Too big to fail or so big they best fail? One of the main tenets of capitalism is competition. In the United States now, after the 2008 banking bailout, we ended up with a few banks holding the majority of our deposits. Bank of America, Wells Fargo, JPMorganChase, and Citigroup are the banks that hold most of our funds. These are also the banks that we bailed out in 2008. What has changed since then? Was the bailout a good thing? Would, should, could we do it again?
Well, as a nation we threw a lot of money, in 2008, at the banks and trusted them to make things right again. We did nothing to ensure that the issues that got the banks in trouble were corrected. Now, nearly four years after the bailout, these same banks are still not doing well. Bank of America is struggling to keep its head above water. It’s stock is in free fall and has lost some 40% in the last month. Granted the whole market has been pretty volatile in the last week but aside from that even, Bank of America stands out among its banking peers.
According to some it is the unregulated hedge funds behind the scenes that is the source of the real problems with the banking industry. Hedge funds do not have to report their holdings and are not accountable to the SEC like other securities. This leads to a lack of transparency on the part of the banks.
Both of these videos describe the same issues. The first video was made in 2009 while the other was done today, August 2011. Nothing has changed!
According to Professor Joseph Stiglitz, two time Noble prize winner and Columbia University professor of economics, the solution is to let the banks fail. Bailing them out would just lead to more of the same. This time we would need to allow them to fail and allow them to be taken over by the government to be run as public entities for the good of the people.
After watching the Professor speak in this second video it seems clear the course of action required. In addition to this methodology I see it as our responsibility to take intelligent action to mediate our own risk.
How does one go about that you ask? Publicly traded banks have shareholders and bottom lines to answer to. They are doing whatever they can to make more money to stay ahead of the competition. With the now limited competition they are working to more than ever to line the pockets of the CEO’s and the major stock holders.
Community credit unions on the other hand are operated by and for the members. They are backed by the FDIC just like the big banks but they are driven by totally different motives. They are run in a manner that allows and requires them to be transparent in all their dealings. I have found that they are much more responsive to the members they service than any corporate banking institution that falls under the “Too big to fail” umbrella. I have been a customer of all the big four mentioned above. I speak from experience that my local credit union outshines any of the four big banks in every way.
Beyond my peace of mind that my money is secure and being used for the benefit of the other credit union members also living in our community, I am confident that undue risks are NOT being taken with my funds to pay huge sums to the CEO so he/she can live in a mansion and drive a fancy car. It is banking as it should be. You can also benefit from the security and community support offered by your local credit union.
I recommend finding a credit union that is only local, serving just your county or state. Shop around and do yourself and this country a favor. We don’t need the big banks to carry on our business. Life can be simpler and easier if we divest ourselves of the milking machines that are sucking us dry as a nation. Let’s build communities of people that take care of each other. I want to live in a community where I know my neighbors and my banker and live a happier less stressful life.
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