How To Kill a Bank (Part 1 of 3)
Mod Note (Andy): Best of Eddie, this was originally posted in 2010.
There is a populist movement gaining steam that could spell big trouble for the major banks. Spearheaded in January by Arianna Huffington, the Move Your Money movement is proposing a strategy to exert public influence over the banks they've labeled the "Big 6". The Big 6 banks identified are Citi, Bank of America, JP Morgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley.
The strategy is to encourage individuals to close their accounts at these 6 banks and move their money to a local bank. The reasoning behind it is that local banks re-invest in the community and generally have more conservative profiles. The subtext is that the only way to shrink banks deemed "Too Big to Fail" is to pull our money out of them. With government solidly in the bankers' pockets, the reasoning is sound.
The movement has picked up some high-profile supporters, and got a major boost by this video from Bill Maher:
The notion is making some people nervous, and it should be. When questioned about it specifically, Timothy Geithner squirmed and tried to change the subject. When pressed on it, he said he didn't think it was a good idea but he agreed that customers should hold banks to a higher standard.
Andrew Ross Sorkin, author of Too Big To Fail, was less circumspect when he was questioned about it. He said, "Theoretically, philosophically, it's a terrific idea. But just to take the other side of the coin I'll tell you this – if we all listened to Arianna and we all ran out and did this tomorrow – the Too Big To Fail firms would all fail all over again."
Is the movement getting legs? Maybe. According to a Zogby poll, 9% of Americans have begun transferring assets out of the Big 6 and into community banks. And the Los Angeles City Council just voted 12-0 in favor of moving the city's money out of the majors and into banks that invest in the community. In fairness, however, Wells Fargo is heavily invested in Los Angeles and definitely meets the council's criteria. Nonetheless, the movement is taking encouragement from the city's vote.
This thing has really had me thinking over the past 72 hours. What I've determined is that the movement's heart is in the right place, but their implementation is lacking. Putting aside our own interests in banking for a moment, let's just say that we wanted to determine what would make this protest most effective.
Realistically, 2 of the 6 banks aren't even exposed to a populist backlash in any meaningful way. Goldman Sachs and Morgan Stanley are bank holding companies in name only, and have no interaction with the general public other than helping themselves to mountains of interest-free money at the discount window.
That leaves 4 banks that have genuine exposure to Move Your Money (they are Citi, Bank of America, Wells Fargo, and JP Morgan Chase). If things continue as planned by Move Your Money, these banks may see significant declines in deposits that will eventually effect their bottom line. It won't happen overnight, and very little about the way they do business will change in the long run.
I simply don't think the people behind the movement are thinking big enough. Rather than attacking all 4 banks in a relatively uniform manner, wouldn't it be more effective to focus all the movement's energy on one bank and obliterate it? That would send a message.
There is a way to destroy 1 of the 4 major banks and, if the effort were managed properly, the Fed would be powerless to prevent it. Timed properly, the thieves in D.C. could even be prevented from stepping in to save it.
It has been an interesting academic exercise for me these past few days, and I think I've come up with a plan for consumers to shut down one of the major banks. I'll post it in Part 2 later this week, but see if any of you can see where I'm going with this and beat me to the punch. Of the 4 major banks, 3 make attractive targets, and 1 is an absolute sitting duck.
Just so I can't be accused of fomenting another financial meltdown (why should the banks have all the fun?), in Part 3 I'll post the antidote to this poison – a plan the 4 major banks could put in place in less than a week to repel the type of attack I have in mind. We'll see if they're paying attention.
Just in case anyone is wondering why people would want to do something like this, I'll leave you with this gem:
http://www.huffingtonpost.com/ernest-nitzberg/the-6200-insult-how-chase…
Any questions?
Found a related article that supports your view.
http://economix.blogs.nytimes.com/2010/03/04/why-exactly-are-big-banks-…
Just imagine, we'll have a whole new BB system.
First Union Bank of Wichita will be the new GS.
how come all your posts are so negative? can't you write something that's positve for at least once?
When there is something positive to say about the Federal Government or the economy then I'm sure he will. For now if you want positive BS turn on Faux News.
What's negative about consumers voting with their dollars and punishing those who circumvented legitimate market forces? I, for one, am overwhelmingly encouraged by the fact that people are thinking outside the box to find a way to get around the government which thwarted the will of the people and saved the banks that all should have gone out of business. I consider it divine retribution.
I think what you guys forget sometimes (probably because you're too close to the situation to see it) is that there were legitimate market participants on the other side of the trade who deserved to profit handsomely from the financial collapse and were denied their legal profits by government intervention.
I'm not convinced (and I doubt I ever will be) that saving the banks at the expense of trillions of taxpayer dollars did anything to help the economy. But then, I don't think that was the point of the rescue anyway.
Would be funny if something was exposed to show that GS and MS are secretly funding the PR for this campaign in an effort to take down the others.
totally GS
^^^LOL. Classic.
I'm moving my money at once. as soon as the smaller community banks find a way for me to access the big bank's atms fee-free.
GS does not take deposits from the public
it won't work. remember when gas was $5 a gallon and people tried to boycott exxon? they still made record profits
The idea is good, and might be feasible. Still, lots of calculation and preperations need to be considered. I don't know what's in your plan, but I believe that twitter/facebook/whatever can be useful.
The smaller community banks can even offer some one-person-one-time bonuses if some guys decide to move their money out from the big ones and deposit it to them.
Wow, you run banks now? and can make this work? Ineed to throw some silver bananas your way! You are so customer service oriented, one on one, really? please let me move all my funds to your bank!
possibilities, possibilities,hoh
I was liberal until I became a banker.
GS & MS don't even take deposits....
Thats the point isnt it?
If they were funding this campaign, they would benefit as the other banks (who do take deposits) would be immensely affected by plan. They would be the only big boys left...
Lol MMBinNYC... you totally don't understand what is going on...
What does commercial banking and Investment banking have in common? Absolutely nothing! Ask any old timer if they would roll over their IRA to some mom and pop bank, didn't think so.
1/3 of her plan doesn't make sense. Like others said, GS and JPChase don't take deposits from the general public in any kind of meaningful way.
I hope this populist nonsense dies down soon.
JPChase does take deposits. Morgan Stanley and Goldman Sachs don't. Yet now they are bank holding companies so technically they could start taking deposits, and they have access to the Fed's discount window.
My mistake, I get my morgan's mixed up. Thanks for the correction.
Where is Part 2?
We're still deciding what to do with Part 2. It was actually published for about 25 minutes and we took it down.
Just saw this thread; interesting topic. I have no problem with the move your money movement even though I'm a 2nd year at one of the "big 6" mentioned. From an economic perspective, I love this idea. I don't think it fully mitigates the "too-big-to-fail" issue, but it is a great step in the right direction to lessen the concentration of deposits in the 4 major banks. Deposits are the very lifeline of commercial banks, and the best way to control these banks is to hit them where it hurts the most.
I wonder if I should start buying the stocks of local banks that are listed?
I personally have always banked with community banks and I don't work for a BB. Then again, I also hate financial supermarkets and think Glass-Steagall should be brought back.
Rerum in amet fugit possimus soluta. Porro cupiditate vitae esse ullam est in quibusdam. Non et dolor dolor earum pariatur. Dolor saepe error sit asperiores maiores. Et consequatur aut ut non sit.
Et placeat sed rerum quia. Deserunt ut numquam enim occaecati hic quam. Animi non earum qui distinctio.
Earum sint ducimus necessitatibus et. Quod animi asperiores aspernatur sint et rerum laborum. Ipsam animi sed cupiditate. Inventore voluptatem dolores iure voluptas quis iusto qui. Ipsa magnam non et voluptas sit.
Saepe nesciunt ut similique velit. Quibusdam rerum consectetur dolores quo esse molestiae. A quis aliquid accusantium consectetur reiciendis magni ducimus. At ipsa qui necessitatibus et odio. Nulla nulla sint animi dolorem commodi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Veniam ut molestias autem labore iste corporis sapiente at. Exercitationem fugiat aut aut quia quia consequatur.