Date posted: April 14, 2009 - Tuesday
Title: I have had enough of bankers
Current mood: angry
“The first thing we do, let's kill all the lawyers.
--William Shakespeare
Henry VI, Part 2
OK, that’s a start. And the second thing we do is kill all the bankers.
Alright, I’m not actually advocating mass murder of bankers, but after reading stories in the paper this week and seeing news stories on television I could be talked into at least some mayhem against some of them.
Last Saturday I read the story about how the banking industry is unhappy with the terms of the bailout that is saving them from going under. It seems they object to actually having to operate under some restrictions; like limits on executive salary and a possible prepayment penalty if they return the money to the government too soon. They are also scared some executives could be forced out if the government “stress test” shows a need for management changes in a bank.
Yes, the guys who came up with the prepayment penalty to make sure they got all they wanted from a borrower object the same condition may be applied to them. And some of the ones who made the stupid decisions on lending practices that precipitated the current monetary crisis are afraid they could be fired for incompetence.
The banks are also balking at the hefty premium they agreed to pay when they took the money. When was the last time a bank willingly let a consumer get a lower interest rate when they had previously agreed to a higher one?
On Monday I read a story how the banks are spending a bunch of money to lobby Congress against a proposal by the Obama administration which would get the government into the direct student loan business instead of just guaranteeing the loans made by private banks.
Apparently student loans are a tremendous source of income for banks. A source of income with little risk since the government guarantees the loans. We’re talking something like billions of dollars the banks want for themselves. Of course they’re ignoring the fact if the government made the loans directly to students and collected the interest on those loans there would be more money available for additional loans and outright grants to poor students. Heaven fore fend we should actually help educate the poorer students in this country.
Of course a certain amount of personal interest is also involved. The story said the top administrators of the current largest student loan program are making salaries in the millions of dollars. Salle Mae (the nation’s largest student lender) paid its’ chief executive more than $4.6 million in cash and stock last year. The vice chairman was paid more that $13.2 million in cash and stock plus had the use of a company plane. Overall, the agency paid out more than $600,000 in bonuses to other executives while losing more than $213 million. Because it didn’t get government bailout money, Salle Mae was not subject to restrictions on pay and bonuses.
Then, Monday night, I see a story on the evening news where banks that received bailout money are jacking fees on services and interest on credit cards; and have recently been reporting hefty profits for the first quarter of the year. Some banks have raised the highest rate on their credit cards to 30%. One bank which used to have a credit card with no annual fee instituted a $120 a year fee for its’ cards. Other banks and credit card companies are canceling accounts with little or no provocation.
I know someone who had a credit card canceled because they paid off the balance every month. I couldn’t figure this out until I happened on a television drama show which talked about how credit card companies operate. So, I thought I knew the definition of a “deadbeat”, but I was wrong. Revealed in the plot of this show was the fact credit card companies consider people who pay their balance off every month to be deadbeats. This is because the companies derive no revenue from people who pay off their balances.
The object of the process, apparently, is to extend enough credit to people that they get themselves into a position where they will never really be able to pay off the balance so the companies can continue to collect interest and fees for as long as the person lives. And if the consumer is late on a payment or two the interest rate is jacked up to the “default” rate which in most cases runs something like 23% to 29%. This used to be called usury.
Think again about the student loan program I talked about above. How many people do you know who may still have student loans outstanding? Or how many do you know who may have struggled to pay off those loans?
And maybe this is how the banks get people hooked on credit. With the cost of a college education growing more expensive, parents have a hard time paying for a four-year education. So maybe the students take out loans because if you don’t have a college education in this day and age your career choices may be limited to saying, “do you want fries with that” or “paper or plastic” as a lifetime choice. And then you enter a job market where the starting salary is not great and you struggle to survive and repay student loans. It begins a life where you owe more and more and this has been encouraged by the banks to ensure a continuing stream of profits.
I’m not opposed to someone who lends money getting an honest return on his investment. That is how a large part of the economy functions because most of us don’t have wads of cash around to make the major purchases in our lives.
The problem is when we get around to defining “honest return.” What comes to mind is a quote from the Bible.
“For the love of money is the root of all evil:”
Timothy 6:10 (King James Version)
It may be considered a stretch of logic, but the current attitude of bankers about how much they should get in return for their investment borders on evil.
They have made some greedy and stupid investments. So much so they have to be bailed out by the government. But they seem to believe they should suffer no consequences for their unbridled lust for money and profit, that business should continue “as usual” when it is obvious something is not working right.
While the average consumer has always been held to task for making stupid financial decisions, the banks seem to believe they are above being held to the same standards. The love of money has blinded them to being reasonable.
Prepayment penalties? Not us.
Paying the agreed upon interest for the money we were lent? Not us.
Being held accountable for poor decisions? Not us.
Well, I’m not buying it. And I don’t think anyone else should either.
Yes, we need solid financial institutions, but people have to be held accountable for their mistakes. The consumers are held responsible and the bankers don’t rate some better or preferred treatment.
The argument has been advanced that we need to keep some of these idiots in place because they are the only ones who know how to get us out of it.
Bull Hockey!
I think the old adage applies here, “Figures don’t lie, but liars can figure.”
What we need are some reasonable people who ponder the consequences of their actions beyond the lure of immediate money. I don’t see too many of them in the ranks of current financial management.
I was also thinking about the money which has already been expended in bailing out these banks. Lets think about that for just one second. Ponder these figures:
One billion dollars is written 1,000,000,000. If you earned a salary of $500,000 per year (pretty good I think) it would take you 2,000 years to earn a billion dollars. If you earned $1,000,000 a year (an outrageous amount to me) it would still take you 1,000 years to earn a billion dollars. These banks got billions in bailout funds. Not billion -- billions. Just think about how many years it would take you to earn that kind of money.
So pardon me if I have little sympathy for the whining these bankers are putting out about how hard the bailout is on them. A good number of them should be in jail for the breach of fiduciary duty they perpetrated. They should shut their mouths and thank their lucky stars they aren’t making little rocks out of big ones and get on with the business of bailing the average consumer out of the mess they got us in.
