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Will Anyone Ever Defend Banks?
One of the interesting nuggets coming out of the conservative sweep in the British elections was the failure of bank-bashing by the Labour party. Labour leader Miliband, who has since resigned, was anti-bank, anti-rich, and anti-business. It failed. And while conservative leader David Cameron didn’t necessarily defend banks, he didn’t attack them either.
Now, the case for Tory economic management wasn’t bad. The London Stock Exchange has been hot as a pistol. And the British economy is growing about 2.5 to 3 percent. Not great, not awful. It was enough for a handsome Tory victory. And it may be a message to British pundits that tax-the-rich, redistributionist, bank-bashing talk is old hat. Been there. Won’t work.
But the question is, how will bank-bashing do in the U.S. election next year? It’s already coming from both sides of the aisle.
Of course, the Obama administration has led the way on bank persecution. It has levied over $100 billion in fines for past sins, mostly related to mortgage bonds.
And nowadays, the thinking goes, it would be politically suicidal for anybody to actually defend the banks. That’s the interesting part of this story: Nobody will defend the banks.
Well, outside of the banks that is.
A recent news piece in the Wall Street Journal proclaims, “Banks Prep Defense for Anti-Wall Street Campaigns.” It seems the Financial Services Forum, representing all the big banks, held a clandestine meeting on the 51st floor of Bank of America to figure out a defense. Very conspiratorial, and not very exciting. The thrust of the Journal article is that the banks have done everything, and paid everything, the government has asked of them.
“We atoned for our sins. We will never do it again. Please forgive us for it. And by the way, would you clarify what ‘it’ is?”
Few will admit it, but unaffordable, undocumented mortgage quotas came out of Washington, not Wall Street. And Fanny and Freddie enforced them. And while the Fed’s ultra-easy money destroyed the dollar, it also caused a bubble in home prices.
Yes, banks made risk-management mistakes. But when will the firing squads stop? You know, you can’t have a decent economy without banks.
But when will you ever hear a politician say that?
Senator Elizabeth Warren never misses a chance to slam banks. Nor does socialist Bernie Sanders, or far-left former Maryland governor Martin O’Malley.
Hillary has caught the bank-whacking virus, which is hilarious given all the money raised on Wall Street by the Clinton Foundation.
But Republicans are whacking away too. Of all people, former Florida governor Jeb Bush bashed banks while in New Hampshire.
But wait, didn’t Jeb’s brother preside over the big bank bailout? Oops.
Former Texas governor Rick Perry is slamming the banks. So is former HP CEO Carly Fiorina. She actually said, “I agree fully with Elizabeth Warren.” Huh?
Yes, there is an issue with “too big to fail.” And it’s bipartisan, since both Democrats and Republicans voted for the bailout in 2008. Might we go there again? Economic writer Amity Shlaes has a good suggestion: The candidates should make no-bailout pledges along with their no-tax-hike pledges.
And Federal Deposit Insurance Corporation (FDIC) chairman Martin Gruenberg has said that if a major bank runs into trouble today, “they would be allowed to fail and suffer the consequences of that failure.” Do we believe him?
Either way, it’s doubtful the political assault on banks will end. But I wonder, at some point, will someone in the U.S. — a big-shot politician, a small-business person, a struggling middle-class mom or dad — actually say something good about a bank?
Maybe.
Banks do make business loans, which have picked up quite a bit. They do provide mortgages, though the terms are more difficult. They do offer credit cards, decent ATM machines, car loans, farm loans, and student loans. Even though the Fed has decimated interest rates, they do allow large savings accounts. And they do, after all, connect savings with investment. (I think that was their original purpose.)
Sure, I’d get rid of a few banks: Like the Ex-Im Bank, which makes loans to our enemies and destroys jobs at home. Or Fannie and Freddie, which helped cause the problem in the first place, and are now actually being expanded by Team Obama. They have no capital. Disaster waits all over again.
But I have a caution for the candidates: Sometimes British politics leads our politics. And if bank-bashing didn’t work in the U.K., maybe politicians here should let it go, and instead focus on pro-growth measures like flat-tax reform, free trade, deregulation, and sound money. Just for a moment, why not leave banks alone?
Wait a minute. I did not even remotely mean to suggest that I’m defending banks. That would be wrong.
Published in Economics
Never cry for an insurance company or a bank.
Not all banks are bad, but there are some horrific players. Without mentioning any banks by name, we are restructuring business loans for our clients and the foul-play by some bankers is epidemic. Many operate illegally. They don’t care about FDIC or FRB infractions. They only care about getting their money, and whatever means necessary to do it.. (including our latest case where one bank created fraudulent appraisals).
This has nothing to do with capitalism or free markets. They operate like the mafia. I have worked in this industry for 25 years and I am more disgusted now than ever. Some of these people belong in jail.
Yes, Washington inflicted bad policy on the banks. But the largest knew that and watched as the small and medium banks were crushed and gobbled them up.
The banking fiasco was a case of the criminals in the heist with cops on the take being given the keys to crush the honest ones with government approval. A few big banks mean more central control.
Small business used to be the best customer of the community banks. Small business is in the crosshairs of big government with the aid of crony capitalists.
Won’t someone please think of the poor bankers?
David, have you written about this on the member feed at all? Forgive me if you have–I’m not remembering it. If you have, let me know where to find it.
I certainly understand why you wouldn’t mention the players by name, but it would be so useful to read a post that explains the kind of thing you’re seeing, details the changes you’ve personally seen in that environment over the past quarter-century, tells us what you attribute them to, and suggests how (or if) the regulatory environment could be changed, in your view, to counter this trend. I’d like to know which politicians sound in the best touch with reality to you when they’re discussing this.
I’d really value that perspective, and I think we all would.
Mr. Sussman is reflexive of my googling on the subject. Eventually you find that bad actors have overwhelming impact on a system with too little capital to absorb any significant shocks. Banking is a great institution. Current banking is paying mere lip service to what I learned about them in economics 101.
A. Apparently, no.
I think a number of us on the right share the same view of the leaders of large business institutions. If free markets help them, they are for that. If the government wants to give them a hand out, they are for that. If the government wants to nationalize them, as long as retain their positions, they are good with that as well.
And to add insult to injure, we are accused of being friends with these people.
Claire,
I have not but would be happy to in the near future. I will keep you posted. Thanks!
How do you defend the undefendable?
Banks, like all businesses are in business to make money. Their services include keeping watch over your liquidity (deposits) and using a portion of those deposits to stimulate economic growth (business, jobs). Some are really good at this, some are not. Regulations matter little about those two main functions but do often distort how banks are paid for these services. When banks are forced by less than stellar regulations to offer loans with little chance of getting timely payment the cost of loans goes up for all borrowers, for instance. When charges and interest rates are set arbitrarily for credit cards losses have to be made up via new fees that make little or no sense in the market. I don’t love or hate banks nor insurance companies but I do reserve my patronage for the uses and times that make sense for me. So I have kept my liquidity in Credit Unions for all my adult decades (fewer fees, dividends, better interest rates). I have seldom borrowed from a bank or CU simply because I learned early on that waiting until I could pay for things meant I would have more things in the long run since I wasn’t spending income on interest payments. Renting money is expensive! I use credit cards as a convience but never to borrow money, tracking the charges and paying the bill in full each month.
Cont.
The housing bubble was not, at its root, caused by greedy bankers but by nonsensical regulations causing lenders to make loans that weren’t good for either the lender or the borrower. The rationale given at the time was to make housing “affordable” for those who had been “frozen out” of the housing market. The effect though was to increase demand (thus raising prices) and to induce millions to sign mortgage agreements that were completely unaffordable for them. they would often make gigantic payments for a year or more, then lose the house along with whatever investment they had in it. How was that helpful to anyone? The artificial rise in housing prices hurt everyone who was in the market to buy while providing a windfall for those who were fortunate to buy early and sell before the crash (all bubbles work that way). The Federal regulators learned nothing and are again working the same scheme which will have exactly the same results (or maybe they did learn that some sellers liked the results and that they could continue their lucrative positions if they worked the same scam again?)
There is no free lunch. If you spend more than your income you will become progressively poorer. Anyone who tells you anything else is selling a worthless product or working a scam, including those with impressive government titles.
I think banks have plenty of advocates, Larry. Last week it was “The GOP is going to lose if they don’t toe the line on immigration” This week it’s a call to arms to defend banks. Sheesh. Larry’s right in the sweet spot of populist causes!
Here is what I know. I have reached a point in my career where I no longer work a regular job but rather invest my money actively in small business and commercial real estate. I buy a building, I need a mortgage, and therefore a bank. I want to grow the business, growing inventory and receivables, I need a bank; since I don’t have limitless capital. The demonization to date (in the form of Dodd Frank) has made getting these loans more difficult and more expensive. It has slowed our expansion plans as we scale down what we see as the possible. Larry says business lending has picked up, but it has a long way to go and to me, the low level of lending is as big a factor in our slow growth economy, right up there with over regulation and taxation.
The really painful part, is my bankers tell me they have more money than they can lend, but in this environment, they can’t find enough qualifying deals.
The bailouts were sold to the nation on the basis of “too big to fail”, by which we mean the economy would have collapsed had we not bailed them out. The crisis is over, and the loans have been repaid, and yet we still have the banks. Which means that the next time someone figures out how to spin straw into gold we’ll end up with exactly the same problem.
And don’t try to sell me on “The bank’s were at the mercy of a bad law”. If anyone in this country has the ability to affect the regulations they live under, it’s the banks. Tell you what; if you want to use that line, show me where you were complaining about onerous minority lending requirements before the crisis.
Look, the economy needs banks to function, and they are very well renumerated for this. Don’t ask me to love them too.