The Financial Cold War: Banks vs Consumer
Economic Downturns are not uncommon in a free market economy, and the United States in the post war era have experienced downturns and economic stagnation that threaten to permanently damage our system. Previous recessions were followed by a statistical and realized recovery. Our current situation differs because this recession was a result of the credit collapse that involved a factor of trust. Removing other variables, the factor of trust was a primary component to our previous recoveries because banks had confidence in the consumer, and the consumer had faith in the banking system.
Since the Great Depression, the core belief in our system allowed the consumer and banks to conduct business with continued faith in each other, and the foundation for recovery was a given in the past due to this shared confidence. Banks would respond to the central banks ease in interest rates and extend credit, and the consumer would respond in requesting through traditional bank sources for credit, However, the banking-consumer relationship has morphed since the mega merger of banks in the 1990’s and the 2k’s where mergers began to outweigh organic growth as the key to higher revenues now. Centralization removed the risk of Loan Officers having the ability to extend credit based on subjective and less on objective decision making and removing the education of basic underwriting concepts made the branch sales person selling the product and totally reliant on the back office for decision making. As a negative result, the consumer did not have a human being that was a part of the community representing the bank with explicit knowledge of the community .
In the aftermath of the credit collapse, the banks do not have confidence in extending credit, and the consumer is not requesting credit from traditional sources in response. Therefore, credit is not being extended or requested, and one of many consequences in a credit driven economy is the inability of small business owners to be confident or capable of expansion in expanding workforce or operations.
Therefore, our economic future is in limbo as our leadership cannot grasp the interdependency of the bank and consumer to conduct business. The current rift has left economic recovery in limbo, and the banks and consumers are using all tactics to express distrust and disgust. The banks are targeting existing credit accounts for all borrowers to charge higher fees/interest or reduce available credit through the entire spectrum. In response, Consumers have utilized every resource to fight back and send a message to banks overstepping their bounds. For example, consumers have utilized Social Networking sites to bring their grievance to the masses with success. Rockerchic4God posted her grievance on You Tube about Bank of America’s interest rate hike on a credit card that was in excellent standing with the bank. Direct communications were not successful in resolving this matter to the consumer, and this atypical format was a success in attracting 200,000 plus hits at the time when Bank of America reached out to resolve the outstanding issue. The retreat of the bank drew additional media attention to the Achilles heel of banks in their response to public pressure to resolve outstanding issues. In a
the web has allowed consumers to communication and congregate at to bring awareness of banks behavior or share resources of avenues to stand against the banks. Bring awareness from boycotting to advocacy to provide options for the consumer to act against a rich and powerful adversary. However, consumers are taking more extreme measures in the destruction of collateral before the bank can foreclose on a property.
In conclusion, the media and government briefly reference this crisis in confidence, but traditional government and media have overlooked this evolving cold war as a block to any true growth is restricted until the banks and consumers resolve their distrust of each other.
- Banker’s Choice: Traditional Bank or Independent Entity (donny-wise.com)
- Investopedia: The Banking Industry In 2012 (wire.kapitall.com)
- Cold War Tea Contingencies (englishtea.us)
- FDIC shuts banks in Georgia and Minnesota, DC Troubled Banks, and One in Three Unbanked (donny-wise.com)
- Personal Financial Literacy in America: Shackles (donny-wise.com)
- Banking and Consumer: The spread of prosperity (donny-wise.com)
- Why are relationships important in real life and the real economy (donny-wise.com)