Thursday, February 10, 2011

"Keep $$ Local:" Too Big to Fail -- What We Can Do About It

We -- you and I -- share responsibility for "too big too fail."  You know, the idea that certain large financial institutions are so important to our financial system that the government must not allow them to fail.  I've heard and read a lot of griping about this, but unless we already limit our financial dealings to the smaller firms, we're adding to the problem.

Financial reform, through the Dodd-Frank Wall Street Reform and Consumer Protection Act, is supposed to take care of this -- so taxpayer funds aren't used again to bail out the big guys.  Maybe Dodd-Frank will solve the problem, maybe it won't.  We can leave that argument for others to fuss about.  In the meantime, we're not completely powerless.

Since the bailouts, we've watched big institutions swallow more little ones.  We've heard about their big bonuses.  We've seen them mishandle mortgage servicing and foreclosures, by using robosigners and being unable to produce supporting documents (such as the promissory notes signed by borrowers).

Yesterday, JP Morgan Chase Bank apologized to active military service members for not paying attention to provisions of the Service Members Civil Relief Act (SCRA), which requires lenders to lower interest rates to 6% and refrain from foreclosing (after becoming aware that customers are on active duty).  This isn't rocket science.  Banks have no excuse for not understanding the SCRA and other laws.  They've been bombarded with articles, book updates, and agency issuances on these topics.

We can complain all we want about bungling by the big guys, to little avail, or we can do something about "too big to fail."  What institutions handle your financial affairs?  Big ones or smaller, local ones?

If your answer is "big ones," then move your money.  Bring it home to firms you know and trust.  And keep an eye on developments.  If a big firm buys the small one you've been using, move your money again.

"Hey, a grass roots revolution!" says Virginia.  "We have the power.  We can do something."

We certainly can try.  We may be surprised by the products and services available through small institutions.  They've changed over the years, and now offer most if not all of what the big ones offer, at least for people like you and me.  Check out your local banks and credit unions.

"What about mortgage payments?" says Virginia.

Well, you might not be able to do much about them.  If you borrowed from a local firm, it may have sold your mortgage loan to a big firm.  Even if you refinance, that loan might be sold, too, although you could shop around for a firm that says it doesn't plan to sell its loans.  If enough people demanded this, the market would have to change to accommodate it.

We've seen "buy fresh, buy local" take off.  How about "invest local, keep your $$ local?"

-- Get rid of big name credit cards.  Keep $$ Local!
-- Move your checking and savings accounts.  Keep $$ Local!
-- If you must finance a car, home improvement, whatever, do it nearby.  Keep $$ Local!
-- Refinance with a community bank, savings association, or credit union.  Keep $$ Local!
-- Bring your stock and bond investments closer to home.  Keep $$ Local!

Of course, you can write your legislators, too.  But don't forget.  Put your money where your mouth is.

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