Attacking Banks Is In

John ArmstrongCurrent Affairs, Economy/Economics, Politics

Attacking banks is in these days. Except for stock holders and employees at banks it is easy to bash them. After all the government bailed out several Wall Street banks with TARP money. (We don’t hear much about the fact that this money was returned.) But what followed the bailouts was a spending spree meant to help the economy. There is no evidence it did anything to truly change our economic mess. For this reason the president and his administration have a love-hate relationship with banks in general. While he has expanded government’s role in monitoring banking he has also approved the money needed to rescue the banks. This makes his friends on the left very nervous.

s-BANK-OF-AMERICA-large300 The government’s bank bailout has made them an easy target for angst. I even found myself complaining as I left my own bank a few weeks ago. Why the new fees? Wasn’t this service free in the past? How soon I forgot that the bank has every right to run its business as it pleases. And it runs its business in order to make a legal profit. And I have every right to not use the bank if I choose.

Banks generally provide financial contributions to both political parties. Why? It makes sense to cover your bases. But squeezing the profit margins of banks through tougher regulations and price controls is neither good economic policy nor good politics.

Let me state what should be obvious but is clearly not understood by many younger Americans—healthy banks are needed for a long-term recovery of every aspect of our economic life. Yet banks bear the brunt of people’s anger. Who owns these banks? A large portion of the middle class is the real answer! Anyone with savings in a 401(k) plan is invested in equity mutual funds which are connected to banks and have suffered with the banks. Banks have stock holders and these include many more people than the super rich.

Punishing banks and banking because of a few thousand wealthy, greedy Wall Street bankers and traders who intentionally and illegally abused the system during the meltdown is not the way to help America. It hurts ordinary citizens and it hurts the creation of jobs.

Take credit cards as an example. The government decided to interfere in interest pricing and fix a problem. This naturally led to banks raising their costs for service and the rationing of money for loans. If banks lose money in one place they will obviously seek to make it back in another. This is the way business works in a free market. Only someone who is naive or who opposes economic freedom would claim otherwise. One thing is quite clear. Bring down the banks and you will bring down the whole economy. We’ve been there before and it seems that many young people never got that lesson if they got any lesson in basic economics at all.