Much of the news of the last few weeks –
- the financialised commodities mania;
- the disgraceful abuse by the banks of payment protection insurance;
- the mortgage fraud which led US banks to rush through foreclosures without proper process and evict people from their homes;and their decision reported in the WSJ to offer a miserly $5 billion to settle claims by federal and state officials of these fraudulent mortgage-servicing practices;
- HSBC’s quarterly fall in profits,
- HSBC’s threat announced today to cut thousands of jobs
As I wrote in a blog for the Huffington Post in October last year – banking has been turned on its head, and the system, bizarrely, has become a borrowing, not a lending machine. No-one, not politicians, not regulators, not central bankers, least of all bankers themselves – appears prepared, or has the political will and the guts – to fix it.
Above all, the damage will not be fixed until governments implement policies that stimulate economic activity, so that companies can hire workers, and generate income for both themselves and their employees. This in turn,will generate income for banks.
May 6 (Bloomberg) – Melissa White and her husband stopped paying their mortgage in May 2008 after it reset to $3,200 a month, more than double the original rate. That gave them extra cash to pay off debts and spend on staples until their Las Vegas home sold two years later for less than they owed.
“We didn’t pay it for about 24 months,” said White, who quit her job as a beautician during that period after becoming pregnant with her first child and experiencing medical complications. “What we had, we could put towards food and the truck payments and insurance and health things I was dealing with.”
Millions of Americans have more money to spend since they fell delinquent on their mortgages amid the worst housing collapse since the Great Depression. They are staying in their homes for free about a year and a half on average, buying time to restructure their finances and providing an unexpected support for consumer spending, which makes up about 70 percent of the economy.
So-called “squatter’s rent,” or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief US economist at JPMorgan Chase & Co. in New York.
That’s $50 billion lost to the banking system.
1 thought on “Is the banking system broke, as well as broken?”
Over at Beat the Press they were writing about Geithner was going to China to talk to them about opening markets up to the US Financial industry. I’m not really clear what good will do this. The Financial Industry feels like our fake economy. It’s this big casino we keep counting on to keep ours the richest nation, but it only works insofar as it greases the wheels of a real economy.
It feels shortsighted of Geithner to go to China to expand financial markets. That’s an influx of cash, sure, for the big banks. All that does is buy time for a system that’s all but doomed. If, instead, Geithner had made creating markets for the real economy his priority, we might actually start to see wages rise and folks able to pay some of their debts.
Some. We’re over debted, so a lot of those credit card and predatory loans debts are doomed any way you slice it. At least, that’s how it feels to this lay-person.