I have been largely silent about the recent populist call to arms by Arianna Huffington and Rob Johnson. The duo advise Americans to withdraw their money from bank accounts at too-big-to-fail financial institutions and deposit them in a community bank. And they present a comprehensive list of community banks vetted by star bank analyst Chris Whalen lest one worry about the soundness of community banks. They even have an associated video (embedded below), which is a mashup of scenes from “It’s a Wonderful Life.”
All in all, it is a worthy effort.
I did link to the story on Wednesday, but I haven’t voiced an opinion. Part of my silence goes to time; I simply haven’t had enough time to write something semi-coherent on the effort. But, part of it also goes to how I would address the rather stark delineation they make between the good community banks and the big bad banks. Obviously, it’s not so stark a difference in reality. After all, reckless community bank lenders fail every week, don’t they?
And, the too-big-to-fail banks do have a government backstop. This is why they are too big to fail. Moreover, Citi (NYSE:C) and JPMorgan (NYSE:JPM) have traditionally focused heavily on corporate business and not on deposit-taking branches. So, to the degree this is about reducing bank size, this effort may not have enough impact on these two institutions. BofA (NYSE:BAC) and Wells Fargo (NYSE:WFC) are retail oriented institutions, however. Either way, deposits are insured up to $250,000 dollars, so I suspect there is not a lot of risk to consumers here one way or the other.
On the whole, I applaud the effort because a large part of the anger people feel stems from powerlessness in the face of the obvious crony capitalism and kleptocracy which our elected officials foster. This is a great way to both give people a sense they are empowered and to give politicians and Washington a sense that people mean business on this issue. Maybe it will effect change.
But, this effort faces an uphill battle. Thursday, I saw CNBC’s Larry Kudlow beating up on his invited guest Arianna Huffington in a mean-spirited way because of how starkly delineated a “good community bank versus bad too-big-to-fail bank” argument she and Rob made. While I noted this as well, this was a very ugly piece of financial journalism. I fault Kudlow for creating the ugliness. He was pushing a specific line of argument to the point where he was talking over his invited guest. Frankly, I found the whole thing embarrassing for CNBC and was shocked at how poorly Huffington was treated.
Here are the videos of Huffington and Kudlow. In the second video, James Pethoukoukis and Arianna Huffington agree that the Democrats will suffer in the mid-term elections this year – in large part because of the political capital lost on too-big-to-fail backstops. This is a theme I will discuss later.
Move Your Money: A New Year’s Resolution – Huffington Post