Like its financial brethren, J.P. Morgan received injections of liquidity from the Federal government during the recent crisis, and there is no objection to that. We favored the action, and if any of the largest four banks, which include Citibank, Bank of America, and Wells Fargo were to have been pulled under, the prospect of untangling that mess would have been difficult. Thus, while not wanting to even take the cash, with bank head Jamie Dimon saying they had no need, they were pressured into it anyway, for symbolism and safeties sake. On the surface, they were probably right, given their ability to absorb Bear Stearns and Washington Mutual without too much strain.
But it's hard to assess because there was no guarantee that Morgan would be fine if other firms were outright collapsing thus changing the psychology of those who must do business with the banks, from the small deposit holder to large institutions. So the government, short on time and with too many moving parts, did the prudent thing, bailing out firms across the board. J.P. Morgan took the help, and, paid it back it.
In the aftermath politicians more or less agreed that some changes were necessary to the industry and financial reforms were put in place, with both Republicans and Wall Street, and especially Wall Street, changing their previous stance toward President Obama. He struck a populist tone in an effort to garner public support for strengthening the financial system, but the financial sector didn't like being blamed for the economic collapse of America.
But, funny how that is. You have three major firms--Merrill Lynch, Bear Stearns and Lehman--that collapse or near collapse, due to making bets on mortgage related securities that vastly amplified the number and nature of shaky mortgages in existence. Wall Street firms across the board provided the liquidity to expand the mortgage market, and the cunning to make side bets on that expanded market. The cash from Wall Street helped provide a climate for mortgage brokers to go crazy pushing product. It's hard for many segments of the financial industry, and especially the Wall Street banking sector, to become indignant about their role in the matter, despite Republicans giving them cover and trying to shift all the blame onto quasi government units like Fannie Mae and quasi un-Americans like the subprime borrowers (aka, those poor ethnics).
Which makes the recent earning news of J.P. Morgan all the more interesting. Profits rose at the firm by 47% to $4.83 billion in the 4th quarter.
J.P. Morgan, led by chief executive Jamie Dimon, was the only major U.S. bank to remain profitable throughout the financial crisis. The company's record $17.4 billion in earnings last year were boosted by roughly $7 billion in pretax reserve releases on the better economic forecast, an improvement that Dimon said he doesn't count as actual earnings.(Washington Post)
Now this is good news. It's a testament to the fact that Mr.Dimon is one of the most astute and responsible financial officials in this century. He created the modern J.P. Morgan and has managed it well. The long history of the firm is a good one, helping to build America along the way. In other words, we with them well and are not of the ilk who believes producers at banks should not be paid well, or that banks should not on occasion be bailed out when necessary.
This is where get back to the hypocrisy and the arrogance. Due to swift government action, our system is stabilized and at least as far as investment banking and trading and other revenue streams of the big banks, all is well. Credit markets have eased and there is no worry about counterparty risk who you can do business with. The fact that we have reached this moment is due to action taken by Bush and followed by Obama. There should be some level, however small it might be, of gratitude toward that bailout, which was done with taxpayer money.
Second, when over the course of time various remedies are tried to contain outrageous practices, like the legislation passed to contain excessive overdraft fees, the industry, in light of its debt to consumers, ought to take the high and humble road.
Instead we are getting business as usual. Each of the major banks have now decided that free, simple checking accounts will not exist. Many people predicted this would happen, that the era of free checking would get squashed once the banks lost the income stream of gouging its poorer customers on fees. Think about that. Your more financially astute or organized customer is not the one getting those fees. Generally, that person will have enough in their accounts to avoid any account minimum balance fees, which means they will never be in a situation of incurring overdrafts. It's your day to day person who struggles and who ran the risk of paying $25 or $30 several times over if his account was initially off by, say, .02 cents.
Now that they can't tap the poor and foolish revenue stream, they have decided to stick it to everyone via monthly fees across all accounts. Sure you can avoid the fees. By having at least on direct deposit over $500 (mind you, you can't combine monthly deposits to hit that goal). Or doing about 5 debit card transactions a month (mind you, they are also thinking of adding yearly fees on owning a debit card). Or if you have some combination of accounts at the institution that puts you way over minimum balance numbers.
By turning free checking into "free checking with rules" they are well aware that the same people who incurred overdraft fees in the past will be the same people not earning $500 a paycheck (if paid weekly), or the same people too ill informed to set up direct deposit. The counter argument is that the information requirements are out there for all to see. You can go to the Chase website and the company is very clear about fees for each type of account, and how to avoid them. Those in favor of allowing banks to do as they please could argue that if a person cannot avoid a $6, $8 or $25 account fee, then they are just being lazy and choosing to pay more. To some extent that is true.
The greater problem is that you are penalizing all for the recklessness of a few. If you are a person who earns maybe $400 a week, is paid weekly, and pays your bills on time, does not like to use the debit card to shop, you are hurt by this. The actions of banks like J.P. Morgan punish the lazy and irresponsible poor at the expense of the responsible middle class and poor.
Ultimately people won't go for this. It's a foolish business stance built on an arrogance that puts profits above all. There are any number of ways they can create accounts that scale to consumer performance, but that they won't do. A good start would be to have a no fee or low fee checking account with a built in overdraft line of credit of $25 dollars and up. Maybe charge $1 for that line of credit component regardless of credit score. The usual option (like at Bank of America) is for you to get a savings account that charges $5 a month to use as "overdraft protection," which is comical. The money you don't have in your checking to cover a check is not gonna suddenly be the money you do have in your savings account to use as overdraft protection. And likely, your savings account is going to be free, and online and at one of those banks like ING or HSBC that at least pretend to pay decent interest.
At a time when the banking industry has made huge profits, it's hypocritical to complain and call for the necessity of a whole new range of fees due to the loss of one really badly implemented revenue stream that preyed on the poor. Further, that revenue stream was never turned off, given the numbers of people who opt-in to maintaining the status quo. It's a lie to suggest otherwise, and that you are using new fees to plug the outright loss of old fees.
We saw this same effect on some of the large health insurance firms. They had planned to increase premiums as they do each year, but chose to blame the increase on healthcare reform legislation and despite the likelihood that such increases would have happened anyway, as they always do, hence the need for reform. Here the banking sector has taken the cynical turn and used a government action (regulation on the industry to make it safer, regulation on overdraft practices to protect the consumer) as opportunity to increase costs to the average citizen. It's pin the tale (the lie) on the government, in order to maximize profits. By doing this you also inhibit regulatory authorities from taking action in the future that might be necessary to protect the citizens from the financial industry's avarice or stupidity.
It's particularly shameful and disappointing when a firm like J.P. Morgan, run by one of the best brains in the industry, turns its back on smaller customers. Of course, that cloud will be a silver lining to the credit unions and online banks that will snap up disaffected clients.
A few years from now we will no doubt be seeing additional curbs on these account fees, and the industry will complain, unable to acknowledge the stupidity of its actions today.
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