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Sunday, March 19, 2017

Retail Banking is a Destructive Conflict of Interest

Banks aren't in the retail industry; they are essential services you can't function without. They should be non-profit to avoid the inherent conflict of interest and they need to be to actively regulated.

The main reason banks tells us we need a credit card is to establish a credit rating. The main reason for establishing a credit rating is for getting loans from banks who give out the credit cards. Notice a problem? It’s a vicious pressure cycle of debt for profit. 

Banks were created to eliminate loan sharks and to lubricate and stabilize the financial system. Banks should be financial only through deposits, loan interest, and bonds. No stocks. Issuing stocks makes them beholden to shareholders shifting their primary focus away from a stable financial system to maximizing share value and profit, not to mention executive bonuses. This turns them into the very loan sharks they were supposed to eliminate.

Deregulation has been a universal neoliberal disaster. We all know how hard it is to regulate ourselves, and we don’t have massive profits involved. Self-regulation is no regulation, anarchy. Criminals thrive in anarchy as do tyrants. Regulation limits and protects. 

Just having a check done on your credit rating that isn’t followed by a loan reduced your rating.
It is said that because most people are invested in banks through pension funds and the like profit for banks is good for everyone. This doesn’t justify the behaviour; it makes us complicit in our own exploitation, in usury. Credits rating have become the chains of modern economic slavery.
Credit has replaced labour (defined as time and effort) as the basis of our currency, for the money supply. Banks control credit and thus money. They don’t sell goods and services; they control the financial system and the value of currency. They determine who is in society and who is out because you can’t do much these days without a bank account or credit card. Without a banks account you8 have to pay fees to just get the money you earn. We are supposed to be clients they advise not customers they exploit. Exploitation is the basis of most retail.

Banks were permitted to exist to help regulate and infuse cash into the system, not to skim off profit. This drains the economy and is why when a financial industry grows too large, the economy suffers.  Currency isn’t a good or service but a representation of the labour used to produce such. It has no inherent value. It shouldn’t be possible to make money off of money because this produces nothing of real value, just an increase in abstract numbers. It is a trick of math and the very definition of inflation. Things don’t demand more time or effort to produce but everything gets more expensive because the currency itself has less real value.  The apparent growth in total wealth is just an economic illusion.

The more complex, arcane, and opaque a system is, the more likely it is to be based on utter nonsense or to be a screen for criminal activity. Accounting is basic math: 1+1=2 not 2+10%. The current system is a literal attempt to get money from nothing and that’s magical thinking not the basis of a stable, productive economic system or society. It becomes trapped in the inevitable boom and bust cycle of the stock market. Buy low and sell high. A financial system needs to be reliable for its users than a casino. Right now banks are the House. That’s why they record profits every year, despite the economic reality around them. The House always wins.

If an enterprise is too big and essential to be allowed to fail because of market conditions, it is too vital to be controlled buy those markets. It is too big for private ownership and to be driven by market behaviour which is short-sighted, opportunistic, and amoral. Because it is the basis of system, it spreads throughout the system and society until there is no way to refuse, resistance becomes futile and even nations must bow.

The financial industry has become a chain on the transmission instead of a stabilizing lubricant. The engine is roaring, overheating, and starting to cease in order to go nowhere fast while making a damn loud noise. Banks don’t care as long we keep paying them for gas.
They even punish you with fees for responsible financial behaviour, such as getting a credit card and not using it. Anything to push up the debit and the profit, keeping you chained to the system.
It’s all for our benefit you know.

The sharks are only circling us for our protection.

Banks Are Spending Billions To Make Rich People Richer

Big banks have blown $157.4 billion buying up their own stock since the financial crisis.

Bryan R. Smith/AFP/Getty Images
The CEO of America’s largest bank made a startling announcement last week: His company has too much money, and he plans to throw away its profits on rich people.
He didn’t quite put it that way, of course. In his annual letter to shareholders, JPMorgan Chase CEO Jamie Dimon boasted about his company buying $25.7 billion of its own stock over the past five years, and hinted it could buy back another “big block of stock this year” to further boost share prices.

At their best, stock buybacks (also known as “share repurchases”) are essentially pointless. At their worst, buybacks drain resources from productive economic activity to provide a cheap high for Wall Street. Companies buy their own stock to raise the stock price: Removing shares from the market elevates the value of those that remain. Money is funneled from corporate coffers to shareholders.

Companies could, of course, do other things with their profits. They could raise pay for their employees or provide better benefits. They could develop new product ideas or upgrade old equipment to improve future production. The point of a company, after all, is not simply to generate and distribute cash, but to solve problems for society, or at least invent cool stuff that makes life more interesting and fun. This doesn’t have to be altruistic ― inventing awesome stuff raises stock prices when the awesome stuff sells.

Buybacks overwhelmingly benefit rich people. Less than 22 percent of Americans own $25,000 or more in stock, even through retirement accounts, according to research from New York University economist Edward N. Wolff. Those who own lots of stock are heavily concentrated at the top. More than 92.8 percent of households making at least $250,000 a year own at least $10,000 in stock, compared with just 19.1 percent of households earning between $25,000 and $49,999. Households in the top 1 percent receive an average of 36 percent of their income from capital gains (stocks, bonds and other financial investments), according to the Congressional Budget Office, while those in the lowest 20 percent receive an average of about 5 percent of their income this way.
Some of the wealthy people who benefit most from buybacks are corporate CEOs, who generally receive most of their compensation in stock.

Alissa Scheller/The Huffington Post

To fuel the economy, banks don’t have to make or invent anything that people use. They just have to extend financing to people who want to make stuff, or to people who want to buy it. This isn’t charity ― banks earn big profits by lending. 

But sometimes they’d rather just buy their own stock. Since the financial crisis, the nation’s six largest banks have spent a combined $157.4 billion buying up their own stock, according to data from S&P Global Market Intelligence. JPMorgan, Goldman Sachs and Wells Fargo have spent over $36 billion each. All six of those banks declined to comment for this article.

Defenders of stock buybacks argue they can be a useful corporate strategy in a weak economy. If companies can’t find a market for their products, then placating investors through buybacks isn’t a terrible use of funds until the economy turns up. Big Bank buybacks don’t fit that pattern ― they’ve expanded tremendously during the last five years of economic recovery, nearly quadrupling from $10.6 billion in 2012 to $41.9 billion in 2016.

Alissa Scheller/The Huffington Post

Dimon’s annual missives aren’t really for his shareholders ― they’re public political statements from America’s most prominent banker. In the latest edition, he noted that trillions of dollars in war spending, mass incarceration and the student debt explosion have damaged the economy. But while he didn’t offer specific policy remedies for those political problems, he did make recommendations on economic policy, arguing that excessive capital and liquidity regulations are tying up money his bank could deploy to put people to work.

Dimon called for weakening these rules, which require banks to rely on less debt and hold more cash in case of trouble. Maybe it’s true that not one dollar of the more than $9 billion JPMorgan spent on buybacks in 2016 could have gone toward making a good loan to a creditworthy business. But if so, weakening capital and liquidity rules won’t help banks get more money out the door ― the economy is just out of good lending opportunities. In that scenario, JPMorgan would have nothing productive to do with the money freed up by weakening capital and liquidity rules. The broader economy would be shouldering more risk in order to further enrich wealthy bank shareholders without seeing any increase in lending.

Big banks have a history of being reckless with buybacks. Citibank swallowed up over $7.5 billion of its own stock in 2006 and 2007, before it needed a government bailout, as University of Massachusetts Lowell economics professor William Lazonick noted in 2008. Morgan Stanley spent over $7 billion on buybacks over the same period before it too needed to be bailed out. Bear Stearns spent $6 billion before needing a government-backed rescue from JPMorgan. Lehman Brothers spent over $5 billion before missing the bailout train and going bankrupt.  

It’s one more way Wall Street fuels economic inequality.
Zach Carter is a co-host of the HuffPost Politics podcast “So That Happened.” Listen to the latest episode, embedded below: 

To listen to this podcast later, download the show on iTunes. You can also find it on Google Play MusicRadioPublic, or Acast.