By Dave Lindorff

A brief conversation I had earlier this week with a car dealership
executive while standing in a post office line demonstrated simply both
why the bank deregulation and consolidation process of the past two
decades has been a screw job for ordinary people, and why the
Washington bailout has been both a taxpayer rip-off and a failure (if
it was even intended to work!).

I was chatting with the guy standing behind me who works at one of
the 14 dealerships in a Philadelphia-area regional family-owned chain
of GM dealerships called Bergey’s. Noting that a number of big dealers
like Knopf (a Chrysler Dealer) and McGarrity’s (Ford) had been closing,
I asked this Bergey’s manager if the problem was that the banks had
frozen lending, making it hard for people to buy new cars.

He laughed. “There’s no problem getting car loans from the small
community banks around our dealerships,” he said. “They’ve got plenty
of money to lend, and they’re happy to lend it to car buyers. The
problem is that people are too worried about the economy and about
their jobs to go out and buy a new car.”

And that’s it in a nutshell. The so-called “credit freeze” is a
problem afflicting the giant national and global banks, like Citibank
and B of A, which went on a tear with all of those derivative
investments and loans, like CDOs and subprime mortgages, and which have
been pushing credit on consumers with usurious rates that could only
lead to default eventually. Most smaller community banks, many of them
family owned or privately held, credit unions, and S&Ls (which were
suitably chastened by their own disastrous scandals of two decades
ago), have been lending responsibly and are fully solvent and happy to
extend credit to people who are credit-worthy.

The big banks may be technically insolvent, and in desperate need of
federal bailouts lest they go under and leave their investors holding
the empty bag, but the small banks that serve most of the nation’s
ordinary folks have a different problem. They themselves aren’t
insolvent, but their clients are—or at least they are worried that they
might become that way.

That’s why they aren’t buying houses and seeking mortgages, and it’s why they aren’t buying cars.

What’s needed, clearly, is not money for the big commercial banks
that got greedy and ran into a ditch. It’s support for the American
people, so that they don’t have to hunker down into a crouch and not
continue to participate in the economy.

When you see foreclosed signs going up along your own street, it
makes you start worrying about making your own mortgage payments. When
one in eight people are losing their jobs, just about everyone with a
job starts to have friends and relatives who are out of work, and that
paycheck starts to seem pretty precarious.

The hundreds of billions of dollars paid to and invested in big
commercial banks that don’t do much for the little guy anyway is doing
nothing at all to ease that pain and anxiety among the grassroots.
Instead, it’s just being pocketed by bank managers and rich investors,
to be put to a “higher” use somewhere else than on a depressed “Main
Street.” (Note that the government has put no strings on the money,
much of which is being used to buy other banks, or even to lend
overseas.)

That’s why all those car dealerships are folding.

This brings me to that feeding frenzy of bank deregulation I
mentioned earlier. The whole idea of allowing the creation of national
banks like Citibank and Bank of America and Wells Fargo, and of going
one step further and allowing banks to merge with brokerages and
insurance companies, which began in earnest during the Clinton
administration and went ballistic in the Bush administration, was
deceptively marketed to the public as being “good for the consumer.”
The come-on was that by allowing state and regional banks to merge into
national institutions, and by allowing them to add investment banking
and insurance operations, consumers would get more services from their
bank and have the supposed "advantage" of “one-stop shopping” at their
bank.

Anyone who watched it happen, however, saw how bogus that claim was.
I lived in New York City as it was going on, and as banks like Citibank
bought up their competitors, fees began to appear for services that had
no fees before, like checking and even passbook savings, savings
accounts began to require minimum deposits, CD interest rates fell as
penalties proliferated, and small loans became harder to get. Some
banks actually began to state, at least to analysts and to reporters in
the financial press, that they were no longer interested in serving
“small” clients, and were instituting measures designed to discourage
them or drive existing small clients away.

Soon, it was impossible in many neighborhoods of New York to find a bank to serve ordinary people.

As a matter of fact, these big banks don’t even help when it comes
to “big bank”-type stuff. Consider international finance activities
like foreign currency exchange. When my wife, a harpsichordist, came
home last week from a month-long tour of performances in China, Taiwan,
Hong Kong and Macau, she had with her $1000 worth of Taiwanese
currency—the fee for a gig that she had not had time to change into US
currency while in Taiwan or Hong Kong, where such transactions are
commonplace and inexpensive. Back in Philadelphia, we called around to
the big commercial banks—all global institutions—to see if they could
change the money. They could, but at absurd cost. Take Citibank. That
institution said it would only change up to $700 worth of bills unless
my wife had an account with them, and in any event, it was offering a
rate of 39.5 Taiwanese dollars to one US dollar—way worse than the
posted rate that day of 33.5/1. In other words, they were willing to
change up to $700 worth of currency, but at a cost of 18%, plus a $10
fee! That means they’re making 35% on a two-way conversion of currency!
Thanks a lot! The other banks were no better.

Want another example. Bank of America was a big recipient of taxpayer
funded bailout money from the US Treasury and the Federal Reserve Bank.
But it has refused to lend money to Republic Windows & Doors Co., a
factory in Chicago, that has been forced to close and lay off its 300
workers with only three days' notice, foregoing the legally required
60-days' pay and earned vacation pay. This is a story that will be
repeated more and more. At Republic, the workers, members of the United Electrical Workers union, are fighting back with a sit-down strike
demanding their money. If you want to support them, go to:
Union Voice Campaign

It’s all been a scam, and now we’re seeing the result: banks have
become so huge and their tentacles have been allowed to reach into so
many parts of the economy, that all of the national ones are deemed
“too big to fail.” Hence the outrageous bailout, which now has the
government pledged to back over $8 trillion in bank debts. (We’re
talking about a government, remember, that is itself was already
technically insolvent).

So back to my car d
ealer in the post office line. “We’re not going to see things get
better until people are confident enough in their incomes to invest in
a new car,” he said.

How will we get there? Certainly not by keeping Citibank or B of A
afloat. Those big banks should all be busted up, with the fragments
left to compete, and to sink or swim along with the rest of the
nation’s banks. No bank should be national in scope, and no banking
institution should be able to extort federal aid by claiming it is “too
big to fail.”

Instead of bailing out the big banks and their investors, the
government should be expanding and making more generous the nation’s
unemployment compensation program, which has always been scandalously
inadequate both in the percentage of the unemployed who are covered,
and in the size of the checks paid out, as well as the duration of the
benefit. It should be expanding welfare benefits. It should be
establishing a program to help people in danger of foreclosure to stay
in their homes (note: only the wealthy get tax subsidies, in the form
of 100% deductibility of mortgage interest rate payments—those too poor
to use itemized deductions get no help). And it should be establishing
a major program of publicly funded jobs for those whose employers have
gone bust.
___________________
DAVE LINDORFF is a Philadelphia-based journalist and columnist. His
latest book is “The Case for Impeachment” (St. Martin’s Press, 2006 and
now available in paperback). His work is available at www.thiscantbehappening.net