Do you remember when our politicians promised to do something about the “too big to fail” banks? Well, they didn’t, and now the chickens are coming home to roost. On Thursday, it was announced that one of those “too big to fail” banks, Wells Fargo, has been slapped with 185 million dollars in penalties. It turns out that for years their employees had been opening millions of bank and credit card accounts for customers without even telling them. The goal was to meet sales goals, and customers were hit by surprise fees that they never intended to pay. Some employees actually created false email addresses and false PIN numbers to sign customers up for accounts. It was fraud on a scale that is hard to imagine, and now Wells Fargo finds itself embroiled in a major crisis.
There are six banks in America that basically dwarf all of the other banks – JPMorgan Chase, Citibank, Bank of America, Wells Fargo, Morgan Stanley and Goldman Sachs. If a single one of those banks were to fail, it would be a catastrophe of unprecedented proportions for our financial system. So we need these banks to be healthy and running well. That is why what we just learned about Wells Fargo is so concerning…
Employees of Wells Fargo (WFC) boosted sales figures by covertly opening the accounts and funding them by transferring money from customers’ authorized accounts without permission, the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and Los Angeles city officials said.
An analysis by the San Francisco-headquartered bank found that its employees opened more than two million deposit and credit card accounts that may not have been authorized by consumers, the officials said. Many of the transfers ran up fees or other charges for the customers, even as they helped employees make incentive goals.
Wells Fargo says that 5,300 employees have been fired as a result of this conduct, and they are promising to clean things up.
Hopefully they will keep their word.
It is interesting to note that the largest shareholder in Wells Fargo is Berkshire Hathaway, and Berkshire Hathaway is run by Warren Buffett. There has been a lot of debate about whether or not this penalty on Wells Fargo was severe enough, and it will be very interesting to hear what he has to say about this in the coming days…
Wells Fargo is the most valuable bank in America, worth just north of $250 billion. Berkshire Hathaway (BRKA), the investment firm run legendary investor Warren Buffett, is the company’s biggest shareholder.
“One wonders whether a penalty of $100 million is enough,” said David Vladeck, a Georgetown University law professor and former director of the Federal Trade Commission’s Bureau of Consumer Protection. “It sounds like a big number, but for a bank the size of Wells Fargo, it isn’t really.”
After the last crisis, we were told that we would never be put in a position again where the health of a single “too big to fail” institution could threaten to bring down our entire financial system.
But our politicians didn’t fix the “too big to fail” problem.
Instead it has gotten much, much worse.
Back in 2007, the five largest banks held 35 percent of all bank assets. Today, that number is up to 44 percent…
Since 1992, the total assets held by the five largest U.S. banks has increased by nearly fifteen times! Back then, the five largest banks held just 10 percent of the banking industry total. Today, JP Morgan alone holds over 12 percent of the industry total, a greater share than the five biggest banks put together in 1992.
Even in the midst of the global financial crisis, the largest U.S. banks managed to increase their hold on total bank industry assets. The assets held by the five largest banks in 2007 – $4.6 trillion – increased by more than 150 percent over the past 8 years. These five banks went from holding 35 percent of industry assets in 2007 to 44 percent today.
Meanwhile, nearly 2,000 smaller institutions have disappeared from our financial system since the beginning of the last crisis.
So the problem of “too big to fail” is now larger than ever.
Considering how reckless these big banks have been, it is inevitable that one or more of them will fail at some point. When that takes place, it will make the collapse of Lehman Brothers look like a Sunday picnic.
And with each passing day, the rumblings of a new financial crisis grow louder. For example, this week we learned that commercial bankruptcy filings in the United States in August were up a whopping 29 percent compared to the same period a year ago…
In August, US commercial bankruptcy filings jumped 29% from a year ago to 3,199, the 10th month in a row of year-over-year increases, the American Bankruptcy Institute, in partnership with Epiq Systems, reported today.
There’s money to be made. While stockholders and some creditors get raked over the coals, lawyers make a killing on fees. And some folks on the inside track, hedge funds, and private equity firms can make a killing picking up assets for cents on the dollar.
Companies are going bankrupt at a rate that we haven’t seen since the last financial crisis, but nobody seems concerned.
Back in 2007 and early 2008, Federal Reserve Chair Ben Bernanke, President Bush and a whole host of “experts” assured us that everything was going to be just fine and that a recession was not coming.
Today, Federal Reserve Chair Janet Yellen, Barack Obama and a whole host of “experts” are assuring us that everything is going to be just fine and that a recession is not coming.
I hope that they are right.
I really do.
But there is a reason why so many firms are filing for bankruptcy, and there is a reason why so many Americans are getting behind on their auto loans.
Our giant debt bubble is beginning to burst, and this is going to cause a tremendous amount of financial chaos.
Let us just hope that the “too big to fail” banks can handle the stress this time around.
The very same people that caused the last economic crisis have created a 278 TRILLION dollar derivatives time bomb that could go off at any moment. When this absolutely colossal bubble does implode, we are going to be faced with the worst economic crash in the history of the United States. During the last financial crisis, our politicians promised us that they would make sure that “too big to fail” would never be a problem again. Instead, as you will see below, those banks have actually gotten far larger since then. So now we really can’t afford for them to fail. The six banks that I am talking about are JPMorgan Chase, Citibank, Goldman Sachs, Bank of America, Morgan Stanley and Wells Fargo. When you add up all of their exposure to derivatives, it comes to a grand total of more than 278 trillion dollars. But when you add up all of the assets of all six banks combined, it only comes to a grand total of about 9.8 trillion dollars. In other words, these “too big to fail” banks have exposure to derivatives that is more than 28 times greater than their total assets. This is complete and utter insanity, and yet nobody seems too alarmed about it. For the moment, those banks are still making lots of money and funding the campaigns of our most prominent politicians. Right now there is no incentive for them to stop their incredibly reckless gambling so they are just going to keep on doing it.
So precisely what are “derivatives”? Well, they can be immensely complicated, but I like to simplify things. On a very basic level, a “derivative” is not an investment in anything. When you buy a stock, you are purchasing an ownership interest in a company. When you buy a bond, you are purchasing the debt of a company. But a derivative is quite different. In essence, most derivatives are simply bets about what will or will not happen in the future. The big banks have transformed Wall Street into the biggest casino in the history of the planet, and when things are running smoothly they usually make a whole lot of money.
But there is a fundamental flaw in the system, and I described this in a previous article…
The big banks use very sophisticated algorithms that are supposed to help them be on the winning side of these bets the vast majority of the time, but these algorithms are not perfect. The reason these algorithms are not perfect is because they are based on assumptions, and those assumptions come from people. They might be really smart people, but they are still just people.
Today, the “too big to fail” banks are being even more reckless than they were just prior to the financial crash of 2008.
As long as they keep winning, everyone is going to be okay. But when the time comes that their bets start going against them, it is going to be a nightmare for all of us. Our entire economic system is based on the flow of credit, and those banks are at the very heart of that system.
In fact, the five largest banks account for approximately 42 percent of all loans in the United States, and the six largest banks account for approximately 67 percent of all assets in our financial system.
So that is why they are called “too big to fail”. We simply cannot afford for them to go out of business.
As I mentioned above, our politicians promised that something would be done about this. But instead, the four largest banks in the country have gotten nearly 40 percent larger since the last time around. The following numbers come from an article in the Los Angeles Times…
Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That’s up to $2.1 trillion.
And the assets of JPMorgan Chase & Co., the nation’s biggest bank, have ballooned to $2.4 trillion from $1.8 trillion.
During this same time period, 1,400 smaller banks have completely disappeared from the banking industry.
So our economic system is now more dependent on the “too big to fail” banks than ever.
To illustrate how reckless the “too big to fail” banks have become, I want to share with you some brand new numbers which come directly from the OCC’s most recent quarterly report (see Table 2)…
Total Assets: $2,573,126,000,000 (about 2.6 trillion dollars)
Total Exposure To Derivatives: $63,600,246,000,000 (more than 63 trillion dollars)
Total Assets: $1,842,530,000,000 (more than 1.8 trillion dollars)
Total Exposure To Derivatives: $59,951,603,000,000 (more than 59 trillion dollars)
Total Assets: $856,301,000,000 (less than a trillion dollars)
Total Exposure To Derivatives: $57,312,558,000,000 (more than 57 trillion dollars)
Bank Of America
Total Assets: $2,106,796,000,000 (a little bit more than 2.1 trillion dollars)
Total Exposure To Derivatives: $54,224,084,000,000 (more than 54 trillion dollars)
Total Assets: $801,382,000,000 (less than a trillion dollars)
Total Exposure To Derivatives: $38,546,879,000,000 (more than 38 trillion dollars)
Total Assets: $1,687,155,000,000 (about 1.7 trillion dollars)
Total Exposure To Derivatives: $5,302,422,000,000 (more than 5 trillion dollars)
Compared to the rest of them, Wells Fargo looks extremely prudent and rational.
But of course that is not true at all. Wells Fargo is being very reckless, but the others are being so reckless that it makes everyone else pale in comparison.
And these banks are not exactly in good shape for the next financial crisis that is rapidly approaching. The following is an excerpt from a recent Business Insider article…
The New York Times isn’t so sure about the results from the Federal Reserve’s latest round of stress tests.
In an editorial published over the weekend, The Times cites data from Thomas Hoenig, vice chairman of the FDIC, who, in contrast to the Federal Reserve, found that capital ratios at the eight largest banks in the US averaged 4.97% at the end of 2014, far lower than the 12.9% found by the Fed’s stress test.
That doesn’t sound good.
So what is up with the discrepancy in the numbers? The New York Times explains…
The discrepancy is due mainly to differing views of the risk posed by the banks’ vast holdings of derivative contracts used for hedging and speculation. The Fed, in keeping with American accounting rules and central bank accords, assumes that gains and losses on derivatives generally net out. As a result, most derivatives do not show up as assets on banks’ balance sheets, an omission that bolsters the ratio of capital to assets.
Mr. Hoenig uses stricter international accounting rules to value the derivatives. Those rules do not assume that gains and losses reliably net out. As a result, large derivative holdings are shown as assets on the balance sheet, an addition that reduces the ratio of capital to assets to the low levels reported in Mr. Hoenig’s analysis.
And you know what?
The guys running these big banks can see what is coming.
Just consider the words that JPMorgan Chase chairman and CEO Jamie Dimon wrote to his shareholders not too long ago…
Some things never change — there will be another crisis, and its impact will be felt by the financial market.
The trigger to the next crisis will not be the same as the trigger to the last one – but there will be another crisis. Triggering events could be geopolitical (the 1973 Middle East crisis), a recession where the Fed rapidly increases interest rates (the 1980-1982 recession), a commodities price collapse (oil in the late 1980s), the commercial real estate crisis (in the early 1990s), the Asian crisis (in 1997), so-called “bubbles” (the 2000 Internet bubble and the 2008 mortgage/housing bubble), etc. While the past crises had different roots (you could spend a lot of time arguing the degree to which geopolitical, economic or purely financial factors caused each crisis), they generally had a strong effect across the financial markets
In the same letter, Dimon mentioned “derivatives moved by enormous players and rapid computerized trades” as part of the reason why our system is so vulnerable to another crisis.
If this is what he truly believes, why is his firm being so incredibly reckless?
Perhaps someone should ask him that.
Interestingly, Dimon also discussed the possibility of a Greek exit from the eurozone…
“We must be prepared for a potential exit,” J. P. Morgan Chief Executive Officer Jamie Dimon said. in his annual letter to shareholders. “We continually stress test our company for possible repercussions resulting from such an event.”
This is something that I have been warning about for a long time.
And of course Dimon is not the only prominent banker warning of big problems ahead. German banking giant Deutsche Bank is also sounding the alarm…
With a U.S. profit recession expected in the first half of 2015 and investors unlikely to pay up for stocks, the risk of a stock market drop of 5% to 10% is rising, Deutsche Bank says.
That’s the warning Deutsche Bank market strategist David Bianco zapped out to clients today before the opening bell on Wall Street.
Bianco expects earnings for the broad Standard & Poor’s 500-stock index to contract in the first half of 2015 — the first time that’s happened since 2009 during the financial crisis. And the combination of soft earnings and his belief that investors won’t pay top dollar for stocks in a market that is already trading at above-average valuations is a recipe for a short-term pullback on Wall Street.
The truth is that we are in the midst of a historic stock market bubble, and we are witnessing all sorts of patterns in the financial markets which also emerged back in 2008 right before the financial crash in the fall of that year.
When some of the most prominent bankers at some of the biggest banks on the entire planet start issuing ominous warnings, that is a clear sign that time is running out. The period of relative stability that we have been enjoying has been fun, and hopefully it will last just a little while longer. But at some point it will end, and then the pain will begin.
The too big to fail banks have a larger share of the U.S. banking industry than they have ever had before. So if having banks that were too big to fail was a “problem” back in 2008, what is it today? As you will read about below, the total number of banks in the United States has fallen to a brand new all-time record low and that means that the health of the too big to fail banks is now more critical to our economy than ever. In 1985, there were more than 18,000 banks in the United States. Today, there are only 6,891 left, and that number continues to drop every single year. That means that more than 10,000 U.S. banks have gone out of existence since 1985. Meanwhile, the too big to fail banks just keep on getting even bigger. In fact, the six largest banks in the United States (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) have collectively gotten 37 percent larger over the past five years. If even one of those banks collapses, it would be absolutely crippling to the U.S. economy. If several of them were to collapse at the same time, it could potentially plunge us into an economic depression unlike anything that this nation has ever seen before.
Incredibly, there were actually more banks in existence back during the days of the Great Depression than there is today. According to the Wall Street Journal, the federal government has been keeping track of the number of banks since 1934 and this year is the very first time that the number has fallen below 7,000…
The number of federally insured institutions nationwide shrank to 6,891 in the third quarter after this summer falling below 7,000 for the first time since federal regulators began keeping track in 1934, according to the Federal Deposit Insurance Corp.
And the number of active bank branches all across America is falling too. In fact, according to the FDIC the total number of bank branches in the United States fell by 3.2 percent between the end of 2009 and June 30th of this year.
Unfortunately, the closing of bank branches appears to be accelerating. The number of bank branches in the U.S. declined by 390 during the third quarter of 2013 alone, and it is being projected that the number of bank branches in the U.S. could fall by as much as 40 percent over the next decade.
Can you guess where most of the bank branches are being closed?
If you guessed “poor neighborhoods” you would be correct.
According to Bloomberg, an astounding 93 percent of all bank branch closings since late 2008 have been in neighborhoods where incomes are below the national median household income…
Banks have shut 1,826 branches since late 2008, and 93 percent of closings were in postal codes where the household income is below the national median, according to census and federal banking data compiled by Bloomberg.
It turns out that opening up checking accounts and running ATM machines for poor people just isn’t that profitable. The executives at these big banks are very open about the fact that they “love affluent customers“, and there is never a shortage of bank branches in wealthy neighborhoods. But in many poor neighborhoods it is a very different story…
About 10 million U.S. households lack bank accounts, according to a study released in September by the Federal Deposit Insurance Corp. An additional 24 million are “underbanked,” using check-cashing services and other storefront businesses for financial transactions. The Bronx in New York City is the nation’s second most underbanked large county—behind Hidalgo County in Texas—with 48 percent of households either not having an account or relying on alternative financial providers, according to a report by the Corporation for Enterprise Development, an advocacy organization for lower-income Americans.
And if you are waiting for a whole bunch of new banks to start up to serve these poor neighborhoods, you can just forget about it. Because of a whole host of new rules and regulations that have been put on the backs of small banks over the past several years, it has become nearly impossible to start up a new bank in the United States. In fact, only one new bank has been started in the United States in the last three years.
So the number of banks is going to continue to decline. 1,400 smaller banks have quietly disappeared from the U.S. banking industry over the past five years alone. We are witnessing a consolidation of the banking industry in America that is absolutely unprecedented.
Just consider the following statistics. These numbers come from a recent CNN article…
-The assets of the six largest banks in the United States have grown by 37 percent over the past five years.
-The U.S. banking system has 14.4 trillion dollars in total assets. The six largest banks now account for 67 percent of those assets and all of the other banks account for only 33 percent of those assets.
-Approximately 1,400 smaller banks have disappeared over the past five years.
-JPMorgan Chase is roughly the size of the entire British economy.
-The four largest banks have more than a million employees combined.
-The five largest banks account for 42 percent of all loans in the United States.
-Bank of America accounts for about a third of all business loans all by itself.
-Wells Fargo accounts for about one quarter of all mortgage loans all by itself.
-About 12 percent of all cash in the United States is held in the vaults of JPMorgan Chase.
As you can see, without those banks we do not have a financial system.
Our entire economy is based on debt, and if those banks were to disappear the flow of credit would dry up almost completely. Without those banks, we would rapidly enter an economic depression unlike anything that the United States has seen before.
It is kind of like a patient that has such an advanced case of cancer that if you try to kill the cancer you will inevitably also kill the patient. That is essentially what our relationship with these big banks is like at this point.
Unfortunately, since the last financial crisis the too big to fail banks have become even more reckless. Right now, four of the too big to fail banks each have total exposure to derivatives that is well in excess of 40 TRILLION dollars.
Keep in mind that U.S. GDP for the entire year of 2012 was just 15.7 trillion dollars and the U.S. national debt is just 17 trillion dollars.
So when you are talking about four banks that each have more than 40 trillion dollars of exposure to derivatives you are talking about an amount of money that is almost incomprehensible.
Posted below are the figures for the four banks that I am talking about. I have written about this in the past, but in this article I have included the very latest updated numbers from the U.S. government. I think that you will agree that these numbers are absolutely staggering…
Total Assets: $1,947,794,000,000 (nearly 1.95 trillion dollars)
Total Exposure To Derivatives: $71,289,673,000,000 (more than 71 trillion dollars)
Total Assets: $1,319,359,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $60,398,289,000,000 (more than 60 trillion dollars)
Bank Of America
Total Assets: $1,429,737,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $42,670,269,000,000 (more than 42 trillion dollars)
Total Assets: $113,064,000,000 (just a shade over 113 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $43,135,021,000,000 (more than 43 trillion dollars)
Please don’t just gloss over those huge numbers.
Let them sink in for a moment.
Goldman Sachs has total assets worth approximately 113 billion dollars (billion with a little “b”), but they have more than 43 TRILLON dollars of total exposure to derivatives.
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 381 times greater than their total assets.
Most Americans do not understand that Wall Street has been transformed into the largest casino in the history of the world. The big banks are being incredibly reckless with our money, and if they fail it will bring down the entire economy.
The biggest chunk of these derivatives contracts that Wall Street banks are gambling on is made up of interest rate derivatives. According to the Bank for International Settlements, the global financial system has a total of 441 TRILLION dollars worth of exposure to interest rate derivatives.
When that Ponzi scheme finally comes crumbling down, there won’t be enough money on the entire planet to fix it.
We had our warning back in 2008.
The too big to fail banks were in the headlines every single day and our politicians promised to fix the problem.
But instead of fixing it, the too big to fail banks are now 37 percent larger and our economy is more dependent on them than ever before.
And in their endless greed for even larger paychecks, they have become insanely reckless with all of our money.
Mark my words – there is going to be a derivatives crisis.
When it happens, we are going to see some of these too big to fail banks actually fail.
At that point, there will be absolutely no hope for the U.S. economy.
We willingly allowed the too big to fail banks to become the core of our economic system, and now we are all going to pay the price.
The too big to fail banks are now much, much larger than they were the last time they caused so much trouble. The six largest banks in the United States have gotten 37 percent larger over the past five years. Meanwhile, 1,400 smaller banks have disappeared from the banking industry during that time. What this means is that the health of JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley is more critical to the U.S. economy than ever before. If they were “too big to fail” back in 2008, then now they must be “too colossal to collapse”. Without these banks, we do not have an economy. The six largest banks control 67 percent of all U.S. banking assets, and Bank of America accounted for about a third of all business loans by itself last year. Our entire economy is based on credit, and these giant banks are at the very core of our system of credit. If these banks were to collapse, a brutal economic depression would be guaranteed. Unfortunately, as you will see later in this article, these banks did not learn anything from 2008 and are being exceedingly reckless. They are counting on the rest of us bailing them out if something goes wrong, but that might not happen next time around.
Ever since the financial crisis of 2008, our politicians have been running around proclaiming that they will not rest until they have fixed “the too big to fail problem”, but instead of fixing it those banks have rapidly gotten even larger. Just check out the following figures which come from the Los Angeles Times…
Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That’s up to $2.1 trillion.
And the assets of JPMorgan Chase & Co., the nation’s biggest bank, have ballooned to $2.4 trillion from $1.8 trillion.
We are witnessing a consolidation of the banking industry that is absolutely stunning. Hundreds of smaller banks have been swallowed up by these behemoths, and millions of Americans are finding that they have to deal with these banking giants whether they like it or not.
Even though all they do is move money around, these banks have become the core of our economic system, and they are growing at an astounding pace. The following numbers come from a recent CNN article…
-The assets of the six largest banks in the United States have grown by 37 percent over the past five years.
-The U.S. banking system has 14.4 trillion dollars in total assets. The six largest banks now account for 67 percent of those assets and the other 6,934 banks account for only 33 percent of those assets.
-Approximately 1,400 smaller banks have disappeared over the past five years.
-JPMorgan Chase is roughly the size of the entire British economy.
-The four largest banks have more than a million employees combined.
-The five largest banks account for 42 percent of all loans in the United States.
As I discussed above, without these giant banks there is no economy. We should have never, ever allowed this to happen, but now that it has happened it is imperative that the American people understand this. The power of these banks is absolutely overwhelming…
One third of all business loans this year were made by Bank of America. Wells Fargo funds nearly a quarter of all mortgage loans. And held in the vaults of JPMorgan Chase is $1.3 trillion, which is 12% of our collective cash, including the payrolls of many thousands of companies, or enough to buy 47,636,496,885 of these NFL branded toaster ovens. Thanks for your business!
A lot of people tend to focus on many of the other threats to our economy, but the number one potential threat that our economy is facing is the potential failure of the too big to fail banks. As we saw in 2008, when they start to fail things can get really bad really fast.
And as I have written about so many times, the number one threat to the too big to fail banks is the possibility of a derivatives crisis.
Former Goldman Sachs banker and best selling author Nomi Prins recently told Greg Hunter of USAWatchdog.com that the global economy “could implode and have serious ramifications on the financial systems starting with derivatives and working on outward.” You can watch the full video of that interview right here.
And Nomi Prins is exactly right. Just like we witnessed in 2008, a derivatives panic can spiral out of control very quickly. Our big banks should have learned a lesson from 2008 and should have greatly scaled back their reckless betting.
Unfortunately, that has not happened. In fact, according to the OCC’s latest quarterly report on bank trading and derivatives activities, the big banks have become even more reckless since the last time I reported on this. The following figures reflect the new information contained in the latest OCC report…
Total Assets: $1,948,150,000,000 (just over 1.9 trillion dollars)
Total Exposure To Derivatives: $70,287,894,000,000 (more than 70 trillion dollars)
Total Assets: $1,306,258,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $58,471,038,000,000 (more than 58 trillion dollars)
Bank Of America
Total Assets: $1,458,091,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,543,003,000,000 (more than 44 trillion dollars)
Total Assets: $113,743,000,000 (a bit more than 113 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $42,251,600,000,000 (more than 42 trillion dollars)
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 371 times greater than their total assets.
How in the world can anyone say that Goldman Sachs is not being incredibly reckless?
And remember, the overwhelming majority of these derivatives contracts are interest rate derivatives.
Wild swings in interest rates could set off this time bomb and send our entire financial system plunging into chaos.
After climbing rapidly for a couple of months, the yield on 10 year U.S. Treasury bonds has stabilized for the moment.
But if that changes and interest rates start going up dramatically again, that is going to be a huge problem for these too big to fail banks.
And I know that a lot of you don’t have much sympathy for the big banks, but remember, if they go down we go down too.
These banks have been unbelievably reckless, but when they fail, we will all pay the price.
Would you be angry if you had to pay a big Wall Street bank a fee before you could get the money that you worked so hard to earn? Unfortunately, that is exactly the situation that millions of American workers find themselves in today. An increasing number of U.S. companies are paying their workers using payroll cards that are issued by large financial institutions. Wal-Mart, Home Depot, Walgreens and Taco Bell are just some of the well known employers that are doing this. Today, there are 4.6 million active payroll cards in the United States, and some of the largest banks in the country are issuing them. The list includes JPMorgan Chase, Bank of America, Wells Fargo and Citigroup. The big problem with these cards is that there is often a fee for just about everything that you do with them. Do you want to use an ATM machine? You must pay a fee. Do you want to check your balance? You must pay a fee. Do you want a paper statement? You must pay a fee. Did you lose your card? You must pay a big fee. Has your card been inactive for a while? You must pay a huge fee. The big Wall Street banks are systematically extracting enormous fees from the working poor, and someone needs to do something to stop this.
The truth is that most American families need every penny that they earn. In America today, 53 percent of all workers make less than $30,000 a year.
It is hard to do everything that you need to do on less than $2,500 a month. If you doubt this, you should try it some time.
That is one reason why the fees that the big Wall Street banks hit payroll card users with are so insidious. The following is a short excerpt from a recent CNBC article about this phenomenon…
But in the overwhelming majority of cases, using the card involves a fee. And those fees can quickly add up: one provider, for example, charges $1.75 to make a withdrawal from most A.T.M.’s, $2.95 for a paper statement and $6 to replace a card. Some users even have to pay $7 inactivity fees for not using their cards.
These fees can take such a big bite out of paychecks that some employees end up making less than the minimum wage once the charges are taken into account, according to interviews with consumer lawyers, employees, and state and federal regulators.
Devonte Yates, 21, who earns $7.25 an hour working a drive-through station at a McDonald’s in Milwaukee, says he spends $40 to $50 a month on fees associated with his JPMorgan Chase payroll card.
If you are just barely scraping by every month, can you really afford to be paying $50 a month in fees to the fatcats at JPMorgan Chase?
Of course not.
But JPMorgan Chase is far from alone. Just check out all of the fees that another large financial institution is hitting users with…
On some of its payroll cards, NetSpend charges $2.25 for out-of-network A.T.M. withdrawals, 50 cents for balance inquiries via a representative, 50 cents for a purchase using the card, $5 for statement reprints, $10 to close an account, $25 for a balance-protection program and $7.50 after 60 days of inactivity, according to an April presentation by the company reviewed by The Times.
They are taking advantage of extremely vulnerable people and they know it.
And we see this kind of thing happening with other types of cards as well. For example, in some states unemployment benefits are now deposited on prepaid debit cards, and the banks that issue these cards are more than happy to extract huge fees from unemployed people…
Shawana Busby does not seem like the sort of customer who would be at the center of a major bank’s business plan. Out of work for much of the last three years, she depends upon a $264-a-week unemployment check from the state of South Carolina. But the state has contracted with Bank of America to administer its unemployment benefits, and Busby has frequently found herself incurring bank fees to get her money.
To withdraw her benefits, Busby, 33, uses a Bank of America prepaid debit card on which the state deposits her funds. She could visit a Bank of America ATM free of charge. But this small community in the state’s rural center, her hometown, does not have a Bank of America branch. Neither do the surrounding towns where she drops off her kids at school and attends church.
She could drive north to Columbia, the state capital, and use a Bank of America ATM there. But that entails a 50 mile drive, cutting into her gas budget. So Busby visits the ATMs in her area and begrudgingly accepts the fees, which reach as high as five dollars per transaction. She estimates that she has paid at least $350 in fees to tap her unemployment benefits.
There is something that is so greedy about all of this.
When the financial crisis hit back in 2008, the big banks had no problem begging the entire nation for mercy.
But when it comes time to show mercy to the poor, they tell us that it is “just business”.
In America today, there are tens of millions of families that are just barely surviving from month to month. The big banks should not be preying on them like this.
With each passing year, the ranks of the working poor in this country continue to get larger. The following statistics are from one of my previous articles entitled “35 Statistics About The Working Poor In America That Will Blow Your Mind“…
#1 According to the U.S. Census Bureau, more than 146 million Americans are either “poor” or “low income”.
#2 According to the U.S. Census Bureau, 57 percent of all American children live in a home that is either “poor” or “low income”.
#3 Back in 2007, about 28 percent of all working families were considered to be among “the working poor”. Today, that number is up to 32 percent even though our politicians tell us that the economy is supposedly recovering.
#4 Back in 2007, 21 million U.S. children lived in “working poor” homes. Today, that number is up to 23.5 million.
#5 In Arkansas, Mississippi and New Mexico, more than 40 percent all of working families are considered to be “low income”.
#6 Families that have a head of household under the age of 30 have a poverty rate of 37 percent.
#7 Half of all American workers earn $505 or less per week.
#8 At this point, one out of every four American workers has a job that pays $10 an hour or less.
#9 Today, the United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.
#10 Median household income in the United States has fallen for four consecutive years.
#11 Median household income for families with children dropped by a whopping $6,300 between 2001 and 2011.
#12 The U.S. economy continues to trade good paying jobs for low paying jobs. 60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.
#13 Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.
#14 According to the U.S. Census Bureau, the middle class is taking home a smaller share of the overall income pie than has ever been recorded before.
#15 There are now 20.2 million Americans that spend more than half of their incomes on housing. That represents a 46 percent increase from 2001.
#16 Low income families spend about 8.6 percent of their incomes on gasoline. Other families spend about 2.1 percent.
#17 In 1999, 64.1 percent of all Americans were covered by employment-based health insurance. Today, only 55.1 percent are covered by employment-based health insurance.
#18 According to one survey, 77 percent of all Americans are now living paycheck to paycheck at least part of the time.
#19 Millions of working poor families in America end up taking on debt in a desperate attempt to stay afloat, but before too long they find themselves in a debt trap that they can never escape. According to a recent article in the New York Times, the average debt burden for U.S. households that earn $20,000 a year or less “more than doubled to $26,000 between 2001 and 2010“.
#20 In 1989, the debt to income ratio of the average American family was about 58 percent. Today it is up to 154 percent.
You can find the rest of the list right here.
The working poor simply cannot afford to be paying hundreds of dollars in fees to the big banks each year just to use the money that they worked so very hard to earn.
Unfortunately, we seem to be living during a time when the big financial institutions will squeeze every nickel that they possibly can out of average Americans no matter how high the human cost is.
When financial markets in the United States crash, so does the U.S. economy. Just remember what happened back in 2008. The financial markets crashed, the credit markets froze up, and suddenly the economy went into cardiac arrest. Well, there are very few things that could cause the financial markets to crash harder or farther than a derivatives panic. Sadly, most Americans don’t even understand what derivatives are. Unlike stocks and bonds, a derivative is not an investment in anything real. Rather, a derivative is a legal bet on the future value or performance of something else. Just like you can go to Las Vegas and bet on who will win the football games this weekend, bankers on Wall Street make trillions of dollars of bets about how interest rates will perform in the future and about what credit instruments are likely to default. Wall Street has been transformed into a gigantic casino where people are betting on just about anything that you can imagine. This works fine as long as there are not any wild swings in the economy and risk is managed with strict discipline, but as we have seen, there have been times when derivatives have caused massive problems in recent years. For example, do you know why the largest insurance company in the world, AIG, crashed back in 2008 and required a government bailout? It was because of derivatives. Bad derivatives trades also caused the failure of MF Global, and the 6 billion dollar loss that JPMorgan Chase recently suffered because of derivatives made headlines all over the globe. But all of those incidents were just warm up acts for the coming derivatives panic that will destroy global financial markets. The largest casino in the history of the world is going to go “bust” and the economic fallout from the financial crash that will happen as a result will be absolutely horrific.
There is a reason why Warren Buffett once referred to derivatives as “financial weapons of mass destruction”. Nobody really knows the total value of all the derivatives that are floating around out there, but estimates place the notional value of the global derivatives market anywhere from 600 trillion dollars all the way up to 1.5 quadrillion dollars.
Keep in mind that global GDP is somewhere around 70 trillion dollars for an entire year. So we are talking about an amount of money that is absolutely mind blowing.
So who is buying and selling all of these derivatives?
Well, would it surprise you to learn that it is mostly the biggest banks?
According to the federal government, four very large U.S. banks “represent 93% of the total banking industry notional amounts and 81% of industry net current credit exposure.”
These four banks have an overwhelming share of the derivatives market in the United States. You might not be very fond of “the too big to fail banks“, but keep in mind that if a derivatives crisis were to cause them to crash and burn it would almost certainly cause the entire U.S. economy to crash and burn. Just remember what we saw back in 2008. What is coming is going to be even worse.
It would have been really nice if we had not allowed these banks to get so large and if we had not allowed them to make trillions of dollars of reckless bets. But we stood aside and let it happen. Now these banks are so important to our economic system that their destruction would also destroy the U.S. economy. It is kind of like when cancer becomes so advanced that killing the cancer would also kill the patient. That is essentially the situation that we are facing with these banks.
It would be hard to overstate the recklessness of these banks. The numbers that you are about to see are absolutely jaw-dropping. According to the Comptroller of the Currency, four of the largest U.S. banks are walking a tightrope of risk, leverage and debt when it comes to derivatives. Just check out how exposed they are…
Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)
Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)
Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)
Bank Of America
Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)
Total Assets: $114,693,000,000 (a bit more than 114 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 362 times greater than their total assets.
To get a better idea of the massive amounts of money that we are talking about, just check out this excellent infographic.
How in the world could we let this happen?
And what is our financial system going to look like when this pyramid of risk comes falling down?
Our politicians put in a few new rules for derivatives, but as usual they only made things even worse.
According to Nasdaq.com, beginning next year new regulations will require derivatives traders to put up trillions of dollars to satisfy new margin requirements.
Swaps that will be allowed to remain outside clearinghouses when new rules take effect in 2013 will require traders to post $1.7 trillion to $10.2 trillion in margin, according to a report by an industry group.
The analysis from the International Swaps and Derivatives Association, using data sent in anonymously by banks, says the trillions of dollars in cash or securities will be needed in the form of so-called “initial margin.” Margin is the collateral that traders need to put up to back their positions, and initial margin is money backing trades on day one, as opposed to variation margin posted over the life of a trade as it fluctuates in value.
So where in the world will all of this money come from?
Total U.S. GDP was just a shade over 15 trillion dollars last year.
Could these rules cause a sudden mass exodus that would destabilize the marketplace?
Let’s hope not.
But things are definitely changing. According to Reuters, some of the big banks are actually urging their clients to avoid new U.S. rules by funneling trades through the overseas divisions of their banks…
Wall Street banks are looking to help offshore clients sidestep new U.S. rules designed to safeguard the world’s $640 trillion over-the-counter derivatives market, taking advantage of an exemption that risks undermining U.S. regulators’ efforts.
U.S. banks such as Morgan Stanley (MS.N) and Goldman Sachs (GS.N) have been explaining to their foreign customers that they can for now avoid the new rules, due to take effect next month, by routing trades via the banks’ overseas units, according to industry sources and presentation materials obtained by Reuters.
Unfortunately, no matter how banks respond to the new rules, it isn’t going to prevent the coming derivatives panic. At some point the music is going to stop and some big financial players are going to be completely and totally exposed.
When that happens, it might not be just the big banks that lose money. Just take a look at what happened with MF Global.
MF Global has confessed that it “diverted money” from customer accounts that were supposed to be segregated. A lot of customers may never get back any of the money that they invested with those crooks. The following comes from a Huffington Post article about the MF Global debacle, and it might just be a preview of what other investors will go through in the future when a derivatives crash destroys the firms that they had their money parked with…
Last week when customers asked for excess cash from their accounts, MF Global stalled. According to a commodity fund manager I spoke with, MF Global’s first stall tactic was to claim it lost wire transfer instructions. Then instead of sending an overnight check, it sent the money snail mail, including checks for hundreds of thousands of dollars. The checks bounced. After the checks bounced, the amounts were still debited from customer accounts and no one at MF Global could or would reverse the check entries. The manager has had to intervene to get MF Global to correct this.
How would you respond if your investment account suddenly went to “zero” because the firm you were investing with “diverted” customer funds for company use and now you have no way of recovering your money?
Keep an eye on the large Wall Street banks. In a previous article, I quoted a New York Times article entitled “A Secretive Banking Elite Rules Trading in Derivatives” which described how these banks dominate the trading of derivatives…
On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.
According to the article, the following large banks are represented at these meetings: JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup.
When the casino finally goes “bust”, you will know who to blame.
Without a doubt, a derivatives panic is coming.
It will cause the financial markets to crash.
Several of the “too big to fail” banks will likely crash and burn and require bailouts.
As a result of all this, credit markets will become paralyzed by fear and freeze up.
Once again, we will see the U.S. economy go into cardiac arrest, only this time it will not be so easy to fix.
Do you agree with this analysis, or do you find it overly pessimistic? Please feel free to post a comment with your thoughts below…
Rampant silver manipulation? Rampant gold manipulation? Rampant LIBOR manipulation? Hiding MF Global client assets? These are all happening at JP Morgan according to an open letter reportedly written by an anonymous employee of the firm. The whistleblower also warns of a “cascading credit event being triggered” by derivatives related to Greek government debt. Unlike Greg Smith at Goldman Sachs, this whistleblower has chosen to remain anonymous for now. According to the letter, the whistleblower is still an employee of JP Morgan and has not resigned. But that does make it much more difficult to confirm what he is saying. With Greg Smith, we know exactly who he is and what he was doing at Goldman. As far as this anonymous whistleblower is concerned, all we have is this letter. So we must take it with a grain of salt. However, the information in this letter does agree with what whistleblowers such as Andrew Maguire have said in the past about silver manipulation by JP Morgan. And this letter does mention Greg Smith’s resignation from Goldman, so we know that it must have been written in the past few days. Hopefully this letter will cause authorities to take a much closer look at the crazy things that are going on over at JP Morgan and the other big Wall Street banks.
This anonymous letter was addressed to the CFTC, but unfortunately it looks like the CFTC has already chosen to ignore it.
The original letter from this anonymous whistleblower has already been taken down from the CFTC website. When you go there now, all you get is this message….
“The Comment Cannot Be Found. Please Return to the Previous Page and Try Again.”
Fortunately, there are many in the alternative media that copied this entire letter from the CFTC website.
The following is a copy of the original letter that the anonymous whistleblower from JP Morgan submitted to the CFTC….
Dear CFTC Staff,
Hello, I am a current JPMorgan Chase employee. This is an open letter to all commissioners and regulators. I am emailing you today b/c I know of insider information that will be damning at best for JPMorgan Chase. I have decided to play the role of whistleblower b/c I no longer have faith and belief that what we are doing for society is bringing value to people. I am now under the opinion that we are actually putting hard working Americans unaware of what lays ahead at extreme market risk. This risk is unnecessary and will lead to wide-scale market collapse if not handled properly. With the release of Mr. Smith’s open letter to Goldman, I too would like to set the record straight for JPM as well. I have seen the disruptive behavior of superiors and no longer can say that I look up to employees at the ED/MD level here at JPM. Their smug exuberance and arrogance permeates the air just as pungently as rotting vegetables. They all know too well of the backdoor crony connections they share intimately with elected officials and with other institutions. It is apparent in everything they do, from the meager attempts to manipulate LIBOR, therefore controlling how almost all derivatives are priced to the inherit and fraudulent commodities manipulation. They too may have one day stood for something in the past in the client-employee relationship. Does anyone in today’s market really care about the protection of their client? From the ruthless and scandalous treatment of MF Global client asset funds to the excessive bonuses paid by companies with burgeoning liabilities. Yes, we at JPMorgan that are in the know are fearful of a cascading credit event being triggered in Greece as they have hidden derivatives in excess of $1 Trillion USD. We at JPMorgan own enough of these through counterparty risk and outright prop trading that our entire IB EDG space could be annihilated within a few short days. The last ten years has been market by inflexion point after inflexion point with the most notable coming in 2008 after the acquisition of Bear.
I wish to remain anonymous as of now as fear of termination mounts from what I am about to reveal. Robert Gottlieb is not my real name; however he is a trader that is involved in a lawsuit for manipulative trading while working with JPMorgan Chase. He was acquired during our Bear Stearns acquisition and is known to be the notorious person shorting in the silver future market from his trading space, along with Blythe Masters, his IB Global boss. However, with that said, we are manipulating the silver futures market and playing a smaller (but still massively manipulative) role in manipulating the gold futures market. We have a little over a 25% (give or take a percentage) position in the short market for silver futures and by your definition this denotes a larger position than for speculative purposes or for hedging and is beyond the line of manipulation.
On a side note, I do not work directly with accounts that would have been directly impacted by the MF Global fiasco but I have heard through other colleagues that we have involvement in the hiding of client assets from MF Global. This is another fraudulent effort on our part and constitutes theft. I urge you to forward that part of the investigation on to the respective authorities.
There is something else that you may find strange. During month-end December, we were all told by our managers that this was going to be a dismal year in terms of earnings and that we should not expect any bonuses or pay raises. Then come mid-late January it is made known that everyone received a pay raise and/or bonus, which is interesting b/c just a few weeks ago we were told that this was not likely and expected to be paid nothing in addition to base salary. January is right around the time we started increasing our short positions quite significantly again and this most recent crash in gold and silver during Bernanke’s speech on February 29th is of notable importance, as we along with 4 other major institutions, orchestrated the violent $100 drop in Gold and subsequent drops in silver.
As regulators of the free people of this country, I ask you to uphold the most important job in the world right now. That job is judge and overseer of all that is justice in the most sensitive of commodity markets. There are many middle-income people that invest in the physical assets of silver, gold, as well as mining stocks that are being financially impacted in a negative way b/c of our unscrupulous shorts in the precious metals commodity sector. If you read the COT with intent you will find that commercials (even though we have no business being in the commercial sector, which should be reserved for companies that truly produce the metal) are net short by a long shot in not only silver, but gold.
It is rather surprising that what should be well known liabilities on our balance sheet have not erupted into wider scale scrutinization. I call all honest and courageous JPMorgan employees to step up and fight the cronyism and wide-scale manipulation by reporting the truth. We are only helping reality come to light therefore allowing a real valuation of our banking industry which will give investors a chance to properly adjust without being totally wiped out. I will be contacting a lawyer shortly about this matter, as I believe no other whistleblower at JPMorgan has come forward yet. Our deepest secrets lie within the hands of honest employees and can be revealed through honest regulators that are willing to take a look inside one of America’s best kept secrets. Please do not allow this to turn into another Enron.
-The 1st Whistleblower of Many
If what this letter says is true, then the problems facing our financial system are more serious than most of us thought.
And the allegations of corruption at JP Morgan are absolutely shocking.
But this is not the first whistleblower to come forward to the CFTC with charges of rampant market manipulation by JP Morgan.
Back in 2010 I wrote about the stunning allegations that a former silver trader named Andrew Maguire presented to the CFTC. The following is an extended excerpt from that article….
Back in November 2009, Andrew Maguire, a former Goldman Sachs silver trader in Goldman’s London office, contacted the CFTC’s Enforcement Division and reported the illegal manipulation of the silver market by traders at JPMorgan Chase.
Maguire told the CFTC how silver traders at JPMorgan Chase openly bragged about their exploits – including how they sent a signal to the market in advance so that other traders could make a profit during price suppression episodes.
Traders would recognize these signals and would make money shorting precious metals alongside JPMorgan Chase. Maguire explained to the CFTC how there would routinely be market manipulations at the time of option expiries, during non-farm payroll data releases, during commodities exchange contract rollovers, as well as at other times if it was deemed necessary.
On February 3rd, Maguire gave the CFTC a two day warning of a market manipulation event by email to Eliud Ramirez, who is a senior investigator for the CFTC’s Enforcement Division.
Maguire warned Ramirez that the price of precious metals would be suppressed upon the release of non-farm payroll data on February 5th. As the manipulation of the precious metals markets was unfolding on February 5th, Maguire sent additional emails to Ramirez explaining exactly what was going on.
And it wasn’t just that Maguire predicted that the price would be forced down. It was the level of precision that he was able to communicate to the CFTC that was the most stunning. He warned the CFTC that the price of silver was to be taken down regardless of what happened to the employment numbers and that the price of silver would end up below $15 per ounce. Over the next couple of days, the price of silver was indeed taken down from $16.17 per ounce down to a low of $14.62 per ounce.
Because of Maguire’s warning, the CFTC was able to watch a crime unfold, right in front of their eyes, in real time.
So what did the CFTC do about it?
You can read the rest of that article right here.
So will the CFTC do anything about all of this?
Based on past history, probably not.
Basically, the CFTC is a government agency that appears to do next to nothing.
Another scandal involving JP Morgan has come out in recent days as well.
This one involves their credit card division. If you have a moments, you should really read the recent American Banker expose of credit card debt collection practices at JPMorgan Chase. It exposes some things that will absolutely blow your mind.
Linda Almonte, a former executive at JPMorgan Chase’s Credit Card Litigation Support Group, has revealed some incredible stuff regarding the debt collection practices at the company. Almonte says that she was shocked at what she saw when she began examining the details of a $200 million package of debt collection judgments to an outside debt collection agency….
Nearly half of the files her team sampled were missing proofs of judgment or other essential information, she wrote to colleagues. Even more worrisome, she alleged in her wrongful-termination suit, nearly a quarter of the files misstated how much the borrower owed.
In the “vast majority” of those instances, the actual debt was “lower that what Chase was representing,” her suit stated.
Almonte says that she warned that this sale of debt collection judgments must be stopped, but that a company executive told her that “she had better go along with the plan to sell the misrepresented asset“.
Almonte refused to go along, and she was fired on November 30th, 2009.
You are probably thinking that this sounds very much like the “robo-signing” foreclosure scandal and you would be right.
The more we dig into these giant financial companies the more corruption we find.
It really is shocking.
And remember, JPMorgan Chase is also the company that makes more money whenever the number of Americans on food stamps goes up.
JPMorgan Chase issues food stamp debit cards in 26 U.S. states and the District of Columbia, and they actually want more Americans to go on food stamps so that they can make bigger profits from the division that issues them.
So now are you starting to understand why so many Americans are upset about the corruption on Wall Street?
This isn’t a “conservative issue” or a “liberal issue” – it is an American issue and the outrageous behavior of these firms has brought our financial system once again to the edge of disaster.
Over the past six months, more than 350 prominent executives have resigned from major banks and financial institutions all over the globe.
Is this a sign that the rats are fleeing a sinking ship?
Do they know something that we don’t?
What we do know is that the financial crisis in Greece is far from over and the European financial system is getting closer to a complete meltdown with each passing day.
Very few of the things that caused the financial crisis of 2008 were ever corrected and our financial system is even more vulnerable today than it was back then.
In the end, this entire pyramid of debt, leverage and corruption is going to come crashing down really hard, and the consequences are going to be absolutely catastrophic.
Millions of Americans are about to get stabbed in the back by their banks. Bank of America, JPMorgan Chase, Wells Fargo, Citibank and several other large banks are either already implementing outrageous new bank fees or are currently testing them. So are these ridiculous new bank fees going to be enough to get millions of Americans to finally boycott the big banks? When millions of Americans start paying a $5 fee every month to use their debit cards and when millions of Americans start paying a $20 fee every single month just to have a checking account hopefully that will be enough to wake them up. These fees are certainly not going to cause an “economic collapse”, but they are incredibly annoying. The truth is that the big banks are trying to take advantage of us. It shouldn’t cost $60 a year just to use a debit card. It shouldn’t cost $240 a year just to have a checking account. What we need to do is to send an unequivocal message to the big banks: we don’t want your stinking bank fees and we are switching banks.
When I was growing up, I remember how banks would bend over backwards to get your business. The customer service was generally very good and banks were not gouging us with ridiculous fees.
But now thousands of smaller banks have been gobbled up by the banking giants and things have dramatically changed. The big banks don’t value us anymore. They seem to believe that they have a “captive audience” and that they can treat us however they want to.
Well, it is time for us to draw a line in the sand.
We didn’t mind so much that they were paying us next to nothing on our savings accounts.
We didn’t say too much when ATM fees soared into the stratosphere. For example, the average cost of using an “out of network” ATM in America today is approximately $3.81.
We didn’t even object too much when they started charging us fees for things such as getting paper statements, receiving wire transfers, or closing our accounts.
But now they have really crossed the line.
On October 1st, new federal regulations went into effect that capped what banks can charge merchants for debit card transactions.
The average fee on a debit card transaction used to be about 44 cents.
The new federal regulations cap the fee on merchants at 21 cents.
So will banks be unable to make money under these new regulations?
Well, according to U.S. Senator Dick Durbin, each debit card transaction costs the banks somewhere between 4 and 12 cents.
So a cap of 21 cents is not going to kill the banks.
However, it is going to hurt the profits that they have been making. The new rules are expected to reduce total bank revenue by a whopping $6.6 billion a year.
So what are the big banks doing about it?
Well, they have decided to recoup that revenue by sticking it to us.
For example, Bank of America recently announced that it is about to start charging a $5 per month debit card fee.
This has sparked a firestorm of criticism.
Even members of Congress are getting involved.
According to ABC News, U.S. Senator Dick Durbin stood on the floor of the U.S. Senate this week holding up a plastic debit card and launched into a tirade about Bank of America….
“Bank of America customers, vote with your feet, get the heck out of that bank,” Durbin said on the Senate floor. “Find yourself a bank or credit union that won’t gouge you for $5 a month and still will give you a debit card that you can use every single day. What Bank of America has done is an outrage.”
But that is not the only outrageous fee that you will be hit with at Bank of America.
If you want to get a basic checking account at Bank of America you will be slapped with a $12 monthly fee unless you maintain an average balance of at least $1,500.
Other large banks are instituting debit card fees as well.
Starting in November, SunTrust will be hitting account holders with a $5 per month debit card fee.
Last February, J.P. Morgan began testing a $3 per month debit card fee in Wisconsin.
Wells Fargo has also been testing a $3 per month debit card fee in certain markets.
But it is not just new debit card fees that are getting people upset.
For example, according to CNN large numbers of Citibank account holders will soon be paying a 15 or 20 dollar monthly fee if they do not maintain very high balances in their accounts….
Starting in December, customers who hold its mid-level Citibank Account will be charged $20 a month if they fail to maintain a minimum balance of $15,000 in their combined accounts. Previously, account holders had to carry a minimum balance of $6,000.
At the same time, customers who have the bank’s EZ Checking account will start being charged $15 a month if they don’t carry a minimum balance of $6,000.
They know that the vast majority of American families cannot afford to keep $6,000 sitting around.
It almost seems like the big banks are trying to eliminate as many small accounts as they can.
In the old days, virtually anyone could get a free checking account, but now all that has changed.
Sadly, the era of the free checking account seems to be ending. According to a recent survey by bankrate.com, only 45 percent of all checking accounts in the United States that don’t pay interest are still free. Two years ago that figure was sitting at 76 percent.
All over the nation, monthly fees on checking accounts are absolutely soaring. In 2010, the average monthly fee on non-interest checking accounts was $2.49. Today, the average monthly fee on non-interest checking accounts is $4.37.
It is almost as if the banks don’t even care about our money anymore. They don’t want to give us free checking, they don’t want to send us paper statements, they don’t want us to use tellers and they don’t even want to treat us with common decency.
The truth is that we are the ones that deserve some compensation for all of the lousy service that we have been receiving. For example, the Bank of America online banking system has been down for five days in a row.
The average American family is barely scraping by right now and cannot afford all of these outrageous fees. Right now, economic conditions are rapidly deteriorating and millions more Americans are falling into poverty every year. It is absolutely disgusting that these big banks are trying to drain hundreds of extra dollars a year out of each of us.
Well, perhaps we need to start voting with our feet. We need to tell the banksters that we don’t want their stinking bank fees and that we are switching banks.
There are lots of credit unions and small community banks that would be more than happy to have us as customers. Yes, banking with them might not be quite as “convenient”, but the big banks have pushed us way too far this time.
These new bank fees are beyond outrageous.
We cannot allow them to do this to us.
So do you have a story about how your current bank is abusing you? Are you completely frustrated with the big banks? Please feel free to share your thoughts below….
If you are part of the Wall Street establishment, the economic recovery is moving along quite well. Many of the biggest firms on Wall Street just handed out record-setting bonuses, the Stock Market has been moving up steadily and the DOW is back up to around 11,000. Profits at the top banks have been quite impressive lately. Bank of America, JPMorgan Chase, Citigroup and Wells Fargo combined for first quarter profits of $13.4 billion – the most in almost three years. Yes, life is quite good down on Wall Street these days. People are still buying fast cars, big yachts and homes in the Hamptons. It is almost as if “the greatest financial crisis since the Great Depression” didn’t even happen. Things are quickly getting back to “normal” for the banking elite and to many it seems like there are a lot more smiles down on Wall Street than there have been in a long, long time.
Bank of America’s chief executive officer, Brian T. Moynihan, is being quoted by Reuters as saying that “the worst of the credit cycle is clearly behind us” and that the economic growth we are experiencing is “real”.
JPMorgan CEO Jamie Dimon is quoted as saying that the U.S. economy may be poised for “a strong recovery”.
And why wouldn’t they say these things? Profits are up. Their stock portfolios are up. They are getting record bonuses. They know that if anything does go wrong again that their friends in Washington D.C. will bail them out because they are “too big to fail”.
But for tens of millions of other Americans, the economy seems like it is getting worse than ever. It is hard to explain the gut-wrenching agony that many highly-educated and highly-qualified American workers are going through as they send out hundreds of resumes only to get no response. Or the absolute frustration of only being able to get a very low paying retail job and realizing that it will not even be able to pay the mortgage – much less support an entire family. Or the soul-crushing despair of working two or three jobs and still not being able to pay the bills at the end of the month.
But these are the daily realities that millions of Americans must face now. The truth is that there are not nearly enough jobs for everyone. The number of unemployed Americans per job opening hit 5.5 in February. It is like we are all caught in some bizarre game of musical chairs, and the losers end up destitute and out in the street.
Even many of those who can get jobs find themselves in bad situations. Gallup’s underemployment measure hit 20.0% on March 15th. That was up from 19.7% two weeks earlier and 19.5% at the start of the year. A lot of very educated, very qualified people find themselves slaving away at jobs that high school students are qualified for.
But the ones being hurt the worst by this unemployment epidemic are the poor. Check out the following chart. At the end of 2009, the unemployment rate for those at the top end of the income scale in the United States was about 3%. For those at the bottom of the income scale, the unemployment rate was about 30%….
It isn’t the boys down on Wall Street that are losing their homes and their jobs.
No, they are “too big to fail”.
It is millions of ordinary Americans that are losing their homes and their jobs.
And things keep getting worse.
According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March. This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report in January 2005.
Not only that, but RealtyTrac projects that there will be a total of 4.5 million home foreclosures by the end 2010. If you figure that there are approximately 4 people per household, that is another 18 million people that will be facing the pain of a foreclosure filing.
For many Americans, losing their home to foreclosure is just too much. For example, one man in Ohio actually decided to bulldoze his own home rather than let the bank take it in foreclosure proceedings.
Because of the extreme economic conditions, millions of Americans are in severe pain and are becoming increasingly desperate. In some of the most depressed areas, crime is absolutely spiralling out of control. So far this year in Detroit, car thefts are up 83%, robberies are up 50%, burglaries are up 20% and property destruction is up 42%.
Adding to all of this economic despair is the fact that food and gas prices are starting to shoot up.
In some areas of the United States, people are already paying as much as $3.50 for a gallon of gasoline, and many experts are now predicting that gasoline could hit $4.00 a gallon by the end of 2010.
Not only that, but wholesale food prices rose 2.4% in March, matching the biggest gain in 26 years.
So while the economic recovery is buzzing along quite well down on Wall Street, the reality is that for millions of other Americans things are really hard. In fact, not even the smaller banks are experiencing much of a recovery. The FDIC’s list of problem banks just hit a 17-year high.
No, the main beneficiaries of this “economic recovery” are the boys over on Wall Street. They should enjoy it while it lasts, because even harder economic times are on the way, and the reality is that none of us will be able to completely escape the economic pain that is coming.
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