Moving money (revisited)

This is an edited version of comments I made in my November 5 radio show. Much of it is a rewrite of this LBO piece, though updated to reflect the current credit union thing.

Along with the Occupy Wall Street movement has grown up a Move Our Money campaign, pushed by a group calling itself the New Bottom Line. It takes off from a brainchild of that great exploiter of unpaid journalistic labor at her eponymous Post, Arianna Huffington. Ariana’s scheme, launched almost two years ago, would have those of us with money in large banks move it to small ones. This touches on foundational populist fantasy: that virtue and size are inversely related.

When Huffington unveiled her scheme, I took advantage of the gadget on her website (the Move Your Money Project) that allowed you to enter your zip code and came back with a suggested list of virtuous, meaning small, banks. I thought I’d look into some of the suggestions that emerged when I entered by home zipcode, 11238. One, the black-owned Carver Federal Savings Bank, is a major financer of the gentrification of predominantly black neighborhoods in Brooklyn and Queens. As those neighborhoods get richer, Carver boasts, it’s partnering with Merrill Lynch (a subsidiary of the Bank of America) to offer wealth management services to the flusher new residents. Another suggestion, Apple Savings Bank, has about three-quarters of its assets in securities like U.S. Treasury bonds, not local loans. They don’t come much bigger than the U.S. Treasury. And a third, New York Community Bank, which even features that precious word in its name, financed a private equity group that bought up a lot of apartment buildings in New York in the hope of squeezing out the rent-regulated tenants and replacing them with more lucrative ones paying market rents. With the real estate bust, the PE firm is having trouble servicing its debts, and the residents of its buildings are suffering as services are cut further.

There’s a fundamental problem with these small-is-beautiful schemes. One, many small banks have more money than they can profitably invest locally. As Barbara Garson showed in her wonderful book, Money Makes the World Go Around, the portion of her book advance she deposited in tiny upstate New York bank was probably lent via the fed funds market to Chase, where it entered the global circuit of capital. This is not at all uncommon. Money is fungible, protean, and highly mobile even when it looks locally rooted. That very mutability is part of what makes money so valuable: it’s the ideal form of general wealth that can instantly be turned into caviar, lodging, Swedish massage, erotic massage, or shares of Google.

The New Bottom Line people are pushing credit unions along with small banks. Many credit unions are fine little enterprises. But they too have the more money than they know what to do with problem. According to the Federal Reserve’s flow of funds accounts, 58% of their assets are in individual loans, mostly for cars and houses. The balance is invested in bank deposits and bonds. The bonds are Treasury and federal agency securities. Again, anything but small and local. And should they get an influx of money, it’s highly likely that most of it will go to these sorts of bonds. In fact, , more than half the growth in credit union assets over the last three years has gone into Treasury and federal agency securities. Less than a quarter went to mortgage loans, and consumer credit (like credit cards and auto loans) have actually declined. There’s no way they could accommodate even a small fraction of our near-$8 trillion in bank deposits without turning to bigtime securities or Merrill Lynch wealth management services.

Getting banks under control is a matter of politics, not individual portfolio allocation decisions. Sure, you may get friendlier service and lower fees from a credit union—but you’re not really doing anything politically transformative by moving the money. Move your money and it’s still money.

35 Comments on “Moving money (revisited)

  1. If we want deficit spending on jobs and infrastructure, we need someone to buy Treasury bonds. If we want more refinancing, we need someone buying GSE bonds. It seems to me that local credit unions investing primarily in individual loans, treasuries, and the GSEs is a strong argument that they are supporting good policy.

  2. Surely there is political value to harming the large banks? BoA and Citi are weak, pulling large amounts of money out could severely cripple them, forcing further political action. I don’t think I’ve seen anyone calling moving your money a panacea for all of the U.S.’s financial problems. Maybe Huffington does this, but I don’t read her or her site.

  3. “…more than half the growth in credit union assets over the last three years has gone into Treasury and federal agency securities. Less than a quarter went to mortgage loans, and consumer credit (like credit cards and auto loans) have actually declined.” What’s your source on that? Also the Fed?

  4. I think your point about credit unions is particularly unfair, in this period when lending by banks is so greatly curtailed. How can you gloss over the fact that nearly 3/5ths of credit union money is in ((minorly)interest-gaining) consumer use?

    The credit unions aren’t paying out millions of dollars in SEC settlements either.

    I’ve been interviewing banks for my future use, and haven’t found one I’m satisfied with yet, so I do agree with most of your complaints here.

  5. There is a different argument given for moving to smaller banks, and that is the awful way they treat their customers. That, for example, was the reason for the recent focus on Bank of America. I’d be interested in knowing whether smaller banks are any better.

    Also, in theory at least, it might be possible for customers at New York Community bank to bring some pressure on them in a way it really isn’t possible to do to the TBTFs of this world

  6. I can’t disagree with what you say in principle – Power corrupts, and in our society Money is the cash equivalent of Power. As banks get larger and/or attract wealthier clients they will behave as any business will: Do what is necessary to keep the fat customers (and their money).
    That means that, eventually you will have to change banks for the same reason you have to change politicians and diapers: They get dirty and start to sink.

    I don’t believe that negates the symbolism of this type of action, or the effectiveness of it if you pick the bank/credit union you move to with some care.

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  8. Doug:
    What’s the smallest a bank can be, and can there be a financial institution more like a Korean Keh? The idea being to have a small number of clients who really DO have to trust each other and probably know each other, to pool finances for various expensive projects for the benefit of those in that trusted community. There’s a role for barter in there as well as a kind of local currency.
    Right now, because of really low interest rates and unpredictable fees, a mattress does look like a viable bank!

  9. My decision to move from BofA to the San Francisco Firefighters Credit Union was partly politicaly but mostly personal. BofA clipped me for years. The CU not only doesn’t charge me to use another bank’s ATM, they refund me whatever the other bank charges me. I’m free to use any ATM without being charged a penny.

    I think your points are well-taken. When researching my shift from BofA, I only considered CU’s – I don’t think a small “community” bank’s are much more virtuous. And the whole “mom-and-pop-and-Main Street” argument is soooo college-town leftish. (How about a “community” bank with colored chalk boards?)

    But, on the whole, I like the bank transfer day. While regulation is more important than size, I think we’re at the point that a few behemoths are so central to the whole exploitation system that bringing them down is desirable.

    Will this “movement” do that? Probably not. But what does it hurt?

  10. I am fortunate enough to have a few dollars to spare. I have to put them somewhere, and would like to put them where they will do the least harm. I don’t know where that is, and I don’t go by size, but I do favor not-for-profit over for-profit organizations. Treasuries are fine with me – I have some directly, and more in retirement accounts. Nothing in stocks or corporate bonds, so there aren’t a lot of other options.

  11. Hi Doug,
    Long time listener and I usually understand and fully agree with your show commentaries. I was a bit confused this week though.

    I don’t understand why a CU/local bank having investments in treasury bonds is a reason not to move money out of a big bank run like a casino/hedge fund (BoA, Citi etc).

    Treasury bonds seem like a good thing for several reasons. It provides the CU with liquidity, diversity and funds important government infrastructure projects.

    I understand how there is little difference between the Democrats and Republicans, but I need you to elaborate further on the equivalency between BoA and a credit union.

  12. Small is beautiful and small, local profitable banks are…choosing to get smaller! According to Chris Whalen at Institutional Risk Analytics, my own local “Hudson City Savings Bank” (which is supposedly America’s ‘best run’ small bank) is going to shrink its balance sheet over the next year. Whalen says that profitable small banks are just not seeing alot of profitable opportunities out there (Keynes made this same observation and look what happended in the 1930s). At the same time, a lot of business lending is migrating away from commercial banks into vendor financing. The basic idea is that Walmart can provide cheaper financing to its suppliers than a bank. Walmart has been trying to break into retail banking, but the banking lobby is fighting a war of attrition to keep them out. So the whole sector has this weird organization with the largest banks having horrible profitability and the smallest banks wanting no part of the retail lending business. By the way, all of us who own Treasuries are helping to finance all sorts of good and bad things that the Federal gov’t does.

  13. Speaking of companies thinking about getting into retail banking, there was a notice on TIAA-CREF’s website recently saying that they were going to get into retail banking next year. However, the notice has since been removed. Anyway, TIAA-CREF is certainly not small, but they are basically not-for-profit.

    As for financing the things the USG does by owning Treasuries, I’m not sure. The USG can tax for all it needs, or effectively print money, so it doesn’t need to borrow, does it?

  14. Federal debt is increasing and household debt is decreasing, so there are fewer mortgages and more bonds available for investment. Pointing out how much credit unions have in Tbonds (the blandest, least offensive asset on the bond market) is not an argument against them, unless there are other alternatives that have a more desirable mix of investments. The question for advocates of local economies is, of the actually available choices, large multi-national bank, smaller local bank, credit unions, which does more for the community?

  15. What is “the community”? Is it Carver, financing gentrification? Is it a geographic concept? A demographic? What does it mean in a place like Brooklyn compared to, say, Utica, New York? Why should money stay local? Shouldn’t richer areas help develop poorer ones? None of this has been thought through at all.

  16. I’m not sure how credit card and auto lending foster “community” development. And big banks also fund real sector activity as well as playing nasty games. But my major point is that all this institutional play is just a substitute for politics.

  17. But has it been a substitute? Seems like its been additive to the OWS. What’s the harm? Why such a grump?

  18. I’d say that the harm is that this betrays serious misunderstandings of the capitalist economy. “Moving your money” does nothing for a movement that aspires to confront the power of money over our lives. There’s nothing grumpy about criticism! Action without theory is blind.

  19. I don’t agree with this analysis, Doug, and I think part of the problem I have is that you’re focusing on the weakest proponent of this argument, Arianna Huffington.

    I think there are a few reasons to move:
    1) The TBTF banks are simply too powerful. Moving money away from them may weaken them politically, or at least frighten them. No its not the only thing, no its not a substitute for politics – but its something people can do. And the people doing it by and large also seem to be doing politics.

    2) The big banks treat their customers appalingly. So a simple reason for moving would be to get better service and not to be ripped off. If nothing else this might wake people up to how badly they are treated by these companies, and motivate them to do something.

    3) Doing stuff like this makes people feel empowered. No its not a substitute for politics, but again it might lead there. It certainly isn’t going to make things worse.

    4) BoA and Citi are too big by any criteria, including efficiency. There’s fairly good evidence that beyond a certain size banks become less profitable, less efficient and make inferior investment decisions. So crippling BoA and Citi might be good from that perspective also.

    5) BoA is a criminal organisation at this point. So there’s that. A big part of the move against them is because people realise that. I wouldn’t discount it.

    The money/localism thing perhaps (though AFAIK, usually money moves from poor areas to rich areas, rather than the other way round) – but these are not the only arguments.

  20. “I’d say that the harm is that this betrays serious misunderstandings of the capitalist economy. “Moving your money” does nothing for a movement that aspires to confront the power of money over our lives. There’s nothing grumpy about criticism! Action without theory is blind.”

    How does it “betray” it?

    And wake me up when you’ve got everyone educated about “theory”.

  21. Let me know when the next Treasury Secretary comes from a Credit Union.

  22. Doug,

    Your point that getting banks under control is a matter of politics is well taken, but I don’t think that anyone is saying that we should abandon efforts to regulate banks and just move our money. I suspect the majority of the 650,000 people that joined Credit Unions in the past month DO support stronger political control of finance. But we also know the revolution might not happen tomorrow, and there are many ways of acting politically – including boycotts (which is pretty much what Bank Transfer Day is).

    Granted, many of the “community banks” mentioned are not the most progressive institutions, and the flow of funds is more complicated than simply choosing a smaller institution. Without wider political action, moving your money is just consumer choice. But you can move your money, and work for wider political action.

    I think you are a little too hard on credit unions. What makes credit unions different is that they are cooperative enterprises where the membership elects the board. This allows for an opportunity to elect a progressive board in a way that we will never have with the big banks (and yes, there are plenty of ways that entrenched management can control member votes in a CU, but the chances of meaningful impact is still better than in a big bank).

    But that does mean there is a second step to moving your money – move it to a credit union and then work to elect a progressive board to the credit union.

  23. @Gustav

    “Surely there is political value to harming the large banks? BoA and Citi are weak, pulling large amounts of money out could severely cripple them, forcing further political action.”

    No – unfortunately pulling retail deposits out is unlikely to do a lot of damage to the banks. They can always buy time deposits or access other forms of funding. Big banks have pretty much unlimited access to federal funds purchases (possibly lent to them from money from a small community bank). If there was a large enough movement of money, you could bring down a big bank – eg. what happened to WAMU – but that involved big institutional depositors, not insured retail deposits.

  24. I think the tone is too defeatist and doesn’t properly define a credit union. A credit union is not defined by its smallness (in relation to the big banks) but by its management STRUCTURE.

    YOU can run for the board of your local credit union and affect investment decisions. When you deposit your money in a credit union, you become a member. You don’t need to own stock in the institution to effect decisions as a shareholder. Credit unions have a built-in DEMOCRATIC structure that values the depositor. I think it would be more useful to query WHY credit unions have participated in anti-people investments.

    Of course the changes we want require more than moving our money! We need to be having conversations about how we can invest in what we value, what a democratic economic institution looks like, and what we want from those that hold our money. Thus far, depositor trust is maintained in part by a sound investment strategy. What are some definitions of “sound” that go beyond profit maximization?

  25. Rojo – when I say betray, I mean that it communicates unintentionally, not as in some form of treason. In this case, it shows that those seeking to “move their money” as a political statement or action do not understand the financial system. Doug, I believe, has shown effectively that the problem is deeper than the institutions, it lies in money.

    As for teaching people theory, that’s what crises are for! People are looking for alternatives right now, so now is the time to show what alternatives can help and which ones perpetuate the system.

  26. They understand the financial system well enough to know that big banks are at the center of ruling class power.

    A more thorough understanding of the complexities of capitalism would be nice but we need momentum. Last week, ten’s of thousands of people made a bold statement. Why hate on it?

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  28. Just came upon this posting, and of course I had to try the Find a Correct Small Bank search. For my zip code it found no credit unions, but it did find 3 good little banks. Two were actually local, or small-region, banks with 4-5 branches each.

    The other was Northern Trust.

    No, there isn’t really a strong correlation between small (by some measure or other) and virtuous, is there?

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