Banks Are Heartless

February 21, 2008 at 9:37 am | Posted in American politics | 18 Comments

Remember one thing about doing business with a bank. The bank will always make more money than you will off of the relationship. You will always come away with less than the bank will.

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  1. If it was reversed, the bank would be a charity. And well, they’re not so into charity work. At least not on my individual level. . .

  2. You gain value from the relationship. You have the ability to write checks, cash checks and use an ATM card. These services have value.

  3. I don’t understand why it matters whether a bank is heartless or not. Unless it is the Mother Wahab’s Institution of Non-Usury Lending.

    Why do you think that a bank’s profit exceeds the value of the customers transaction?

    Profit is what makes banks solvent and able to provide the services that they do.

    Alternately, if the service you are purchasing is not worth the price to you, don’t purchase it.

  4. CC,

    You’re right that you do gain value from the relationship. I posit that that value will never be greater than the value the bank has from gaining access to your money. It is a lose relationship for the patron.

  5. Matt,

    A bank doesn’t make a profit off of hard work, but rather off of interest. I don’t have a problem with them making a profit. I’m merely stating that the profit a bank makes off of your money will always be greater than the profit you will make off of your money in a transaction with a bank.

  6. Dan,

    All patrons who use banks gain value equal to or greater than the services they get. The patrons who are worst-off break even, while patrons who really, really like writing checks and using ATM cards as opposed to keeping money in a sock drawer gain much more value than the banks take away. If a person did not value the bank services as much as the fees that a bank charges, that person would not be a customer of a bank. That is how a market works. If you do not value something above its cost, you will not purchase it.

    It’s hard work to loan money, as banks do. They have to do exhaustive credit analysis before they lend money.

  7. My first sentence above should read: “All patrons who use banks gain value equal to or greater than the costs of using the bank.”

  8. Which is why the banks want to keep foreclosures to a minimum. They would rather have the government prop up the mortgages on these “sub-prime” home loans so that they continue to make interest on $600,000 homes that very soon will only be worth $300,000. If the mortgage goes into foreclosure, the bank loses out on $300,000 of loan interest and the housing market corrects and home prices drop where they should and loans for the next 10 years will be lower than they are now. Banks don’t want home prices to drop. They will do almost anything to maintain the high prices to increase the amount of interest payments they receive.

    I posted on this:

    http://www.theidealist.us/2008/01/29/the-housing-crisis-what-is-the-solution/

  9. Have you ever looked into a Credit Union? These are not for profit and are member-owned and volunteer- operated. They are truly a co-operation of like minded share-holders. Their profits get put back into the orginazation and given back to its members via lower rates and fees. Check out http://www.ncua.gov or http://www.cuna.org for more information or to find a credit union you are eligable to join!

  10. see, I told ya. Banks are heartless.

  11. Bernanke finally said what needed to be said. Lowering the interest rates do nothing for the home owner who has a loan that soon will be double the price of the home. Today, he encouraged the banks to show some heart and actually lower the principle on these homes. That (and the banking reforms he is recommending) are great first steps toward solving this crisis.

  12. Mike W.,

    The really silly thing about the whole economy is that (and I’m finding it difficult to put this into words succinctly) it’s all so …. “worldly”. It’s all so based on a lack of trust in our fellow man and a lack of charity.

    To put it in Hugh Nibley-ish terms, does anyone imagine that the short-lived utopian Nephite civilization that existed for a couple of hundred years after the post-resurrectional visit of the Savior spent a lot of time and effort worrying about their economy? After the Second Coming, will we still have to employ people in banks and put ATMs on every corner to see to it that people can continue to put their faith in economic principles?

    All this chasing of the buck is so completely unnecessary, but we can’t think of any better way to order society, so it’s what we do.

    It’s all so depressingly pathetic.

  13. In case y’all have forgotten, the American consumer was pretty stupid the past few years assuming home prices would go up forever, taking out bizarre loans they didn’t understand, and using their homes as an ATM. There’s plenty of crooks on Wall Street (believe me, I know, I work there and consider it one giant ponzi scheme), but the consumer isn’t blameless here and at a macro level is just looking for a get-out-of-jail-free card for some of their own stupidity. Don’t get me wrong, there’s egregious instances of criminality that should be prosecuted, but most of the current fallout is the result of mutual stupidity on the part of the lender and the consumer with both either stupidly thinking it could go on forever or that at least they wouldn’t be the one stuck holding the last straw. Sorry, but it’s called a bubble, it’s existed throughout history, it’s burst now, and the only question is how much each side is going to have to pay for it and how long the pain will be prolonged. Rather reminds me of the Souq al-Manakh blowup in Kuwait in the 80s (http://en.wikipedia.org/wiki/Souk_Al-Manakh_stock_market_crash) where mass stupidity led to a mass government bailout. Not a smart way to do things.

  14. Are we to blame the consumers because they responded to the advertising done by the banks that said, “Come, we’ll give you a loan and get you into the house you’ve always wanted, just show up and fill out the application”?

    Should consumers have been wiser? No doubt. But the banks very much led them down the primrose path themselves, and now the banks want to take back what they so unwisely gave out in the first place, and say, “Sorry, it’s not personal, it’s just business.” Yes, and that’s pretty much the Mafia’s operating credo, too.

  15. Non-Arab Arab,

    I tend to agree with Mark. When faced with the firepower of a high-powered bank, consumers don’t have much of a shield.

  16. […] wrote previously about how banks are heartless, and how banks will always make more money than you will on a transaction. I wonder how many people […]

  17. I reiterate “mutual stupidity”. Plenty of blame to go around.

  18. The way capitalism works is that individuals work for their own interests and society as a whole gains. It may not be perfect and certain regulations are called for, but few would argue that communism helps people more than capitalism. Banks work like any other business which is to make money. However, they provide a necessary service to the people who use them. Whenever you buy anything, somebody is making a profit but that doesn’t mean you’re not better off as well. As stated above, both the lenders (banks) and the borrowers are to blame and both are paying for their mistakes. Hopefully next time both will learn from their mistakes and be a little wiser with their money next time.


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