Tuesday, December 15, 2009

No Wonder Big Banks Make Money

An interesting thing I've noticed on my past few visits to the local branches of big national banks like Wells Fargo, Bank of America, and Chase.

All these branches are staffed with people who look barely out of college if not high school. Nowhere can I find someone who looks over 30. And it's not just tellers at the windows. So-called bankers, with own cubicles and talking to customers sitting at their desks, look no older than 30. I have no idea how it is in other cities, but where I am, that's what I see these days.

One such banker in one of the branches not only looked and talked as if he hadn't quite finished his community college courses but also kept chewing gum all the time we were talking. I went to another bank, and walked up to a teller and told him I needed to pay my credit card bill. "Excellent choice!" he exclaimed.

Ummm, do I have any choice? Probably his most recent job was an waiter in a family restaurant.

While I am happy that these young people getting their careers started as bankers, I'm just wondering what happened to those people whom I used to see at those branches who looked over 30 and who seemed to know what they were doing? Were they fired?

These young bankers cannot be earning a lot more above the minimum wage. (They shouldn't, judging by the way they interact, or cannot interact I should say, with their customers.) No wonder these big national banks make profits. They hire cheapest people, they've received practically free money from the government (i.e. taxpayers), they cut off credit limit (or worse, simply close the accounts) for millions of card holders just when they need extra help, they refuse to lend to businesses and turn down mortgage applications in the last minute.

The irony is that all the 'money' for card loans and home mortgages have been created by these banks out of thin air. Fractional banking at its best for them, worst for the rest of us. It's a myth that banks make loans out of deposits or out of excess reserves that they keep at the Federal Reserve. They do no such thing. (Read this paper by the New York Fed: excess reserves have nothing to do with banks' making loans.) It cost banks absolutely nothing to create new money. As long as they get to collect interest on those loans, it's an infinite profit for them without risking any real assets.

Returning TARP money won't earn them praise from anyone but themselves and their sycophants and apologists in the media.


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