Banking Industry: How to Buy Friends and Alienate People 17 comments
-
Font Size:
-
Print
- TweetThis
By Simon Johnson
The banking industry is exceeding all expectations. The biggest players are raking in profits and planning much higher compensation so far this year, on the back of increased market share (wouldn’t you like two of your major competitors to go out of business?). And banks in general are managing to project widely a completely negative attitude towards all attempts to protect consumers.
This is a dangerous combination for the industry, yet it is not being handled well. Just look at the current strategy of the American Bankers’ Association.
Edward L. Yingling is justifiably proud of his organization’s position as one of the country’s most powerful lobbies.
His testimony (.pdf) to Congress on the potential new Consumer Financial Protection Agency plainly shows where his group stands. The most revealing quote, highlighted in the ABA’s own press release, reads:
"It is now widely understood that the current economic situation originated primarily in the largely unregulated non-bank sector,” he said. “Banks watched as mortgage brokers and others made loans to consumers that a good banker just would not make and they now face the prospect of another burdensome layer of regulation aimed primarily at their less-regulated or unregulated competitors. It is simply unfair to inflict another burden on these banks that had nothing to do with the problems that were created."
The premise here is false. If major banks had really not been involved in the mortgage fiasco, we would not have had to roughly double our national debt-to-GDP in order to save the US and world economy.
Within the banking community, and presumably within the ABA’s membership, there is serious tension. The small banks feel – overall with some justification – that the essence of the recent problem was not about them. But they can’t bring themselves to suggest publicly that the economic and political power of the largest banks should be curtailed.
Small banks have always had clout in the American political system, particularly when they work through the Senate. But we have not always had our current kind of crisis. The executives of these banks lived comfortably in the 1950s and 1960s; their kind of banking was boring, stable, and nicely remunerated.
It is the changing nature and power of the largest financial institutions – banks of various kinds – that has damaged our system since the 1980s; the rise in financial services compensation is part symptom and part pathogen. Big banks present the major risk going forward – to both the economy in general and to smaller banks in particular.
Most banks are “small enough to fail” (seven closed Thursday). It is absolutely not in their interest to have some banks that are perceived to be “too big to fail” and to ever re-run any version of the last two years.
The ABA should be discussing and addressing this issue. Instead, it is making all banks unpopular by opposing sensible legislation aimed at protecting consumers – look at the public relations context provided, for example, by Citi’s (C) recent move on credit cards.
The ABA’s leadership needs to quickly rethink its approach.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 17 comments:
zerohedge.blogspot.com...
The banking sector is the tail wagging the global economy dog.
For that reason small and regional banks are important to U.S. business going forward.
The various quasi-bank institutions (receivables factoring, leasing companies, and of course, mortgage banks) would not exist if the banks were effectively serving all the needed markets.
I think the failure of the PPIP’s legacy loans program was due in part to the clout of the small banks. They did not want to be subsidizing the big banks. See seekingalpha.com/artic...
Best to think of it as a union where the majority of the union is not in fact well represented, but serves the interests of the "big shots".
I'm sure when things don't get better, and there start to be riots in the streets, they will start to change their mind. After all you can only waste trillions on policies for so long that don't work until collapse occurs
Small, community ,banks engage in actual banking. BM banks engage in financial engineering, often at the expense of customers, clients and the economy.
BM banks view small banks with the same contempt as Ivy league schools view community colleges or wealthy class action trial lawyers view plumbers and electricians or as Wash DC, Manhattan, Boston and LA view small town America.
The BM banks have a worldview where shame, remorse , accountability and even basic decency are for little people. Too big to fail means too big to have any moral compass.
Wouldn't it be "nice" if everyone could use this new "principle" for accounting for their own debt?
On Jul 05 04:05 PM Graham and Dodd Investor wrote:
> Are those bankers really earning "new" profits or just making up
> last years losses? If the latter, they don't deserve ANY bonuses
> until they reach their former "high water mark."
Not another dime for them until they pay off their $1T my kids now have to pay on their behalf.
His testimony (.pdf) to Congress on the potential new Consumer Financial Protection Agency plainly shows where his group stands. The most revealing quote, highlighted in the ABA’s own press release, reads:}
"It is now widely understood that the current economic situation originated primarily in the largely unregulated non-bank sector,” he said. “Banks watched as mortgage brokers and others made loans to consumers that a good banker just would not make and they now face the prospect of another burdensome layer of regulation aimed primarily at their less-regulated or unregulated competitors. It is simply unfair to inflict another burden on these banks that had nothing to do with the problems that were created."
DUUUUUUUHHHHH----who bought the mortgages and derivatives that caused the banks to end up with the toxic assets? Good bankers. Why did they buy them? To reduce the amount of capital reserves necessary to satisfy banking regulations, therefore freeing more capital to loan out----to highly risky ventures and poor credit risks because they can charge higher rates of interest and increase profits----which leads to more defaults and foreclosures that can not be covered by capital reserves, because they are using worthless paper to cover worthless loans. But the good bankers get their $$$ upfront when the loans are made in the form of origination fees, commissions and bonuses. So who is left holding the bag?
So the government steps in and says, "Don't worry. Your money is safe in the banks that we were supposed to be regulating and inspecting regularly to prevent this sort of thing----if you have your money deposited in a bank that is covered by FDIC insurance we'll pay you back. Of coarse, the banks that caused the crash haven't paid any funds into the insurance pool, so we'll just crank up the printing presses and print more money to give you. It won't be worth anything, but then, you'll have nothing to complain about because you will have your money---never mind that it was your pocket that we took the money out of at the cost of lowering the buying power of the money we give you."
Pretty slick I'd say when you cause a wreck by running red lights and speeding, then get the insurance company to more than double the coverage on your insurance policy after the wreck, AND complain that the person you ran into is ungrateful and restrictive because he thinks you should be arrested for your behavior.
Small, community ,banks engage in actual banking. BM banks engage in financial engineering, often at the expense of customers, clients and the economy.
BM banks view small banks with the same contempt as Ivy league schools view community colleges or wealthy class action trial lawyers view plumbers and electricians or as Wash DC, Manhattan, Boston and LA view small town America.
The BM banks have a worldview where shame, remorse , accountability and even basic decency are for little people. Too big to fail means too big to have any moral compass.<<<&l...
RIGHT ON!!! Hum, doesn't BM stand for Bowel Movement? Either way, the result seems to end up the same for the rest of us.
They don't see they did anything wrong, it was always someone else.
They think they have suffered enough.
The only time they know they are alive is when they look at their bank account.
They are as miserable as ever.
Always get your cash up front.
Promise delivery one hour after the last train has left town.
www.youtube.com/watch?...
When you run low on cash---look for a pool hall.
www.youtube.com/watch?...
etter to white house, senate and house banking committee's
This is from the financial times 7/6/09. Front page. "Banks reinvent securitisation..."
Goldman is working on a scheme that would reduce the capital held against the assets.
"Goldman's idea, it would sell an insurance product to a bank with a toxic portfolio". "the insurance would require far less capital to be carried against it than the original assets.
Isn't this what got us into this whole mess in the first place. American's want real solutions not a set up for this to happen again and the bankers to collect billions ruining the economy once more. This sounds a lot like AIG. Haven't their misdeeds cost us enough. We'd rather wait for a real recovery that have to do this again anytime soon. Please stop the bankers from ruining anymore lives.
Folks, democracy isn't going to work if we don't keep involved!!!
------"Isn't this what got us into this whole mess in the first place."----
Yes.
---------"Folks, democracy isn't going to work if we don't keep involved!!!"-----------
Yes.
The situation today is very similar to the economic turmoil that spawned the Progressive Movement in the 1890's and early 1900's. However, the economics are reversed. Instead of a deflationary currency pushed by Big Business and the Robber Barrons---(gold standard)---today we have an inflationary economy pushed by Big Money---(unbacked currency, Federal Reserve Notes). This allows unbridled political control---as money is losing value rapidly---no one pays attention to the ever increasing amounts needed to make purchases. Money is only the medium of exchange---BM quickly converts cash into commodities. Since value in the form of commodities is difficult to manage, this is done in the form of futures and contracts. Mineral rights, wholesale contracting entire crops----why do you think we are still in Iraq(oil) and Afghanistan(drugs---yes, BM does not want competition to their control of the drug trade), agriculture(check out Monsanto's efforts to monopolize all of our food production by the use of genetically modified crops---with great success) and water rights(global warming is being turned to the advantage of BM because they are quietly buying up water rights---and they are engineering the pollution of water they do not have rights to---pretty soon, if you want clean water, you'll have to buy it from private corporations due to a combination of drought brought on by global warming and pollution.)
If you think that Big Money/Big Business have political control and clout now---just wait a little while until they have virtual monopoly control of energy, food production, communication, drugs and water.
Of the 100 largest economies in the world, 51 are corporations.
Do not believe that they have YOUR best interest at heart for one second.
Don't believe it? Who got federal bailout money? Smaller or regional banks? No, they let them sink(38 or so I think by now) Only the Big Money banks that were "too big to allow to fail". Now that the administrations have changed, there is political grumbling to enforce stricter control over banking and greater regulation. Now, suddenly, there is talk from the bankers about "paying back" taxpayer funds. This is NOT "paying back taxpayer loans". This is diverting taxpayer funds to support lobbyng efforts to divert or water down regulatory efforts. "Paying back taxpayer funds" will make great PR for both banks and politicians---and quiet the political turmoil they have caused. But it also means that Big Money is using the same funds given to them from the government to influence government regulation of banks over consumers. It is already happening. The first we heard of "paying back taxpayer funds" only came AFTER Obama proposed capping or eliminating bonus payments to top executives.
Pretty slick arrangement---we want to take away your rights and dip our hands ever deeper into your pockets, and we want YOU to pay the bill for us to do it. In the meantime---we want you to use the laws and regulatory mechanisms that we are circumventing to put our smaller competitors out of business, AND use your money to further our plans to control you.
www.storyofstuff.com/