The real reason why the Wells Fargo scandal should scare you…

Via

It’s not hackers breaking into your bank account that should scare you; it’s the banks themselves. Details are now surfacing about more than 1.5 million unauthorized Wells Fargo bank and credit card accounts created on behalf of unwitting customers by bank employees hoping to cash in on new account bonuses.

I’m finding it hard to take comfort in the fact that more than 5,300 employees have just been fired for engaging in the practice. 5,300 employees? That’s not a few bad actors, but an indication of the systemic, institutionalized extraction that has been guiding banking for the past several decades, if not longer.

Neither is this yet another story of digital technology gone awry. Yes, digital technology amplified employees’ ability to create fake accounts in volume, while also distancing them just a bit from the abstracted names and numbers in the company’s spreadsheets.

But the real driving force here are incentives, the incentives given to employees to open new credit card accounts, no matter the impact on customers, as well as the incentives given to the banks themselves to further financialize our economy, no matter the impact on our lives and world.

We are not watching an otherwise just banking system get corrupted by a single, tainted credit card scheme. Rather, we are watching what we might call “extreme capitalism” at work. Banks don’t make money by creating value; they make money by extracting funds from anyone who wants to build a business or even just make transactions.

As long as the economy is growing, more businesses need loans, and more people make purchases. That means banks can continue to grow, and please their shareholders with capital gains. Now that the economy is in the doldrums, however, banks must resort to extraordinary measures to show the growth that they used to, particularly when shareholders can just cash in their banking shares for those of high-tech stocks, which seem to have no problem shooting to the stratosphere (at least for the moment).

So to create growth synthetically, banks look to extract more money, somehow, from the same customers and transactions. This means selling them new credit cards with higher fees, new loans with high origination costs, or just worse terms on existing accounts and debt. And how to sell consumers on higher finance costs for the same old products? Good marketing in the form of slick TV commercials, and good sales, in the form of highly incentivized bank employees.

Employees know that if they don’t meet the quotas on new accounts set by their managers, they may be next on the chopping block of layoffs. So what’s the harm of opening a few new unauthorized accounts? Particularly if everybody is doing it? That’s what we call a company culture. Or, in this case, an industry culture.

The only real solution here is for banks, like any business, not to be required to grow. Banks, particularly savings banks, are more like utilities than businesses. With their monopoly power on the ability to issue currency, they are in a unique role to enable business of every other kind. This makes them at least as responsible to the public good as their shareholders.

By seeking to extract a higher percentage of our economic activity to pay for their financial services, they don’t help anyone. Rather than promoting business, they serve as drag.

No, banks don’t get to grow all the time, no matter what’s happening in the real world. It is they who have hacked the economy to all of our detriment, and it’s time to reject the premise of growth on which they are based.

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