Monday, August 31, 2009

Reaping What You Sow

This year, 84 banks have gone under as a result of the current economic climate.  What is alarming is that this is more than likely depleting the money supplies of the FDIC and if the trend continues, we may see no hope of government-funded banking insurance.  Then again, government insurance is an oxymoron.
I have no sympathy for the banks that fail.  Too many of them have engaged in bad practices that make absolutely no sense whatsoever.  I know that the banking industry is primarily a lending industry, but I think all of this is the result of them aggressively lending out money to any idiot with a decent FICO.  If the banking industry had any sense, anyone with a high FICO score should have been rejected as being incredibly risky to loan money to.
This is probably the result of decades on nonsense from the banking industry where unsecured debt has been issued out again and again.  The primary form of unsecured debt has been the credit card.  Basically, credit card debt is unsecured debt that too handy to not have.  When the bank issues these things out and people stop paying on them, what are they going to do?  Morally, a person should pay back the amount on the credit card, and legally a person is liable for the debt, of course.  But what immediate recourse does a bank have for people who use credit cards and do not pay them back?
Now, you may say that they can sick their dogs on them.  That is, they sick their collection agencies on these people in order to collect the money that is rightly owned to them.  But phone numbers can easily be changed and phone calls can be ignored.  Collection agencies are also under strict Federal laws, which they violate all the time, so the consumer has the advantage there.  After all, if some moron in a cubicle violates your protections as a consumer, all you have to do is call their legal department and play a recording of the abusive conversion that just took place.  You will be able to cut a deal with them then and settle a debt for much less.  The sheer stupidity of any bank to issue out a credit card of any kind is astounding.
Another thing that banks have been doing to their detriment is selling off their loan accounts to other banks.  While this is a legitimate practice and happens all the time, the problem is that many of the bad loans got shuffled around and the paperwork that solidifies a bank’s position as being the lender could have been lost.  This turns out to be the case in many foreclosures, as any sensible judge only needs to ask for proof that the bank requesting the foreclosure holds the mortgage contract.  As a judge in New York City recently demonstrated, this can be tricky for a bank to do.
Ultimately, though, the banks, especially the major ones, have employed shady tactics on their customers in what is probably a pattern of behavior from the ground up.  Whether it was Chase, who would hold payments on their credit cards until a day after they were due so they could apply late fees, to SunTrust who would rather make sure they have a house payment then a customer who can eat, the banking system is seriously broken in our nation and I see it gradually collapsing and reshaping itself over the next few decades.  I am almost certain of this because consumers will only suffer so much abuse before walking away.
In the meantime, do not buy the line that we need the banks in order to prosper and survive.  At best, they are like the government, a necessary evil.  At worst, the banks are a parasite on the economy, one driven by consumption rather than production and savings and are doomed to fail when the whole system collapses because of a lack of substantive value.
We are at the cusp of a great shift in the United States economy.  If the government continues down its path and insists on propping up dying dinosaurs like the banks, then we will see a huge backlash from the American consumer, who is more informed today and wiser to the lies they perpetrate than they were a decade or so ago.