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Corruption in The Banks and What It Means for You and Me

June 21, 2013

You would think that everybody who abhor unemployment, certainly those of us who suffer its consequences abhor it. But the Federal Reserve loves it and they are lying to you and me when they say they are working to bring down unemployment. That is a lie. Fom the Federal Reserve’s perspective, unemployment keeps inflation in check and drives wages down, thus lowering its corporate customers’ labor costs and boosting the profitability of the corporations to which the banks lend money. You need to understand that we are not the customers of the Federal Reserve, their customers are commercial banks. So, in a weird way, unemployment can benefit commercial banks. To the extent that the Federal Reserve gets involved in political decision making, it would probably argue against any debt forgiveness because it would cost its bank members money, even though it would help get companies and countries and individuals out from under oppressive debt levels and get them buying again.

The banks learned this modus operandi from their credit card business. The basic credit card business is a money loser to the banks. They extend money up front for purchases, and many of their customers pay it back before any financing charges accrue. This is a no-win situation for the bank.

Banks make money when people don’t pay their balances off immediately. I hope most of you know this by now. All this nonsense about having good credit, please! The banks want you to have bad credit and get behind on payments, that’s how they make their money. Banks want you to get in trouble with your credit cards. They want you to be overextended. They want you to not have enough money at the end of the month to pay back the entire principal because this is where they make all their money, and the interest rates they charge are usurious. They might charge 18 percent to a customer of good credit, even though their cost of funding is between 0 and 2 percent. This is an enormous spread for any lending operation, but it gets worse from there. At the first sign of a late payment or the inability to make an interest payment, the bank jacks up the interest rate you owe on your balance from 8 percent to 29 percent or 39 percent per year. This is why credit card lending is so profitable. It is nothing but usury under a different name, and, like most financial products, the poor end up paying the majority of the fines, fees, and expenses because it is the poor who have trouble paying off their balances.

As offensive as these practices are, what is more offensive is that the banks have taken this approach to lending and applied it to mortgages in their subprime operations, and now to student loans and the rest of their lending portfolio.

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