Wall Street goes by rules different from those applied to you and me.
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A trio of bank runs at Silicon Valley Bank (SVB), Signature and Silvergate Bank probably has you sitting up and paying attention, possibly biting your nails. Is this the beginning of another financial unraveling? How could a tech bank as important and big as SVB go broke?
President Joe Biden and U.S. Treasurer Janet Yellen were both quick to reassure us—Don’t worry!— because worry is only one step removed from panic and more bank runs by worried depositors.
Although 93 percent of SVB’s deposits were uninsured by the Federal Deposit Insurance Corporation (FDIC), Biden said all the deposits of Silicon Valley—not just the insured ones up to $250,000 each—would be available to depositors. The banks themselves would pay whatever it took.
The question is: Which banks will pay, and how much? And what of other U.S. bank problems showing up?
On April 21, Moody’s credit rating agency marked down the ratings of 11 U.S. banks and put five more on negative watch. This led to their also downgrading the nation’s whole banking system from “Very Strong” to “Strong+.” If that doesn’t sound so bad, you may remember 2008’s crash of questionably AAA-rated mortgage securities.
Taifa Smith Butler, the new president of Demos, the nation’s best-known multiracial economic justice organization, commented in a recent interview with Ms. about an apparent double standard when it comes to banks like SVB, Signature and Silvergate: “The government has not asked questions of the banks for this latest bailout—protecting the priorities of banks and shareholders. But for the rest of us, not so much.”
She added: “It’s important for Demos to be on the ground and keep our eyes on financial institutions. We have to have public accountability.”
The best example of that double standard is 2008’s bank meltdown and the government’s Troubled Asset Relief Program (TARP) rescue plan, which loaned $426.4 billion to failing bank firms. Meanwhile, nearly 10 million Americans, in mostly Brown and Black neighborhoods, lost their homes, getting “not so much” help. TARP proposed a tenth as much, $46 billion, for helping just four of 10 million foreclosures—but fewer than 800,000 were avoided by the end of 2010 when TARP expired.
Wall Street goes by rules different from those applied to you and me for, say, a comparable overdrawing of our bank account. Matthew Desmond, in Poverty, By America, wrote that as more community banks shuttered post-2008 and Wall Street banks grew bigger, by 2019 account holders were paying over $11.6 billion in overdraft fees. Admittedly this was largely paid by only 9 percent of customers. Who were they?
Those who carried an average balance of less than $350.
Clearly, owning a Wall Street bank pays off better than owning a used Honda. Because bank credit becomes a debit whenever you use it, bank credit cards could more accurately be called debt cards, with interest added in. Credit’s root, the Latin credo, literally means, “I believe.” Wall Street’s biggest players keep saying to the public: “I believe you will pay.”
And boy, do we. Forbes reported in March of this year that Americans paid an average credit card interest rate of 24.16 percent, while Business Insider found that U.S. banks return the favor by paying Americans an average 0.37 percent for bank use of our savings deposits.
The government has not asked questions of the banks for this latest bailout—protecting the priorities of banks and shareholders. But for the rest of us, not so much. … It’s important to keep our eyes on financial institutions. We have to have public accountability.Taifa Smith Butler
Housing is the asset that most Americans invest in for growing generational wealth. While the GI Bill benefitted white veterans from WWII, making mortgages in suburbia ultra-cheap, our government’s racist redlining devalued whole neighborhoods, enriching others. White families today have 10 times the wealth of Black families for painful reasons.
More accurately, most families who boast of “owning” their own homes are still up to their eyeballs in mortgage debt to banks who technically own the property until paid in full— the reason your bank can kick you out and foreclose, no matter your buy in.
Smith Butler put it this way: “We’ve seen that, historically, banks have discriminated with predatory loans and real estate speculation to the detriment of Black and brown communities … while financing fossil fuels that harm the climate. We have to reimagine banking for reinvestment in the public good, bolstering community banks and credit unions and cooperative ownership.”
Demos publishes what it calls “economic explainers,” short papers to show how a more democratic and just economy is possible. This month they tackled concentrated corporate power. Last May, they published an important case study of Public Banking NYC’s collaborative efforts to establish a publicly capitalized bank. “Banking for the Public Good” Is available online for learning about what may be unfamiliar:
“The city of New York deposits, transfers and circulates billions of public dollars annually through commercial banks. Yet few New Yorkers know where those municipal funds go, or whether they’re ever reinvested in NYC’s economy. Public Bank NYC rejects the idea that banking is, above all else, a profit-driven, individual endeavor. Instead, it envisions banking as a public good: collective and community-driven.”
If you worry that’s pie in the sky, 100 years ago, North Dakota’s citizens reimagined banking, creating the Bank of North Dakota (BND). It effectively acts as a counterbalance to Wall Street global banks and their profit-chasing booms and busts. Using public funds, the citizens of North Dakota became owners of their own accountable bank, even enjoying profits returned to the state’s general fund.
BND invests in farms, education, infrastructure and businesses on Main Street. It often backs up the loans of community banks and credit unions, making larger projects possible and safer. North Dakota has more small banks/credit unions per capita than any other state.
Around the world, hundreds of publicly capitalized banks reliably support needed local investments. This isn’t socialism. It is sensible, local self-care. It remains capitalism and aims to profit, but its purpose isn’t enriching a few already rich bankers. Instead, it makes the public its shareholder. Do you know where your state’s money is?
In 2019, California passed a Public Banking Act, thanks to the widespread grassroots coalition work of the California Public Banking Alliance. That state’s citizens are now in the process of creating regional public banks, committed to financing regional needs. This past April 11, the Berkeley City Council approved Public Bank East Bay’s viability study, following similar city votes in Richmond and Oakland. East Bay activists say they are leading a national movement, sharing tools others can use to organize. Their slate of diverse and accountable candidates for their board includes more than token women and people of color.
Community-minded women have been key organizers from the beginning. If you’d like to learn more about what other coalitions in other states besides New York and California are doing, The Public Banking Institute (PBI), founded by Ellen Brown, author of Web of Debt and The Public Bank Solution, regularly shares news, and helps inform activists.
Women’s International League for Peace & Freedom (WILPF-U.S.), Susan Harman of East Bay Public Banking and a feminist educational alliance called An Economy of Our Own (AEOO) have developed a Public Banking Learning Circle especially for women, intending to make this more widely available with the help of those interested in systemic change. (WILPF, Ellen and I are active members of AEOO’s educational alliance; so are Riane Eisler, Carmen Rios, Jhumpa Bhattacharya, Didi Pershouse, Crystal Arnold and other women actively redefining economics.)
“It’s a great opportunity,” Taifa Smith Butler said last month about the then-latest crash of the Silvergate, Signature and Silicon Valley Banks. “We can use these bank crises to change the narrative.”
Reimagining banking on Main Street, where bank failures land, just got more urgent. Without a well-informed public, Jamie Dimon, CEO of ‘too big to fail’ JPMorgan Chase (recently named Wall Street’s “riskiest bank”) may succeed in his own efforts to “change the narrative.” Monday morning, May 1, he was quick to announce the crisis that began with SVB, Silvergate and Signature bank “is now over.”
How? JP Morgan Chase had just outbid other buyers in the FDIC’s weekend auction of the assets of First Republic, yet another busted bank. It’s the biggest bust since 2008. He might as well have ended his announcement with: What?! Me, worry?
More bloviated mansplaining of Wall Street’s double standard could become a double whammy, if you consider 2008’s biggest ever U.S. bank failure of Washington Mutual. WM’s bankrupted assets were also purchased by—wait for it—a TARP-bailed JPMorgan Chase, reported at year-end 2022 with its own uninsured U.S. deposits of over a trillion bucks.
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