The big US banks' biggest problem

Susan7654321

You have it right. Just look at which divisions in the big banks where they are losing money, have falling revenue or are cutting expenses versus where they are making money, adding revenue and adding staff.

The consumer and business lending side is down. The part trading desks are focused solely on currencies, commodities and derivatives. M&A and investment banking is stuck until more credit is available.

Economists are like weather forecasters. They keep guessing and eventually they get it right. Every forecast they make keeps pushing back the period in which our economy will start growing again.

The real problem that banks have is the same as every other industry in the US now. The demand for their products just isn't there right now. Even people and companies with deep pockets are waiting to see what happens before they invest and hire. Our country needs a real leader right now that will inspire people to believe in the future again. Not sure who is going to fill those big shoes but Obama has failed. Guess it just goes to show that giving away money and raising taxes isn't the way to grow an economy.

disillusioned101 - Guess what, that's what banks do - they lend money for their own self interests.  What are they supposed to do, hold everyone's hand and wipe their noses for them?  The borrowers were acting in their own self interests too when they took out mortgages that they couldn't afford in order to buy houses that were over-priced.  I don't subscribe to the economic premise that people act rationally.  In fact, I know that people act irrationally.  Human beings by nature are greedy and irrational.

Yes, I can blame people for taking the loans.  Put the blame where it belongs.  Cigarettes are everywhere but those who choose to smoke them take the risk of cancer.  The game is not rigged - irrational people took a gamble and lost.  They had free will to say no and walk away.  Anyone with a brain knew that house prices where way too high.  Being smart is not a crime, just as being stupid is not a crime.  You say that the savvy bankers screwed the borrowers, I say that the dumb borrowers screwed themselves.  Protecting widows & orphans is bankrupting the nation.  We now take care of people from cradle to grave - free formula and diapers when you're born; free education; unemployment when you lose your job; medicaid & health care when you're sick; social security & medicare when you're old.  Now the gov. is  supposed to buy people houses and watch over their financial well-being too?  You say that they were weak & uninformed?  I think that they were stupid & greedy and why should society pay for that?

Dontholdyourbreath, I think that conspiracy is the wrong term. A conspiracy implies a central command structure that made a decision. When a bunch of very smart people with a keen understanding of mathematics behave in unison for their own self interests to take advantage of someone else’s weakness is that a conspiracy? One of the biggest false assumptions in economics is that people will always act rationally in their own self interests. When they do act rationally in their own self interests are they as a group conspiring? I don’t think so, but the result will be consistent.

Also economic duress can be a tool to achieve a goal in some cases, but most of the time, as is the case with banking, it is a by product of doing business a certain way. Maintaining home prices at the profit maximizing equilibrium has worked well as an accounting function for the banks. Whether there is a conspiracy is mute, the end results are the same. We move away form the real market driven equilibrium price up to the profit maximizing equilibrium price of the banks.     

You can test the model in a real world situation and the results are fairly consistent. When you move away from the cash equilibrium more and more people have to struggle to make the payments. Raise the price too high (create a bubble) and the second you can no longer maintain the price supports; pop!

As a result of the banking control structure, most people struggle their entire adult lives as renters and if the banks give them an opportunity can you really blame them for taking it? The game is rigged.

Most people don’t comprehend the pricing mechanism so they are price takers not price setters as some have lead them to believe. Is that a good reason to allow a savvy group to screw them with it?

What ever happened to protecting widows and orphans from the confidence men? This used to be a Republic with laws against such behavior? It seems to me that the best government that money can buy has made it legal for confidence men to take from the weak and uninformed. Just look at our health care wealth redistribution system.

Dontholdyourbreath, have you ever played the game of Monopoly? The premise of the game is to use economic duress that occurs from controlling productive resources to bankrupt your opponent.

Would you even be willing to play if your opponent started with a hotel on Park Place and Broadwalk? What would be the point? You will loose 99.9% of the time.

Now start the game with all the real estate being owned by your opponents. You will loose 100% of the time and very quickly.

Economic duress is a mathematically provable force. You have to understand the concept of economic duress before you will ever understand why people are pissed at the banks.  

Usury Laws were put in place to prevent another mathematical inevitability that occurs when interest rates can be set too high. Usury laws and bankruptcy are safety valves necessary to prevent the loss of liberty. When the best government that money can buy allows them to become marginalized, then there is no liberty for all. Just for the few.

The banking system becomes great if you own one and I’m not talking about a small ownership interest. You have to own enough to offset the negative consequences in your life.

Then there is Milton Friedman’s constant inflation concept where the mathematical laws of exponentially enslaves us all with a banking tax called inflation.

It seems like three strikes to me.

Then there are the real estate price supports necessary to protect the banks portfolio and the tread mills it puts us all on.

Then there is the competitive disadvantage of having a mature banking system in the new world order. Something emerging markets don't yet have to contend with.

That would be five.

I agree with OnAnIsland, our whole banking system has a credibility problem. There is no competition among banks only propaganda wars that give the appearance that there is a difference between banks. Banks are banks period.

Many of us have move to credit unions, but the need for credit union managers to handle the consumer trend has forced the credit unions to hire ex-bank managers. This has polluted that pool with the banker mind set. They are becoming more and more alike as far as customer service is concerned. In addition, if the FED has its way eventually even credit unions will be under the preview of the FED.

WordFromWithin, has it right for the consumer this crisis has not moved in a positive direction in generations and apparently generational memory is not getting passed along. Without real competition as a driving force there is no free market and banking is no exception. Too big to fail banks need to be busted up with Sherman Anti Trust action and even that path is froth with peril. Busting them up now will only leed to throw away subsidiaries holding all the toxic assets. The powers in the banking industry couldn’t have planned this condensing of assets any better. This seems to be a crisis for everyone except the mega bankers.

Jim is also right. The bankers have spread a systemic illness to their established markets and have not spread the poison evenly to the emerging markets; YET! The poison I speak of is the high cost of living that comes with supporting an established banking cabal. How can American workers compete with emerging markets with such a weight on their collective shoulders.