Six Ways the Big Banks Are Getting Back-Door Bailouts

http://truth-out.org/news/item/10086-six-ways-the-big-banks-are-getting-back-door-bailouts

Saturday, 30 June 2012 13:52 By Sarah Jaffe, AlterNet

Bankers love to rail against government interference in the “free market.” Jamie Dimon, grilled this week in front of Congress over JP Morgan Chase's massive recent losses, famously complained last year that some regulations are “anti-American.” And Lloyd Blankfein, CEO of Goldman Sachs, warned ominously that increased regulations might make the bank seek out another location to do its business: “Operations can be moved globally and capital can be accessed globally,” he said.

Even while some of them occasionally have the grace to admit that they wouldn't still be around without the massive taxpayer bailouts of 2008 (and continued access to ultra-cheap loans from the Federal Reserve), they still like to claim that they're free-market entities, subject to the whims of the invisible hand, and that the government's meddling can only be destructive.

Yet those same banks are happy to make their money from the same governments about which they love to whine. Most of us know about the big, official bailouts. But the banks get much more than that from federal and state governments. Those lobbying dollars and campaign donations aren't just to keep regulators away; they lead to lucrative contracts where banks are paid to administer government services, and are put in position to skim fees off the very same taxpayers who pay for those services.

The big banks have their tentacles in every aspect of government—despite right-wing hand-wringing about government bureaucracy, the big banks are often actually the ones coming between you and your money. So who's really getting rich off “welfare”? JP Morgan and Bank of America.

Below are six ways the big banks rake in cash every day from services that are supposed to help working Americans.

1. Big Contracts for Food Stamps

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While SNAP is a federal program, USDA and the states work together to administer the program. States contract with banks, who authorize payments (Electronic Bank Transfers or EBTs) from the Federal Reserve to retailers. J.P. Morgan Chase has contracts in half the states “indicating a lack of competition and significant market power,” according to Simon. How much are these deals worth? In New York, one seven-year deal originally gave the bank $112 million for its services, but was recently amended to add another $14.3 million.

JP Morgan spends a bunch of money lobbying the Department of Agriculture on this program, making sure they get what they want—a big paycheck from state taxpayers.

And the best part? When you have a problem with your JP Morgan SNAP benefits card? You call a JP Morgan call center for help—and that call center just might be in India.

So to recap: big bank makes money off a program that helps people who are unemployed—and creates jobs in India with that money, rather than creating them here in the US.

2. Making Money Off the Unemployed

The banks get paid directly by the state to handle the SNAP program, but that's far from the only program designed to help the victims of the lousy economy that has turned into a cash cow for the banks that created the crisis in the first place.

Unemployment benefits in 41 states are provided through Wall Street giants like Bank of America, Wells Fargo, and JP Morgan Chase. In South Carolina, for instance, customers get a prepaid debit card from Bank of America to access their unemployment benefits—which is, of course, fee-free at a Bank of America ATM. But for rural South Carolinians, the nearest Bank of America ATM might be 50 miles away. Shawana Busby, a South Carolina user of the program, tells the Huffington Post that she's probably spent $350 in fees to access her benefits—which are $264 a week. Another user of the cards, Sandra Gortman, tells the Huffington Post that she was pressured to adopt the prepaid card, and then when she used it to put gas in her car, the gas station put a hold on her card for $75, which didn't come off for three days. When she called to check on the hold, she was charged a customer service fee. (The bank has now eliminated such fees.)

The bank also collects a 3-cent fee from the state each time it “facilitates” a transfer on a prepaid card. It also gets those fees for direct-depositing unemployment benefits into someone's bank account.

3. Sweet Campus Deals to Prey on Students While Distributing Federal Student Aid Money

A recent report from USPIRG, “The Campus Debit Card Trap,” dug into the deals that universities, both public and private, make with banks to produce student ID cards and more significantly, actually handle and disburse student financial aid. In other words, young people who've already signed up for a lifetime of student debt are being preyed on further by banks that can charge them fees just to access their money. (And, remember, those same big banks are already making big bucks on student aid.)

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4. Cashing in on Tax Returns

It's not only your unemployment, financial aid, or SNAP benefits that the big banks control these days—they also might come between you and your tax return.

Once again, South Carolina takes the lead, claiming to save the taxpayer money by cutting a deal with Bank of America, this time to send out tax returns in the form of—you guessed it—prepaid debit cards from Bank of America. And just like with unemployment benefits and financial aid (or your regular, consumer bank card), the bank is making its money collecting fees from people trying to access their own money.

“They’re not even nickel and diming people, they’re five-dollaring and 10-dollaring people,” Sue Berkowitz, Director of the Appleseed Legal Justice Center, says.

Oh, and the bank got this deal through a no-bid contract—the Department of Revenue calls them “the best fit” for the program. The program isn't mandatory but, the Palmetto Public Record notes, it's opt-out, not opt-in. Which means that unless you request otherwise, your money will be given to you through Bank of America—which in addition to sticking you with ATM fees and other charges, is going to make interest on your money while it's sitting in their account.

5. Refinancing Homes Means Big Bucks for Banks

Getting the big banks to refinance mortgages and help people facing foreclosure stay in their homes has been a huge fight, with activists around the country putting their bodies on the line, physically occupying homes to keep residents in them.

Now the program that's supposed to help those struggling homeowners looks instead to be a big fat handout to the same banks that were preying on borrowers to begin with. According to the Wall Street Journal, banks that service mortgages could make as much as $12 billion by refinancing under the newest version of the Home Affordable Refinance Program (HARP 2.0). And the borrowers? Oh, they'll save money, too—somewhere around $2.5 billion, maybe $5 billion tops.

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6. Profiting Off The Very Idea of Another Big Bailout

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In recent decades, governments and central banks around the world have developed a consistent pattern of behavior when trouble strikes banks that are large or interconnected enough to threaten the broader economy: They step in to ensure that all the bank’s creditors, not just depositors, are paid in full. Although typically necessary to prevent permanent economic damage, such bailouts encourage a reckless confidence among creditors. They assume the government will always make them whole, so they become willing to lend at lower rates, particularly to systemically important banks.

In other words, because we bailed them out once, the expectation that we'll do it again is actually making the banks money. Other lenders are willing to lend money to the “systemically important banks” (read: banks that got bailed out by the US government because they were “too big to fail”) at lower interest rates because they presume that they'll always get their money back since the government will make sure the banks don't go belly up. So the biggest banks are paying less in interest than medium-size and small banks--and that adds up to billions.

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