What in the world has happened to banks?
When I was a kid growing up in my hometown of 50,000 people, we had two or three banks, plus a savings and loan or two. Their buildings were the most imposing in town - big, sturdy things sculpted from limestone, trimmed with marble and festooned with artwork that told the history of the community. They were founded by families that had stuck around for generations to become the movers and shakers of a more-or-less vibrant local blue-collar economy.
Kids were encouraged to save, parents took out loans for cars or mortgages and everything pretty much sailed smoothly along in those post-war boom years, at least from the perspective of a young kid.
Things didn't change much for a long time. A local bank gave me a free checking account when I went to college. When I returned from the service,I obtained two mortgages - one from a savings and loan, the other from a bank. All were still locally owned and customer-friendly through the 1970s.
I'm not sure when things started to change, but banks are sure a lot different today and not in a good way. The news this week about JPMorgan Chase & Co. being slapped with a $410 million fine for manipulating the energy market is a stark example of just how bad things have gotten. There's so much to be angry about, it's hard to know where to begin.
Let's start with why is a bank involved in the energy market anyway? Banks should be collecting savings from its members in the community, then doling out that money in loans to those same community members at a slightly higher rate. That's how banks generally operated in my hometown, though I'm sure it's something of a simplification. Still, banks have no business doing what JPMorgan Chase did.
JPMorgan Chase still refers to itself as a bank, though only the Chase part of its name has true banking roots. Check out the bank's evolution over the past 22 years, as outlined on its web site:
- In 1991, Manufacturers Hanover Corp. merged with Chemical Banking Corp., under the name of Chemical Banking Corp., then the second-largest banking institution in the United States.
- In 1995, First Chicago Corp. merged with NBD Bancorp., forming First Chicago NBD, the largest banking institution based in the Midwest.
- In 1996, The Chase Manhattan Corp. merged with Chemical Banking Corp., under the name of The Chase Manhattan Corp., creating what was then the largest bank holding company in the United States.
- In 1998, Banc One Corp. merged with First Chicago NBD, under the name of Bank One Corp. After a subsequent merger, Bank One became the largest financial services firm in the Midwest, the fourth-largest bank in the U. S. and the world's largest Visa credit card issuer.
- In 2000, J.P. Morgan & Co. Incorporated merged with The Chase Manhattan Corp., effectively combining four of the largest and oldest money center banking institutions in New York City (J.P. Morgan, Chase, Chemical and Manufacturers Hanover) into one firm under the name of J.P. Morgan Chase & Co.
- In 2004, Bank One Corp. merged with J.P. Morgan Chase & Co. The New York Times said the merger "would realign the competitive landscape for banks" by uniting the investment and commercial banking skills of J.P. Morgan Chase with the consumer banking strengths of Bank One.
- In 2008, JPMorgan Chase & Co. acquired The Bear Stearns Companies Inc., strengthening its capabilities across a broad range of businesses, including prime brokerage, cash clearing and energy trading globally.
- Also in 2008, JPMorgan Chase & Co. acquired the deposits, assets and certain liabilities of Washington Mutual's banking operations. This acquisition expanded Chase's consumer branch network into California, Florida and Washington State and created the nation's second-largest branch network — with locations reaching 42% of the U.S. population.
- In 2010, J.P. Morgan acquired full ownership of its U.K. joint venture, J.P. Morgan Cazenove, one of Britain's premier investment banks.
That's a lot of merging and acquiring. This is where the term "too big to fail" comes from. Chances are that older local banks in your community were gobbled up by successively larger fish in the banking sea before landing in the belly of one of the behemoths like JPMorgan Chase.
These big banks are no longer interested in churning local money for the benefit of the community. They're more interested in squeezing out profits through exorbitant fees to its customers and exotic trading schemes like manipulating the energy market.
As galling as their actions are, it's even more galling that these too-big-to-fail operations do it with impunity. Even when they're caught red-handed like JPMorgan Chase was, they negotiate a settlement without admitting guilt and move on to the next loophole. In a more equitable society where rights of its individual members held sway over corporate interests, there would be criminal charges, trials, fines that truly punished and guilty parties doing jail time.
Instead, we get these "settlements," which companies like JPMorgan Chase regard as just the cost of doing business or, as political advisor David Axelrod calls "a pimple on the ass of progress."
JPMorgan Chase did take CEO Jamie Dimon to the woodshed last year after the bank took a $6 billion loss from a complex derivatives trade. The board delivered on its promise to dock Dimon's pay, slashing it 19 percent last year - from $23 million in 2011 to a mere $18.7 million in 2012.
That may seem like justice to the JPMorgan Chase & Co. board, but it's a pimple on the ass of progress to real justice to me.