"Simply breaking them up … then you’re discouraging a company from achieving the American Dream, working hard, earning money, producing products, and getting bigger.” - Scott Talbott on breaking up the banks

Recently, Simon Johnson and Charles Calomiris were on NPR talking about breaking up the banks and TBTF. Calomiris like most extremist free marketers make the following argument about large and extremely large: "They have complex financial needs having to do with hedging. We're not going to be able to serve the needs of large global firms with mom-and-pop banks."

Big companies and their lobbyists say big is important for consumers and that only big companies can handle international operations. I'm curious what percentage of people really buy this -- I expect a group to do polling on this soon.

James Kwak of Baseline Scenario lays out why this statement is just a smokescreen statement for the truth in this post here and here. James' rebuttal is backed by reality.
The basic idea is that in actuality global corporations, like Johnson and Johson usually work with hundreds of banks and no one large bank does the trick for every local context, etc. and data shows that big does not correlate with the data.

We've also done our research and I feel lucky that evidence shows when knowledgeable people say big banks are better, they are actually lying. In terms of prices that you see on the credit card or bank market, make sure you are aware that whenever you hear that big banks offer better products, better choices, you are hearing a straight-up lie. I've seen many research papers on bank fees. All of them show that the largest banks charge the most. The largest banks own enough of the market, that together they're kind of one monopolistic force. They can essentially keep prices high (control them) and they do. Their efficiency gain for getting bigger or more tech-savvy are not passed onto the consumer. So, terms like economies of scale that describe the phenomenon of greater efficiency with greater growth in the company may make the financial industry more efficient and better for the customer only up to a size. There's economy of scale for banks under the $100 billion mark and any bank that is bigger than that just doesn't pass on the savings.

Here is the cold, hard evidence. Please don't forget it.

Pew Charitable Trust July 2009 Study (released today)

1. These banks control more than 90 percent
of outstanding credit card debt nationwide.

2. One hundred percent of credit cards from the
largest 12 banks used practices deemed “unfair
or deceptive” under Federal Reserve guidelines.
None of these bank issued cards would meet the
requirements of the Credit CARD Act of 2009.

3.Our recent review includes, for the first time, credit
unions. Although the largest 12 credit unions control
only 1 percent of overall credit card lending, many
consumers will find it helpful to know that these
credit unions offered prices that were generally
lower compared to those of the largest banks.

4. 95 percent of bank cards allowed issuers to apply
payments in a manner that the Federal Reserve
found likely to cause substantial monetary injury to
consumers. The other 5 percent did not disclose
the issuer’s policy.

In our research on bank size, competition, and stability in the markets, we also came across the The Washington Monthly has this article called, "The Subprime Student Loan Racket: With help from Washington, the for-profit college industry is loading up millions of low-income students with debt they'll never pay off." These two paragraphs give you a good idea on how debt, credit can really become a noose rather than an opportunity.

"Her loan balance has ballooned to $40,000, and she has no idea how she will ever pay it off. “My credit is ruined,” Leveque says. “I made one mistake, and I will be paying for it for the rest of my life.”

Leveque’s story is far from unique. Each year, more than two million Americans enroll in for-profit colleges, also known as proprietary schools, and their popularity has only grown since the financial crisis. While traditional four-year colleges are struggling with dwindling student bodies and budget gaps, proprietary schools are reporting record enrollments as the newly unemployed try to retool their skills so they can wade back into the job market. Some of the largest for-profit chains say their numbers have doubled over the last year.

The students who are flocking to these schools are mostly poor and working class, and they rely heavily on student loans to cover tuition. According to a College Board analysis of Department of Education data, 60 percent of bachelor’s degree recipients at for-profit colleges graduate with $30,000 or more in student loans—one and a half times the percentage of those at traditional private colleges and three times more than those at four-year public colleges and universities. Similarly, those who earn two-year degrees from proprietary schools rack up nearly three times as much debt as those at community colleges, which serve a similar student population. Proprietary school students are also much more likely to take on private student loans, which, unlike their federal counterparts, are not guaranteed by the federal government, offer scant consumer protections, and tend to charge astronomical interest—in some cases as high as 20 percent."

You can also download our 27 ways flyer to get some of the most gouging of the documented abuses of large banks on the average consumer and our economy.

Here they are listed for you as well:

27 Ways the Mega-Banks Took Down the Economy

1.Largest banks’ credit card fees: 20% or higher
2.Largest banks move to states with no limits on usury – so they can charge consumers in states that do have usury laws
3.$170 billion profit from overdraft programs and manipulative overdraft processing that most people don't sign up for
4.Banks hold checks for 3-8 days (despite changes in technology) for better interest returns - meanwhile creating cash flow issues for working people
5.$10,000 difference between lowest basic closing costs and typical closing costs to those unaware
6.Inflated stock prices paid by the public
7.Encouraged and facilitated rise in personal debt, then ensured inability to emerge from debt
8.The 4 largest banks hold 41% of the nation's deposit accounts - and thus can make our country sink or swim.
9.The 4 largest bank holding companies exchange 95% of the country's derivatives
10.400% increase in subprime lending in the past ten years
11.Racial profiling for predatory loans to both low and upper income minority families.
12.Growth of inflation and an attitude of spend, spend, spend
13.The largest banks contribute the most in campaign contributions to Congress
14.The largest banks received billions of “no-strings-attached” bailout dollars when their investments went sour
15. Flattening of wages in the past 20 years; inability for workers to organize for better wages.
16.The central bank allowed the largest banks to have little reserves set aside to insure losses
17. In the 1990's, the largest banks lobbied heavily for rules that could increase risky investments for short term profits
18. The largest banks ballooned in size after Congress passed rules that allowed them to take on investment banking activities and risky investments
19. Inflated credit ratings on bundles of home loans
20. Bundling of risky mortgages for hedging and investing – passing on the risk to the next hedger or bettor
21. Backing of securities by risky mortgages
22. Collusion and capture of the Federal Reserve and regulators – “revolving door” between government and finance
23. Economy structured to favor short term growth and creation of bubbles; home price surges were in part artificially inflated.
24. Growth of banks to “too-big-to-fail” sizes to ensure federal support in case of failure as supported by FDICIA Act
25. Only the largest banks can buy US treasuries from a “discount window”
26. Only the largest banks provide those sought out as “experts” and who are formally involved in determining monetary policy
27. Bank concentration leads to barriers to entry for new and small banks - and higher prices

• tiffiniy's blog
• Add new comment