I duke it out once in a while with other commentators at Seeking Alpha. It is interesting that some have said buyer beware is the mindset people should have when buying a house or any financial product. Indeed, bankers have gotten a really bad reputation with robo signing and document failures. Rortybomb has a great article with flow charts showing the trail of irresponsibility on the part of the financial system. You can see from the charts that this is not just a question of looking at the documents. It is a question of whether bankers can be trusted.
One of Jimmy Stewart’s first movies was the 1946 classic, It’s a Wonderful Life. In the movie, the small savings and loan banker is nearly ruined by a big property owner who takes a deposit needed to pay a loan. Apparently the authors of the movie valued trust people have with their bankers.
Jimmy Stewart plays the part of a man, George Bailey, who sets up a housing project to get around Mr Potter’s high rents. Mr Potter, a major shareholder in the Baily Building and Loan, wants Stewart to stop making (non-usurious) loans to the poor in the community. Mr Potter ends up stealing money that was in a newspaper given to him by accident, which was meant for the building and loan.
Potter files bank fraud charges against George, and George contemplates suicide. Indeed, as he is stopped from suicide, his guardian angel shows him how the town would be without him. It would have been called Pottersville, with many bars and pawn shops around. The movie basically holds bankers to a high level of trust, and views the quality of life in the town as being dependent upon the honest banker.
George ends up getting a loan from a friend, and charges of bank fraud are dropped. The town is saved from Mr Potter, thug that he was.
So, fast forward to today. We have bankers who are in the payday loan business with usury up to their eyeballs. We have bankers who make loans that are unsustainable, without sound underwriting, and without any trust involved whatsoever.
And yet, on the Seeking Alpha boards, we have many who are telling us that we were fools if we took out a loan on too much house. I don’t see George Bailey guiding anyone into loans like that. I don’t see George Bailey making loans to poor people where he could borrow from the Fed at less than one per cent and lend out at over three hundred per cent plus fees. You wouldn’t ever see a trusted banker engaged in these activities.
After the depression, and the balloon loans and other shenanigans, bankers were pretty well behaved, and yes, trusted, all the way up until around 1995 when payday lending made the scene. Then with subprime and alt a and option arms and all manner of lending that trusted bankers would never consider, we have the Ponzi lending scam that drove up prices only to see them crash. Feudally, the bankers, without even bothering to get their paperwork in order, started to foreclose en masse like lords of the Dark Ages. They threw out seniors and should be charged with senior abuse, as well as others, without even a paper trail of proof that they own the note!
Ok, if that is the new reality regarding bankers, there are peaceful and effective ways that people can fight back:
We can all be as frugal as the depression generation. I remember my parents were very careful about credit. They saw wages drop in the great depression while their bills stayed constant. There is no better way than to learn that hard lesson, to make a person frugal.
We can have fewer kids. This really hurts bankers because there are fewer people to borrow if there is a declining population. This is what is happening in Japan and in some of Europe.
We can walk away from unsustainable loans that I have argued were not based upon banker/borrower trust, but were in fact a giant Ponzi scam that was premeditated.
We can understand that the lending system does not create enough money to pay the interest on money created, and therefore understand that the money Ponzi scheme can be broken by frugality.
While there is a debate over money as being a ponzi, there are really only two ways to deal with the debt that is inevitable if money is issued as debt. One is to continue to keep getting robust loans to feed the system. This is Madoff multiplied by a big number. Or debt can be defaulted on and go away. Ancient Israel had a great system to deal with debt. A debt jubilee was declared every 50 years.
But regardless of what goes on at the macro level, we can certainly remember what the banks are now, we can see the moral of the story of It’s a Wonderful Life, as being a dream that has no bearing in the new reality. We can treat bankers as a couple of notches below used car salesmen in reputation. It doesn’t matter, as bankers can no longer seem to make money without hurting the poor, without driving the price of oil up to 145 dollars, without wanting it to go to 200 dollars, without driving food costs up by trading and hedging, and you know the rest.
Heck, Congress cannot even protect the populace from credit card usury! Buyer beware, it is what the banks want, what many people though not all, on the Seeking Alpha comment boards want and what is a spiral into ruthlessness that no one in his right mind should ever want. It is madness.