Given the slow pace of financial service reforms, some states are looking for ways to avoid the “too big to fail” syndrome. One approach being looked at is state owned banking.
That’s a question that a growing number of candidates and legislators across the country are answering with proposals to create state-owned banks. Though these initiatives borrow from an old model–North Dakota has run a successful state bank since 1919–they are a response to a new reality: the hundreds of billions of public dollars plowed into big banks by the federal bailout have done little to free credit for job creation or economic development in recession-ravaged communities. So, taking a cue from Nobel Prize-winning economist Joseph Stiglitz and other critics of private-bank bailouts, latter-day populists are proposing to put public money to work for the public good.
During the early 1900’s, North Dakota’s economy was based on agriculture. Serious in-state problems prevented cohesive efforts in buying and selling crops and financing farm operations. Grain dealers outside the state suppressed grain prices; farm suppliers increased their prices; and interest rates on farm loans climbed.
By 1919, popular consensus wanted state ownership and control of marketing and credit agencies. Thus, the state legislature established Bank of North Dakota and the North Dakota Mill and Elevator Association.
Bank of North Dakota (BND) was charged with the mission of “promoting agriculture, commerce and industry” in North Dakota. It was never intended for BND to compete with or replace existing banks. Instead, Bank of North Dakota was created to partner with other financial institutions and assist them in meeting the needs of the citizens of North Dakota.
Meeting the needs of the citizens used to be what banks did. As small, locally owned banks were bought out by larger banks, that were bought by too-big-to-fail conglomerates, the quaint concept of meeting the needs of the citizens fell by the wayside.
Back to John Nichols and how some states are thinking about going back to meeting the needs of their citizens:
Oregon Democratic gubernatorial candidate Bill Bradbury is calling for the creation of a Bank of Oregon, which would keep money in the state and invest in sustainable development. “It is time to declare economic sovereignty from the multinational banks that are responsible for much of our current economic crisis,” says the former State Senate president and secretary of state. “Every year we ship over a billion dollars in Oregon taxpayer dollars to out-of-state and multinational banks in the form of deposits, only to see that money invested elsewhere. It’s time to put our money to work for Oregonians.”
Michigan’s Virg Bernero, a leading candidate for the Democratic nomination for governor in that hard-hit state, is another public-banking proponent. “We can break the credit crunch and beat Wall Street at their own game by keeping our money right here in Michigan and investing it to retool our economy and create jobs,” says the populist mayor of Lansing. In Illinois, Green Party gubernatorial nominee Rich Whitney, who won 10 percent of the statewide vote in 2006, proposes depositing all state tax revenues and pension contributions in a state bank. “Instead of using state funds as a means to further enrich private banks, a state-owned bank could earn additional revenue for the state while at the same time help spur economic development in Illinois,” he argues.
This is a populist solution whose time may well have arrived - especially if we want to avoid what the Austin Lounge Lizards foretell:
Working people have plenty to be angry with Wall Street about. A $700 billion bailout. Toxic assets and loan guarantees to the tune of hundreds of billions of dollars. A financial crisis and credit crunch. Billions of dollars in six- and seven-figure bonuses to the Wall Street executives who got us into this mess.
Unemployment reaching 10 percent. A mortgage crisis extending far beyond subprime loans. Abusive credit and debit card fees. More than five job-seekers for every one job.
Wall Street has treated Main Street as a giant ATM—gambling with the economy, then coming back with their hands out for help. But somehow, no matter how much help the banks need to survive, they always have the resources to fight proposals to regulate them or get them to pay their fair share.
That’s why Working America has launched the ”I am not your ATM” campaign. Already, people in Albuquerque, N.M.; Columbus, Ohio; Portland, Ore.; Ann Arbor, Mich.; Little Rock, Ark.; and Minneapolis have been photographed with “I am not your ATM” signs at major banks to let Wall Street know they’ve had enough. Wall Street’s biggest banks need to be held accountable, with a strong, independent Consumer Financial Protection Agency. Rather than asking taxpayers for more money, Big Banks need to start repaying us for the damage they’ve done.
In the coming week, we at Working America will hold more events in cities across the country, but you can participate online. Submit a photo to NotYourATM.com and send Wall Street the message that you’re done being Big Banks’ ATM. It’s time for them to clean up the mess they made, instead of expecting working people to do it for them.
Amanda Marcotte is even more cynical than I am about Bank of America’s motivations in dropping overdraft fees on debit cards. And, as a former bank branch manager, she is far more specific in her cynicism:
I was immediately instructed to put most of my time and effort into converting paycheck cashers into account holders. I resisted. As I saw it, these people weren’t f**king stupid. If they wanted a free checking account, they could have one. There were signs everywhere helpfully explaining that it was free if you had $100 to open it with. If they wanted to cash their checks and live off cash only, then they had their reasons. And they were good reasons! The worst parts of my job were 75% due to people who kept average account balances below $500. Those were the people who overdrew their checking accounts all the time, and then came in sobbing and begging for relief from what was often hundreds of dollars in overdraft fees. To make it worse, the bank’s official policy (this is standard) was to clear debits from highest to lowest amount. In other words, if processing had a rent check of $400 and then fifteen debit card transactions of $5-$10, they took the $400 first, and then the rest. So if the $400 overdrew the account, then every single transaction after was an overdraft fee.
I may not seem like it, but I’m a human being and having someone suffering from this injustice in front of me—a regular part of my job—was enough to suck the life out of me, over and over again. There’s some things you can do to help, but you have to be careful to fly under the radar, or your own job will be on the line.
So when my managers wanted me to recruit all these paycheck cashers as account holders, I went into shut down mode. It was straight up exploitation of the working poor, an attempt to get people who don’t have a lot of experience with banks to create accounts they’ll immediately overdraw. From the bank’s perspective, it’s pure profit.
–snip–
I think/hope this goes a long way to explaining how deeply cynical I am that the financial industry has an ethical bone in its collective body. The minimum wage service employees of the world may seem like human beings trying to get by the best they can to you or me, but to them, they’re marks. Banks are vampires, and they see the working poor—and increasingly the middle class—as nothing but sacks of blood to be drained dry and thrown aside.
Are you in a bad relationship…with your bank? Did it lure you in with sweet talk and low rates, then turn around and raise those rates when you weren’t looking? Do you feel burned by having to pay fees, fees, and more fees, while the banks get bailed, bailed, bailed out? And don’t even get me started on the big bonuses executives at your bank got.
We need legislation that gets back bailout money and creates a Consumer Financial Protection Agency to provide the oversight that’s been missing for years—to give us back a little of the power in our relationships with the banks.
But there’s something else we can do in the mean time. Something you can do as an individual to get yourself out of that bad relationship with your bank, and that will send the message to the banks in a way they can understand: money.
The price tag for the Wall Street bailout is often put at $700 billion—the size of the Troubled Assets Relief Program. But TARP is just the best known program in an array of more than 30 overseen by Treasury Department and Federal Reserve that have paid out or put aside money to bail out financial firms and inject money into the markets. To get a sense of the size of the real $14 trillion bailout, see our chart here.
Granted, not all of these funds have been used – but they could have been. Imagine if even a quarter of this money had been spent on job creation and helping small business entrepreneurs get loans? Instead, billions were shoveled into banks who responded by refusing to loan the rest of us money, while handing out bonuses to the same guys who drove the financial bus over the cliff.
MOJO also takes a look at the behavior of the banks in: Too Big to Jail?
MAYBE WALL STREET should open a casino right there on the corner of Broad, because these guys simply cannot lose. After kneecapping the global economy, costing millions their homes and livelihoods, and saddling our grandchildren with massive debt—after all that, they’re cashing in their bonuses from 2008. That’s right, 2008—when amid the gnashing of teeth and rending of garments over the $700 billion TARP legislation (a mere 5 percent of a $14 trillion bailout; see “The Real Size of the Bailout”), humiliated banks rolled back executive bonuses. Or so we thought: In fact, those bonuses were simply reconfigured to have a higher proportion of company stock. Those shares weren’t worth so much at the time, as the execs made a point of telling Congress, but that meant they could only go up, and by the time they did, the public (suckers!) would have forgotten the whole exercise. It worked out beautifully: The value of JPMorgan Chase’s 2008 bonuses has increased 20 percent to $10.5 billion, an average of nearly $6 million for the top 200 execs. Goldman’s 2008 bonuses are worth $7.8 billion.
And why are bank stocks worth more now? Because of the bailout, of course. Bankers aren’t being rewarded for pulling the economy out of the doldrums. Nope, they’re simply skimming from the trillions we’ve shoveled at them. The house always wins. Indeed, 2009 bonuses are expected to be 30 to 40 percent higher than 2008’s.
Meanwhile, the unemployment rate creeps higher and higher, as does the number of home foreclosures. It sure is nice of us working folks to go broke, so the bankers don’t have to.
Yesterday, Working America received a whole bunch of angry faxes from Wells Fargo.
Only, the anger was ours—they just couldn’t think of anything better to do than try to send it back to us. We had asked our members to let the big banks know that we’re angry that they’re handing out giant bonuses to executives while millions of unemployed working people struggle. We’re angry that hundreds of billions of dollars in taxpayer money went to bailing out the banks, and now they’re opposed to the regulations that would protect us from future financial crises.
We offered members a sample letter or the opportunity to write their own. Our sample letter read:
This is your final notice. You’ve gone over the line too many times—and made it clear you’ll keep going over the line until someone stops you.
We’ve had enough with the greedy and reckless abuses on Wall Street. Now, with 10 percent unemployment and families losing their homes to the mortgage crisis that Wall Street created, we hear that bank executives will be taking home six- and even seven-figure bonuses—bonuses made possible by our tax dollars.
It’s past time that the interests working people in the real economy are put before those of reckless CEOs. Wall Street has made clear that it will not rein in its own excesses. That means that the only way to restore balance to the American economy is for the government to rein in Wall Street.
That’s why I’m calling for my senators to support legislation that:
1) Gets back the bailout money through a Financial Crisis Responsibility Fee on the largest banks and those that have taken on the most debt.
2) Creates a Consumer Financial Protection Agency to provide the oversight that’s been missing in recent years. The regulators we trusted to protect consumers from Wall Street risk-taking have failed us, and it’s time for a new, independent watchdog agency.
Thousands of Working America members sent faxes telling the banks how angry they were—and we emailed their letters to their senators as well. Wells Fargo, which recently gave $25 million in stock bonuses to just four executives, apparently didn’t like hearing how angry people were.
So they faxed the letters they got back to us. Now, we knew the letters had been sent, so we can only figure they wanted to let us know it bothered them. If you’d like to send a letter to Wells Fargo and other banks that have been announcing huge bonuses for their executives, you can do so here.
We really don’t mind getting a few more faxes from Wells Fargo.
The Credit Card Act of 2009 has been touted as a successful bit of legislation that will force credit card companies to engage in more disclosure. Card companies will no longer be able to arbitrarily raise interest rates on customers who pay on time – just because they can. The bad news is that the banks are going to make up the losses in other ways.
Credit-card companies already have been racing to slip new fees and practices into customer contracts ahead of the law. Issuers are closing accounts, switching cards with fixed interest rates to variable rates and introducing cards that have an annual fee.
Christopher Moss, who regularly shops at sporting-goods chain Gander Mountain, recently was notified that he will be charged a $1 “processing fee” each time he receives a printed statement of his Gander credit-card account rather than an electronic one. The 50-year-old paralegal said he is prepared to cut up the credit card even though he likes the loyalty rewards that come with it.”It’s not like I can’t afford it, but it’s another little stick in the consumer’s eye,” Mr. Moss said.
Banks will be also be changing their practices, to make up for the fact that they now have to receive customer consent before charging overdraft fees.
Other banks are expected to eliminate free checking completely, raise fees on safe-deposit boxes and charge customers more for issuing a stop-payment on a check.
“There may be some areas of opportunity that banks really haven’t focused on because they had the engine of overdraft fees,” said Chris Gill, who specializes in the community-banking industry at SNL Financial in Charlottesville, Va.
The cost of accessing our money continues to rise. The Federal Reserve will be looking into regulating ATM fees. For those who want to stop paying ATM fees, a number of phone apps are now available to tell us where ATMs for our banks are, so that we can save the fees.
Arianna Huffington and other folks involved with the Huffpo blog, have launched a campaign called Move Your Money.
The big banks on Wall Street, propped up by taxpayer money and government guarantees, have had a record year, making record profits while returning to the highly leveraged activities that brought our economy to the brink of disaster. In a slap in the face to taxpayers, they have also cut back on the money they are lending, even though the need to get credit flowing again was one of the main points used in selling the public the bank bailout. But since April, JP Morgan/Chase, Citibank, Bank of America, and Wells Fargo — all of which took billions in taxpayer money — have cut lending to businesses by $100 billion.
Meanwhile, America’s Main Street community banks — the vast majority of which avoided the banquet of greed and corruption that created the toxic economic swamp we are still fighting to get ourselves out of — are struggling. Many of them have closed down (or been taken over by the FDIC) over the last 12 months. The government policy of protecting the Too Big and Politically Connected to Fail is badly hurting the small banks, which are having a much harder time competing in the financial marketplace. As a result, a system which was already dangerously concentrated at the top has only become more so.
The folks at Move Your Money urge us to put our money in local banks and credit unions. They have a tool on their website to help you discover what your local banking options are. Investing in local banks keeps the money in our communities, where it can do the most good. It’s a simple, beautiful, concept. Your local bank is less likely to add all manner of new, egregious charges. They want your business – because unlike the giant corporate banks, they are not too big to fail.
You know something is happening when top economists are calling for mass protests.
But that’s exactly what economist Dean Baker does in his latest column “Won’t You Please Come to Chicago, No One Else Can Take Your Place”.
Those disgusted by the bank bailouts, and the bankers who brought us this recession, will have a chance to make their views known when the American Bankers Association has its annual meeting in Chicago, October 25-27. A large coalition of labor, community, and consumer organizations are organizing a protest at this “Showdown in Chicago”.
A big turnout at this event can make a real difference. Just to review the scorecard, most of the country is still suffering the fallout from the bankers’ irrational exuberance of the housing bubble era. The Congressional Budget Office (CBO) and other forecasters expect the suffering to endure for years to come.
Enough is Enough.
The Banks Have Had A Recovery – Now the American People Need One.
Organizers say they will also be promoting a set of specific solutions aimed at addressing financial reform and real economic recovery, among them:
Too Big to Fail
In the US today, three banks hold almost 34% of the nation’s deposits, four banks issue 50% of the country’s mortgages and the five largest credit card lenders control 74% of the market. These companies have a stranglehold on our wallets. And as we’ve seen, when they make bad decisions, they can take the whole economy down with them.
New laws should be put in place that minimize the risk of the “too big to fail” problem. No single institution should be in control of such a large part of the market. Instead, we should encourage a vibrant, diverse, stable banking system, made up of thousands of small and medium size banks. Strong competition policies and antitrust laws will encourage financial institutions to invest in productive activity, instead of investing in changing the rules of the game or manipulating the market.
Consumer Financial Protection Agency
The Obama Administration has called for the creation of a Consumer Financial Protection Agency (CFPA) that will make protecting consumers a priority over protecting the interests of the banks. Seven different government agencies had the power to stop the reckless risk-taking that wrecked our economy, but they didn’t use it. Lax oversight helped spawn the disastrous mortgage products and practices that triggered the current crisis. What’s more there is virtually no regulatory authority over firms that have pushed bad mortgages, payday loans and other products that are overly complicated, or are simply rip-offs. The CFPA will bring the focus we need to clean up destructive and unfair financial practices, restore the integrity of our financial system, and prevent another disaster in the future.
The policies that will rein in the banks: reform of the Federal Reserve Board to make it democratically accountable, a tax on financial speculation to pay for the bankers’ mess, and restrictions on the bank abuses of consumers that caused the carnage have support from people on both the left and right.
A bill that would require the Fed to disclose what it did with more than $2 trillion in loans to banks and other financial institutions was originally co-sponsored by Ron Paul and Alan Grayson, one of the most conservative and one of the most progressive members of Congress. Due to public pressure, it now has more than 270 co-sponsors.
This is exactly the sort of alliance that gets the elite worried. Reining in the power of the financial industry will be a long, hard-fought war, but it is one that must be fought. President and Nobel peace prize winner Barack Obama may not have been able to bring the Olympics to Chicago, but everyone who wants to retake our country from the banks can bring their backside there on October 25th.
When Senator Chris Dodd (D-CT) decided recently to remain chairman of the Senate Banking Committee you could hear the financial industry lobbyists let out a collective groan.
It was Dodd who earlier this year championed credit card reform in Congress, helping to pass a bill, then signed by President Obama, to end the abusive and deceptive practices of the credit card companies.
Now Senator Dodd is gearing up to take on the banks on several fronts including overdraft fees, consumer financial protection and regulatory reform.
The Washington Post reported Monday that Sen. Dodd plans to introduce legislation to rein in bank overdraft fees.
A backlash is brewing on Capitol Hill against banks that charge large fees for overdrafts without asking or telling customers, the latest sign that the financial crisis is shifting the balance of power from banks toward borrowers.
Sen. Christopher J. Dodd (D-Conn.) plans to introduce legislation requiring banks to get permission from customers, rather than allowing overdrafts automatically. If customers decline and then try to overspend, the transaction would be rejected. A similar bill is pending in the House.
With the rapid expansion of bank debit card use in recent years, banks have found it highly profitable to automatically allow most debit transactions to process regardless of whether sufficient funds are available in the account, then charge the customer anywhere from $10 to upwards of $30 per overdraft.
Some banks maximize penalties by processing the largest purchases a customer makes first, draining accounts faster and creating the potential for multiple fees on multiple smaller purchases. Even on point of sale transactions, such as debit card or ATM transactions, banks do not notify the customer when they are withdrawing against insufficient funds. As a result, customers can unknowingly be charged hundreds of dollars in fees for only overdrawing their account on a few small purchases.
As evidence that the tide is beginning to turn against the unfettered power of the banks, even before Sen. Dodd’s legislation is introduced, major banks are scurrying to try to cover themselves.
Bank of America and JPMorgan Chase, two of the nation’s biggest banks, announced plans on Tuesday to drastically overhaul their debit card programs by lowering or eliminating fees, changing the way they credit transactions and allowing customers to opt out of overdraft protection.
The Chamber of Commerce, the business community’s umbrella group in Washington, recently organized a conference call coordinating some 200 representatives of groups who oppose the legislation. The call doesn’t mention any of the serious problems that led to the financial crisis or why consumer regulation is important. Instead, it follows a “death panel” approach to political discussion: Scare the hell out of everyone.
Dodd has been slamming industry opponents of the plan for months. At a Senate committee hearing earlier this session, referring to a story in the Washington Post, Dodd said:
“When I pick up the morning newspaper and I read the first headline that ‘Fault Lines Emerge and Industry Groups Blast Plan to Create Consumer Agency,’ what planet are you living on? The very people who created the damn mess are the ones now arguing that consumers ought not to be protected. They’re the people who paid this price. And the idea that you’re going to first attack the very clients and customers who depend on you every day is not the place to begin.”
Yet another way the banks have found to prey on people struggling in this economy:
Banks and credit unions have long pitched debit cards as a convenient and prudent way to buy. But a growing number are now allowing consumers to exceed their balances — for a price.
Banks market it as overdraft protection, and the fees it generates have become an important source of income for the banking industry at a time of big losses in other operations. This year alone, banks are expected to bring in $27 billion by covering overdrafts on checking accounts, typically on debit card purchases or checks that exceed a customer’s balance.
What does that mean, in practice? It means that you might not know you’re at your limit, and they’re not going to tell you. They’re just going to let the transaction go through without a word, and then charge you up to $35, no matter how small the transaction.
And the banks want consumers to consider this a “service.” Because, according to them, most working people would so much rather pay $35 extra than suffer the embarrassment of having their card declined. But for something they consider such a valuable service, the banks sure make this one hard to get out of: In fact, they’re fighting regulation that would require consumers to have the ability to opt out of this “service,” and are threatening that if the amount they take in in overdraft fees goes down, other fees will go up.
But that’s not all. Not content with charging extortionate fees when people legitimately overspend, the banks might game the system so you pay for three overdrafts instead of the one you should have owed:
Mr. Tornes had $195 in his account when he made two debit purchases for $8 and $13; the bank also processed a bill payment of $256.
He claims that Bank of America took his purchases out of chronological order and ran the biggest one through first. So instead of paying $35 for one overdraft fee, he was stuck with three, for a total of $105.
Once again, of course, it’s for the customer’s own good, because maybe the big bill was the most important to them. That’s what the banks say—but that argument only holds water if they’re trying to decide which charge to decline. If they’re letting them all through, all that matters to the customer is how much the overdraft charges come to.
Not enough that the finance industry and big banks sent the entire economy into crisis, they’re now apparently trying to cause working people crisis, one by one.
