Banks are also running up interest rates and fees on credit card rates in an effort to boost profits before the new credit card reforms take effect next year.58 This year, Citigroup has raised interest rates on 13-15 million credit cardholders, by an average 24%, or nearly three percentage points.59 Bank of America, JPMorgan Chase, and Capital One also hiked up interest rates on many of their cardholders that had never missed a payment.60 Bank of America had already been arbitrarily raising interest rates on at least one million play-by-the-rules, pay-on-time customers even before the bailout.61 Bank of America, Chase, and Discover have all raised transaction fees for balance transfers on credit cards by at least 20%.62 As Senator Durbin said of the US Senate, "Frankly speaking the banks own this place," or words to that effect. http://www.huffingtonpost.com/2009/04/29/dick-durbin-banks-frankly_n_193010.html
Cutting Small Business Loans
Even though bailout funds were intended to get banks to start lending again, the banks have drastically reduced their small business lending. When small businesses like Republic Windows and Doors in Chicago lose their financing, they often have to shutter their doors, leading to mass layoffs. In a National Small Business Association survey, the 56% of small businesses that have problems finding credit reported having to lay off employees as a result.63 Between October 2008 and April 2009, small business lending through the Small Business Administration's main program decreased 42% over the previous year.64 Meanwhile, the national unemployment rate skyrocketed, from 6.2% in September 2008 to 9.7% in August 2009.65
But at the same time that banks are cutting small business loans, they are continuing to lend to large corporations and private equity firms. For example, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs, and Morgan Stanley all helped finance the $68 billion Pfizer-Wyeth merger, which will likely result in thousands of layoffs.66 Bank of America, JPMorgan Chase, Citigroup, and Morgan Stanley are all among the banks providing $3.1 billion in financing to help private equity-owned Warner Chilcott buy Procter and Gamble's drug business.67
Standing in the Way of Reform: After crashing the economy and taking trillions of dollars in bailouts and backstops, the banks are now using our own money against us!
The fact is that they are spending millions of dollars of our money to lobby against reforms that would protect us from their abuses in the future. In the nine months following the bailout, companies in the financial, insurance, and real estate sector (which includes banks and other bailed-out companies like the insurance giant AIG), spent $321 million on lobbying.68 The top six banks alone spent $28.4 million lobbying during this time.69
Many banks lobbied against policies that would help protect Americans, both as taxpayers and consumers. They fought against:
- The formation of Brooksley Born's Consumer Financial Protection Agency to protect consumers' interests;70
- Limits on executive compensation and bonuses to ensure banks don't use taxpayer dollars to pay out bonuses;71
- The regulation of overdraft fees to protect American consumers from misleading and potentially predatory bank policies;72
- Credit card reform, including caps on interest rates and a ban on anytime-for-any-reason rate hikes;73
- Loan modification proposals to help keep millions of Americans in their homes;74
- A ban on payday lending.75
Bottom line: The big banks' predatory and abusive business practices cost us trillions of dollars in lost wealth and brought the economy to the brink of collapse. Now they are fighting an all out war to preserve the ability to do it all over again, and they are using our money as the ammunition!
A Real Economic Recovery
Now that the big banks are back to profitability, their promoters would have us believe that the worst is behind us. Wall Street celebrates "green shoots' in the economy and points to signs of an economic recovery. But Main Street is still hurting.
Déjà vu. The market was celebrating signs of recovery last year too, just months before the Lehman Brothers collapse. In July 2008, according to the Los Angeles Times, President George Bush tried to calm the markets by saying, "We will come through this challenge stronger than ever before. Our economy has continued growing, consumers are spending, businesses are investing, exports continue increasing, and American productivity remains strong."76 A month later in late August, the new GDP report showed US economic growth to be "much stronger than previously believed."77 And finally, two weeks later, on September 15th, the morning that Lehman collapsed, Senator John McCain asserted forcefully that "the fundamentals of our economy are strong."78
Similarly, this year, we've seen repeated efforts to sound the trumpets and declare victory prematurely. For example, even though the market has celebrated big banks profits so far this year, the Huffington Post reported that "The percent of banks that lost money [in the second] quarter set an all-time high."79 In fact, the percentage of banks that were unprofitable in the first half of 2009 is up 59% from last year. In fact, 2008 was the industry's worst year for profitability -- and 2009 is currently on pace to beat it.80
This has been going on all summer. First in May, even before the results of the Treasury Department's "stress tests" of the largest financial institutions came out, the New York Times reported that the Obama administration "seems prepared to argue that"the broad financial system is healthier than many investors fear."81 So here we go again.
The stress tests showed that the biggest financial institutions needed to raise an additional $75 billion.82 It was later revealed that the number had actually been revised downwards at the behest of the banks, and that the Federal Reserve's initial findings had put the number even higher.83
Then in June, Dow Jones reported that a decline in credit card delinquencies in the previous month was "igniting hope of a turnaround among investors of plastic," even though the same article also noted that actual credit card losses had continued to climb.84 A month and a half later, the government celebrated that "the overall economy contracted at an annual rate of only 1 percent in the spring quarter."85
