05/04/2009 10:16 am ET Updated May 25, 2011


The fall of the big banks is nothing short of breath-taking.

Citibank, Bank of America, Washington Mutual - huge, powerful behemoths now either deceased or on life support.

How and why?

For several years I have studied two of the big banks' major businesses - mortgage lending and credit cards - and here is what I have concluded:

1. The banks completely disconnected from the idea that they existed to service customers. The goal was profitability and if the customer got in the way, then the customer became collateral damage.

Perhaps some shareholders will wonder what is wrong with that. Don't corporations exist to make a profit? The answer of course is "yes," but when the customer's well-being is sacrificed for short-term profitability, there is no long-term business model.

2. The banks let their marketing geniuses run amok. Mortgage products were developed which looked good on the surface - and thus were attractive to borrowers - but which had devastating effect when lived with for a while. The best example might be Option-ARMS which had low teaser rates and ultra-flexible payment schedules (a borrower could pay less than was due). These loan products were an invitation to trouble - deferring loan payments and thereby causing negative amortization (the loan amount increased).

3. The banks incented executives to make a name (and bonus) for themselves by producing numbers without much regard to how the numbers were produced. The credit card industry business model sometimes seems like nothing more than tricking or confusing consumers into borrowing too much, repaying too slowly, paying higher than reasonable interest rates and incurring all sorts of fees.

It seems to me that many banks put zero thought into actually helping their customers understand debt and use it responsibly. There was a We (Bank) versus Them (Customer) mentality that is now coming back to haunt the banks and the country.

Although some may argue that the fall of the big banks is due to a global economic meltdown and not some outsized drive for profit, my view is that it was just that drive for profit, and neglect of the customer's best interest, that is at the root of the meltdown.


Jim Randel is the founder of The Skinny On™ series. His most recent book The Skinny on Credit Cards, How to Master the Credit Card Game is available at