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Breaking the American Bank – Banking Propaganda and Using the American Middle Class as a Credit Card for Wall Street Excess

March 9, 2010

Breaking the American Bank

Re-post from My Budget 360 March 8, 2010

SOTA Comment: As the present banking model problems clearly show, they are not created for nor do the underlying principles which this failed monetary-economic system operates under are in the best interest of those it professes to serve. The premise of the post is simply that banks should be a utility for public benefit and prosperity. I have always felt that given the recent debacle of debt induced economic expansion cycles have run their ultimate course, we must have access to public-owned, very low capital costs to build sustainable economies. Think state owned banks and removing the Federal Reserve’s charter- roll it into the US Treasury, back to truly benefiting the citizenry. I have taken the liberty to red highlight in the post key points raised.

How About we let the Average American Borrow from the Federal Reserve at 0 Percent and cut out the Loan Shark?

Banks are showing their true colors and what little regard they have for the average American.  As they advertise with cute and friendly faces assuring consumers they are looking out for their best interest, behind their backs they send in a locust of lobbyist onto Washington to do everything in their power to gut any sensible financial regulation.  The vultures are picking off every piece of what used to be the middle class.  This is the model of the new banking and financial system that many will have to contend with.  Americans have seen their access to loans and credit contract at the fastest pace in history while banks have now opened up an unlimited credit card with the taxpayer paying the bill for too big to fail.  Banks are doing their best to create a narrative that “if we didn’t bailout the banks then the world would have ended storyline” but the vast majority of Americans did not support the banking bailout.

If you want to see how quickly credit is contracting take a look at this:

The chart above merely highlights what you already know. Banks no longer trust the average American.  While they based all their bailouts on the idea that taxpayer money was needed to keep banks lending this has been a lie.  In fact, banks need the money to plug the hole that their toxic assets are burning on their balance sheets. You can also look at the amount of credit card offers you are getting in the mail to gauge how quickly the market has changed.  No longer do banks want to give credit out (that is, unless it is government backed like mortgages which they are all the more willing to lend out).

The U.S. has over 8,000 banks with the large concentration of assets in 10 banks.  These banks continue to use bailout funds to plug the problems from the boom years.  But this is not in the best interest of average AmericansIf Wall Street and politicians were honest, the bailouts would have been labeled as a massive charity to the elite of the country who made disastrous bets over the past decade. The public takes the lumps while Wall Street actually gets richer.  While banks don’t want to reel in their spendthrift ways, Americans are pulling back:

Americans are now having to save more and more of their money as is expected in a tough economy.  Yet banks are back to gambling in the stock market while shutting down lending to consumers.  Banks are playing the poor me card by arguing that with too much tight regulation, they can’t make loans because they are worried about future balance sheet problems. Thanks for telling us after you took the public money under false pretenses!  But this is all a political ploy to steal from the working class.  With so many people just unable to even service the debt and rising bankruptcies, banks are now going after good customers who pay their bills on time each month just because they are running out of “options.”  Don’t be fooled. They are reaping billion dollar profits because they are using excuses to squeeze the golden goose dry.

How about we allow the typical American to borrow at the subsidized low rate from the Federal Reserve directly?  Why in the world do we need banks to operate as loan sharks in between?  What we need is to transform the banking industry into a utility model.  A model designed to serve the people, not the banks.  After all, why should they get the privilege of borrowing at criminally low rates while everyone else has to pay the interest and subsidize their gambling adventure?

Even after all the correction in the market American households still carry an inordinate amount of debt:

A giant portion of income simply goes to pay off debt.  A large part of the debt is interest or money the banks can suck out of the neck of middle class Americans.  Banks live off this margin.  Take for example a $100,000 30 year fixed rate mortgage at 6 percent:

Principal:             $100,000

Total Interest:   $115,838

In the end, you are paying more than the initial cost and all that interest goes to who?  What purpose does it serve?  Banks are delusional and want the public to believe in the propaganda that they need to charge a higher rate because of “risk” in the loan.  Are they kidding?  We already know that they are being supported by the entire Federal Reserve and U.S. TreasuryThey can make the most insane kind of bets and ultimately the taxpayer will eat the bill.  And keep in mind many of these banks are borrowing at low levels from the Federal Reserve.  Why not allow the public to keep some of that interest?  How is this bad?  If banks were lending their own money it would be a different story but they are not.  They are creating a dishonest narrative and most Americans are not buying it because they operate in reality and not some parallel universe where you can create something out of nothing. (see this post here)

Just think of the billions charged in overdraft fees.  This is criminal.  Why not just default debit cards to stop once the account is dry?  Instead they want people that charge a $2 burger a $39 over draft “convenience fee” for this nonsense.  Are you kidding?  Most people don’t want this.  They find out the hard way and now billions have left the wallet of consumers for this nice little loan shark fee.  $39 can buy you lunch for a few days so this is nothing to laugh at when 38,000,000 Americans find themselves on food assistance.  The bulk of the billions are paid by the poor.  Good job banks for helping your fellow Americans.  Yet banks are leeches sucking the productive life blood out of the economy with gimmicks like this.  Time to break the banks up and turn them into utilities.

Take for example JP Morgan.  They announced a Q4 profit of $3.28 billion.  Where did they make their money?

“(Huff Po) JPMorgan’s biggest trouble spots were in consumer banking and credit card lending. The bank’s retail financial services division, which includes its mortgage operations, lost $399 million. That was worse than the final quarter in 2008, when credit markets had essentially shut down because of the collapse of banks including Lehman Brothers.

The company reported increases in mortgages that were charged off, or classified as uncollectible, including prime mortgages, the highest quality home loans. It also reported an increase in home equity loan charge-offs.”

Wait.  So mortgages are being charged off as foreclosures remain high.  And this has spread to so-called prime mortgages as the unemployment and underemployment rate remains at 17.9 percent.  So let us write off mortgages to average Americans.  Where in the world did they get those billions?  Maybe they made good money in their credit card unit:

“The credit-card lending division lost $306 million during the final three months of 2009. Results would’ve been worse had the bank not had a payment holiday in the period.”

More losses here?  So we’ve ruled out credit cards and mortgages which have become the life blood for Americans.  We’re running out of places to look for where they can make a $3 billion profit:

“Despite the ongoing problems with consumer banking, JPMorgan is still performing well because of its robust investment banking unit. As long as stock and bond markets continue to improve, the bank will be able to churn out profits and reward its employees handsomely.

JPMorgan’s investment bank earned $1.9 billion during the fourth quarter, while its asset management division generated $424 million in net income.

Fees from financing debt and stock offerings continued to surge in the fourth quarter. Debt financing fees jumped 58 percent to $732 million from the same quarter a year earlier, while stock financing fees climbed 66 percent to $549 million.”

And there you have it.  We are financing Wall Street’s wonderful gambling casino once again while the traditional banking model has collapsed.  How this isn’t the number one priority for the government and the people to fix is simply astounding.  How we have had no serious financial reform after 26 months of the Great Recession boggles the mind.

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