I originally thought this quote was credited to Bonnie Parker of the famous Bonnie and Clyde duo. But, it is actually credited to Willie Sutton when asked, “Why do you rob banks?” His reply, “Cause that’s where the money is!”
The subject of bank regulation in the US is quite complicated. While writing a paper in 2010 about the 2008 financial crisis, I discovered a series of little-known policies and practices designed to benefit certain groups of Americans over others. I believe most Americans would be shocked to learn how politicians use bank regulations and legislation to effect economic “equity”.
That’s exactly what has been going on for decades now. The US Government, with the cooperation of the Controller of the Currency, the US Legislature, and heads of banks, has been promoting lending policies which allow for designated groups of people (“communities)” to receive more favorable loan provisions and with fewer consequences upon default than other non-favored groups. The Controller of the Currency prior to the financial crisis of 2008 was actually admonishing banks to increase the level of default risk in their loan portfolios (make more bad loans).
In 2009, after millions of people had taken advantage of “no doc” loans (where the bank did not require income or other personal information verification) Eric Holder, as US Attorney General under President Obama, announced that fraud committed on mortgage loan applications would not be prosecuted. This effectively made the crime (felony) of bank fraud legal (unenforced) and left the banks with even larger loan losses. Along with the legislative change in 1999 (Graham-Leach-Bliley Act) these financially crazy policies really set the collapse of the entire financial system in motion. Even Merrill Lynch with its iconic bull logo, recognized worldwide, faced bankruptcy.
This past week, two major banks failed and with them, the stock market (especially the financial sector) got clobbered. Silicon Valley Bank (SVB) was the second-largest bank failure in US history. As with the collapse of 2008, it appears that SVB had diverted much of its focus on promoting social agendas rather than the banking business. All-in-all they were reckless with the resources with which they were entrusted.
So, the government steps up to the plate with our (US taxpayers) money to bail them out. People do not seem to understand that the government has no money. The government is merely a Trustee of the “peoples” money. If you have read any of my Saturday AM Reviews (posted on our website at larsenim.com) you will be keenly aware of how much money our government has borrowed (and the annual interest cost), upon which we (the taxpayer) are co-signors.
To conclude, I am hardly surprised to hear that huge banks are failing again. With the state of the economy, coupled with the state of our society, it is a very unstable combination of factors. I said early last week that this is beginning to feel a lot like 2008. It feels like Déjà vu all over again.