I know a lot of people that are still afraid to put their money in the bank. During the 1960’s, 70’s, and 80’s a lot of people were still hiding their money in their homes under pillows. For some reason many people did not trust banks. The mistrust came from all the information that banks required of consumers. They wanted to be privy to almost everything before you could open up an account; it was like applying for citizenship in a new country. The biggest mistrust was caused by all the bank robberies that happened between real life and Hollywood movies. Fortunately the Federal Deposit Insurance Corporation (FDIC) was established in 1933 so that if a bank gets robbed with your money in it your money is insured federally by the FDIC up to 100,000, but if a crook robs your home, you get nothing but lip service from a police officer in between bites on his donut. I don’t know anybody personally with 100,000 in the bank but I know that amount is more than the overwhelming majority of people in America. 

Poor people distrusted banks because they were unfamiliar with them, they were unfamiliar with them because they never had enough money to open up an account and most banks wanted you to deposit 'X' amount of dollars to them, before you could get an account. Poor people could not afford anything extra and working class people (today’s poor people) had banking distrust also. Many have horror stories that had been passed down for generations. There is a great HBO Movie called “Something the Lord Made” that highlights this horror. In the movie there was a scene where the bank closed down on the main character and all the people in his community who had their life savings in the bank lost all their money. It took some years to build faith in people but by the time the 1990’s rolled around most people began trusting banking institutions, and people not trusting banking institutions or not putting their money in a bank were considered foolish or crazy. 

During this same time I started noticing a trend in the news reporting and there appeared to be extra money surpluses and lines of credit that exceeded the wealth that actually existed in the country as a whole. I realized that credit, which the banks were extending, was faith based. Meaning as long as ordinary people brought and believed in the system and had “faith” in the almighty dollar everything would be ok. It seemed so many people had faith in the system that the Banking system swelled really fast. People began using credit cards at an alarming rate. This also meant going into debt, which was facilitated by using this imaginary plastic money called a credit card. A few years later the debt was still unpaid and banks and their affiliates began to squeeze, seize and freeze the savings, checking accounts and other assets as a way to get repaid on their promissory notes (money). Since Millions of people were and are in debt that meant freezing the money in a millions of people’s banking accounts. It's 2004 and people are again growing distrustful of banks, opting to cash their check from work at a check cashing place for fear that money put in the banks may be seized by the creditors for outstanding debits they incurred years ago. Banks are growing and being consolidated into other areas of ordinary living. In fact the real reason people should fear banks is that not for things that have happened in the past but for the present and future of banking. 

Banks are “bankrupting Democracy”

It is now commonplace to speak of the power of “the markets” (everyday business) relative to the prerogatives both of individual firms providing goods and services and of governments themselves. The markets are said to exert authority, and at least veto power, over company decisions about how much they pay workers (that’s you), what technologies they invest in, whether they take measures to protect the environment and much more. Conventional wisdom holds that the markets block governments from imposing limitations on corporate activity - ranging from protections for workers against sudden firings to limits on air pollution emissions to caps on corporate size. These emerging facts are scary and not part of Business 101. But they may obscure as much as enlighten, especially to the extent that they depersonalize responsibility and convey a common circumstance of passivity on the part of the world’s largest institutions. 

To make my point let’s take Citigroup, the world’s largest private financial institution; it illustrates the flaw in ascribing too much power to the undifferentiated markets. On the one hand, the power of markets is dependent on the rules of the national and global economy - rules which Citigroup and other large corporations help write. On the other hand, even the financial markets are made up of institutional players like Citigroup that, depending on the issue, exert enormous influence over the markets’ effective collective decisions. The story of Citigroup’s formation illustrates how this financial goliath maneuvers to escape the tethers of government regulation (Citi, Citigroup, Citibank and Solomon Smith Barney are all the same and may be used interchangeable throughout this essay). 

In 1998, Travelers CEO Sandy Weill and Citicorp head John Reed announced plans to merge their two financial powerhouses. There was one problem: U.S. law prohibited the merger of commercial banks with insurance companies and securities firms. No Problem. The two companies were not deterred. A loophole in the law barring such combinations gave the two companies a two-year window before the merger ban would kick in. That would be plenty of time, they figured, to change a centerpiece of U.S. banking laws that had stood in place for more than 50 years. There already was momentum in Congress in support of the financial deregulation that proponents supported under the misleading banner of “financial modernization.” But there were also major legislative blocks and hurdles, and no assurance of passage. Enter Citigroup. Though Citicorp has opposed the deregulation bill, the merged Citigroup became its most important advocate, with Sandy Weill pitching a tent in the halls of Congress to lobby legislators. Still, the bill remained mired in Congress, thanks to jurisdictional disputes among federal agencies, intra-industry conflicts and consumer group opposition. Former Treasury Secretary Robert Rubin sealed the deal. After having left his Treasury Department post, but amidst negotiating his new terms of employment as chair of the management committee at Citicorp, Rubin brokered the final compromise to ensure passage of the financial deregulation bill. While Citi’s top priority was an after-the-fact legalization of the tainted Citicorp-Travelers merger, much more was at stake - for both the financial industry and consumers. The bill has enabled not just this particular corporate combination, but also the intermingling of businesses that were formerly, properly and prudentially, kept apart. Now affiliates of holding companies are free to share information related to finance, health and other personal consumer matters. (As a sop to consumer groups, the law permits consumers to opt-out of these information sharing arrangements, but most consumers do not read or understand the notices they receive informing them of these rights.) The information sharing facilitates marketing efforts by the growing financial giants, at the expense of consumer privacy. They end up knowing “everything eventually”; you can’t move two states over to avoid paying child support, (you should be paying anyway) - its all moving into one system, wherever you go there you are.

The financial deregulation law purports to prohibit cross-subsidization of imperiled insurance or other subsidiaries by the financial services companies’ banking affiliates. But the structure of the newly formed companies makes such internal asset sharing almost unavoidable. Since the banks’ money is backed up by federal insurance, the problem becomes one not just of financial stability, but of the involuntary expansion of the federal guarantee to other financial service company operations. The mega-companies enabled by the deregulation law call for a more robust-than-ever regulatory authorities - to monitor that no Enron-style cooking of the books is occurring. But Citi along with the rest of the finance industry made sure that provisions to strengthen and coordinate decentralized and disjointed U.S. financial regulators were not included in the final bill. This is scarier than any horror movie. A similar leveraging of Citi’s power on Capitol Hill is unfolding yet again, as Congress makes way to achieve final passage of a bankruptcy “reform” bill. Simply a dream in the mind’s eye of industry lobbyists just a half decade ago, the bill in 2000 passed both houses but luckily it was vetoed by then-President Bill Clinton. It passed again last year, but did not emerge from conference committee. Now the Congress appears set to get a bill to the president’s desk. And of Course, President Bush has will sign it. 

The bill is designed to alleviate a manufactured bankruptcy crisis. It is manufactured in two senses. First, in that there is no evidence of a surge in individuals gaming the system and illegitimately declaring bankruptcy, notwithstanding the industry’s claims to the contrary. Second, in that the problem of excessive consumer debt - a real problem - is due in significant part to abuses of Citigroup and the financial services industry itself. Their extremely aggressive pushing of credit cards, and the usuriously high interest rates they attach to credit card debt, have left millions of consumers deep in hock as discussed earlier. Rather than curtailing the abuses of Citigroup and the rest of the credit card industry, of course, the Orwellian "Bankruptcy Abuse Prevention and Consumer Protection Act" would penalize those in tough financial times. It gives high priority to repayment of credit card debt - even as opposed to payments for housing, child support and other more important obligations - and attaches other onerous conditions to personal bankruptcy. 

Bush has been talking about personal responsibility a lot but that is for people not banks and corporations. It locks many out of bankruptcy courts altogether. The National Consumer Law Center says, “in virtually every respect, the bills [both Senate and House versions] would make it harder for debtors to file and would undermine the relief available in the bankruptcy system. ... [They] would drastically shift the balance of power in bankruptcy cases in favor of creditors.” Citi gets its way in Congress through the normal payoff system of campaign contributions (company donations totaled more than $2.5 million in the 2000 election cycle, and the company is the top political donor among commercial banks in the current cycle, according to the Center for Responsive Politics), and an elaborate lobbying operation (in 1999, the most recent year for which data is available, the company spent more than $5 million on 63 lobbyists at firms ranging from Akin, Gump to Wilmer, Cutler and Pickering, according to the Center for Responsive Politics). 

But Citi gains influence as well simply by virtue of its size, its heavy advertising and its 50-state presence - which make politicians aware of its reach and deferential to its demands. The company is also able to deploy Rubin as a lobbyist, spokesperson, well-connected insider and arm-twister without peer. The company functions equally effectively in the international arena, where its interconnections with the U.S. government serve it well. It played a vital role in lining up the political forces to back the launch of the World Trade Organization, as Antonia Juhasz notes. Citi was among the leading corporate ideologues pressing for negotiation and adoption of the WTO agreements; and continues now to back expansion of the WTO’s General Agreement on Trade in Services (GATS), which will remove barriers to Citi’s global ambitions. The company is among the leading recipients of backing from the U.S. Overseas Private Investment Corporation, relying on OPIC support in Argentina, Brazil and Jamaica, among other locales. And Citi’s influence has been decisive in arranging U.S.- and International Monetary Fund-led bailouts during the Mexican financial crisis of 1994 and the Asian financial crisis of 1997-1998. Those bailouts helped not the people in Mexico, South Korea, Thailand and Indonesia who found their economies suddenly decimated, but the foreign lenders who had actually helped created the crises. The infusion of bailout money went largely to pay off foreign creditors, of which Citibank was among the most prominent in both instances. Citi helped create those financial crises through excessive lending; Citi arranged publicly financed bailouts that relieved the company of the costs of its errors; and then the company took advantage of the crisis countries’ vulnerability to force them to open their markets to foreign firms. Post-crisis, Citi has acquired Mexico’s Banamex, and is now contemplating bidding on the credit card business of South Korea’s Chohung Bank. Indeed, Citi worked with Rubin, then in his Treasury Department role, to use the crises to force open the countries’ financial sectors. “Lobbying by American financial services firms, which wanted to crack the Korean market, was the driving force behind the Treasury’s pressure on Seoul,” reports Paul Blustein in his book, The Chastening: Inside the Crisis that Rocked the Global Financial System and Humbled the IMF. 

But more is going on here than just the leveraging of private power to influence public decisions. Even more than most companies, Citigroup functions as a private government. Its decisions have enormous influence over the allocation and terms of credit in the United States and around the world. These are decisions that fundamentally shape the way the world works and looks. Citigroup (reminder this is a bank) has recently acquired The Associates First Capital, the largest U.S. predatory lender, which has specialized in ripping off poor people [that’s me and my friends and probably you, if you work 9 to 5]. It claims to be cleaning up Associates’ act, and is unlikely to continue the low-grade, shady operations that prevailed under the company’s former ownership. But community groups around the United States insist that Citi has failed to provide adequate credit in low and middle-income communities. They are demanding that the nation’s largest bank begin providing those neighborhoods with the capital they need to prosper. 

And now the environmental movement is increasingly focusing on Citi and other private lenders’ loan practices in the developing world, calling attention to the lenders’ responsibility for bankrolling environmentally destructive projects, which could not proceed in the absence of private finance. These campaigns - longstanding in the case of the community groups, much newer in the case of the environmentalists - recognize the imperative of bringing Citi under public control. The U.S. Community Reinvestment Act, obligating banks to make loans in low- and middle-income communities, is an imperfect but vital example of how the public can begin to place affirmative obligations on big banks and others in the finance industry. Imposing such obligations, as well as strengthening regulation of the industry, establishing new mechanisms of accountability and aggressively applying antitrust and pro-competition rules, are all made much more difficult by Citi’s grip on political power. But it is vital that citizen movements galvanize around such demands quickly. The Citi-led trend to rapid consolidation in the financial services industry is altering the balance of political power ever more in favor of the finance industry and against democracy. This is much more frightening than past reasons that people feared banks and it’s getting scarier every day. 

Released: October 11th, 2004

The views and opinions expressed herein by the author do not necessarily represent the opinions or position of Playahata.com.