Thursday, November 03, 2011

Ahead of the Game

(Lately, many notices have appeared urging us to protest the behavior of megabanks by transferring our accounts to local financial institutions.  The Geezer was ahead of that game. Following is an abridged version of his Jan. 26, 2010 comments—the original appeared here a full 21 months ago. As predicted, the big bank that lost Sandy’s account has not collapsed, but perhaps now with millions joining the movement the bankers will get the message.)

Take It from the Bank

Of course, the bank president will just laugh at the loss of our business, if by some strange quirk of fate it comes to his attention.  But our action will be symbolic.  We are going to transfer Sandy’s checking account from a big bank to join mine at a little credit union.

We little guys aren’t moving our business out of greed, although often we can get better rates locally.  We’re doing it because we’re mad as hell at greedy big bankers.

We ought to be. In 2008, the median U.S. household income was $50,303.  It no doubt will be lower when the numbers are in for 2009 (Ed note: it was).  The average professional employee (broker, sales staffer, trader) compensation at JP Morgan Chase was $279,000 in 2008.  The bankers gave themselves a raise in 2009, upping average compensation to $379,000.  Wow!  The average Morgan staffer got an income increase double what the average American family must subsist on.

JP Morgan Chase was given $25 billion dollars of taxpayer money in the fall of 2008 to ensure the firm would be healthy.  Wouldn’t it follow that the guys who were making a quarter million or more a year were the same bozos who were making the firm unhealthy? They should have been disciplined, not rewarded with big bonuses.

The medicine worked.  Morgan paid back the $25 billion.  The taxpayers even earned some profit on the deal.  Unfortunately, although the patient survived, it didn’t start doing what the doctors envisioned.  The idea was that the propped-up big banks would lend cash to stimulate business, which in turn would save or create jobs.

The bankers quickly engineered a payback to avoid government control of their compensation packages.  They made the money to do that in investment banking, and continued a lot of the risky stuff that got us into a financial crisis in the first place.  Instead of ramping up typical business lending they tightened things up in that area. They gave the surplus funds to each other, rather than helping their country out of recession.

Was Morgan an isolated case?  Goldman Sachs got $10 billion from Uncle Sam to stay in business.  It was one of the first to make a full repayment.  It should be better managed than some competitors, because at Goldman average professional compensation was a mind-boggling $317,000 in 2008.  It increased to $498,000 in 2009.  Meanwhile, nationwide unemployment moved above 10 percent.

The big bankers deserve our ire.  Some even admit it.  At a hearing before the Financial Crisis Inquiry Commission, Brian Moynihan, Bank of America chief executive officer and president, said, “Over the course of the crisis, we as an industry caused a lot of damage.”

That’s right on.  Politicians, Republicans and Democrats, over the past twenty years stripped away needed regulations or looked away as questionable activities were taking place.  But, just because politicians gave financiers a license to steal doesn’t mean the liberated bankers were forced to plunder.  They could have applied their own ethical standards—if they had any-- to daily practices.

We need Congress to clamp down hard on the bad guys who betrayed us.  Democrats will lose the support of a lot of voters if they simply continue running around yelling “yes, we can” make financial institutions work for all Americans. They need to do it. And Republicans need to identify some common-sense reforms they can support and get with the program. 


schmidleysscribblins, said...

True, the bankeers are major culprits in the current mess, but so are the GSEs Freddie and Fannie and a bunch of Wall Street types like the guys in the current administration. Greed seemed to be rampant with many fingers in the pie. Now eveyone is blaming everyone. Human failing is the root cause and the OWS folks will accomplish nothing to fix that.

I hate banks and havine't used one in over 30 years. I live frugally, with circumspection and use a local Credit Union for all my banking business. My CU is run by Black Women and no one messes with them.


JHawk23 said...

Good thoughts on the world of banking and finance. The whole concept seems to have shifted from something like "guardians of the customer's money" with a modicum of profit, to "garnerers of the customer's money" to use as the banks see fit. There ARE many smaller, conservative banks in our area, and many are turning to those; credit unions are also great.

(By the way, like the new look of the blog.)

Alan G said...

There are eerily similar facts between the financial crisis of current standing and that of the infamous Savings & Loan debacle of the 80’s and 90’s. And it does not appear any major lessons were learned, either by the financial institutions, the government nor the public at large who uses these institutions.

Were we complacent in what has now taken place? I can’t deny that I was. As long as I was getting what I wanted from my financial institutions, I had little concern with how much money anyone was making. Besides, I was always aware that it was a business for profit.

Call me naive if you like but up until the financial crisis of 2008 I had always put a large measure of trust in banks. After all, at any given time they have in their possession every dime I have. Short of the “under-the-mattress” scenario, what choice do I have with regard to my finances? And of course when they are willingly given my money, they take it, add it to the money of others and then make lots of money for themselves. I have absolutely no say whatsoever in how they make their money, be it is risky or otherwise, and have to simply go to sleep each night relying on the simplicity of my trust.

Nevertheless being a customer of B of A, I moved a portion of my finances to a smaller, local bank for a number of reasons a couple of months ago. One I was angry over the current debacle, I was getting tired of reading about one crisis or another regarding my bank and of course a real concern over bank failure. And a B of A failure would not be like any other bank failure we have seen – sending a tsunami throughout the smaller institutions having financial ties with B of A.

I still have an IRA account with the bank and am now having to deal with my own greed. I secured a very sweet interest deal for this account and if I move it, I will lose some $500 a month income. No other institution can even come close to matching the rate. And even though I could still maintain a current lifestyle without that income, I am still struggling with that decision.

While I was still working and I had medical or dental issues, I would never use my company provided “free” insurance and would always pay with cash up front because I could afford it otherwise. I was under some abstract dissolution that if I didn’t use it and others did the same that health costs overall would remain at a reasonable level. Well, one can only come up with one definitive label for an individual who might subscribe to that conclusion given today’s health costs.

In closing, I have spent some time trying to convince myself that one institution or another is safer and more secure in these days and times. Although the greed and salary issue is to a large degree addressed with credit unions, I am personally convinced that credit unions are no safer from failure than banks and for many of the same reasons. Here is a website that has an inter-active map showing all the bank and credit union failures by state for 2010. Maps for other years like 2009 and 2011 are available.

Bank and Credit Union Failures