The big banks profit at our expense in many ways. They certainly know how to monetize their relationship with the government. Two egregious examples recently came to light.
1. JP Morgan Chase Profits From Food Stamps
There has been an increase in the number of Americans receiving food stamps in recent years to about 43 million today. The total US population is about 307 million people. That means that more than 10% of the population is on food stamps. How does this benefit one of the biggest banks in the world? It turns out JP Morgan has contracts with state governments to issue debit cards for food stamp recipients.
2. Big Banks Profit From Short Sales
The stated purpose of the FDIC is to insure investor deposits in the event of a failed bank. In reality, the FDIC enables fractional reserve banking by providing a psychological barrier against depositors questioning the banking system. Why should you care if your bank fails when the FDIC will step in and make sure your deposits are returned to you?
With all the bank failures lately the FDIC has been busy. Their modus operandi has been to arrange a buyer for the failed bank ahead of closing it down. Then the federal agents come in on a Friday and close down the failed bank, transfer the accounts to the purchasing bank and open the doors of the failed bank under a new name by Monday morning.
But there is the rub. With more banks failing, the list of potential buyers shrinks. In order to entice a buyer the FDIC is prepared to make sweet heart deals enabling the kind of arbitrage plays that can only be made by participants with big money. The FDIC will often let the purchasing bank buy the debt obligations of the failed bank at a steep discount and even guarantee the purchasing bank against losses. This leads to a can’t lose deal for the purchasing banks. This YouTube video explains how these deals lead to profits and rent seeking by the acquiring banks.
These profits schemes are worthy of outrage, but what positive actions can you take as a result of these examples coming to light? Do not support the large banks by giving them your business. These institutions already have their hand in your pocket via your tax payments. Consider using a small local bank or a credit union. Make use of cash where possible to deny the large banks the profits from the transaction fees associated with credit and debit cards.