My name is Dirk Adams, and I'm a Montana rancher and Democrat running for U.S. Senate in Montana. Find out more about me at the Dirk Adams for Senate website. Today I'm writing about the banking crisis and how to solve it.
America is recovering from the worst economic crisis since the Depression. Big banks crushed the home mortgage market, driving home prices to 50% of stable market prices or lower. In this crisis, little community banks, 1000 of them, including mine, were wiped out, not bailed out. Big banks, on the other hand, just got bigger. In fact, they got huge.
Before the recession, no one bank controlled even 5% of the total mortgage market, which is the largest market in the world, Now five banks control almost 80% of the market. How did that happen? Government and corporate cronyism and the corporate capture of government. The result is government policies that favor the big over the small, the corporate over the individual, and in the case of banking, government policies that favor big banks at the expense of community banks.
Community banks are closer to the people they serve. Decision-making is local. In community banks, bankers are bankers. Compare this to, for example, JPMorgan Chase and its CEO Jamie Diamond. J.P. Morgan Chase is a $2 TRILLION bank in every major market in the world. They are not "regulated." They drive regulations. The Federal Reserve has no problem with banks of this magnitude because it makes the Federal Reserve, itself, "important." There's more cache in "regulating" big banks than small community banks. It's known as "regulatory capture." However, the Federal Reserve did not act as regulators. They missed all the signs. Then, when it all unraveled they came after the little guys.
And nothing's changed other than the big guys got bigger, as did their crimes. J.P. Morgan Chase has since manipulated the aluminum market; lied about the value of derivatives in Jefferson County Alabama, breaking the county; cornered the energy market in California; hid 6 billion in losses from exotic trading; and engaged in bribery in China, aside from the mortgage fraud that preceded it all. Critics have said they're a racketeering enterprise, not a bank.
We need to reinstate the Glass-Steagall Act which was repealed by the Financial Modernization Act of 1999. The Financial Modernization Act collapsed the wall between commercial banking and investment banking. And in a provision little noticed at the time, it authorized banks to enter ANY line of business that was complementary to financial activities.
Of course since just about every economic activity involves money, every economic activity is complementary. Which explains why "today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs own oil tankers, run airports and control huge quantities of coal, natural gas, heating oil, electric power and precious metals. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to metals like zinc, copper, tin, nickel and, most infamously thanks to a recent high-profile scandal, aluminum."(Read more here.)
Big banks need to be broken up. No purpose exists for this type of size and only corruption and mayhem can result.
I'm a former bank regulator. I blew the whistle on over 30 institutions in the '90s and played a key role in bringing down Charles Keating. My community bank, throughout the recession, never varied from its business plan and was well regarded in the country.
But a business plan can't include an event like the housing crash. If anticipating such an event, the only logical course of action would be don't make mortgage loans. Our portfolio included no sub-prime loans. The portfolio was sold intact, just as it was, to Wall Street traders. There was nothing wrong with those loans. There was a plan in place to save the bank but the plan wasn't allowed to move forward.
The community bank went down along with 1000 others because housing values collapsed by 50%. Generally speaking, there are three reasons why people don't pay their mortgages. They lose their jobs. They get divorced. They get sick. Add the recession to these life events, and houses wouldn't sell at their true and fair value.
The Too Big to Fail argument has got to go. Our own federal government recognized the criminality of these institutions yet said it would potentially be too disruptive to the global economy to tarnish their reputations with prosecutions. Yet, the little guys were taken down.
There are issues of scale, but the analogies are everywhere - the small businesses that are pushed out by policies favoring corporations; retirements are lost while big banks are rescued; the rich kid pays a fine and goes to rehab while the poor kid goes to jail.
The assets of the smaller are lost to the larger, or individual lives are used to serve monied interests. It's a defining issue of our times.
As your U.S. Senator I will support polices that break up the big banks and support community banking. I know this world from the inside-out and will use that knowledge to target these policies that are threatening our democracy and destroying our middle class.
Agree with this? Join me at adamsformontana.com.