Sunday, October 16, 2011

Why I'm in favor of Bank Transfer Day

Abstract (since this it so long):
  • For Occupy Wall Street to survive/expand, a broader population of Americans needs to get involved
  • At this moment in the country, there is a general frustration with our government, but also a lack of options for how to change it
  • "Bank Transfer Day" is a good next step for getting people involved in financial reform, because:
    • A lot of people are not satisfied by how the bail-outs of banks were handled; 
    • Americans are not generally satisfied as customers of the big four being Bank of America; Citibank; Chase; and Wells Fargo)
    • A lot of customers are upset that Bank of America and others will now be charging for debit card use
  • Transferring to a credit union
    • Will may you happier because the customer service is good at it feels good to bank with a local, not-for-profit institution
    • Empowers people to "vote" with their money
    • Sends a message that we don't want to support "too-big-to-fail" corporations
  • It won't change the world, in itself, but it is a good way to vote with your money.

Here is a question: Why, three years after the economic collapse and bail-out, do we still have banks that are "too-big-to-fail"? Look at what our financial ecosystem looks like these days:
(Image source: unknown, but it's all over Facebook)

A lot has already been written about divesting from the big banks and putting our money in local, member-owned credit unions. I thought I'd just add my own perspective.

As I noted in an earlier post, I support the Occupy Wall Street movement, but I have been thinking a lot about how a protest can expand into a movement that can influence our legislators. I think one thing is certain about OWS: We don't really know where it is going or how it will grow. Many people dismissed it as a radical extremist cause; it could have been snuffed out, but it wasn't, and it continues to survive and morph (friends who are down there tell me that despite the media slant, the crowds are diverse and by no means extremist).

I believe that there has been a populist-vibe in the country for some time now, but no one, I think, knew what to do in the face of a government as dysfunctional as ours. The scope of the institutional problem is humongous, and the absence leaders is disappointing that it just feels daunting (here I am definitely including myself). I'm talking about average Amercans who don't have the time, energy, or social support to get involved in direct action or advocacy, but who don't like the way this country is headed and want more representation. I'm not talking about the anti-Tax Tea Party here. Most people support higher taxes and social services. For instance, a Washington Post poll recently found that 68% of adults supported raising taxes on households making over $250,000, and 53% of Republicans supported this! If more than half of the Republican support this, that tells us that this is not as controversial an idea as pundits and politicians make it out to be, and that we are a lot less divided than we think.

If people feel generally unhappy with the situation but don't feel like their representatives are on their side, this is a recipe for disengagement and apathy. I don't blame them either; I feel apathetic, and just making a living and raising a family takes a lot of time and energy. I believe that what will get the average American involved is a personal stake in the situation, and a simple, specific step they can take which is personally beneficial and will make them feel empowered.

I think Bank Transfer Day, and other manifestations of this cause, are a perfect next step to get Americans involved, for a few reasons: 1) A large number of people in this country are not satisfied by how the bail-outs of banks were handled; you don't have to be an economist in a suit to smell something fishy; 2) Americans are not generally satisfied as customers of these giant institutions (the big four being Bank of America; Citibank; Chase; and Wells Fargo) - that is, they don't have a lot of brand-loyalty; many customers just don't know that they have other options; 3) At this current moment, a lot of customers are pissed off that Bank of America and others will now be charging for debit card use, claiming that this is necessary due to the very mild restrictions imposed by the Dodd–Frank Wall Street Reform and Consumer Protection Act - specifically the Durbin Amendment (for an overview of why this is B.S. on the banks' part, see this NYT Op-Ed).

The combination of these three factors means that a lot of Americans who would not otherwise join a protest may be willing to go to some trouble to shift to local credit unions. A big factor in this: People who use credit unions like them. I know I do. I switched over from Washington Mutual to Washington State Employees Credit Union in about 2004, and I've never looked back. If you look at the comments on the Bank Transfer Day site, you will find that a lot of participants are people who have been in credit unions for years or decades, but just want to express their enthusiasm. There may be psychological reasons for this (we tend to value things we chose, just because we chose them, but that's another post) but in my experience, people get better customer service and have stronger sense of belonging and community when we bank with a community organization - especially a credit union (see my next post for what a credit union is). They are owned by members (i.e., customers), not by shareholders.

But the benefits to the customer are not the main point. So what is the point? As I said above, we don't know what OWS will turn into, and we also don't know what BTD will turn into either. We don't know if it will impact the banks financially. Regardless, I think the main point is about empowerment. People (many of "the 99%", that is) feel disempowered and trapped in a system that does not care about them. The act of "voting" with their money is a way to take some power back. By switching to a credit union, people are saying that they want to keep their money in a smaller, local institution whose primary concern is towards its customers, not towards its shareholders.  I think this is good in itself.

What about impacts? First, we are not talking about a bank run, which involves a mass withdrawal of cash from financial institutions in response to fears about the bank's solvency. Since banks loan out more than they hold as investments, they can easily run out of money in such an event. There are several differences, in this case: 1) People will be withdrawing their money from banks at different times, not all on one day. This allows banks to plan ahead; 2) They aren't hiding their money under a mattress, keeping the money out of circulation, but are investing them in credit unions so that the cash can be loaned out and invested locally; 3) It is not an action responding to fear about the immediate stability of the bank.

Even so, some have argued that there is a risk of bringing about another bank bailout, or even another recession, if too many people do this. Considering that individual customers' funds make up a small percentage of a banks total assets, I don't think that this is likely. Banks do stand to loose profit (from debit use and fees), but they are not going to go broke. Meanwhile, credit unions across the country are being strengthened, and will begin loaning out money, without skimming profit off the top for shareholders.

I think that if there is enough momentum on this, it will get the attention of our politicians. It will show that there is a groundswell of support for financial reform, and that we as a nation are not happy with the "too-big-to-fail" model. This won't, in itself, change the system, but it is a start, by voting with our dollars.

What we need, in the end, is legislative reforms that regulate banks so that they start doing what they used to do: Save people's money, and loan money out to people. This is not a controversial goal, and many have made this argument already. That system worked quite well for many decades. In 1933, the Glass-Steagall Act was passed to regulate banks to make sure that they did not get involved in the type of speculation that brings about depressions. Banks were divided into two categories: Commercial and Investment banks, which were kept separate so that your savings account could not be used for risky investments. Then, in 1999, the act was repealed (this was in response to intense lobbying by the financial industry, of course; Clinton signed off on it, demonstrating that this isn't just about corrupt Republicans). Over the last decade, banks and investment firms got involved in risky investments (in order to maximize shareholder profit, which is what they do). This led to their failure and bail-out when those investments turned out to be bad. The Frank-Dodd Act was passed later to set up some reforms, but it is generally considered insufficient, and there is little movement in congress to enact stronger reforms, or to re-enact Glass-Steagall (probably because of the level of lobbying and campaign contributions by banks).

Besides regulating the risks they take with our money, we need to break up banks so that there are no companies that are "too-big-to-fail". That is a recipe for disaster, because those companies are by nature devoted to shareholder profit, not to supporting a healthy economy, and they will act in the interest of shareholders, which may, as we've seen, be in direct contradiction to the interest of the nation as a whole. This is why it makes sense to refer to these companies as "Systemically Dangerous Institutions".

(I didn't come up with this on my own. Others who know a lot more about the economy seem to agree - at least the ones who want a better future for the country and not just for the top 0.5%. There is of course disagreement, but it seems clear to me that anyone arguing against financial reform is probably worried that they will make less money as a result. Matt Taibi at the Rolling Stone provides a good overview of what other financial reforms the OWS movement should call for.)

How can we communicate this to our politicians when they are really working for big business? Vote with our votes, but also with our money. Bank Transfer Day will send an important message to our leaders, and could help bring about greater financial restrictions. It will also feel good to walk into a local credit union and know they are working for you!

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