Banking (& other Finance)

Overview: The U.S. government has monopolized the financial services sector through the Federal Reserve Central Bank monopoly, which has regulated and favored the big banks and insurance companies by providing low interest loans, bailouts and better financial services. The ad hoc nature of the Dodd Frank law imposed by politicians and costs of compliance has also favored the big banks.


(1) Finance Sector Supply Chain

(a) Banking
Federal Reserve Central Bank, Federal Reserve Regional Banks (12)
Commercial Banks = for-profit, deposits, saving, checking, S-T loans (business, personal, mortgage)
Savings & Loan Banks = mutually-held saving and home lending
Credit Union = nonprofit cooperative, pool deposits, borrow at low rates
(Consumer-finance = banks loan money for mortgage, auto, credit cards)
(b) Securities
Stock Brokerages = facilitate buying/selling of stocks, bonds, others
Commodity Contracts = agreements to buy/sell commodity at price/date
Investment Funds = collective purchase of stocks, bonds, other securities
(c) Insurance (non-health care)
Mortgage Insurers (AIG) = insures home lenders from default 
Life/Health/Annuities (872 co.s) = guarantee money upon death
Liability (2544 co.s) = insures property, such as automobiles, housing
(d) Other = Funds, Trusts, Accountants

(2) Regulations favoring monopolies

U.S. has virtually always had regulated and monopolized banks: national bank from 1791 to 1811 and 1816 to 1836, state-regulated banks from 1836 to 1863, simultaneous national and state banks from 1863 to 1913, and Federal Reserve since: 

> Federal Reserve banking monopoly =controls all national banks, some state-chartered banks
> Federal Reserve Regional Banks = oversee private member banks
> Nationally-chartered commercial banks = hold stock in Regional Banks, elect some board members
> State chartered commercial banks = offers only retail and commercial services
> Savings and loan associations, savings banks = chartered by either federal or state governments

Federal Reserve banking monopoly is monopolizing banking by favoring large banks:

> supervising and regulating banking institutions in favor of large private banks,
> burdensome regulations increase the cost of compliance especially for small banks,
> providing more favorable financial services to large depository institutions, and
> conducting monetary policy by pumping easy credit at low interest rates into the economy through the major banks. (For example, the Federal Reserve made $9 trillion in overnight loans to major banks and Wall Street firms during financial crisis.)

Politicians are regulating banks and restricting loans through Dodd Frank (Glass-Steagall repealed)  

Other preferential Banking regulations:

> Government grants commercial banks deposit insurance from the Federal Deposit Insurance Corporation (FDIC) through the Bank Insurance Fund (BIF). Savings and loan associations are insured by the Savings Association Insurance Fund (SAIF), and savings banks are insured by the Bank Insurance Fund (BIF). These subsidies allow lower interest rates, but reduce accountability (make public responsible for bad loans).
> Savings institutions must maintain 65% of their portfolio in housing-related or other qualified assets
> Many insurance companies and securities firms, as well as commercial firms, are now able to qualify as unitary thrift holding companies and to own depository institutions, bypassing prohibitions in the Glass Steagall Act and the Bank Holding Company Act. Critics of a revitalized thrift charter have said that it has advantaged a certain class of financial institutions
> Credit unions are exempt from federal taxation and sometimes receive subsidies, in the form of free space or supplies, from their sponsor

Preferential Insurance regulations: 

> Government encouraged insurance giant AIG (which also operates AIG Property Casualty, and AIG Life and Retirement) to cover risky loans through its United Guaranty Corporation (mortgage guaranty insurance and mortgage insurance). After it needed a bailout, the government took control.
> Insurance is regulated mostly by the individual states

10b14780424917355.jpg (3) Monopolies are leading to economic problems (including history) 

Banking monopolies have led to financial crises:

> Financial panics and depressions resulted under a national bank in 1792 and from 1819–21, state-regulated banks from 1837–43 and 1857–59, and national and state banks from 1873–78 and 1893–97, and in 1901 and 1907.

> In the 1920s, the slow-growing monopolized economy was stimulated with easy money from the Fed that encouraged the risky investments that led to the Great Depression.

> US government regulations pressured a lowering of lending standards at the Fed’s big regulated banks (as well as Freddie/Fannie duopoly and AIG insurance), while pumping in easy credit at low interest rates, to artificially stimulate housing sector and inflating home prices, which led to an eventual bursting of the housing bubble and the Great Recession of 2008.

Banking monopolies have led to wealth disparity:

> Big banks are getting larger, while smaller banks go out of business. From 1988 to 2010, the number of large banks (with more than $300 million in deposits) doubled from 900 to 1800, while smaller banks plummeted from 12,500 to 4200.

> As of December 31, 2011, the assets of the five largest banks - JP Morgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs - were equal to 56 percent of US economy.  

> The finance industry makes an incredible half of ALL U.S. business profits (compared to a tenth in 1947). 

> Mean salary in New York City's finance industry is $360,000. 

Before financial crisis of 2008, AIG’s United Guaranty Corporation sold massive amounts of credit default swaps (insurance) without initial collateral, setting aside capital reserves, or hedging its exposure. It was bailed out by the federal government for $180 billion.

Lower interest rates increases asset prices, including stocks and homes, preferential lending by big banks to big businesses, financial engineering, including buyouts, mergers and acquisitions, government, business and consumer debt, uneconomic and risky investments and monopolization and wealth disparity. Higher interest rates slow economic growth.

(4) Economic problems can be solved by deregulation reform

> abolish US government-established Federal Reserve banking monopoly, along with manipulation of credit and interest rates.
> abolish Dodd Frank regulation of banking that allows politicians to control banks.
> abolish US government regulations establishing FHA monopoly and Freddie/Fannie secondary home mortgage duopoly

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