The Bad Old Days

By James Kwak

There was a time when the main purpose of this blog was to explain just how some government policy or other official action was designed to benefit some large bank under the cover of the public interest. In a bit of nostalgia, I wrote this week’s Atlantic column on the Freddie Mac–Bank of America story reported on by Gretchen Morgenson. It’s clear that Bank of America got a sweetheart deal from Freddie. The question is why. Did Freddie Mac’s people, some of the most knowledgeable people in the country when it comes to mortgages, not realize they were giving away money? (Hint: Probably not.) Did FHFA examiners, some more of the most knowledgeable people in the country when it comes to mortgages, not realize that Freddie was giving money away? (Hint: See above.)

It’s amazing that after three full years of our government trying to give Bank of America money at every possible opportunity, it’s still a basket case. Now it’s charging people $5 per month to use their debit cards. Yes, this is a predictable response to new Federal Reserve regulations limiting debit card fees. But it’s easily avoidable: just find another bank. (Neither of mine charges me debit card fees.) Not every bank out there is still trying to pay for the Countrywide acquisition.

52 thoughts on “The Bad Old Days

  1. If your bank is not charging you a fee, perhaps you have too much money and you will be charged a fee some other way, including the back interest charges compounded every second for say some 25 years. : > )

  2. Simon: Did Freddie Mac’s people, some of the most knowledgeable people in the country when it comes to mortgages, not realize they were giving away money? (Hint: Probably not.) Did FHFA examiners, some more of the most knowledgeable people in the country when it comes to mortgages, not realize that Freddie was giving money away? (Hint: See above.)

    btraven: (Hint: Gullibility. Naive. Head in the sand.)

  3. Find another bank — good advice. I suggest looking at your small, local bank or credit union.

    This may be the solution to ‘To Big to Fail,’ downsizing banks by refusing to do business with them when they’re too big to fail.

    Throughout this whole discussion, it’s also important to keep something in mind: Banks pushed debit cards because they’re cheaper then checks. While they’re screaming about losing the transaction fees merchants paid, they were already profiting on the lower cost of debit cards over checks.

    Find another bank. A small bank; a local bank, a credit union.

  4. Why is simple.

    Crony capitalism coupled with the inability or the willful failure to recognize that this financial crisis was the end result of the financialization of our economy based on a credit bubble. This was not an ordinary recession that could be dealt with the usual tools. For thirty years the cost of living has far out stripped our ability to earn. Debt replaced income, while loaning and asset bubbles replaced our mighty industrial base. The service economy only makes money for those at the top. Trickle down supply side economics enriched a few at the expense of the many. Lowering taxes, off shoring corporate profits, lowing taxes for goods and services outside of the US further stripped our government of needed revenue to regulate the FIRE economy. But that was the point, allowing off the books activity and refusing to hold anyone responsible for cronyism, fraud, misrepresentation has hollowed out our core law.

    MERS transactions that did not file the transfers with the county where the real property was situated was designed to eliminate the filing fees and create a new system of filing. But this was done by the banks and not by the law. The law requires all real property transactions of this type to be filed in the county where the property is situated. Filed for transparency, filed for certainty, filed for proof of ownership, and proof of debt. It is the foundation of Capitalism, ownership, rights and duties as it relates to property.

    Jobs were promised at every turn, lower taxes and reduce regulations will bring jobs. Where are the Jobs? Where are the Jobs? For thirty years it has been the same promise while on the 1% get richer and richer. And just look at how it was done. No responsibility for the destruction of the American middle class, the environment, the law, and the indebting of this nation. Only profit for them and money for their politicians and still they cry for more tax relief, fewer regulations, and greater ability to speculate and on and on.

    The bank should have been taken over, shareholders and bondholders wiped out as the debts were discharged. As in the FDIC. Glass-Steagall must be restored, the Commodity Modernization act must be repealed, all of book transactions must be eliminated, CDS must be regulated, MERS must be eliminated, taxation must include increases on the top 10% and a financial transaction tax on all transactions except retirement accounts of values less than $200,000, health care must include a strong national component to compete with insurance companies who are driving up costs (governments must compete and bargain for lower costs), we must return to a productive economy and reduce the size of the FIRE economy, and eliminate asset bubbles, we must return our democracy to the people and eliminate the corporate/elite influence in our political system and finally bring our troops home. This will restore America to greatness.

  5. The solution is to join a credit union. Stop supporting the big banks with your deposits.

  6. Move ALL your account(s) from a ZOMBIE BANK into a Credit Union……which is like moving from a polluted swimming hole, into something much cleaner, more reasonable, friendlier, more on the up-and-up, more transparent, better managed, better for consumers in every respect, and actually trying to HELP people.

    Think: GEORGE BAILEY (and his father and bumbling uncle= honest men) at the Building and Loan…….this is REALLY where it is at.

    Many are federally insured, also.

  7. @ Ella, yours is one of the greatest posts I have ever read on this nightmare-debacle…bravo!

  8. @ Anonymous & Woop
    What is your basis for recommending credit unions. I am of the opinion they are not any better off than banks generally.

  9. Sorry, but this is a nonsense argument, James.

    According to your numbers, FHLMC looked at roughly 22,000 foreclosures from the bucket that you said they ignored (the 3-5 year bucket). They looked at roughly 22,000 from from the 1-2 year bucket. That doesn’t sound like a deliberate attempt to avoid “most of the foreclosures”. Because the absolute number of foreclosures is so much higher, the percentage they looked at is lower in the 3-5 year bucket. That’s the whole point of sampling – to avoid having to look at a much larger population.

    But the right question is – was the sample they looked at statistically reliable? You don’t assert anything about that, so I presume that is not an issue. Presumably FHLMC found the average bad rate on the 3-5 year bucket, and applied that to the whole pool of foreclosures to get the put back amount *on the whole pool*.

    You’re not saying that FHLMC just got compensated on those loans that were sampled, right?

    Either your analytic skills are slipping or you’re being mendacious here.

  10. @ Anonymous, hello, personal experience, I’m in a good one, and I have professional experience with this type of organization, also, about which I can not elaborate at this time.

  11. @Anonymous – personal experience as well…my credit union is one of the oldest and best-run in the country. No ATM fees, good credit card rates, and they haven’t securitized my mortage. They keep getting bigger, but without apparent compromise. Money access is relatively easy and low-cost through inter-union exchanges at any ATM throughout the world. By comparison, the commercial bank that we have another of our accounts was sold to Chase and we’re looking at $3/month on our debit card, near-zero interest on large balances, stupid download fees for Quicken files, etc. A credit union – a good one – is a better choice than a bank for most individuals.

  12. It took me 2 years to convince my wife to move our accounts away from BofA and into a credit union. Please do it and you will not regret it!

  13. “Not every bank out there is still trying to pay for the Countrywide acquisition.”

    True enough. But the $5 B fo A is charging for debit card use will soon provide a ceiling for the other big banks to charge $4 or even $5 as well to increase their profits. Some are even toying with $3 already. Switching costs almost ensure this … if you have bill pay set up, for example, it’s a huge hassle to change banks.

  14. Just so everyone understands where the debit card stuff comes from…

    Basically as we all know for every credit card transaction a merchant pays a fee to the banks (actually to the VISA, MasterCard, AMEX, etc. who pass it on to the banks). The fee is not only to pay for convenience etc., but also is supposed to represent the risk of the transaction. In short it’s an “insurance fee” – if the charge is authorized, the bank will eat the charge (pay the merchant) even if the cardholder doesn’t pay their monthly balance.

    So, the card issuers were charging the same fee for debit card transactions as credit card transactions. However the risk is not the same.


    Because unlike credit transactions, debit transactions immediately come out of your bank account (it’s an end-to-end electronic transaction). So the risk is much lower as in theory the money must be there and you can’t take you bank balance negative, thus merchants argue that they shouldn’t have to pay the same fees (ie: the same per transaction “insurance” costs).

    I can’t say in the end if government intervention was the right tack or not, however basically BoA and others are arguing if they can’t jab the merchants they’ll jab the account holders. They claim the reason they had such low fees for checking accounts etc. was because they could garner this extra money out of the merchants.

    That later point I will leave to others to argue.

  15. @ Ella – I concur with Woop & Anonymous — your post is wonderfully succinct, putting our current economic situation in perspective and providing on-target solutions.

  16. I applaud your efforts to restore America, do you have a time table by which this *must* be done, or it all falls apart? Or is it open ended to say infinity?? It only takes one part of a written congressional law/bill to be defective for the entire law/bill to repealed. You have alot on your plate there during a particular time of history where things move more like turtles than rabbits.

  17. Speaking of banks and moving your money, and so sadly reminiscent of Simon’s arguments against letting banks become “too big to fail”, this came across my Facebook feed and piqued my frustration with the world as we live in…

  18. As an Englishman living in Arizona, there is much I have yet to fathom out about the banking system in my new country. But I have been told by a friendly bank manager that the collapse of an American bank under circumstances that would result in customers being left unsupported is inconceivable.

    Yet, when one ponders how the next few months/years could pan out the inconceivable could just become conceivable. Who saw the lead article in this week’s Economist – see

    So my question to those that know a lot more than I do, could the US domestic banking system fail, wholly or partially?

  19. That’s some pictogram, there, Paul Handover, thanks for posting it.

    There is a positive solution to this big ZOMBIE bank, TBTF, bank consolidation that’s been going on before my hair started turning grey….and that is…..a local mutual bank or cooperative bank, or a credit union.

    We don’t need these banks, and all they want to do is hurt is in the wallet, and provide less-than decent service.

    Divest, divest, divest….out of the ZOMBIES…….they don’t deserve our business.

  20. The US banking system has failed, Paul, it’s a flat liner all the way, with slick PR folks on the WSJ, CNBC, and all the rest of hackdom, pretending it didn’t die, and is actually on the mend.

    The FDIC insure depositors to a certain limit, but if all the depositors in a big ZOMBIE withdrew an amt equivalent to the electronic digits exhibited under the appropriate acct number, the result would not be good.

    Debt-based monetary systems are impossible, and need to proceed to the way of the dinosaur.

    This is the end-times for it, about 100 years in the making, and the bankers owning the central banks of the world, and now seeing people around the globe waking up to their giant scam.

  21. It’s the trust part that is gone, Woop. We’re in the maggot capitalism phase now, so it’s just gonna be a smaller load to heist.

    No one is going to stop lying, cheating, stealing and murdering now…they’re even claiming that this is a *normal* recurring function of economics and they concocted a math formula to prove that assertion – it’s a law of physics, dude :-)

    Just remember this – instead of GLOBALLY figuring out the man to land ratio and let every race and every nation work in those limits and figure out for themselves how they will feel, as a culture, as a civilization, the most confortable, secure and happy.

    “100 of us, 1000 buffalo” left time for everyone, man woman child, to have joyfull relationships with each other. I don’t believe humanity ever gave itself that opportunity, yet. Millions have learned both wisdom and science from simple living – making your life less miserable through honest work. Who wants to be where we are now – ready to kill to *survive*….?

  22. @ Annie, *fractals*? LOL : )

    Trust is it, Annie. The watermark for this erosion has to be none other, I hesitate to say it, the putative “war on terror”, and the *event* which spawned it. Criminals always degrade and discourage civilization, that is, high human achievement.

    People started understanding; those responsible failed to think it through, the clumsy oafs.

    This spread, like contagion, to other spheres….banking is one….and rightfully so….its’ so connected into this particular matrix of psycho behaviors.

    Globalism failed for the industrialized west, but gave hungry people elsewhere more rice, but these people are slaves, and now a form of reverse slavery is here in the USA.

    6,000 McBurger jobs and 70,000 applicants……

    It’s such a mess now, will honest work ever come back to USA?

    *lastly*, the people to buffalo ratio optimum is very difficult to achieve, Annie, given the pleasurable sensations of the reproductive act… to control one variable that is the basis of life, for a certain percentage of life forms on this planet?

  23. I think the bottom line here is this: To increase profit margins the large banks want the taxpayers and small depositors to provide them with free default insurance. Default insurance on their high risk investments they make for high-end customers, not for individual savers/depositors. The large banks take on excessive risks and expect our account fees and taxpayer bailouts to cover them if they lose. So in essence, the depositors are paying the premiums on the bankers “default insurance”. And let’s be absolutely clear on this, these fees have nothing to do with the costs of managing accounts. So once again big bank CEOs are asking that profits be privatized and loses are socialized. This is not free market banking. And it encourages inefficient allocation of funds/capital and assets.

    This is the logical equivalent of the largest homeowner in your immediate neighborhood, playing with fireworks in an incredibly dangerous manner. You keep 5 sparklers in a warehouse in the backyard of his house, and he wants you to pay for the entire warehouse of fireworks in the backyard when they blowup because he and his live-in girlfriend were drunk when she lit a cigar for him at the warehouse entrance.

    He (the equivalent of the large bank CEO in this analogy) says he has to play with fireworks in a dangerous way, because all the Europeans are doing it and they won’t be “competitive” unless they get drunk blowing up fireworks every weekend, telling you “it’s the cost of doing business”. He also says if you don’t let him get his excessive salary and bonus, he’s going to go to another neighborhood (Europe?? I don’t think the Canadians would take the dumb basturd)) and blow-up fireworks there, and you’ll be really sorry you didn’t pay him to blowup your neighborhood with fireworks after he leaves.

    If this makes sense to you and seems logical, take a thick black MagicMarker write “dumbf*ck” on your forehead with the assistance of a bathroom mirror, and keep a checking/savings account at Bank of America.

  24. @woop

    Let’s see if the brutal censorship is back, or if this posts….? Was there even an attempt made in Congress to seriously contemplate whether to launch a pre-emptive strike against Iraq?


    Do you have any idea, Sir, how destabilizing it is in an *information* age to insist that what happened didn’t actually happen? Talk about diabolical….

    As for controlling the dumb stick – did you ever watch the documentary series called, “Meet the Natives”? Small population tribes – each in their own unique ways – are infinitely more advanced in managing their sexual *desires*! Sex is not that hard to manage. Power-over-others *hunger* is what is unmanageable. And sex is *power* in the minds of civilization’s elite, isn’t it? Ask Gingrich :-)

    So for all the closet eugenicists reading along – the genetic strains of *natives* that easily managed their dumb stick for the good of the tribe (common sense about population control) are as endangered as that owl in California….

    100 of us, 1000 buffalo

    Isn’t intelligence knowing what the limits are to your own ability to have POWER over everything through *math* formulas…?

  25. Maybe a couple of people, this fella did…contemplate:

    around the 1:45 mark……summarizes the pathetic state of *Congress*

    *Dumb stick*..good one….generally unmanageable by larger societies, I would say.

    “it’s not going to be video game.”

  26. @woop

    1. That’s part one of their being no way to make any of it better – have it go your way into infinity and beyond – there wasn’t anybody in Congress who wasn’t going to make out financially in a pre-emptive strike.

    2. Even *religionists* stepping in to argue for Just War Doctrine vs Doctrine of Pre-emption were brutally censored. Instead embedded *religionists* went to the mic with quotes from the Bible to back up the story line, “….prophets wrote about these end times, we must fulfill our role in these battles against the evildoers…” they thundered from TV….never knowing that those stories were written from the perspective of “…don’t do this again in the future because the results will always be the same – you’ll p-ss people off too much….”

    3. But what is really “Strike Three and you’re out!” is the delusional money crunching – on a planet with 7 billion people, the amount of booty you were going to haul in from a war SHOULD have been adjusted from when you planned it – back when there were half as many people around (Post WWII strategy for the Middle East). I guess since the numbers didn’t add up (2005), inventing a fractal to increase the take was sold as *doable* – a freekin’ *fractal* to mathematically prove the CYCLE of stealing a harvest. What? I thought it was *prophecy* in the bible!?

    If large societies have low standards with regards to quality of life (Slave/Master), they haven’t figured out how to make their lives less miserable through honest work (physical labor saving invention is honest work, btw).

    Question then is, do they want to learn that trick for happy living? Like all learning, it’s done step by step. If you steal it, it only lasts for ONE growing season…

    China had so many choices on a huge global buffet table for selection if they wanted to *change* some aspect of their culture. No other major civilization in the history of man had that much spread before them/us for selection as they got to have….just sayin’….something to contemplate….

    From Arab Spring One to Arab Spring Two – better start planning what’s next – gotta get rid of 4 billion *jobs*

  27. I’m not sure I follow Annie’s logic, or catch her drift for that matter, but never mind. My point has to do with James’ implied premise that knowledge has anything to do with the problem. Isn’t it likely that the reason things happen in a way that is profitable to BofA – or any number of dominant financial or business institutions – has to do with power rather than with a failure by whoever made the decision to understand the consequences? You may decide for yourself whether banks are evil or not, but the inescapable fact is that they conduct themselves in their own best interest, which often does not coincide with those of the public.

    Here in France, for example, the government takes forever to pay its bills, at least to institutions, small businesses and individuals (it may not be so in the case of defense contractors). Everyone seems to have become used to it, but it causes many problems and unnecessary costs. A non-profit organization working on literacy programs for instance, may have to wait a year or more to receive grants that have been approved, forcing it to borrow funds it wants to carry out its project, on which the grants are contingent. Ot else, as frequently happens, it must layoff its staff.
    Meanwhile, there is very little or no tolerance for the late payment of taxes, so that the government takes in cash long before it dishes it out. That cash is deposited in banks, which use some of it to make loans to institutions that are waiting to receive money from the government. Does any of this make any sense? Obviously not. Does it benefit the banks? Of course.

  28. Here is some other advice that is probably relatively solid on switching bank accounts. Honestly I’m not very familiar with the author, but with a rough skim-reading it seems to be pretty solid information. I think the biggest problem with transfers is getting your electronic payments straightened out, but especially if you’re making the jump to a credit union, it’s worth the effort. Wish all the middle class families and hard working singles can make the jump and send a message to the big bankers: WE WILL NOT SWALLOW YOUR EXORBITANT AND UNNECESSARY FEES/CHARGES!!!!!

  29. @Moses – a good place to start for the most benign act of economic disobedience – me likey :-)

    @Paris Hilton wrote, “….but the inescapable fact is that they conduct themselves in their own best interest, which often does not coincide with those of the public….”

    They are not just *conducting themselves* that way. Everyone in the game is playing by the same rules of profit seeking – health, energy, education, defense, and trade.

    And they are down to cutting 4 billion jobs to meet their target profit margins.

    Catch the logic now?

  30. “….but the inescapable fact is that they conduct themselves in their own best interest, which often does not coincide with those of the public….” That’s beautiful.

    ” a perfectly decent definition of criminality, at least it was when I got trained….”

    TGIF…..and they’re chem-trailing right over my house, but everything is OK….LOL

  31. “Just Do It”


    Moses, thanks.

  32. Well the key here in these NYC police (That word no longer deserves a capital at the beginning) protests is that JPMorgan gave the NYC police $4.6 million.
    So, apparently, bouncing drunks at bars and strip clubs for supplemental income isn’t enough for police anymore. NYC police now feel it necessary to bruise and batter innocent citizens who pay their base salary.

    So we bailout JPMorgan (along with other large banks) then JPMorgan uses TARP funds we gave them to bribe cops to beat the shit out of anyone who speaks publicly against big banks in NYC. So in essence the average NYC taxpayer is now subsidizing cops to beat the shit out them, fine them, and shove their face to the pavement. ”

    This brings a whole new meaning to banks “intermediary function” doesn’t it???

    Also big banks are abusing veterans now. Because there’s nothing so satisfying to big banks as abusing military men who risked their lives for us on a daily basis. From the Bloomberg story:
    “James E. Butler Jr., a lawyer for the plaintiffs, said in an e-mailed statement. ‘Knowing they weren’t allowed to charge the fees, the banks and mortgage companies inflated allowable charges to hide these illegal fees without telling the veterans who were the borrowers or the VA they were doing so.’ ”

    In a sure sign that the “Occupy Wall Street” protests are effective in some form or fashion, the paid PR campaign has begun. Andrew Ross Sorkin, the man who spends nearly all his waking moments using his “lingua” to collect E. Coli specimens from big bankers’ anus, has now written the article we could have predicted Sorkin would write 5 weeks before he wrote it.

    NO I am not going to link to Mr. Andrew Sorkin’s bank industry fluffing. But, I will lift two paragraphs from Sorkin’s October 3 story (my bold and my italics added):
    ” ‘Is this Occupy Wall Street thing a big deal?’ the C.E.O. asked me. I didn’t have an answer. ‘We’re trying to figure out how much we should be worried about all of this,’ he continued, clearly concerned. ‘Is this going to turn into a personal safety problem?’ As I wandered around the park, it was clear to me that most bankers probably don’t have to worry about being in imminent personal danger. This didn’t seem like a brutal group — at least not yet.”

    Oh no Andrew!!! Oh no Andrew!!! Andrew!!! They’re coming to get you and the big bankers!!! Run Andrew!!! They’re coming to get Lloyd Blankfein and you, Andrew!!!! Ruuuuuuuuuuuun!!!!

  33. I “mis-spoke” in the first sentence of my comment just above, when I typed “NYC police protests”. Obviously, I meant the protests against banks and Wall Street behavior which has been damaging to society over several years.

  34. @Moses

    Occupy Wall Street is important on many levels. The most obvious being the illumination of the new mission of the NYPD – right?

    Basically, it has been decided to go after We the People who are not resorting to some kind of low level maggot capitalism in NYC – selling guns and drugs, slave trade, sex slave trade, porno, spouse abuse, child neglect, loan sharking, and on and on and on…

    It’s going after the crowd that is coming together to address those issues and find solutions.

    So you’re safe if you’re a criminal – whether on the super high end of the banksters or as petty crime maggot capitalists – BOTH ends eating away at the Middle Class….

    THINK about that this weekend in the park – because it matters.

  35. ….an on and on and on…..let’s not forget mentioning the human organ trafficking trade….a big money-earner.

    tell some poor 3rd woman she’s on for a free air ticket to a sunny destination, and $10 K USD for a KIDNEY….then cut out the KIDNEY……and stiff her on the compensation.

    yeah, helluva business there…even better with fresh kill from a large earthquake…doesn’t matter if the people are BLACK….hey….good kidneys work no matter where they’re housed.

  36. I believe that the over-riding philosophy in operation is this – if you are doing *business* – any kind of business – bankster or maggot – you’re okay.

    If you are gathering in a park to THINK about better ways to LIVE now and into the deep future – then you’re on the WATCH list.

    Every *ism* bursts like a soap bubble hitting a flower when the TRUTH is that the ONLY way to LIVE as a human being is to make your life less miserable through honest work.

    This hyper-psycho criminal bs of stealing the fruits of honest labor is SAVAGE. It will not be tolerated.

  37. B of A seem to have given up trying to be seen in a positive light by anyone, let along their loyal customers, and you would think that people can only take so much, until customers start to leave them en masse. It’s not as if there’s a shortage of alternatives.

    But, I’ve also heard it said that you’re very unlikely to move your main bank account once you’ve settled with one, which is one reason banks are happy to advertise so much to get effectively lifetime customers.

  38. More of the same that we’ve witnessed before and during this financial crisis: Rent seeking behavior from the public sector that erodes both our tax dollars and trust.

  39. “Not every bank out there is still trying to pay for the Countrywide acquisition.”

    I get that the Countrywide acquisition was a bad move, strategically. But from what I recall, it was a forced move – a shotgun wedding. Is this not so?

  40. Speaking of the bad old days. In the first year or so of the blog, you and Simon would write a long, dry, technically oriented, but comprehendible “Baseline” every quarter or so. I miss them.

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