"A long, long time ago in a galaxy far, far away," there were two giant empires that possessed vast stores of weaponry enough to wipe out the galaxy. They locked horns so tightly they became trapped in their own deadly embrace and the galaxy seemed doomed to live in fear forever. But then ordinary people doing extraordinary things questioned conventional wisdom and changed the game. And that, as a line from another science fiction series says, was "when the walls fell."
This weekend, the questioning from conventional wisdom begins. Read around and see for yourself. Even as the media acknowledges that people have a legitimate gripe, the reporting is that conventional wisdom says the Move Your Money idea won't make any difference. Individual and business transaction accounts are too small a fraction of the asset and liability base of the big banks. They simply don't matter as much to them. The big banks are far more awash in professional and brokered deposits, as well as foreign money on the liabilities side and risk-bearing investments on the assets side, anyway. Besides, for consumer and business accounts, fee income charged to customers and merchants is where it's at now. And in any case, little banks are captives of the big ones because they are just the correspondent flunkies of the system. The conclusion has to then be that ordinary people are irrelevant in the grand scheme of things and this entire thing is futile.
If you think this is true, think again.
I refer back to the first blog I wrote last week about the most precious commodity in the banking universe: "core deposits." Those lowly savings and checking accounts go by another name. Yup, they are called "transaction accounts." It's these transaction accounts that define how much "Main Street" banking an institution can participate in; what people with too much "edumacation" call an addressable market. If you can't touch that customer because they aren't a customer, that's a bad thing. In business strategic planning it's a boo-boo to do that. You manifest something called diminished market share or -- in the rosy finance parlance of former Chairman Alan Greenspan -- a "retrenchment of previous gains." A rose by any other name is still a rose.
Don't even get me started on this "the larger Wall Street banking activities are so much more economically important than ordinary people" notion. There's no love lost in that world, people. If you think every private and non-profit fund and every sovereign out there isn't thinking the same thing you are about what it might do to end their nightmare of exposure -- wherein their money got turned into complex, opaque and illiquid financial engineering -- ha! If President Obama turned Guantanamo into a holding pen for Wall Street miscreants and emailed a note to every central bank on the planet saying "we're putting an empty coffee can in front of the gate and if there isn't money in the can to run the place we're letting them go," I guarantee there'd be wads of cash in that can every time the sun comes up. The feelings run very deep.
Now let's talk about fees. Fees and penalties are what a bank charges you if you overdraw, are late on a credit card payment and a whole host of other things. If you overdraw and the bank covers it, it just made you an instant loan. If you are late paying on a loan or a credit card, they charge you a fee and these days, also change your interest rate to a seriously painful penalty number. People hate it and think banks are being heartless and greedy. But you know what, the real reason is because they're deathly afraid YOU, the ordinary customer, will default.
Did you know that when a loan, any loan, goes into default, bad things begin to happen for a bank? Eventually some of that bad debt goes into non-accrual; meaning, it stops earning interest because there's no point. The FDIC makes banks take a hard expense and money that would have been profit instead goes into something called a "loss provision." It is money that's gone. It just hasn't made it through the required number of days to "realize" as a loss yet. Teach your ears to be keen and remember that the next time you hear a bank official quoted saying "we are profitable, less provisions."
Read the message between the lines. The threat of onerous fees and penalties is how banks clumsily communicate to you how vitally important it is to them that you pay your interest on time. The reality is that when fee income becomes excessive it's considered a risk indicator about an institution because it means their business model is probably weakening. An over reliance on fee income exposes banks to the threat of a sources of income loss risk if interest rates shift in the wrong direction. These types of fees tend to evaporate in an inflationary environment. Hey, I didn't make that up. That's what it says in the FDIC guidelines on sensitivities to market risks.
And finally, there's that "captive serfs of the landed class" thing about little banks being the flunkies of the big ones. Now there's a cat and mouse game that's been going on since the monkeys came out of the trees. Sorry, I couldn't resist mixing those metaphors, but then again, I'm not sure the opaque shelter of the forest has been completely abandoned yet. The reality is that, like any large ecosystem, big and little banks share a great deal of co-dependence. The big cats constantly try to organize the environment so they can ensure there's enough to keep them alive with some degree of efficiency and the little mice keep trying to redefine the process so they can be the masters of their own destiny. This will go on forever because it's the balance of power that must be maintained in a truly healthy financial system. That corner of the universe is in disarray right now, and people who think otherwise are living on echoes of the past. The world of lending correspondence is not so much a "new lending growth" industry but a "replacing really bad loans with not so bad loans" industry.
And once again, you know who really matters in that one? Yes the lowly individual obligor, and ultimately, his or her minuscule transaction account.
"No one can make you feel inferior without your consent."
-- Eleanor Roosevelt, This Is My Story, 1937
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Do ordinary people matter?
We'll just see, won't we?
Can you believe it? They don't want regulation to stop them from risky behavior, but they want to stop the people from walking away from an underwater mortgage that they had no part in the loss of equity! Just like when the republicans changed the bankruptcy laws to protect the corporations and $crewed the people -- yet again! But keep voting in the republicans that have $crewed the people every time! And defend the right of corporations to continue to take what is left of our disposable income!
YouTube phenom Ann Minch's debtors revolt movement is cranking up into an American version of Mexico's successful "el Barzon" organization that ousted their 60+ year ruling party and beat back the big (American) banks.
But you need help and hope right now, and for that you should take a look at my eBook "Debt Hope: Down and Dirty Survival Strategies" available at http://www.myhopeseries.com or at Amazon for the Kindle.
To Dennis Santiago, Eugene Jarecki, Arianna Huffington,etc, etc who are sponsoring this movement.
To All the people who are taking the time to tell their stories AND change their banks.
! ! ! ! ! ! T H A N K Y O U ! ! ! ! ! !
Steve and Carol
It encasulates what America should be about, and what the GOP has spent the last 30 years destroying with their "Tax Cuts for the Wealthy" mantra as the answer to all governmental challenges.
Regards,
Virginia Common Sense
I haven't checked this out with our banks, but I was wondering if people wishing to switch could just walk into a credit union or community bank with their present account info and ask the local bank to help them switch! In our busy lives it sometimes feels overwhelming to take the time and energy to do a process like this. We also worry that switching would mean loss of continuity/ history, and could affect our credit, etc.
It would be great if Dennis or someone else at Huffington Post could post Easy/ Simple ways to switch on a Front page and Top of the article for us poor over busy, short attention span folks. I apologize in advance if this has already been suggested, or even already done and I missed it!
collecting from Bill Gates. That money is being taken from the folks who are poorest, the
ones with the most 10-dollar overdrafts that Bank of American turns into cash flow.
Community banks are great, I have always banked with one and will as long as I can. But big or small, banks cannot make bad loans and survive. I do believe that a community bank has much more of a vested interest in seeing its customers succeed, because their customer base is so much smaller than the mega banks.
Here's a larger, more difficult suggestion. Stop using your credit cards. We live in a world of instant gratification. Save for things you want, this gives you time to determine if you really need it, and to find better deals.
I haven't carried a credit balance in about eight years. This is the primary reason that after losing my job, and not finding another one in almost two years I have not been destroyed financially.
Credit is seductive, I was once about $20,000 in debt, decided to change and never did it again. It's amazing how much more control you have over life and less stress when you don't need to worry about how much you owe.
Live below your means and life can be better.
I realized then what I should have known all along. These companies were not my partners but were parasites. I started right then paying them off. At one point I was working 3 jobs to pay them off. As I paid each one off I took great pleasure in cutting up the card and throwing the money I had been paying on that card onto another card's payment.
I now live modestly with no credit cards at all and have never been happier. I have a small line of credit with my credit union which is solely for emergencies. I still haven't had to ever use it.
It's amazing how much less stress and happier life is when you live modestly and below your means.
Credit card companies are just another name for loan shark. They convince us we need the credit, but I don't think that's so...
All the scams they make is made by gearing their capital, but if there are no real core capital, there is nothing to gear. Also their core asset is trust. If the customers leaves it, the trust disappear, and nobody want to trade with an untrustworthy institutíon.
One of the things that makes me wonder (being an european) is the seemingly impotence of the average american.
Most of you don't vote (37% in last midway election), you don't support your unions, you are poor organisers, and you always wait for somebody else to save the day, Either Obama, Palin or God.
You talk yourself down in little black holes giving up.
That is not the picture of the americans, we used to have.
In my youth I saw 2 grafittis, I will quote for you. The first is very descriptive on your reactions: "Help the police, beat up yourself", but the other is much more usefull: " Don't be afraid to bang your head against a wall. Who says, that the wall will be standing?"
Don't break down, but break out instead. Stand up and fight. Remember, once you went to the moon.
Get that fighting spirit back.
Ordinary people do matter, and certainly in a lot more ways than just 'core deposits' - think about the other business lines as people switch over and start using the CU credit card, consider a CU or community bank auto loan, home mortage, HELOC, etc.
This ongoing evolution will take time to develop, but in 6-12 months there is a potentially to really start seeing an effect as the above transitions start to manifest themselves. Dennis, if you could oblige us in the future with an article that maybe able to better quantify the 'fanning' effect listed above, that would be great.
Until then, I encourage everyone involved in this movement to remember that if you are working on converting a friend/family member to a local CU/bank, make sure to address all the various banking services above. This will slowly gather steam and in time, will significantly change the industry.
MOVE YOUR MONEY and let's find out.
My money is already Moved, of course. But there is an additional thing we can do to change the balance of power....and that is to use all our entrepenurial skills to make more money that we can deposit in our credit union or community bank. We have to rebuild our local economies and think creatively...not waiting for a "job" or a "raise". A dollar here or a dollar there earned "on the side" and deposited at the GeorgeBailey Community Bank will start speaking volumns.
I just dropped in $100 in an old fashioned savings account. Who's "in" with me.