How US banks are destroying the American economy

”How

US banks are parasitically feeding on the debt problems of America.

The Bush economic rescue plan is already doomed, partly because you cannot beat economic cycles, but also because US banks and lenders are in a feeding frenzy over debt charges.

We’ve already heard of the Credit Crunch – mass defaulting on US sub prime mortgages which had been parcelled as structured investments, poisoning financial markets as the investments become worthless.

What we don’t hear so much about is the way the US banks are profiting from this.

The USA has already seen nearly 2 million foreclosures – property repossessions – with the US Congress’s Joint Economic Committee expecting another 2 million over the course of 2008 and 2009.

The banks have enjoyed big bonuses selling mortgages irresponsibly – the coup de grace for American home owners is that they are charged by the bank for repossession.

The banks profit from mis-selling mortgages, then profit when these mortgages collapse.

Than in itself should be disturbing enough – but one of the untold truths of banking is that banking systems thrive on debt.

More specifically, profiting from debt is a major banking business model.

We’ve already seen this across the UK with bank charges – and how claiming these bank has resulted in over £1 billion in repaid to date.

The fact that persons in debt were being kept in debt due to the way banks work and profit being sorely highlighted.

Egg recently revealed this by dropping customers it claimed – perhaps dishonestly – as being a “credit risk” when in fact they were more probably dropping customers with good payment records, and therefore not contributing to the business model of profiting from debt.

BIBA, which is actually supposed to regulate the banking sector, almost predictably came to the support of Egg, indicating that indeed the company was protecting their business model – without coming out straight and stating that consumers with debt are a favourite target for profiteering.

Ultimately, UK consumers have better protections and choice – the OFT is already taking banks to court over banking charges, and Egg customers can move elsewhere.

The situation in the USA is not so good, though.

This morning I read a heart-rending testimonial on The Finance Forums, a US-based finance messageboard, where someone complains about how their already tenuous debt problem is being exacerbated by parasitic credit card charges.

Simply titled Need to Vent, the un-named woman describes how – without warning – her credit card interest rate was suddenly raised, and her credit ceiling was reduced to below her current debt.

The result?

A series of unwelcome administrative charges for being above her limit, and a punitive interest rate charged to someone who cannot afford it:

I receive a statement basically saying that my credit report had been reviewed again recently and so my interest rate is going up again and my limit is being lowered again “effective immediately”. On the day they send the notice, they lower my limit and charge the finance charge, which puts me over-limit! So, BOOM! Another $40 fee. The card hasn’t even been used in nearly a year! And I have paid faithfully on it, despite it being a significant financial hardship for us ($250/month). This means, missing one month because we can’t afford all the fees and high interest leaves us in a hole we can’t recover from. From there it will snowball and will leave us homeless if we pay that instead of our mortgage.

The person’s crime? Buying a property just before the US market downturn, leaving them fully exposed to the financial problems in the US market.

A good friend in the US recently suffered the same foreclosure fate for the same reason.

Meanwhile, the very US banks who parcelled off poisonous structured debt to the rest of the world, continue to parasitically destroy the US consumer for as much profit as they can.

This is why Bush’s supposed economic stimulus package will fail – those much heralded cash handouts will at best hold off debt payments for a month, before the US banks claim it all back for themselves.

In that regard, all the US Treasury will succeed with is in delivering over a billion dollars to the US banks.

And that’s no roadmap for economic recovery.

In the meantime, the US consumer, powerhouse of the US economy, remains under siege from the business model of profiting from debt – from greed-driven banks who are bent on destroying the world’s largest economy.

The real tragedy is perhaps that the US Treasury is offering them every help in doing so.


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  1. donna says:

    The Banks are destroying Americans not just the economy! It’s time we march on Washington.