Guest column: Revise banking and finance laws
Last Updated on 3/16/2010
Published on 11/2/2008
By Bruce Yablin
How did we get into this financial meltdown?
The simple answer is the institutional greed of the financial industry. The long answer is the changes, over the last 50 to 60 years, in the finance industry.
Think back, if you are old enough, to being 9 or 10 years old. You are in school learning about percentages, and one day an officer from a local bank comes to class and explains how the bank pays three percent interest on savings and charges six percent on loans.
If you put $1 in savings, the bank will loan it to someone else, receive $1.06 back, put the $1.03 in your account and keep three cents to run the bank on. Access to your savings was limited only by banking hours. As inflation progressed into the 1960s and 1970s interest on savings approached five percent and loans, 10 percent. If you needed a moderate amount of money to replace an appliance you could draw it out of savings, and the bank would not make any interest on the transaction.
The credit card was the answer. The bank gets a percentage from the merchant and interest from the purchaser, thus making money on both ends of a transaction. Then came Certificates of Deposit (CD's) whereby the bank can tie up your capital for a period of time by charging penalties for early withdrawal. That three percent interest on savings is history. It is now less than one percent unless you tie up money up in a CD. Therefore, you must borrow if you need even a few hundred dollars for an emergency.
The banks have found ways to charge fees for services, which used to be free. Check cashing fees even for paychecks dawn on that bank is an example of this. Check stop fees, which may be more than the check itself, and overdraft fees are other examples. A $30 overdraft fee for 11 cents is the kind of vigorish even a Mafia loan shark would be jealous of.
Late fees charged for some other debt will trigger punitive interest rates on credit card accounts, which may have nothing to do with that debt. As several stand-up comedians have said, "Why is it the banks want more of what you ain't got?" The finance industry has had a reputation for greed since before William Shakespeare wrote the "Merchant of Venice."
What is the solution to this problem? We must regulate this industry on the state and federal levels. Outlaw adjustable rate mortgages to keep people in their homes Investigate the CEO's and CFO's of these investment banks and prosecute them if their activities were fraudulent or fire them if they were merely incompetent. No "golden parachutes" for stupidity, that money is better spent to shore up these institutions. Those corporate VIP's should learn to get by on $150 per week like anyone else who loses his job and must draw unemployment insurance.
Most of this problem is the result of speculation. Speculation is a form of gambling, just like poker, blackjack or roulette. The people have basically said, "I'm not gong to pay that much for a house. It's just not worth that much." The developers, house-flippers and market speculators have rolled "craps" and need to take their lumps, like any other gambler. As in any game of chance, the odds are in favor of The House.
The best things the people could do are to live within their means. Do not buy what you cannot afford. For most people, a $1,500 designer watch will not keep time any better than a $15 watch. Contact your state and federal senators and representatives and demand revised banking and finance laws. Outlaw check-cashing fees on government and payroll checks. Outlaw adjustable rate mortgagees and punitive credit card interest, except on that actual account. Break up the "mega banks" into regional banks as was done to the telephone monopolies. Outlaw practices which generate extra fees, for example when two checks come in on the same day and bouncing the larger one first so the smaller one also gets bounced for $70 in fees instead of $35.
For the banks making "a little bit of something is better than making a whole lot of nothing" as my late father would say.
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Mr. Yablin is a candidate for Georgetown County Council.
