The Break Up

Not only was Bank of America forced to take “bailout money,” the Treasury demanded nearly 5% interest on the repayment. On top of being compelled to take $40 billion they didn’t need, Bank of America was required to pay the federal government an extra $5 billion.With governmental interference like this, is it a shock that Bank of America lobbies against regulation? More importantly, is it a bad thing that banks want to limit federal meddling?

Claim 3: Bank of America Caused the Foreclosure Crisis

“BofA’s practices are at the center of the foreclosure crisis. Last year, it was found to be a major user of ‘robo-signing’ for foreclosure practices and is currently facing lawsuits in multiple states over its foreclosure practices.”

There are a few problematic phrases in this claim. First is “last year.” About a year ago, Bank of America, along with hundreds of other banks, lenders, and financial service providers, were investigated for a “robo-signing,” which basically amounts to fraud. Robo-signing refers to a number of illegal practices, including signing someone else’s name on mortgage documents or failing to verify the contents of affidavits. When the federal government finally acknowledged the problem (Fannie Mae knew about it for years), foreclosures stopped, regulators intervened, and all of the financial institutions that handle mortgages were ordered to change their practices. Bank of America even participated in establishing a hotline to handle consumer complaints of robo-signing.

A year ago, the practice was certainly something to get worked up about. But one year later, the scandal is over, the problem is being resolved, and it seems a poor reason to single out Bank of America for criticism. A more accurate way to phrase this com plaint would be, “BofA’s former practices, more than a year ago, matched the standard behavior for companies that handled mortgages.” Dredging up the past to justify a break up says less about Bank of America now and more about the person who initiates the break up.

Claim 4: Bank of America Hates Workers

“BofA just announced it is laying off 30,000 people (more than double the amount that any other U.S.-based employer has announced so far this year), but continues to award its executives million-dollar salaries and bonuses.”

This one is misleading at best. Bank of America typically pays bonuses in February, and the upcoming year’s numbers haven’t been announced yet. We simply don’t know what, if any, bonuses employees will receive. Moreover, the majority of bonuses are given out in the form of stock in the company, not cash. Their salaries are a topic for a different discussion, but since  I do not have a degree in finance, I’m not a CPA, I don’t have an MBA, and I haven’t spent years working in the financial industry, I won’t say that the pay executives receive is disproportionate to their work.

Additionally, consider why Bank of America decided to lay off employees. Recent federal regulation limits the amount of money banks are allowed to charge vendors for debit card fees. Actually, the law targets only large banks. Since the government is cutting into the banks’ revenue, they have to look to other sources, like the recently proposed, quickly retracted plan to charge fees to consumers for debit card use. Layoffs are not any more helpful to Bank of America’s public image, but the more the government squeezes, the more businesses have to cut costs.

Claim 5: Bank of America Is Racist

“BofA perpetuates racialized poverty by disproportionately refusing to lend money to people and small businesses in minority communities.”

First, is there any evidence for this claim?  Second, if there is a pattern of refusing to lend money, is the problem race or credit? Is it more likely that Bank of America hates minorities, or that the company wants avoid making high-risk loans?

Assuming there is some sort of pattern, there is an obvious, reasonable, business-motivated cause for a bank to lend money at different rates in different neighborhoods. In fact, lending in low-income, high-risk neighborhoods may have contributed to the financial crisis; the Business Insider has an excellent article explaining how the Community Reinvestment Act (CRA) loosened lending standards and encouraged (or compelled) banks to make bad loans they would not have otherwise made.

Most importantly, without some shred of evidence, a simple, unsupported “BofA is racist!” claim should not be persuasive to someone with the intellectual capacity of a WashU student.

Occupy WashU and Green Action did get one thing right. Bank of America is involved in an unhealthy relationship, but it’s not with the consumers. It’s with the government. The Treasury was behind the bailout, Congress is responsible for the CRA, and the White House continues to press for more government involvement in the business sector. Whether you believe the banks are unfairly benefited or unfairly harmed, the problem stems from Washington. Instead of breaking up with banks, we ought to be protesting politicians.