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It's A Banker's World. We Are Just Living In It.

Jan. 12, 2011 3:56 PM ET
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 If you watch the nightly news or listen to any of the political talk shows you will hear that the major banks in the United States have paid back all the borrowed money from the Troubled Asset Relief Program(TARP) to the U.S. government. The media is now telling the American taxpayer that the government made a good investment and the overall cost was just $50 billion.

Are these people crazy when they say these things? It is true that the major banks did pay back the TARP money, however, it was with the taxpayer's money. It is very important to understand that the 'too big too fail banks' can borrow as much money as they need from the Federal Reserve Bank at zero percent. Essentially, this is free money that is created whenever it is needed. These same banks then go out and buy stocks, U.S. Treasuries, and other high yielding investments. They also operate a very profitable credit card business where they charge the average customer 16.75 percent. It's not a bad business when you think about it.

These banks also pay you, the customer, an average of less than 1/10 of 1.0 percent on your savings account money that you keep at the bank. They can then take your money and buy stocks, bonds, and other investments to make money on your capital. Hopefully, you have noticed that I have not mentioned the bank making a single loan yet. Loans are just a small part of the business and these days the major banks will barely make a loan to the average person. The bank will usually loan money to a major corporation such as International Business Machines Corp.(NYSE:IBM), or Microsoft Corp(NASDAQ:MSFT), just to use these companies as an example.

It is also very important to remember that the 'too big to fail banks' face less and less competition. In 2010, there were 157 bank failures in the United States. In 2011, there is expected to be another 150 failures across the county. Please realize that the major banks also bought out a lot of there larger competitors for pennies on the dollar. J.P. Morgan Chase & Co.(NYSE:JPM) which is considered the best of the 'too big to fail' banks bought the investment bank Bear Stearns Corp. for $10.00 a share. Originally, the price was just $2.00 a share. Later, J.P. Morgan Chase purchased Washington Mutual for just $1.00 a share. Wells Fargo & Co.(NYSE:WFC) bought Wachovia Corp. for $7.00 a share. Bank of America Corp.(NYSE:BAC) purchased Countrywide Financial for $5.00 and Merrill Lynch for $27.00 a share. The competition for these banks has simply dissolved through failures and consolidation.

What ever happened to all the toxic bank assets that they hold? The answer to this question is simply nothing. The banks still hold trillions of dollars worth of toxic assets. Some of the toxic mortgages that they hold they sell to the government agencies Fannie Mae, and Freddie Mac. Again the taxpayer foots the bill for these banks. These 'too big to fail banks' simply do not have to write the toxic assets down as liabilities any longer under the new FASB accounting rules. They can use Enron accounting as long as they see fit. It must be nice to have the rules changed whenever you need them to be.

The last point that must be made about these banks is how they are now imposing fees on almost every service depending on the amount that you keep with them. Many people are just going to start putting their money under their mattress as the banks continue to bully the customer. It is bad enough that the people with a savings account can't even get any interest on their money. Well, now you can see that it is a bankers world and we are simply just living in it.

Nicholas Santiago

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