Chase

What if we just banned banks?

PNRJ critique of neoclassical economics, ethics, financial fraud, inequality, market failure, public policy , , , , , , , , , ,

Feb 22 JDN 2461094

I got a mailer from Wells Fargo today offering me a new credit card. The offer seemed decent, but the first thing that came to my mind was: Why is this company still allowed to exist?

In case you didn’t know, Wells Fargo was caught in 2016 creating millions of fraudulent accounts. They paid a fine of $185 million—which likely was less than the revenue they earned via this massive fraud scheme. How am I supposed to trust them ever again? How is anyone?

It’s hardly just them, of course. Almost every major bank has been implicated in some heinous crime.

JP Morgan Chase helped Jeffrey Epstein conceal assets, rigged municipal bonds transactions, and of course misrepresented thousands of mortgages in a way that directly contributed to the 2008 crisis.

Bank of America also committed mass fraud that contributed to the 2008 crisis.

A case against Citi is currently being tried for failing to protect its customers against fraud.

Capital One is being sued for failing to pay the interest rates it promised on savings accounts.

And let’s not forget HSBC, which laundered money for terrorists.

If these were individuals committing these crimes, they would be in prison, probably for the rest of their lives. But because they are corporations, they get slapped with a fine, or pay a settlement—typically less than what they made in the criminal activity—and then they get to go right back to work as if nothing had happened.

I think it’s time to do something much more radical.

Let’s ban banks.

This might sound crazy at first: Don’t we need banks? Doesn’t our whole financial system rest upon them?

But in fact, we do not need banks at all. We need loans, we need deposits, we need mortgages. But we already have a fully-functional alternative system for providing those services which is not implicated in crime after crime after heinous crime:

They are called credit unions.

Credit unions already provide almost all the services currently provided by banks—and most of the ones they don’t provide, we probably didn’t actually need anyway. There are already nearly 5,000 credit unions in the US with over 130 million customers.

Credit unions almost always fare better in financial crises, because they don’t overleverage themselves. They are far less likely to be involved in fraud. They don’t get involved in high-risk speculation. They offer higher yields on savings and lower rates on loans and credit cards. Basically they are better than banks in every way.

Why are credit unions so much better-behaved?

Because they are co-ops instead of for-profit corporations.

Customers of credit unions are also owners of credit unions, so there are no extra profits being siphoned off somewhere to greedy shareholders whose only goal in life is number go up.

Free markets are genuinely more efficient than centrally-planned systems. But there’s nothing about free markets that requires the owners of capital to be their own class of people who aren’t workers or customers and make their money by buying, selling, and owning things. That’s what’s wrong with capitalism—not too little central planning, but too concentrated ownership.

As I’ve written about before, co-ops are just as efficient as corporations, and produce much lower inequality.

For many industries, transitioning to co-ops would be a major change, and require lots of new organization that isn’t there. But for banking, the co-ops already exist. All we need to do is ban the alternative and force everyone to use the better, safer system. Come up with some way to transfer all the accounts fairly to credit unions, and—very intentionally—leave the shareholders of these criminal enterprises with absolutely nothing.

In fact, since credit unions are more likely to support other co-ops, forcing the financial system to transition to credit unions might actually make the process of transitioning our entire economy to co-ops easier.

It may seem extreme, but please, take a look again at all those crimes that all these major, highly-successful, market-dominating banks have committed. They’ve had their chance to prove that they can be honest and law-abiding, and they have failed.

Get rid of them.

Several of the world’s largest banks are known to have committed large-scale fraud. Why have we done so little about it?

PNRJ core principles, current events, ethics, financial fraud , , , , , , , , , , , , ,

July 16, JDN 2457951

In 2014, JPMorgan Chase paid a settlement of $614 million for fraudulent mortgage lending contributing to the crisis; but this was spare change compared to the $16.5 billion Bank of America paid in settlements for their fradulent mortgages.

In 2015, Citibank paid $700 million in restitution and $35 million in penalties for fraudulent advertising of “payment protection” services.

In 2016, Wells Fargo paid $190 in settlements for defrauding their customers with fake accounts.

Even PayPal has paid $25 million in settlements over abuses of their “PayPal Credit” system.
In 2016, Goldman Sachs paid $5.1 billion in settlements over their fraudulent sales of mortgage-backed securities.
But the worst offender of course is HSBC, which has paid $2.5 billion in settlements over fraud, as well as $1.9 billion in settlements for laundering money for terrorists. The US Justice Department has kept their money-laundering protections classified because they’re so bad that simply revealing them to the public could result in vast amounts of criminal abuse.
These are some of the world’s largest banks. JPMorgan Chase alone owns 8.0% of all investment banking worldwide; Goldman Sachs owns 6.6%; Citi owns 4.9%; Wells Fargo 2.5%; and HSBC 1.8%. That means that between them, these five corporations—all proven to have engaged in large-scale fraud—own almost one-fourth of all the world’s investment banking assets.

What shocks me the most about this is that hardly anyone seems to care. It’s seen as “normal”, as “business as usual” that a quarter of the world’s investment banking system is owned by white-collar criminals. When the issue is even brought up, often the complaint seems to be that the government is being somehow overzealous. The Economist even went so far as to characterize the prosecution of Wall Street fraud as a “shakedown”. Apparently the idea that our world’s most profitable companies shouldn’t be able to launder money for terrorists is just ridiculous. These are rich people; you expect them to follow rules? What is this, some kind of democracy?

Is this just always how it has been? Has corruption always been so thoroughly infused with finance that we don’t even know how to separate them? Has the oligarchy of the top 0.01% become so strong that we can’t even bring ourselves to challenge them when they commit literal treason? For, in case you’ve forgotten, that is what money-laundering for terrorists is: HSBC gave aid and comfort to the enemies of the free world. Like “freedom” and “terrorism”, the word “treason” has been so overused that we begin to forget its meaning; but one of the groups that HSBC gladly loaned money to is an organization that has financed Hezbollah and Al-Qaeda. These are people that American and British soldiers have died fighting against, and when a British bank was found colluding with them, the penalty was… a few weeks of profits, no personal responsibility, and not a single day of prison time. The settlement was in fact less than the profits gained from the criminal enterprise, so this wasn’t even a fine; it was a tax. Our response to treason was to impose a tax.

And this of course was not the result of some newfound leniency in American government in general. No, we are still the nation that imprisons 700 out of every 100,000 people, the nation with more prisoners than any other nation on Earth. Our police officers still kill young Black men with impunity, including at least three dozen unarmed Black men every year, many of them for no apparent reason at all. (The precise number is still unknown, as the police refuse to keep an official database of all the citizens they kill.) Decades of “law and order” politicians promising to stop the “rising crime” (that is actually falling) have made the United States very close to a police state, especially in poor neighborhoods that are primarily inhabited by Black and Hispanic people. We don’t even have an especially high crime rate, except for gun homicides (and that because we have so many guns, also more than any other nation on Earth). We are, if anything, an especially vindictive society, cruel, unforgiving, and violent towards those we perceive as transgressors.

Except, that is, when the criminals are rich. Even the racial biases seem to go away in such circumstances; there is no reasonable doubt as to the guilt of O.J. Simpson or Bill Cosby, but Simpson only ended up in prison years later on a completely unrelated offense, and after Cosby’s mistrial it’s unclear if he’ll ever see any prison time. I don’t see how either man could have been less punished for his crimes had he been White; but can anyone seriously doubt that both men would be punished more had they not been rich?

I do not think that capitalism is an irredeemable system. I think that, in themselves, free markets are very useful, and we should not remove or restrict them unnecessarily. But capitalism isn’t supposed to be a system where the rich can do whatever they want and the poor have to accept it. Capitalism is supposed to be a system where everyone is free to do as they choose, unless they are harming others—and the rules are supposed to be the same for everyone. A free market is not one where you can buy the right to take away other people’s freedom.

Is this just some utopian idealism? It would surely be utopian to imagine a world where fraud never happens, that much is true. Someone, somewhere, will always be defrauding someone else. But a world where fraud is punished most of the time? Where our most powerful institutions are still subject to the basic rule of law? Is that a pipe dream as well?