Cracking the Vault: Big Banks, the Financial Crisis, and What You Can Do About It

January 15, 2010
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Banking Industry Options

Part I. Just the Facts

Banks — everyone knows what they are, but not everyone understands how they work. And even those that do may be missing some of the finer points.

Odd fact about banks #1: For liability purposes, I need to tell you that it is against the law to create any sort of panic that would cause the public to run to their banks and withdraw their cash. For the purposes of this article the term “bank” applies to the surviving big-banks: Chase, Wells Fargo, Bank of America, and Citi.

Please do not panic. No need to run out, withdraw all your cash, and place it under your mattress, because there is a better place… (but we’ll get to that).

Outrage Abounds

Are you mad at your bank?

If you live in California, Nevada, Ohio, Florida, or Arizona you probably are as well.

You’re also probably mad that while you have a bank branch close to home, your bank is based in North Dakota, North Carolina, or on Wall Street. In case you’ve been asleep for the last year and half, the nation is currently in an economic recession. In short, this was caused to a small, large or super-sized extent — depending on who you ask — by greedy Wall Street Bankers. They dealt in synthetic financial products that created the capital for unscrupulous lending in the housing sector, and catalyzed the “housing bubble.”

That bubble has burst and brought on the worst economic recession since the Great Depression. Got all that?

So . . . after reading that oversimplified explanation . . .now are you mad at your bank?

Following these events, your bank went to Congress in September 2008 and begged, hat-in-hand, for funds to prop up and prevent an all out-systemic failure. If you didn’t like where your taxes went before, think about where your tax dollars were going at this point. Sure, most banks have repaid their “bailout dollars” also known as the Troubled Asset Relief Program (TARP). Mostly, it seems, they did so as to prevent the government from regulating their yearly bonus checks.

So the banks took our money, thrived, then paid it back, by and large. But what about the money you lost in your 401(k)? What about the value you lost in your house? What about the job you lost because of the ripple effect of big banking’s schemes to make a quick buck?

One more time . . .are you mad at your bank?

Don’t worry about it if you are. There are other options that don’t include a mattress, or putting every last penny in T-bills.

Indeed, you know you have a choice in the financial services marketplace. Arianna Huffington herself wants to make sure you know about it. The famed blogger, columnist, and ex-California gubernatorial candidate has launched a campaign to get you to move your money from the “big banks” to an alternative financial institution.

Not all banks are created equally. There are two alternatives that come to mind: credit unions and community banks.

A credit union is a not-for-profit bank. They are a cooperative, or co-op, institution. Credit unions offer the same products and services as any run-of-the-mill bank, but return their profits to their members and they do not have stock. The catch is you have to “join” the credit union by becoming a member. Today, most credit unions serve communities, and membership is offered to anyone who lives in the neighborhood. For more information on credit unions please visit: findacreditunion.com

The smaller community banks and local state banks are banks that operate in your community. Community banks offer the same products and services as big banks, but are locally owned for-profit banks. Typically, small banks appeal to specific segments of the economy and especially to small businesses. Just like credit unions they serve local communities and are not in the same practices as their much bigger international conglomerates. Please visit: www.icba.org/consumer/BankLocator.cfm

There are many benefits to banking at either of these types of institutions. Both are Federally insured, and both generally charge lower fees. Both have ATM networks that allow surcharge-free ATM usage, and, according to bankrate.com both typically have lower rates on loan amounts.

Hopefully readers of an independent, online magazine [ed.note — he means us!] will appreciate the different options for your financial services. Most of us are at the same bank or credit union that our parents were, at or what is most convenient to home or the workplace. However, one should always consider what is best for his or her personal needs.

More on that in Part II.

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2 Responses to Cracking the Vault: Big Banks, the Financial Crisis, and What You Can Do About It

  1. […] Last time, I shared some causes of the “Great Recession” and some options for consumer choice in financial institutions. […]

  2. health quote on February 23, 2010 at 2:58 pm

    If a person puts $1M in an account and the bank fails, pay them $100K. This is not rocket science. Overpaying insurance is unique to banking – and dumber than a bag of hammers.

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