Say you have an account at a big, national bank. Many of them are being investigated for taking Federal bail-out monies they did not need, or should not have needed… If it weren't for some creative accounting anyway. But more on that later…
Another form of creative accounting I once ran into with my big, national bank is pure, out-and-out usury. Which there are many laws in place to prevent. But say you are in a bind, and/or miscalculate your available funds. If you have $200 in the bank and have the following expenditures, let's see what can happen with some creative accounting.
Monday: Buy groceries $40
Tuesday: Pay electric bill $50
Wednesday: Put gas in car $20
Thursday: Get pizza delivered $15
Friday: Pay car insurance $100
TOTAL: $225
OOPS!
Of course, you would expect that the bank would subtract these things from your account in the order they were purchased. This would result in a positive balance at the end of the day on Monday through Thursday, but when the Friday payment cleared, you would be charged an overdraft fee of, say, $25.
The way many banks now operate, though, is to play a creative game with time, semantics, and debits. They would first subtract that $100 charge, then the $50 charge, then the $40 charge… And then PRESTO! When both the $20 charge and $15 charge hit your account, you are already overdrawn… Leading to TWO charges of $25.
In this way, the bank has essentially charged you a total of $50 for overdrafts in the amount of $25. Also known as a finance charge of 200% per month. Which would be 100 times the legal limit, annually, of interest they could charge you for a credit card.
So, if you are a customer of this bank, where does all that money go? Well, certainly banks are quite good at accounting, and one thing they do not wish to do is pay a windfall tax like a big oil company. So, you take this windfall, and vote a bonus for your Board of Directors that actually makes it look like your organization has LOST money in the fiscal year.
In this way, you can blame your "one-time mistake" of failed sub-prime mortgage lending, and take Federal bail-out money, even though technically your bank (or at least your bank's Board members) made quite a profit.
Then, the next year, when there has been a crack-down on sub-prime lending and you no longer have that excuse, you use your windfall to pay back your bail-out money, which in the meanwhile you have lent to financially sound businesses and home buyers, making more money than even you did in the previous year.
Leading your Board, of course, to vote themselves another huge bonus in the name of not paying taxes.
Does anyone else see where this is going? Big national banks have invented their own, illicit accounting methods in order to not only gouge their own customers, but to use taxpayer money as free financing for their own gain. And it's not the bank, as an entity itself, that is gaining here.
This is why I have said that, when the next WikiLeak dump occurs (in which it is rumored that a major American bank will be exposed as the next Enron) I will not be at all surprised to find out that it is on the scale of someone like Chase, Bank of America, or Citibank… And that it will rock the financial World and create yet a new set of financial woes and fears for us.
So, where do you go to avoid these illicit pocket-lining schemes of the big banks? As of yet, probably nowhere. Your tiny local bank doesn't have enough clout, enough diversity, or enough revenue to play such a game -- YET. But believe me when I say that, as soon as they do have such power, they will aspire to these practices.
Major overhaul of the financial laws of the country are of course necessary. But in order to accomplish this, we're going to have to have a new type of law in which the SPIRIT of the law is spelled out and then enforced. Because the current financial laws are enforced to the LETTER of the law. And clearly this provides too many incentives to play "creatively" with other peoples' money!
As long as phoney money (fiat currency) and usury are tolerated there will be nothing anyone can do to rectify the situation. Every so often the phoney-money lenders will write the whole shebang off or foreclose and sell the world again. On credit, of course.
ReplyDeleteThat ancient Book, which forbids lending at usury except as an instrument of economic warfare to drive the Canaanites out of the land, shows once again the wisdom therein contained. Nehemiah excoriated the rich Israelites for lending at usury: the rate was 1%!!! "Al"