I now have $-4.54 in my Chase bank account. I’m not sure exactly what that means, but it looks like I have less money than I had in there before, considering banks usually frown upon opening checking accounts with negative money. It also appears that I am in debt to Chase for $4.54. Being in debt to Chase would imply that they gave me money at an earlier date to buy something that I wanted at that earlier date and now I should recompense them $4.54. The funny thing is though, I actually gave them money and now I owe them money. You see, Chase has this rule, somewhere deep in the finest of prints that says that if you have below X amount of money in your account and do not deposit every month (once every 30 days or so), they are entitled to five of your dollars. I live in Heqing, Yunnan, China, and as such use the only bank in town (well, my town doesn’t have a bank, but the only bank in the other town near me that has a bank). This bank is called “The Yunnan Rural Credit Union” and they use abacuses.
I hadn’t taken a peek at my Chase bank account in months, which is probably exactly the kind of thing they’re going for with the $5 rule. In a fit of boredom, I signed in to my Chase online account, only to realize that what was probably a measly $45.46 at one point in the not so distant past, was now $0.46. That seemed a little odd. I checked my statement. All I saw were a series of $5.00 debits taking place on the same day of each month. Either I was dealing with a hacker of superior methodology and inferior greed, or I had been fine-printed out of $45. I was a bit perturbed, naturally, but I figured that was the end of it. They couldn’t very well take money that I didn’t have from me for not giving them money, right? But, they could. Chase overdrafted my account, voluntarily making themselves my creditor, entitled to a whole four dollars and fifty-four cents of my money. Think about it this way: they’ve taken my money and now they’re asking me to pay them back for it. That, dear readers, is thievery with some serious cojones. Theft to the most audacious degree. It’s meta-theft. I don’t even understand it, really. “Give me your lunch money! And now give me tomorrow’s lunch money to pay for the lunch money I just stole!”
I was a finance major in college. I was and still am patently obsessed with the stock market, but I never truly respected the industry. Some people read books by Michael Lewis like The Big Short or Liar’s Poker or Wolfe’s Bonfire of the Vanities and say, “I want to be a Master of the Universe, too. Where’s the nearest tailor?” I think I used to be like that, but I’m starting to lose faith, big time. Not only that, I’m starting to not even want to be involved with banks at all, in any way shape or form, which is actually impossible.
Let’s say you want to get your hair cut. You pick a random barber. You ask him for a little snip and he shaves your whole head with great vigor. You’re incredulous. He tells you sorry, but he can’t fix a shaved head and anyways he could have sworn you said you were heading to the Aryan Brotherhood rally. His bad, he laughs. You reluctantly give him your money and walk out. You recommend your non-Nazi friends to stay away from this particular shop. You yourself, don’t go back. You protest with your dollars, or lack thereof. A couple months, maybe years, go by and you’ve ostensibly forgotten about the awful haircut he gave you. You go back to the shop. You ask him for a little snip and he shaves your whole head again and even enjoys it. Now you remember. You’re extremely angry. You tell him to shove his buzzer in all kinds of different orifices—his own and multiple members of his immediate family’s—and say you’re not paying. You go home and check out the reviews of this particularly barbershop and each review is the same. Someone went in expecting a little trim and wound up with their whole head shaved. You type a comparably apoplectic entry. You don’t go back.
Such a scenario would simply never happen. Why? The shop would be out of business in a week. There would be lawsuits filed for occupational negligence or hurt feelings that would immediately put the proprietor underwater financially.
Now consider this:
The barbershop hires a bunch of hurly-burly security guards to force people to pay, even though they’ve been completely fleeced, metaphorically and not. They’ve also got a star PR team, that successfully muddles and downplays both what they do and their effectiveness at doing it. They’ve also hired lawyers specializing in hair salon litigation who are quickly able to convince a jury of not only the legality but the merit of shaving someone’s head completely bald when they don’t want to be bald. Additionally, they pay their low level employees hundreds of thousands of dollars a year to shave heads completely bald even when the customer doesn’t want to be bald, negating moral hazard with money.
Important to mention, every other barbershop does the same thing. So, if you want a new style, the “humpty-dumpty” is option 1, 2, and 3. Oh, and the barbershops have all the scissors, so you can’t DIY unless you’re willing to pull very hard.
The problem with the modern banking industry isn’t that they’re able to rip people off and in turn that they actually do rip people off. Believe it or not, almost anyone can and will take advantage of someone else given the opportunity. Kindergarteners rip each other off. It’s not that banks are greedy. It’s that we let them be. The thing people tend to forget about banks is that they need us so much more than we need them. After all, it’s our money that they use to lend to other people. They become our debtors (at 2% interest) before they can become someone else’s creditor (at 5% interest). Yes, they allegedly keep our money “safe,” but it’s not out of some sense of purpose and grand altruism. They keep our money safe because our money = their money. And, if they lose our money, they lose the ability to lend money and make more money. Feel me? And also, they don’t really keep our money safe anymore, because they like to use it to buy incredibly risky financial instruments so they can make even more money with our money. But it’s ok, if they do lose all of our money buying incredibly risky financial instruments, they can just ask the government to give them more of our money and act like it never happened.
Banking is absolutely necessary to society. No doubt about it. Without it, we couldn’t get loans, of course. If we couldn’t get loans we wouldn’t be able to create profit-generating things that add value to society, because there’d never be any money to actually fund the profit-generating things. Banks allow us to essentially loan money to people that we don’t even know in a more efficient way and allegedly free from the worry that you’ll have no recourse if those people don’t pay you back. Of course you’re not indirectly lending to those people via banks so that you can personally make the interest spread. It’s a different kind of loan. It’s a loan to society. It’s so that a guy down the street can build a house or Mark Zuckerberg can invent Facebook. You can’t have that stuff without creditors. And if you want a loan, micro or gigantic, banks are generally your go-to guy.
But. You can’t drive a car without car companies. You can’t eat food without farmers. You can’t get a haircut without barbershops. But, if your Ford sucks you can buy a Chevy. If you don’t like the oranges from California, you can eat the ones from Florida. If you don’t like getting your head shaved, you can go to a barbershop that doesn’t do that. But, generally, the banking industry is doing the same thing across the board and it’s pretty easy to see why they can get away with outrageous things like the $5 rule. When you drive, eat, or get your haircut it’s transparently obvious to see what you are getting in relation to your other options. Not so when you put your money in the Chase vault. Those other industries make money by pleasing their customer. If a bank wants to outdo its competitors, it has to screw the customer. Has to. Because, the bank’s fundamental asset is your money and once it’s in their hands they can do whatever they want with it. And what they want, I can assure you beyond a shadow of a doubt, is usually not what you want. And there is nothing you can do about it because they are prepared at every turn to tell you why you’re wrong and don’t get it. The guy at the counter might be nice sometimes, but the guy who’s allocating your capital probably isn’t.
When TARP was passed in 2008, I didn’t really get it. I was a freshman in college and a film studies major at that point. But, over the last couple years, I’ve read countless articles and books about the 2007 crisis and the banking industry in general. And it’s made me sick to my stomach; actually angry in the pit of my stomach. I should note that I understand that my small checking account and the instruments of exotic finance are not exactly presided over by the same forces. Commercial and investment banking are–at least theoretically–different animals. But, for the purposes of this discussion, that fact has no bearing on the effectiveness of either.
It’s not unpopular to criticize financial institutions. Have you ever seen someone with an, “I ❤ my reverse mortgage” tattoo? The only non-bankers that ever say anything nice about banks are people in commercials advertising banks. But nothing changes. By declaring banks as too big to fail, we’ve declared that we need them. No, not that we need banks (that is a fact), but that we need the ones we have. But, of course, they need us 7 billion times more.
Has there ever, in the history of the world, been an industry that has screwed its customers so hard and for so long without being told to simply “Stop It!”? OK, maybe some factions of organized religion. But, still. If the banking industry were literally screwing its customers, it would be kind of like this: A guy with incredible stamina who takes hours to finish, gains great, almost sadistic pleasure from the experience, and leaves his partner completely unsatisfied and in pain. But, for some reason, the partner keeps coming back voluntarily and even paying for the experience. He or she may complain to her friends and their friends will in turn complain to them about a similar experience with a similarly terrible lover, but they will always come back.
Yunnan Rural Credit Union doesn’t do this to me. They might use abacuses and have a 70-year-old security guard who wears jorts, but they’re nice enough.
Somewhere along the line the American financial industry morphed into a cataclysm of suit-and-tie armies with profit on their mind and in their heart. As it goes, banks have the money, so banks make the rules about the money. But, again, they don’t have the money. You have the money and I have the money. We just give it to them. Think about the places you voluntarily give money to without receiving much in return: your only child, FEMA, non-profit organizations, and Bank of America. Bank of America may actually appreciate your money less than your hormoned-up 15 year old. The interesting thing is, on paper you would imagine banks to have one of the highest social values of any industry. Banks make it possible for us to give our money to someone with the resources to vet potential projects and ideas and allocate society’s money effectively. If they want to make some money on the interest spread, they absolutely should, because they’re theoretically providing an undeniably vital service.
But, it’s when Chase appropriates $5.00 from my account every month for not giving them more money, or Citi stuffs its balance sheet with putrid CDOs masquerading as investment grade mortgage bonds, or when Howie Hubler loses $9 billion for JP Morgan(read: The shareholders of JP Morgan) and still gets and feels entitled to his $25 million a year salary, or when the former CEO of Goldman Sachs is the Secretary of the Treasury for The United States of America and makes all of that stuff possible, that you have to stop and think about what’s really going on. They’ve shaved our heads, we’re looking in the mirror, and they’re telling us that no one can do it better. And we believe them.
“Too big to fail” is a green light to keep on screwing. It’s like the crappy lover. Until someone actually says, “Wait a second, I should be able to get this somewhere else for better and cheaper,” they’ll keep being dissatisfied. Maybe they’ll even start doing it themselves. Chase, I hope the $4.54 that I owe you will go to funding some NGO that wants to help kids in Swaziland learn about AIDS prevention, but I’m not actually stupid. You only think I am.