Taking the Banks to Task - A way forward for Occupy

Taking the Big Banks to Task

By: Robbie Lindauer
Why Big Banks?

The largest banks in the United States, those deemed "Too Big To Fail" have a monetary advantage over the rest of us. Their ability to borrow money directly from the Federal Reserve Bank at special rates not available to every citizen makes them a government-subsidized privileged class. Their special position as insurance beneficiaries of the FDIC, NCUA and FSLIC makes them "too big to fail". The special tax break for mortgage interest is an effective tax incentive to be in debt to them and giving them an unfair business advantage thereby. The government backed mortgage banks, Fannie Mae and Freddie Mac, provide liquidity for intermediate mortgage banks by assuring them that these mortgages are going to be re-sellable. These several Federal Subsidies for the Banking Industry combine to give the industry as a whole, and the largest most powerful banks in particular, a gigantic government sponsored economic advantage.

They've used this advantage to become primary holders of almost every major publicly traded corporation worldwide and many, many privately held corporations, and they've done this at the expense of the American Tax Payer, especially the Middle Class and the Poor. Their symbiotic relationship with the Federal Government via their constant and well funded Lobbying and Political Action Groups gives them effective control over both the economy and the government of the United States and by extension the world by using the US Military. This power they use worldwide to continue to consolidate their power without regard for human or environmental well-being, resulting in Wars, Famines, Oil-dependency, Globalization, "economic downturns", the lack of a social safety net, etc.

Failure to address this core problem is failure to address any of the resultant problems - as long as the power to control our economy and political process remains in the hands of a very small number of people there can be no justice, no peace, no prosperity and no sustainable freedom for Americans or any other citizens of the world.

What to do about it?

That much, you probably already know, and if you're sympathetic with the 99% of people in the world who aren't in control of the government and economy of the World, you may be interested in finding out how to stop this Injustice. Now is a time of increased awareness of these problems and increased willingness to do something about it. Bank Transfer Day proved that we can act together as a group to change our system. But it didn't -work-. How, then, should we direct this energy and awareness?

That's the question I hope to answer in this short essay - How can we break the power of the American Banks over our Political Process?

How Can We Win?

This is not going to be easy. The people that have that much power didn't get it overnight and don't have any desire to give it up and have demonstrated their willingness to use force to preserve their power. They've used that symbiotic relationship to make the possibility of even introducing legislation to control it odious by artificially inflating the price and complicating the process of running for office; as a result those seats of power are now effectively bought and paid for. In Oregon, for instance, you can't even get onto a ballot without a year's advance notice and a significant outlay of cash. The result is a two party system where both sides are "the lesser of two evils" from one point of view or another - and rampant political cronyism in "both" parties.

But we can win, with Solidarity and Concerted Action.

Understanding the Problem - An Economic Path

The best way to understand the scope of the problem is to look at Mortgage Lending since the pain from the last sting on that topic has not subsided and it is the core income system for the industry. The availability of easy credit effectively defines the ability of people to buy houses. When there is abundant credit, more people can buy houses, when more people can buy houses, the prices of real estate goes up and the demand for new building goes up. Demand for new building sparks economic activity in construction, advertising, human resources, etc. driving the whole economy into perceived "prosperity" - everyone has a job and a house and things are looking up.

On the other hand, when credit is tight fewer people can afford to buy houses, prices of housing goes lower, demand for new homes goes down, people lose their jobs and the whole economy goes into a slump, a recession. Sound familiar? This is exactly what happened in 2006 when the Federal Reserve Bank raised the prime interest rate from .5% to 5% over the course of 17 adjustments in a single year. The result has been catastrophic and culminated in two enormous taxpayer funded bailouts for the country's largest banks - TARP 1 and TARP 2, together "The Bailout". But without ending the credit squeeze, the market for housing is still slow, economic activity is low and the recession continues. This contraction of credit is decided unilaterally by the Federal Reserve Board, which is made up of members chosen by the country's largest banks (Chase, Citigroup, Bank of America, Wells Fargo, etc.) and independently of the elected government of the United States. The Bailouts, first authorized by a Republican - George Bush - and second by a Democrat - Barack Obama -, have only had the tendency to further benefit those large banks. Chase, for instance, used the money to show a 94 Billion-Dollar Profit in the same year that they received their bailout under the category "extraordinary gain" - a bailout that they now say that they didn't even want. (Of course they could simply return the money if they didn't want it.) The stated intention of the bailout was to loosen the credit market to stimulate economic activity but instead many of these banks put that money back into the Federal Bonds market - easy money - rather than into the job-starved US economy. Why risk money when the US government could be on the hook for it?

That leads us to how banks make money. Banks make money on the difference between the cost of having money (interest paid out) and the cost of loaning money (interest received). As long as their cost of money is low and the rate of interest they charge on their loans is high, they make money. The more loans they have and the higher the interest on those loans, the more money they make. It's that simple. This is why we receive the constant barrage of offers of credit and why they solicit your savings business.

The Move Your Money project was a good first step. Consumer Savings provides an abundant source of cheap money (the .05% you earn on your savings is consistently less than the overnight rate the banks get from the Federal Reserve Bank and less than the interest they charge on their consumer loans by far). Taking away that source of very cheap money is a great idea. It slims the profit margins available to banks by increasing the cost of the money to them. But it does not solve the problem because the Federal Reserve Bank can provide as much cheap money as necessary to the member banks as they want. Yes, that's exactly right; banks are encouraged to borrow from each other to cover short-term expenses but can borrow as much money as they want from the FED to cover their expenses as long as the FED agrees. But since these giant banks run the FED independently that amount is effectively unlimited. This subsidy will be very hard to change without legislative action and as we've seen, this is unlikely given the current status of national politics, but more on this later.

This leaves one other way we can affect the business of the largest banks - the margin. We need to cut off their ability to make a margin on their loans. This means lowering the interest paid on loans and/or their overall return on those loans. What is needed is a method for accomplishing that goal.

In fact, banks take losses on a small percentage of their loans all the time and write them off as bad debt. This happens when someone goes bankrupt or just decides not to pay them back. They also occasionally rewrite interest rates on specific loans rather than taking a complete loss on them. Typically the bigger and less secure the debt, the more likely they are to be interested in renegotiating the matter. Thus if it's a mortgage, they're much less interested in renegotiating terms because they believe that people will not want to lose their homes. For credit cards, they're likely to renegotiate more readily. Debt Relief firms try to do this for individuals at a price with varying degrees of success. But that's a limited number of people who go through the debt relief process and the amount lost through this process is part of the business plan of these banks - they know that some of their debt is going to be bad. On the other hand, what if LOTS of their debt was bad, or even ALL of their debt was bad. If that happened, the bank would suffer losses, driving down their stock price and leaving less for executive bonuses and lobbying efforts.

Group Action

The potential for Group Action here is tremendous. If a lender sees that a very large segment of their debt is at risk, they're going to want to mitigate that risk. If the cost of recovering some of those at-risk assets is large they're even more likely to be willing to negotiate them. Individual debtors seldom have enough debt to make negotiating with them useful but large groups clearly do and would. If there were a powerful Debtors Union this problem could be solved by pure economics. For instance, if all 48 Million Mortgage Holders simply stopped paying their mortgages the banks would have no ability to respond because they would have no cash flow to pay their lawyers to initiate and complete the foreclosure process. And if that union were well organized they would be able to defend themselves legally further driving up the cost of trying to collect on those loans.

In most states a Demand for the Original Note is sufficient to initiate the process and suspend payments to the bank until they are able to produce the original signed mortgage document that states that they own the debt on the property in question. Parallel processes exist for credit cards, auto loans and other kinds of debt.

This leads me to my first conclusion - we need a Debtors Union with divisions for Educational, Home, Credit Card and Auto debt armed with the ability to make group negotiation of terms easy and for the exclusive benefit of the buyers.

A Political Path

The other side of this problem is political. At this point the largest banking conglomerates have managed to gain tremendous influence in congress, in the white house and in the judicial branch - so much so that they're able to leverage that influence to their advantage in many, many ways. They will surely continue to do this, perhaps even making the idea of Debtors Unions illegal, for instance. We can't let this happen either. This means putting an end to 'business as usual politics' by interrupting that process.

At local levels where city politicians are required to be more responsive to their constituency this is possible. City recalls of city governments are more often effective and the numbers of people likely to agree on single subject in specific localities are high.

This means running candidates and generating referendum legislation for local issues in order to put in place laws at the city level to protect people from the predatory behavior of the big lenders. A great example is the Oakland County Foreclosure Prevention Initiative, which punishes banks in a variety of ways for foreclosing or holding foreclosures after the date of the foreclosure. If every jurisdiction in the country adopted this law banks would have much more incentive to negotiate with homeowners rather than foreclosing on them. More aggressive measures could clearly be adopted, e.g. insisting that all foreclosed properties be sold immediately at auction to the highest bidder, or by putting more stringent laws into effect for initiating foreclosure processes and for finalizing them.

Similar measures can be taken for Student Debt, Unsecured Credit Card Debt, Car Loans, Small Business Loans, etc.

This leads me to my political conclusion - we have to stop looking to Washington to solve these problems - it's not on their agenda. But we can solve them at home - right in our backyards - by effecting city-level policy that is beneficial to the 99% of Americans who aren't benefitting from the Debt system to which we are as a country currently enslaved. This means Occupying the City Councils of small cities throughout the country and Ashland is as ripe as any for some change.

A Final Word on Solidarity

America has changed a lot since I was a child. When I was 5 and 6 my family lived in Burlington, Kansas, population approximately 1000 people total. It was a community of farmers and Native Americans. One family's farm had a bad year and the mortgage they'd taken out on their farm to finance the feed was too much for them to pay, and the bank initiated a foreclosure process on them. The judge ordered the family's possessions and house auctioned to the highest bidder on a certain date. On the auction day, the sheriff set up on the highway and redirected traffic away from the foreclosure sale location, and so only people who knew exactly where it was were able to attend. Those in attendance, the neighbors who knew where the auction was, all bid a dollar for every piece up for auction including the farm itself. The total won at auction by the bank that day was around $300. The family now destitute left the auction heartbroken. But then something miraculous happened. Outside the auction, every person who'd bought something at the auction offered to sell the items back to the family, including the farm, for the dollar that they'd paid for it. The family, as you've guessed, didn't even have the three hundred dollars to pay for their own stuff at the auction price. The judge who ordered the foreclosure proceeding then lent the family the $300 required to buy back all of their things and said they could pay him back whenever they got around to it.

I don't know what happened to THAT America of my childhood. I loved THAT America. I hope that this America can be THAT America one day.

In conclusion - if we want to solve our country's problems, it's got to start locally with group actions aimed at removing the Debt by whatever means possible. I've made an attempt to start such a union on Facebook here (https://www.facebook.com/groups/moveyourdebt/) but I could use your help, please help - with solidarity we can make this work by identifying the mortgage, credit card, student loan and auto-loan holders able and willing to take group action to stand up to the Banks holding our country hostage.

Thanks for your patience and attention

In Solidarity,

Robbie Lindauer