In the pathbreaking 1960s movie about two Depression-era bank robbers (and lovers) “Bonnie and Clyde,” there is a scene in which Clyde tells an inquiring stranger, with pride, “we rob banks.” The stranger seems impressed, for banks were much-hated villains in those days. Many thousands of banks around the country had closed their doors overnight and had wiped out the life savings of millions of Americans. Well, this time around it seems the banks are robbing us.
First there were the hundreds of billions of taxpayer dollars used to bail out the banks (some of which went straight to their bottom lines) followed by a quick return to paying out multi-million dollar bonuses to their executives. Then there were the taxpayer funds intended to stimulate lending that the banks instead hoarded. Then it seemed that a corrupt mortgage lending system had morphed into an equally corrupt mortgage foreclosure system in which an array of probably illegal practices (like robo-signing of documents) were being used by some of our largest banks and mortgage lenders to boot delinquent homeowners out of their homes.
The haste to foreclose, rather than to renegotiate the loans, had to do with the banks’ incentives; there were fees to be had for foreclosing, but not for renegotiating. Among the many outrages that resulted were the notorious cases where banks foreclosed on homeowners who didn’t even have a mortgage. No kidding!
The result of the banks’ foreclosure frenzy was predictable (except to the bankers): the glut of foreclosed houses pushed depressed home prices even lower and produced more downward pressure on home prices, which led to even more foreclosures – a vicious circle. Now the banks are holding off on foreclosing, while some homeowners are enjoying free rent (temporarily), a practice which ensures that home prices will remain low for many years to come.
Meanwhile, bank consolidation continues, exacerbating the “too big to fail” danger, while bank profits have hit record levels (the financial industry accounted for a full one-third of our corporate profits last year), and salaries and perks are back to “normal.”
As for the new financial regulations, they amount to a pat on the wrist for the banks. Nevertheless, they have been lobbying aggressively to water them down and to gut the new consumer protection agency. The banks have never flinched on such outrageous credit traps as the 7.9 percent teaser rate on credit cards, with a “bump” to 29.9 percent if a cardholder is late on a payment even by one day. It used to be called usury.
The Goldman Sachs CEO Lloyd Blankfein famously claimed that our bankers are “doing God’s work.” I wonder which God he had in mind.