Who’s Afraid Of The Big, Bad Banks?

Margaret Atkins MunroLet's Talk About MoneyLeave a Comment

Once upon a time, not too long ago, banks were as integral to our communities as the town library and Fourth of July picnics. They helped us save money, and lent our funds to others to buy homes and cars, and build businesses. Those days, alas, are dwindling. While small local banks are still doing the work of building community, they are being swallowed at an alarming rate, replaced by banks with no community ties, less-than-no regulation, and loyalties only to Wall Street.

This trend from small and personal to large and remote is borne out by recent news of proposed huge bonuses for already highly-compensated bank executives. Not coincidentally, many of these banks are the same ones we, the taxpayers, rescued from annihilation only 16 short months ago. These bonuses are ringing a tone-deaf knell over the country, amply illustrating that Wall Street either doesn’t understand their role in the recent financial meltdown or just doesn’t care. What possible argument could be made for bonuses in our current environment of rising foreclosures and unemployment, and falling wages and home prices?

Banks have stood at the epicenter of this most recent financial crisis; their actions have triggered wave after wave of misery. Perhaps, in this historic era, the place and purpose of banks needs to be reevaluated and recast.

Banks, beginning in 13th century Florence, have always been a marketplace for exchange of commodities, whether cash, precious metals, or any other item of value. Unlike an open marketplace, though, the banker sets the terms between the parties, assigning a value to whatever is being traded. Sometimes, value is evident – food that can be eaten, and land that can be farmed – and other times, assigned, such as in the case of gold, silver, and cash itself. Almost always, supply and demand govern price; as the supply diminishes, the value of something should increase. Speculation occurs when supply is artificially limited and demand inflated, as in the tulip mania of 1637, the Hunt brothers cornering the silver market in the late 1970s, or the more recent dot.com and real estate crashes. What value, after all, does silver contribute to our lives, or tulips, for that matter, wedding gifts and gardens notwithstanding?

For most of this country’s history, banks have been primarily interested in intrinsically valuable items. Thus, they lent money for real estate, and to start and continue running small businesses, and took in deposits with the understanding that those funds were safer in the banker’s hands than in the depositor’s.

These community mainstays lent us money to advance the American Dream, espoused by Herbert Hoover in 1928, of a chicken in every pot, and a car in every backyard. They helped us buy space, as evidenced by suburbia, begun in Levittown in 1947, eventually surrounding every city in the country, draining population from city centers and spreading it over a wider area. Eating lower on the food chain, limiting car ownership, and urban living have all proven to be more environmentally sound, but that didn’t seem to matter. We wanted the chicken, the car and the house; local banks provided us with the means to obtain them.

Beginning in the 1980s, bank regulations began to ease, and the role of banks began to change; the final nail in the regulation coffin occurred in 1999. With no more substantive regulation, banks leapt into the speculation business, pulling us along with them. All of a sudden, the value of land mushroomed as banks allowed borrowers to use their real estate as piggy banks. It was all good, until it wasn’t.

Which brings us back to the obscenely huge bonuses the bankers have just awarded themselves, in some cases, just days after they shed public investment in their operations. The days of doing as they wished, with no outside scrutiny, has vanished in the same puff of smoke that wiped platforms of economic stability from under the feet of their Main Street depositors, the same depositors who today find themselves denied loans. The outrage has been intense over these bonuses, as it should be – why should these bankers benefit when we, the taxpayers, paid to keep them afloat? If we became investors in these banks, as we were told we were, why aren’t we enjoying an equivalent financial boost?

My argument is not with the theory of capitalism. It, like the theory of democracy, exists only in the minds of philosophers. The economic and political systems that we function under today have as much in common with them as apples have to turnips We do not live in a test-tube world, where conditions can be manufactured to test a hypothesis. Instead, greed and power trump all, and he who has the clout makes the rules. So we howl with outrage, but the bankers remain secure in the knowledge that they have bought and paid for inaction from those we elected to act on our behalf.

Ours is the story of The Three Little Pigs; happily ever after will only happen once we learn to contain, and adequately regulate, the big, bad banks.