Why Don't Customers Leave Big Banks?
Andrew has been exploring the question. For us, the answer is simple: location, location, location.
For McArdle, many answers are simple because anything complicated is ignored. We all do this, all the time. Life is complicated and time is limited. The problem arises when we refuse to admit we are making choices because we don't want to question our biases or deal with consequences and repercussions. Which leads us back to McArdle.
I bank in two places: Navy Federal Credit Union, and Citibank.
Is it a good idea to announce this on the internet? Couldn't she have thought up a pseudonym, like Galt's Gulch Credit Union or Taggart Bank?
NFCU is better in all ways except one: they don't have a branch in DC. That means that every time I want to make a deposit, I have to drive out to Virginia. So I tend to go there once every few months and put a bunch of cash in the bank for our regular or big expenses: car loan, wedding stuff, rent and utilities. But it is not a convenient place to do my every day banking.
It's "everyday." Unless McArdle goes to the bank every day, which she just said she does not. Did I ever mention she has an Ivy League English degree? Because she does. I've said it too many times before, but it never fails to awe and amaze me. McArdle managed to buy her way into a hell of a job, where you do not even have to care about the fundamentals. If she were a bricklayer she'd leave out the mortar. If she were a doctor she'd ignore symptoms and prescribe whatever samples happened to be in her pocket. If she were a cook she'd use two and a half pounds of fat in her dishes.
Indeed, the whole reason I'm at Citibank in the first place is that they're all over the country, and I've spent the last ten years moving a bunch of times. Even now that I've committed to DC, I'm in a rental, and I don't know what neighborhood I'm likely to end up in next, so there's no point in opening a new bank account that might turn out to be inconvenient one move later.
I'll assume that she is talking about credit--loans taken out, relationships with loan officers, credit history with her bank. Credit availability affects many, many decisions in life.
Then there's business travel--most places I go, if I lose my ATM card, there's a Citibank branch that can help e out in the area.
Evidently losing items, sometimes to theft, also affects many of McArdle's decisions.
I realize that's not the entire story--most people are much less mobile than young urban professionals. But America does have high rates of labor mobility, and a lot of people travel for work. That's going to favor national banks--which in turn, lets them offer less favorable terms to their customers. I'm paying for convenience. But frankly, it's worth it.
Why make such a silly post supporting Big Banks?
At the Stamp Lecture, London School of Economics, London, England, Bernanke Urges ‘Strong Measures’ to Stabilize Banks
Federal Reserve Chairman Ben S. Bernanke warned that a fiscal stimulus won’t be enough to spur an economic recovery and that the government may need to buy or guarantee banks’ tainted assets to revive growth.“Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” Bernanke said in a speech today at the London School of Economics. “More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.”
My Translation: "Banks are in much worse shape than we have admitted previously. More taxpayer money is needed to prop up these failing banks."
The US economy is likely to be in worse shape a year from now and will require aggressive government spending and intervention to stem the damage, economist Martin Feldstein told CNBC.
Despite conservative leanings when it comes to government intervention in the financial markets, Feldstein said the current economic downturn is the worst since the end of World War II and mandates a different approach that even goes beyond the hundreds of billions the government already has poured into the system.
"I think we'll be lucky if by this time next year we see the economy having hit the bottom and starting up, and that's still going to leave us at a very low level of economic activity even if the turn has come at that point," Feldstein said during a live interview. "But there's no guarantee that all of this put together is going to achieve that."
Nobel Laureate economist Joe Stiglitz says the banking industry is in worse shape than it was pre-Lehman.Bloomberg: “In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview yesterday in Paris. “The problems are worse than they were in 2007 before the crisis.”
Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action.
“We aren’t doing anything significant so far, and the banks are pushing back,” said Stiglitz, a Columbia University professor. “The leaders of the G-20 will make some small steps forward, given the power of the banks” and “any step forward is a move in the right direction.”
So when he says that the problems are worse than they were in 2007, he's not actually talking about stuff like toxic assets and leverage and risk taking. He's essentially describing the too-big-to-fail problem, and the ability of large banks to loot the system know they'll be backed up.
And on this point he's basically right. The bailouts solidifed too-big-to-fail as a notion, which is why, try as we might, we can't honestly talk about removing financial system safeguards, since everybody knows they'll be put back in again once things get rough. That's why a key part of the solution, and Stiglitz identifies this, has to be breaking up the true zombies, like Citigroup (C), so that it's not constantly posing a threat to the entire banking sytem.
In the month of June, a roaring rally took place in US financial stocks on the hope that recovery was well underway in most of these institutions. Yesterday seems to have been a reality check when stocks of companies like Bank of America, American Express and Citigroup fell between 5% and 10% while Freddie Mac, Fannie Mae and AIG fell between 10% and 20% in a single trading day.
More bank failures ahead?
Wilbur Ross, Chairman and CEO of Wilbur Ross & Co, said he was not surprised that the bank problem was continuing to grow. Ross, in an interview to CNBC, made an alarming statement: “I think there will be at least 500 more banks fail between now and the end of next year.”
Ross said that regional banks were now more vulnerable compared to big banks. “The fundamental problem now is the commercial real estate as opposed to residential [during the earlier part of the crisis],” Ross said.
“The first wave of the big banks was the securitisation. The regional banks are the ones, which are now going down,” he said, adding that since the regional banks did not have much securitisation and had construction and development loans, they may fail ahead.
While Ross may have rung an alarm bell, other experts remain sharply divided over the scope of the US’ economic recovery with Nouriel Roubini saying the recession will end by December this year while BlackRock saying recovery may extend into the next.
McArdle reflexively supports the financial industry, but it's also her job. The banks will need more government money--and all our bright and shiny New Libertarians (Our Motto: Socialism for Me, Capitalism For You) will urge us to give tax-payer dollars to private corporations so they will not fail. Little Miss McArdle is merely greasing the wheels, to make it easier for the banks to run over us.