Has Community Reinvestment Become the Ghetto of the Banking Industry?

12.12.12-HousesNew Orleans   Since the financial crisis many of us who believe in decent and affordable housing have spent time making sure the Community Reinvestment Act (CRA) didn’t become the goat for the financial meltdown and banking scandals. And, don’t get me wrong, that’s important!

In a 2015 Federal Reserve study the conclusion was clear: CRA was blameless. Only 6% of loans by banks in CRA-qualified census tracks would have qualified as high risk. The repayment rate for CRA-based loans was equal or better than other loans in banking portfolios.

Nonetheless recently I finally felt like I might have stumbled on a disturbing pattern when I started thinking about the array of CRA officers populating various banks and I then started to worry that there might be another side to the CRA story that needs attention, and that’s whether or not it has become a banking ghetto populated more by politicians and promises than real efforts to move families into housing and desperately needed resources and loans into lower income communities.

For example, the National Community Reinvestment Coalition claims that approximately $4 trillion in CRA commitments was promised between 1997 and 2005. And, that’s good news and ACORN’s experience was that much of it was delivered on our agreements, as I detailed in my 2009 book, Citizen Wealth. On the other hand the word “promised,” when it comes to minority lending and lower income communities always makes you wonder. The Federal Reserve report for example quoted testimony given by JPMorgan Chase to the Financial Crisis Inquiry Commission that “less than one-fourth of the loans pledged in the largest-ever CRA commitment ($800 billion by JPMorgan Chase) were to the lower-income borrowers and neighborhoods targeted by the CRA.” When forced to fess up, Chase essentially was admitting that their pledge was a scam. They also quoted a “Citigroup managing director… that most CRA commitments ‘would have been fulfilled in the normal course of business.’” Having dealt with Citigroup for years, that’s simply a lie. Nonetheless, it’s worrisome that these big hitters in the CRA lending world are essentially saying they were playing all of us for fools. Admittedly, they were also trying to save their skins before the Commission, but I’m afraid the truth may also have been slipping out.

And, then there’s a pattern I started to wonder about when thinking about the CRA officers we run into from bank to bank these days. There’s a high incidence of what seem to be political appointees rather than real bankers who might be able to move money rather than simply bring calm to stormy seas. On the local scene just to think about a random selection, there were several current African-American legislators still in office, a relative of a former Mayor, and a social friend of the CEO…are you starting to see the picture? Nationally, I remember dealing with an African-American former mayor of Minneapolis and the scion of a long standing black political powerhouse family from Buffalo.

Maybe we need some solid research of our own on whether or not big and little banking is really committed to CRA objectives and non-discriminatory lending in minority and lower income communities, or whether or not we’re being played by politicians in banker’s suits making promises while continuing to grip the money with an ever tightening fist?

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Banks are Building “Credit Deserts” in Birmingham and Elsewhere

182984189-465119Edinburgh   We have real deserts like Sahara, the Gobi, Mohave, or Chihuahuan in the world. We have food “deserts” in many lower income communities with little choice but mom-and-pops, corner stores, kiosks, and bodegas to serve millions. Now there’s increasing evidence that banks have been allowed to build “credit deserts” in many cities, and work in Birmingham, the second largest city in the United Kingdom, makes it clear the map of the desert is also the outline of lower income communities in the city.

It shouldn’t be a surprise. Reportedly, British banks have shut down 42% of their branches over the last 15 years, and of course a huge percentage of the closures have been in lower income areas. Fleeing from the responsibilities of community banking has long been a trend in the United States of course, but in the United Kingdom the concentration of most banking in a handful of companies exacerbates the crisis. The U.K.’s antitrust regulator, the Competition and Markets Authority, recently said that Britain’s retail banking market isn’t competitive enough, but then didn’t do much about it and made no proposals for forcing the country’s big lenders from making any radical changes to their businesses. U.K retail and business banking is dominated by four banks: Lloyds Banking Group , Royal Bank of Scotland Group , Barclays and HSBC Holdings holding approximately 70% of personal current accounts and 80% of business accounts in the U.K.

Now as data is becoming available in recent years on where small businesses, mortgage loans, and smaller consumer loans are being given by banks, the city council of Birmingham did some number crunching, and then laid out the results on a map. In general Birmingham citizens had less access to credit than virtually any other part of the UK, but more specifically when a comparison was made on where loans were NOT being made, the overlap with lower income communities was precise. There is no question that banks are discriminating against low and moderate income families as a matter of policy and as a key part of their business plan.

While the banks build a “credit desert,” the vultures that sweep in to feed on the people are of course the payday lenders and cities in the UK, just like the US and Canada are seeing a feeding frenzy. ACORN organizers not only in Birmingham but in other cities in England and Scotland were quickly able to rattle off the names and addresses of payday lenders, pawn shops, and other quick money spots in our neighborhoods.

While visiting we looked up the regulations on payday lenders in the UK. Not much hope for relief there in the credit desert. Pretty much everything goes if the interest rate on the loans was less than 100% of the loan itself. Checking the popular internet money lender, Wonga, to our shock they boldly displayed an APR or annual percentage rate for their lending rate at 1509%.

The plan seems to be to discriminate in lending and then open the door wide so that the pockets of lower income families can be picked clean.

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“Payday Loan Song”by Erich Vieth

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Rewriting the Rules

Rewriting-rulesNew Orleans              The AFL-CIO has already begun the process of vetting potential Presidential candidates, offering the opportunity to any of the score that has an interest in coming by, which so far means all the Democrats and Republican ex-Arkansas Governor and current TV commentator Mike Huckabee. Interestingly, Rich Trumka has indicated that the AFL’s key benchmark flows from a new report spearheaded by Nobel laureate economist Joseph Stiglitz of Roosevelt University with the input of a host of others. The report is called “Rewriting the Rules,” so let’s take a look at its proposals.

Not surprisingly, Trumka and the house of labor are no doubt pleased to see the ringing endorsement of expanded labor rights and promotion of collective bargaining as important principles to re-establish in the economy. The clearest proposal in this area recommended that the federal government add clear conditions not only to governmental subcontracts but to development grants to protect and advance union protections and bargaining. The rest was predictable.

The point of the report is that the rules matter. No rules, which is what the long desert of deregulation in so many sectors produced, tilted the economy to the 1% and allowed Wall Street and other cowboys to herd us into the Great Recession. Remember it wasn’t just “no rules,” but “bad rules,” which is the point here, too. “Rewriting the Rules” is an argument that in order to re-balance the economy and its myriad winners-and-losers, our politicians and the government need to put new regulations in place that would allow us to prosper and to do so more equitably.

Perhaps most interesting were the recommendation for reforming the financial sector, because this is right in the wheelhouse for Stiglitz and many of his helpers:

 

Screen Shot 2015-07-30 at 10.02.33 AMEnd “too big to fail” by imposing additional capital surcharges on systemically risky financial institutions and breaking up firms that cannot produce credible living wills.

 

Screen Shot 2015-07-30 at 10.02.33 AMBetter regulate the shadow banking sector.

 

Screen Shot 2015-07-30 at 10.02.33 AMBring greater transparency to all financial markets by requiring all alternative asset managers to publicly disclose holdings, returns, and fee structures.

 

Screen Shot 2015-07-30 at 10.02.33 AMReduce credit and debit card fees through improved regulation of card providers and enhanced competition.

 

Screen Shot 2015-07-30 at 10.02.33 AMEnforce existing rules with stricter penalties for companies and corporate officials that break the law.

 

Screen Shot 2015-07-30 at 10.02.33 AMReform Federal Reserve governance to reduce conflicts of interest and institute more open and accountable elections.

 

Some of those recommendations would make a difference, particularly impacting on banking and credit access and affordability. The report also takes some clear shots at what is needed to rein in the quick buck artists of business for the protection of the economy and the public.

 

Screen Shot 2015-07-30 at 10.02.33 AMRestructure CEO pay by closing the performance-pay tax loophole and increasing transparency on the size of compensation packages relative to performance and median worker pay and on the dilution as a result of grants of stock options.

 

Screen Shot 2015-07-30 at 10.02.33 AMEnact a financial transaction tax to reduce short-term trading and encourage more productive long-term investment.

 

Screen Shot 2015-07-30 at 10.02.33 AMEmpower long-term stakeholders through the tax code, the use of so-called “loyalty shares,” and greater accountability for managers of retirement funds.

 

I wouldn’t hold my breath about any of this, but it is reassuring that labor at least is asking the right questions and pointing the way to some hard decisions and clear policies.

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Please enjoy Rickie Lee Jones’ J’ai Connais Pas (I Don’t Know).

Thanks to KABF.

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For Banks the Party Never Stopped

indexHouston        Seven years after the wheels started coming off the bank’s mad money train, it seems clear that settlements for mortgage abuse, which is euphemism for fraud, Dodd-Frank legislation, and what should have been the awesome weight of having collapsed the US and world economy and upended the lives of millions, have essentially been water off a duck’s back for the banking industry and Wall Street.

Let’s just tick off a few recent cases in point.

  • The City of Los Angeles, yes, not the Justice Department, SEC, or Federal Reserve, sued Wells Fargo for pressuring employees in its retail bank with sales quotas to fraudulently enroll people in new customer accounts without their approval.  Plain and simple, shake and bake, no permission needed.
  • Two big banks rather than settling for some hand slaps and big fines, Nomura, a Japanese bank, and the Royal Bank of Scotland, both presumably figuring their home country customers probably didn’t give much of a flip about whether or not they had packaged bad mortgages in the USA, went to trial claiming the dog-ate-their-homework, the economy did it, not them.  The judge found against these miscreants and essentially said their behavior was disgusting.
  • And of course there is the whole cabal of banks that engaged in price fixing and chicanery to fudge the LIBOR rate for interbank and corporate lending including HSBC, JP Morgan Chase, Citi, and a rogues’ gallery of the biggest banks in the world.  Their fines are in the billions, and reportedly they are going to finally have to actually plead guilty as institutions.

Many have argued that part of the problem was the legal double standard that found law enforcement playing paddy cake with the criminal enterprise that banking has become rather than prosecuting them aggressively from the top down.  If anything was administered more than simple detention, it was from the bottom-up.  The bigger the guy at the top of the bank, the bigger and more obscene the paycheck continued to be.

More proof that bad behavior and thuggery is the norm in banking is emerging in a new study as well.   According to the Andrew Ross Sorkin at The New York Times,

“...about a third of the people who said they made more than $500,000 annually contend that they ‘have witnessed or have firsthand knowledge of wrongdoing in the workplace.’  Just as bad:  ‘Nearly one in five respondents feel financial service professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment.’”

Such statements take your breath away.  Not only has it not gotten better, it may have gotten worse!   And, the President wonders why Senator Elizabeth Warren is willing to go to the wall on a trade bill that had hardly interested her until she noticed the language leading her to believe that it would allow even more transnational banking criminality?

There oughta be a law, but there probably are plenty of them, just no one seems to care, and the party goes on, and we all pay for it.

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The Beermats – A Workers Song

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Banking at the Post Office

ATM at Japan Post

Japan Post Bank  ATM at Japan Post

New Orleans      I’ve been on the post office bandwagon for some time as a solution for reducing the impact of predatory lending, check cashing, and money transfers or remittances.  It seems in the effort to protect jobs, the American Postal Workers Union may be planning to take just this kind of proposal to the bargaining table, which could be a breakthrough if they can get any traction from their bosses.

The heart of their proposal according to a story by David Moberg of In These Times is that post offices are almost everywhere and banks have steadily been deserting a lot of geography in recent decades creating banking “deserts” in many of our communities.  According to the research and advocacy organization, United for a Fair Economy, “more than one-quarter of Americans with little or no conventional banking services encompasses 53.6% of black households and 46.8% of Latino households, but only 19.5% of non-Latino white households.”  Meanwhile 60% of the post office locations are in areas with at best only one or two banks.  Even with massive cutbacks among postal workers, there are still a half-million of them who could handle a lot more than just stamps at the counter.

How radical is this?  Not very.  For 55 years until 1966, the US Postal Service sold savings bonds that might have had low interest yields but were financially secure and accessible.  Many other countries have had postal banks including the United Kingdom and of course Japan which for a long time was the largest savings bank in the world.

In Canada,  ACORN has worked closely with the postal unions who have been among our strongest allies in trying to cap the cost of remittances and have joined with us in trying to take over money transfers from the government’s subcontract with MoneyGram.  Moberg writes that in the US the APWU has started forging a community-based coalition with National People’s Action, Public Citizen, USAction, and Interfaith Worker Justice.  Perhaps we will hear more from all of them soon to advance this proposal.

Let’s hope so.  We need a solution here, and pushing the post office into banking for our people could be the stone that kills two birds, offering basic services for working families at affordable prices and saving jobs at the same time.  As I’m sure the APWU will say at the table, this is a perfect example of “win-win” bargaining, if we can make it happen.

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Please enjoy Joan Baez singing “Bread and Roses.”

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More Chapters Opening in the Criminal Enterprise Called Banking

citibank.gi.topNew Orleans    You probably haven’t heard about this yet, but in many public high schools in the “red” states like those in the USA where I have long lived and worked, business has managed to force students to take a course or half-course in “free enterprise” in hopes of moving their young minds in the “right” direction as early as possible. A standard feature that is going to have to be mandatory at the insistence of mothers and fathers of such students everywhere is that in the same way they had to learn to “just say no” to drugs, part of this curriculum will counsel the youngsters to never, never ever join a criminal enterprise and become bankers.

Every day there are more reports of criminality or of things that should at the very least be considered criminal.

Citi cut its profit estimates because of new investigations that it was involved in currency manipulation. Deutsche Bank said it lost money on the quarter because of legal costs. Bank of America continues to be implicated in yet more mortgage mess. And on top of that, various attorney generals and the Justice Department are now saying they’re going to reopen some of the earlier settlements with banks and jack up the fines because the banks continued doing the same ol’ same ol’ even after they swore on a stack of millions of dollars that they would change their ways.

They just can’t do right. Period.

It’s getting so bad that a professor from NYU in an op-ed came out in favor of using check cashing and pay day lending outfits on the street corners, essentially because they steal from you to your face rather than having bank accounts where they sneak the money away from you at every turn with an average check bouncing charge of over $32 a pop now, excessive monthly service charges even on savings accounts where you are only be paid a quarter of one-percent for letting them invest your money, and generally nickel-and-dime you at every turn.

Yet somehow they were able to still muscle up on the Federal Home Finance folks in exchange for being willing to offer housing loans again and convince them that they would be OK lending some money for home purchase again, but only on the condition that they could pretty much off-load all of the mortgages to the government and others rather than keeping any of the risk on their books. Former Congressman Barney Frank of the Dodd-Frank so-called banking reforms said that “risk retention” was the key to making the Dodd-Frank overhaul work, and that’s now long gone, pecan, cher! More recently he has been quoted colorfully saying essentially that the bill is a dead letter now given the deal the banks have cut.

Seems when they are not engaged in predatory and criminal behavior at home and abroad, they are fast dealing and scamming the rest of us right and left.

So, American mothers have almost universally changed their minds and the words to the old Willie Nelson song, and have decided it’s ok for their boys to now be cowboys, as long as they never become bankers and lawyers and such.

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