): Are you sick and tired of hearing the same old conventional advice typically from a bank we feel you we're filled up, fed up with those same old truisms that fall flat. When you get into the unique opportunities and challenges and specific situations, this show is all about bringing you historic wisdom around building wealth, with practical insights on how you can apply it for your journey today. When conventional financial thinking, doesn't get you where you wanna go. You need wealth wisdom, let's master wealth building together. So before continuing to listen, we highly recommend going back and listening to our last episode. It's titled debt free. Isn't what you think it's to learn more about the mechanics behind banking and set a good foundation for what we're gonna talk about today. So go back, listen to that episode, that free isn't what you think it is because it's gonna really help you in this next episode. So what I'm gonna do is go ahead and pause here for a second. Let you do that. Okay. Welcome back. Let's jump in to today's episode.
(03:21): Now we need to also mention why it's important to dig into this. Banks make a lot of money, A whole lot Of money, a whole lot of money. Where is that money coming from? Have you ever thought about that? Where is that money coming from? It's coming from your ability and, uh, capacity to build wealth is coming from your account at that bank. Americans pay way too much interest to the banks, but we also give up a lot of growth to these banks who keep it for themselves. We get whatever they say. The interest rate is on our savings account right Now. Do you think you could build wealth faster? If you could both stop paying interest to banks and gain more interest on your wealth than the banks actually pay you. You think you could actually get ahead.
(04:10): That's the crux of why we wanted to make this episode for you. It's crucial to how you build wealth. And so, uh, we also, in order to learn from these most profitable businesses in the world, you have to understand how they work. What's the purpose of a bank? Why do we have banks? Last episode, we went into a little bit of the mechanics behind it. This one, we're gonna talk more. Why what's their purpose? How do, how do they think about money? And the best summary we've found comes from a British humor magazine. It was published in 1957. It's titled what are banks for? And it's a hundred percent true. We're not gonna try to put on our British, uh, impressions. We're not gonna try to be John Oliver. We're probably gonna almost butcher this thing in terms of it would be really CRA you know, awesome to get John Oliver, to like put this on and go through it. Uh, John Oliver, if you're listening, we need a, and now, uh, this, you know, for, for your show where you talk about what banks are for and use this as your inspiration, okay, here we
(05:12): Go. So non-pro accent here and we'll try and use American dollars. Yeah. Instead of British pounds. So first question, what are banks for To make money For the customers, For the banks? Why doesn't bank advertising mention this? Well, it would not be in good taste, but it is mentioned by implication to the reference to reserves of 240 billion or thereabouts. That is the money they have made Out of the customers, I suppose. So they Also mention assets of 500 billion or thereabouts, have they made that too? Not exactly. That is the money they use to make money. I see. And keep it in a safe somewhere. Not at all. They lend it to customers, Then they haven't got it. Nope. At all. Then how is an asset?
(06:08): They maintain that. It would be if they got it back, But if they must have some money, they, I mean, they, they have to have some money safe in a safe somewhere, right? Yes. Usually 500 billion are thereabouts. That's called liabilities. But if they've got it, how can that be liable for it? Like, why is it a liability? Because it's, isn't theirs Then why do they have it? It has been lent to them by customers. You mean customers lend banks money In effect. They put money into their accounts. So it is really lent to the banks.
(06:46): And what do the banks do with it? Lend it to other customers. But you said that money, they lent to other people was assets. Yes. I'm confused. Then assets and liabilities must be the same thing. You can't really say that, But you've just said it. If I put a hundred dollars into my account, the bank is liable to have to pay it back. So it's liabilities, but they go and lend it to someone else and he is liable to have to pay it back. So it's an asset. It's the same a hundred dollars, isn't it? Yes. But Then it cancels out. It, it means, I mean, doesn't, doesn't that bank. Haven't haven't they really got any money at all.
(07:31): Theoretically, Nevermind, theoretical. And if they've haven't any money, where do they get their reserves of 249 billion or thereabouts? I told you that is the money they have made. How well, when they lend your a hundred to someone, they charge him interest. How much It depends on the bank rate. Let's say five and a half percent. That's their profit. Why isn't it? My profit. Isn't it? My money. It's the theory of banking practice that When I lend them my hundred dollars, why don't I charge them interest? You do. You don't say how much It depends on the bank rate. Say, half a percent Grasping with me rather, But that's only, This is British , but that's only if you're not going to draw the money out again.
(08:22): But of course I'm gonna draw the money out again. If I hadn't wanted to draw it out again, I could have buried it in the garden. They wouldn't like you to draw it out again. Why not? If I keep it there you say it's a liability. Wouldn't they be glad if I reduced their liabilities by say removing it? No, because if you remove it, then they can't lend it to someone else. But if I wanted to remove it, they'd have to let Me certainly, But suppose they've already lent it to another customer. Then they'll let you have some other customer's. But suppose he wants his two and they've already let me have it. You're Being purposely OBT Truths. I think I'm being acute. What if everyone wanted their money all at once? It's the theory of banking practice that they never would.
(09:09): So what banks bank on is not having to meet their commitments. You got it. That's the end of this article from 1957. Read it. Listen to it again. If you want to go look it up, uh, from a British humor magazine called punch P U N C punch magazine, And we'll have the show notes and I'm sure they would be a lot more fun to listen to in a British accent than of course my Well, it, but it was written out. So you're not gonna find it read anywhere unless John Oliver takes step. Yeah, here we go. I wanna go back. We almost titled this episode better than debt free, but to be honest, as we looked, you know, we, we like to SEO our titles, you know, of course, search engine optimize it's Good
(09:55): Business. We went to Google keyword Explorer, and I looked up how many people are searching the words better than debt free. And it was a big old goose egg. There was nothing there, zero people. So apparently that tells me either people don't wanna be better than debt free, or they don't know it's possible. Yet banks are better than debt free. Sure. They have assets loans to their customers and liabilities deposits from their customers. But it's all, everyone else's money. They never use their own money. So they are never in debt themselves. In fact, they use other people's money to build up a reserve. In other words, they use other people's money, their customer's money, your money to make a profit.
(10:41): Yeah. And that's something we talk about all the time is OPM other people's money and how awesome that is. So anyway, um, if that isn't making you mad enough, just wait, it gets Worse. Oh no. You know how we've been having record inflation. And everyone is mad at the oil companies and shippers who seem to be increasing prices just to increase their profits. Well, in June, 2022, that's just last month. A group of researchers at the Roosevelt Institute published their findings of 3,698 us firms across sectors and their profit margins in 2021. Now the purpose of this paper was to talk about the causes of inflation and many people debate those. We don't wanna dig into that here. We'll put a link to the show notes. If you wanna look at the full paper and think about the causes of inflation, what's really causing it. We're gonna focus on two other findings of the paper.
(11:44): We also wanna mention that we care about inflation because it is an economic justice issue. High inflation dramatically impacts lower income and lower net worth families who spend a large percentage of their income on goods and services impacted by inflation and inflation in the banking sector is no different. And we're gonna get into that right now.
(12:10): Yeah. There are two very interesting findings in the report. The first is kind of foundational so that you can understand the second, what they found. We've kind of always been true that companies in the top 10% of their industries have always had larger profit margins in the bottom 75%. But that top 10% have been increased in their margins at a higher rate than the bottom 50% since the late seventies. And particularly in the last 20 years, this is across all industries. There's this market power dynamic happening here. That's very important. The more power company has the higher. It can make its margins both by pushing down costs by strong arming its supply chain, but also by increasing prices. By being one of the only options available, we were able to confirm from a couple other sources that larger banks follow this same pattern, larger banks have higher profit margins than smaller banks. Okay. Now Brandon, tell us about the second very interesting finding in their report.
(13:13): Yeah. We took particular note of a graph on page seven. So go ahead and click that link. If you wanna look at that graph of their report, it shows that markup by industry in 2021, compared with pre pandemic levels, as you might expect, mining querying oil and gas extraction saw one of the largest increases, but more than double, that increase was the sector labeled finance and insurance, which led us to ask why, why has finance and insurance increased their profit margins during a pandemic and the report doesn't get into it. So we had to look elsewhere to see what was going on.
(13:59): Now, there's a kind of a philosophical it's called the Canon effect, um, of how money moves when, you know, we get the government issuing things like economic stimuluses and stuff like that. We could talk about that. That's a little more theoretical when, um, as a way to answer this, why has the profit margin increased so much in finance and insurance? But when we, um, were looking at what could be other reasons we've I learned something very, very interesting, lots of people when talking about the consumer price index, which is how we measure inflation. And I learned that investment items are not included in the consumer price index. So when you see that eight plus percent inflation rate, it's not including things like fees on 401ks or overdraft fees or the interest you're paying to a credit card or mortgage. It's not included there, but currently fees like late fees on credit cards and overdraft fees are allowed to increase along with inflation.
(15:02): So there's low inflation inflation, the banks can't lower or can't increase those fees as much, but when there's high inflation, they can increase them dramatically. So you've heard a lot about banking in that the fed is increasing interest rates and people are saying pay off your, uh, debt as fast as you can because your credit card interest rates are gonna go up. You, you know, you're probably hearing a lot about that because it, it probably is true. But when you're, what you're not hearing about is how the raising those interest rates. They're also able to raise their late payment penalties and other junk fees because of how high inflation has been now to give you an idea of what it's, uh, a little bit of history here between 2010 and 2021 in those 11 years, the late first, late payment fee, the fee, the first time you're late paying your credit card. That fee has increased from $30 to $41 and late payment penalties make the credit card companies 12 billion per year, as of 2020, that's some serious profit for letting you use other people's money and then being a day late and making your payment. And it's not even the bank's money. It's not even the credit card, company's money. The consumer financial protection bureau is already looking into updating the rules for these fees, because they're noticing that this could be a much bigger problem going forward as we have high inflation.
(16:28): But here's the thing that you need to know. The very strategy that fed will do to squash inflation. Raising interest rates only helps make the financial industry more profitable because they can raise their interest rates on loans that aren't likely to rate, but they aren't likely to raise the interest rates they pay on deposits. I mean, seriously, have you ever seen that really go up or anything usually goes down at the same time unless Congress acts and passes new regulations, that banks will continue charging higher and higher junk fees. Mo most often to those who can least afford them, like $41 on a fee, that's maybe an hour of somebody's work
(17:17): Or a few hours, if they're getting paid minimum wage, it's ridiculous. So we wanna start moving toward what you can do about it and how you can claim some of this profit for yourselves. What you can learn from the secrets of the most profitable businesses. Cuz it's starting to feel if you're with us here, you're listening. It's starting to feel like we're darned. If we do darned, if we don't right, we're we're gonna pay this interest. We're gonna have these fees. It's gonna keep increasing because inflation's so high, they're gonna raise interest rates here, but not raise in there. It feels like a lose lose situation. So let's turn to how you can do what the banks are doing. Certainly you aren't gonna start an actual bank, even though banks don't use their own money, they do have startup capital requirements to the tens of millions of dollars. Plus there's high ongoing costs to stay within regulations, acquire customers and so forth. But that does not mean that you can't create an account that can allow you to act like a banker.
(18:15): Yeah. In fact, about eight and a half years ago, we fell into this secret that we didn't even realize, uh, how secretive it was. We just thought it was logical. We opened up such an account that we've been capitalizing on by adding funds there every single month since we opened it, this account has allowed us to access other people's money. The thing that people love to talk about to pay off debt, to buy a home, to travel, to sell a business and to start and grow a new business. And that's just for us, we aren't using our own money. So it's still growing as if we'd never touched it. Plus we're getting much better growth than we would from a bank. And when we use other people's money, it's way more in our favor than a bank loan or a credit card. We don't even have a required payment to pay these other people back. And one more thing, there are no taxes due along the way on the money as if, as it accumulates in our account on the increases of those funds or the use of other people's money.
(19:25): And we've never been charged a junk fee yeah. Right. It's Amazing. Yeah. Now this might start sounding too good to be true. Actually it's not about 80 years ago. Half of Americans were being their own bankers in this way and there's still millions of Americans who do this today. We might be starting to ask, well, why aren't more people doing it? Why haven't I heard about this before cons, we ask, invite you to consider that the banking industry spends more on lobbying our government than any other sector and consider how many bank ads you've seen on a screen, a billboard or a print medium in the last couple weeks.
(20:04): It's all marketing and money. Right? So again, take control, like understand and take on these secrets. So to wrap up today, we want to end on a positive note. Yeah. We just revealed a lot of secrets that most Americans never hear, or if they do hear it, they never do anything about it to start thinking and acting like a banker so that you can keep more profits for yourself and for your family. It's important to ask some very important questions and then to also learn and work with people who are already doing it.
(20:35): So ask yourself, how might your life and business be different if you acted more like a bank again, how might your life and business be different? If you acted more like a banker, what if you never interrupted the compound growth of your savings? Because you have a major purchase. What if you never had to take a loan that you weren't in control of the repayment schedule? What if you were in control of the banking function of your life and never paid a junk fee to a bank ever again, how might claiming back your own banking function impact not only your life, but also future generations and the members of our population. Most debt risk of the misuse of bank
(21:26): Power. So we mentioned those are some of the questions that's very important to ask. And then we said, you also have to learn and work with people who are already doing it. You heard Brandon in our, my story that we started this eight and a half years ago, it's totally transformed our futures so much so that we decided we gotta make a podcast. We gotta make this, our business, our life, what we do day in and day out. And so, so We are activist by op you know, after all. So we wanna change the World, right? So to find out, if you are ready to start claiming and controlling the banking functions of your life and business, what steps it takes to get there, we invite you to click in the, uh, the link in the show notes and schedule a quick 15 minute intro call with us. We'll answer your questions. We'll chat about how to get started. There's no sales preaching or judgment involved schedule your slot before our schedule fills up.
(22:17): Now we spit the last two episodes talking about banks. Next we're gonna pull back the curtain on wall street in much the same way. I mean, it's been a crazy ride on wall street lately, Right? Bananas. Yeah. Bananas. Yeah. I gotta move from crazy to bananas. What's the purpose? Why do we have it right? Why do we have wall street? How could it work more in your favor rather than increase the already fat wallets of a stock broker or the people on wall
(22:49): Street until next time, keep building your wealth simply and sustainably so that you can break through to a smart, stable, financial future. We hope you live long and profit. The topics presented in this podcast are for general information only, and not for the purposes of providing legal accounting or investment advice on such matters. Please consult a professional who knows your specific situation.
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