You would think that a wholesale customer revolt against the big banks, including Bank of America, Chase and the others, might wake them up to the error of their ways in soaking their depositors with fees for everything from checking accounts to ATMs. But bank transfer protests and demonstrations outside branches unfortunately will do little to shake them up.
The fundamental reason is the bottom line. The big banks no longer rely on customer deposits or lending to make money. Despite a $700 billion bailout of the banks (or some would argue because of it), the banks still don't lend very much money to individuals or companies, at least not in America. For the big banks -- as well as the investment bankers like Goldman Sachs -- the real money is in arbitrage and sophisticated securities, like the infamous mortgage securities and credit default swaps that drenched the global economy with trillions in debt.
For all the protestations of their CEOs before Congress and elsewhere, the bankers have essentially abandoned America for greener pastures. After all, there is a lot more money to be made in emerging economies that are less regulated, have cheaper labor and are more easily corrupted or duped than American companies or workers, or even the American government. Why should they invest in America, the bankers say, when they can expect piddling returns for an equal amount of risk?
Despite the argument of the Republicans in Congress, this has very little to do with government regulation, and a lot more to do with the globalization of economics. The United States could wipe out every environmental and safety regulation on the books, outlaw organized labor and allow child labor, and the bankers would still prefer to put their money overseas. That's because Americans are not going to go back to the 19th century standards of living that included sweatshop conditions, child labor and gross environmental damage. On the other hand, many of the emerging nations are still willing -- for the time being -- to endure those conditions. So that's where the big bankers will rush to put their money.
It's not just the emerging economies where the bankers are profiting. It's also in many of the developed countries where the big banks can use their privileged position to profit. For example, Goldman Sachs has perfected the art of using inside information and analysis to sell what Senator Carl Levin characterized as "crap" to their customers, while at the same time secretly making big bets against the own customers in the market. The result? They make money both ways. In any other universe, that would be a gross conflict of interest. In big banking, it's business as usual.
Why should the big banks care about the traditional banking business -- customer deposits and lending -- when they can reap huge profits from gaming a system that is rigged in their favor? One answer might be that they could get punished for it. Big fines, more regulation or, heaven forbid, jail terms for the crooks. But after driving the global economy into a ditch, the bankers were rewarded with a $700 billion bailout, big bonuses, and most importantly, a return to business as usual.
It is true that the $700 billion bailout was probably necessary to prevent a worldwide depression, but the big bonuses and return to business as usual was not. When the Bush and Obama administrations gave the big banks the bailout, the banks were expected to put the money back into the American economy. That never happened. Most of the money either still sits in the banks, or was invested in the risky profit engines that these banks still operate. Furthermore, there was virtually no new regulation of the riskiest operations of the banks, nor was there any real effort to punish the banks and bankers who profited from the global economic debacle, or to prevent them from doing it all over again.
We can protest all we want by changing our accounts to smaller banks or credit unions, but the big banks will continue along their merry way until the government reins them in. They don't make much money from America, so while the bankers may pay lip service to the concerns of ordinary Americans, they have no reason to care. The solution is simple: Force the banks to go back to traditional banking. If that means turning them into non-profits, so be it. But there is no way to justify allowing them to continue to bilk average American customers, not to mention risking driving the global economy off the cliff again.
Hoyt Hilsman is author of Idonomics: How the Pleasure Principle is Destroying the American Dream