What an Activist Fed Should Be Doing
10/31/2012 11:15 am EST
Instead of micromanaging monetary policy, the Federal Reserve should be reforming the banking system, breaking up "too big to fail" banks, and getting back to the days when banks built things, writes Shah Gilani of Money Morning.
If you've been reading the headlines, you know Bank of America (BAC) is in trouble. It could be in really big trouble. Thank goodness they're so big!
Thank goodness all the big banks in America are all much bigger now than they were a few years ago, before the financial crisis brought them to their knees—by their own doing, of course.
Don't you just love it when a plan comes together? Yeah, it's all part of "The Plan" to eliminate pesky banking competition. Let me show you how nicely it's working...
The Fed's 100-Year Plan
The Plan was hatched a long time ago. Back in 1913, as a matter of fact. That's when Congress devised the Federal Reserve System for eliminating competition and making sure US taxpayers would be the lender of last resort to big bankers.
It has taken a while: 100 years, in fact. But it is working.
The first sign it was working came in the 1980s and 90s, when the savings and loans got into serious trouble playing the greed game. They weren't covered by the Federal Reserve System. So they were shut down, or rolled up by government-backed insiders (Congress' puppet masters), and later sold to big banks for sweet profits.
Anyway, they're gone. No more pesky competition from S&L associations. Now look who's next on the chopping block...
Community banks on their way out. They have been systematically undermined and undercapitalized on account of their inability to compete with all the big banks (that would be the Big Five banks, you know who they are). The big banks are obviously too big to fail, so therefore a safer place to put your money and with whom to do business.
Over the past 20 years, the number of community banks—those with assets of less than $1 billion—has been knocked down by half. Meanwhile, in the past four years, the Big Five have grown exponentially. They now hold more than 50% of all banking assets in the United States.
There are a few hundred "regional" banks. But they're not part of the problem; they're part of The Plan. They will be bought by the big banks eventually. So the bigger they get, the better for the Big Five, who will gobble them up in the final race to megabankdom.
If You're Not Part of "The Plan," You're the Problem
It's the approximately 6,000 remaining community banks—the ones that are the local backbone lenders in small towns and communities—that have to go. They are being shrunk systematically and undermined emphatically.
How emphatically? Well, they account for 92% of all banks and have 30% of all branch locations. But they only account for 11.5% of all bank assets.
The big banks overshadowed community banks primarily by encroaching on their meat and potatoes, small-business loan financing (you know, those higher-risk loans to local businessmen and women creating the majority of jobs in America), on account of their shoveling credit cards into their mailboxes. (You may be surprised to learn that credit cards are now the principal means of financing used by small businesses.)|pagebreak|
As they did so, the poor and getting poorer community banks have had to turn more and more to commercial real estate lending. Over the last 20 years, the percentage of community banks' assets represented by commercial real estate loans has risen from 30% to just over 53%, according to the American Bankers Association.
What's interesting is that those banks struggling with their commercial real estate loans were once in a position to compete with the big banks. But not for much longer. They're on the ropes—just where the Big Five want them.
And finally, I'll ask rhetorically: what's up with the de facto moratorium on handing out charters to any new banks? The question may be rhetorical, but the answer is anything but theoretical. There haven't been any new bank charters issued in the past three years.
There are no new banks, not because the regulators are afraid that they've already got their hands full with all the banks in the country now—though that's what they'll tell us. The reason there are no new banks is that we're at that part of The Plan where new competition isn't allowed to be created.
Everyone Saw This Coming
So, what's this all got to do with Bank of America being in trouble? Everything.
Bank of America bought Countrywide back in 2008—not a good deal for them, and now the cause of a lot of trouble.
Now BoA, along with 17 other financial institutions, is being sued by both Fannie Mae and Freddie Mac's government regulator, the Federal Finance Housing Agency, to make them cough up money for the crappy loans Countrywide originated, packaged, and sold them. The FHA really wants BoA to buy back a lot of those mortgages, and are suing them to do so, and maybe throw in some other money in fines.
But Bank of America just got hit again, on Wednesday, by the government. Actually, it was hit by a former executive vice president's whistleblower suit, which the Justice Department joined. They're seeking $1 billion from the bank for "brazen" fraud in originating crappy prime mortgages (as opposed to the crappy subprime mortgages they originated) and systematically funneling them to the government-sponsored entities Fannie and Freddie, who unwittingly bought them and then had to be bailed out by, you know who, us, the taxpayer.
Everyone saw this coming. Especially the Federal Reserve Bank. Everyone knew there would be blood to be paid by the banks that wrecked the economy. So the Fed has been funneling cash to the big banks to make them flush so they can fight these legal onslaughts, pay their fines, and get bigger in the process. It's all about survival of the biggest.
There's no help for community banks. They can't tap into the Fed's toffee trough.
This is where this is going. The big banks are getting bigger, and the government is not just letting it happen—no, they are actually aiding and abetting The Plan. They, our legislators and regulators (heard of regulatory capture?), are bought and paid for by the big banks.
This is power at its most obvious and ugly intersection. And it's going to control us in the process of crushing us for their profitability. It's already happened, and it's happening still.
Where are the presidential candidates on the subject of big banks getting bigger, more powerful, and being ever protected by the Fed, which is not a government body but owns the government? Where are they? What are they saying about it all?
That would be nothing. That's because they are both bought and paid for, too.
We need to end the Fed, break up the big banks, get corporate money out of politics, and facilitate localized community banking for the benefit of America's real job creators.
Is anyone listening?