Holding the world hostage – The immorality of banking

Reprinted from The Common Good, No 17, Spring 2000
By Jim Consedine

Kim was urgent in her inquiry. ‘Could I get my welfare benefit paid into your account and get it back from you each week?’ I wasn’t that interested in the proposal but it was the only way that WINZ would give her a benefit. She had to have an account to pay it into. They would not pay out a cheque over the counter. No bank would give her an account. The last one had been closed for a lack of funds.

Kim is just one of thousands of New Zealanders, mainly young people, who cannot get a bank account. It is largely because they are poor and it is perceived to be hardly worth the bank offering an account, which will generate only a small turnover. Whatever way you look at it, it’s a major problem for poor people and for others who work with them. It creates yet another hurdle for them to climb over in their journey of life.

It reflects a hardening attitude by banks as they have moved in recent decades to focus primarily on profits at the expense of any notion of service to their customers. Such changes are perhaps best illustrated by the change to banking fees, which have proliferated in recent times. It seems you can’t blow your nose in some banks these days without being charged a fee!

Increasing bank fees has become the other game in town to raising petrol prices. Not that we should be surprised. Both banks and oil companies are major players in the global economy and the notion that somehow people should come first in their thinking is regarded as obsolete nonsense.

The major banks have increased fees on a wide range of transactions, which euphemistically they prefer to call services. For example, after a year which saw banks cream off $1170 million in after-tax profit, customers of WestpacTrust are now being charged $2 for over-the-counter credit card payments and printouts, $5 to set up a direct debit and $4 to change a direct debit, 50¢ to use another bank’s ATM, and 50¢ for every phone banking call they make over the six free calls a month. Prior to this, these were all free and seen as part of the ‘service’.

The ANZ charges $7.50 when automatic payments fail because there is not enough money in an account, a $5 fee to set up automatic payments, a $20 fee on top of penalty interest for failing to pay the minimum credit card balance, $3 for branch cash services and 50¢ to use another bank’s ATM on top of the normal ATM fee. This is the bank which reaped $162 million in bank charges in New Zealand in the six months to March 2000, 17 percent more than in the same period in 1999.

Such huge profits lead to the obvious question. Is banking today simply another form of systemic theft? Have banks become yet another weapon to be used against the poor? The short answer seems to be ‘yes’ to both questions.

Three things have changed the face of banking forever. New technology means less personal contact with the bank and more and more telephone and plastic card inter-actions. The push by banks towards this type of process is indicative of their desire to keep customers at arms length and drive away the poor who often do not have telephones, don’t qualify for a plastic card and do not always understand the new technology. Banking is by definition almost always geared towards the better educated and better off financially. New electronic banking, which is all done through computers, means that in the new economy, tellers and bank staff have given way to faceless numbers on a screen. Cyberspace banking will be next. It is only a matter of time. Watch this space for Microsoft Bank Ltd!

Competition is a second factor. Banks are now operating in a more sophisticated market with bigger players competing with them. Because the edge they always had through housing and small business loans which provided much of their past profits has virtually gone, the profits for the bank have to be made in other ways. Fees provide part of the answer.

But the biggest change has come with globalisation. Banks now operate globally and many of the decisions made affecting local customers are made in foreign countries. For example, no major New Zealand bank is owned locally. Most are owned in Australia. The primary concern they have is to their shareholders in Australia. They don’t care what happens in some small town in New Zealand except that their invested money returns a high dividend.

These new technologies and global outreach have made it easy to move money at the push of a button. Every day, money to the value of a thousand billion (a trillion) dollars is moved via computers around the world. Speculation on these transactions can cause the collapse of an economy, thrusting millions into poverty. Remember the infamous Hunt brothers of Texas trying to corner the silver market? That had potentially catastrophic consequences for international capitalism. Fortunately (or unfortunately?) they fell on their faces before too much damage was done. They didn’t of course go to prison for grand larceny. They were too rich for that. But the example helps illustrate just how evil such a system built on greed and avarice can be. Banks sit in the middle of ‘this filthy rotten system’, as Dorothy Day called it. Never have so few words said so much.

Just how greedy it has got can be illustrated by the recently passed legislation in the US, the 1999 Financial Services Act. This allows insurance companies, banks and stockbrokers to affiliate and thus merge their businesses into global conglomerates. The decision to deregulate Wall Street was long sought after by big business. The firewall that had existed since the Great Depression to protect customers and regulate banking has finally crumbled. Just how important this was to big business can be seen from the amount they had spent over the previous two years in lobbying for it – $US163 million. (LA Times, 26/10/99). The main proponents in the Houses of Congress received huge six figure sums to aid their re-election campaigns.

Another really scary part about this particular deal was that all the data now owned individually by a bank, a stockbroker or an insurance firm, becomes available to anyone through the merger of massive computerised data bases. If you are US citizen, big commercial brother has gotcha! So much for the land of the free!

Banking was perceived in the past to be an honourable career. It is hard to argue it is that now. As the banking industry has grown in size, so has it grown in political importance. Banks now have a major role in determining who will live and who will die in many countries. The destructive role of the IMF and the World Bank in developing economies is well documented. Structural adjustment programmes, which have often followed a Western agenda and not favoured the local people, are held responsible for a large amount of the poverty that still exists in many countries. The worldwide Jubilee 2000 campaign was directed at these banks and other leading agencies including governments in a desperate bid to awaken a collective conscience to the horror wrought by indebtedness.

Virtually the entire Third World is in economic bondage to Western banks and governments. So often these banks have loaned billions of dollars to corrupt elites within countries who have in turn either squandered or stolen the money, leaving the ordinary people responsible for repayment. For example, according to Time magazine (1999), the Suharto family of Indonesia are alleged to have stolen $US15 billion from their country’s reserves. Much of it is money borrowed from international banks. It has been plundered by a few, but the whole country must repay it. Each year, Jamaica must repay over $650 million to service its debt to banks in developed countries. This is a country of 2.4 million people. The debt was accrued by Jamaican leaders in the 1980s, as they pursued market forces that failed. The Philippine debt is currently $41 billion. Two thirds of this debt, $US27 billion, was lent during the Marcos dictatorship. The World Bank estimates Marcos pocketed $US2.5 billion every year. But it is the people who are held in bondage.

This raises the question of why the banks aren’t held accountable for making huge loans to military dictators and corrupt governments. Why should people living in the slums be repaying the debts of the rich elite? This is what capitalism demands. But the Gospel of Jesus gives a different perspective. It says they shouldn’t have to pay – it is not their debt. They have not benefited in any way. Those who should be held responsible are the lenders and their backers (politicians, corporations, and the military) and the elite who borrow, squander and steal. In Indonesia, that might be just a few hundred people. In the US where most of Indonesia’s loans have come from it might number a few more hundred. Indeed, as Noam Chomsky pointed out (Common Good No. 16), in international law the ordinary people should not be held responsible for debt which had been forced on them. International law recognises the ‘odious debt’ principle. However, the world’s big political and corporate players don’t. Neither do the banks.

In 1997, Third World countries paid $740 million each day ($270 billion per year) to Western banks and governments. Most of this is repaying interest. In contrast, they receive $25 billion in aid. Many indebted countries have become virtually ‘client’ states of the US and other wealthy nations who use their power and bank loans to hold countries compliant.

This is sinfulness so horrendous it is almost impossible to visualise. The situation is so grave that it prompted the Archbishop of Canterbury, George Carey, to say that ‘the citizens of debtor nations are engulfed in a form of slavery no less real than the terrible Atlantic slave trade of the early 19th century’. The Pope has repeatedly appealed for redemption of debt for poor nations. What adds to its sinfulness is that this whole corporate unjust system is held in place by force of arms. (See accompanying article on arms expenditure.)

The power of banks was never better illustrated than in their role in influencing and funding military coups in Latin and Central America in the 1970s and 1980s. US banks were in up to their eyeballs in propping up pro-western governments which brought huge amounts of military hardware and consumer goods from the west to succour the wealthy elites, while the bulk of the populations remained in poverty. Much of this was documented in Penny Lernoux’s brilliant book, In Banks We Trust (Penguin, New York, 1984). There she highlights the role that Chase Manhattan, Citibank and the Bank of America, along with dozens of medium sized banks, played in maintaining dictators in power and in collaborating with the CIA and varying governments in drug dealing, arms running and repressing local community initiatives. It is hard to believe the amount of corruption, violence and death that the banking industry was engaged in. The effects of this economic colonisation on the local people are all well documented in a hundred different reports. And yet the poor still continue to pay.

Former congressman Robert Drinan SJ asks another important question. ‘Why can’t the industrialised nations be required to give reparation and restitution to those people in colonial lands whose resources they plundered, whose people they deprived of educational opportunities and whose future is now mortgaged by debts of astronomical proportion?’ What a great question in a Year of Jubilee.

The Gospel of Jesus and the teachings of the Church teach us unequivocally that we should have no truck with sinful economic practices. One could argue that international banking often constitutes a structure of sin, as defined by Pope John Paul II in his encyclical Sollicitudo Rei Socialis (1988). ‘Obstacles to development have a moral character.’ They are ‘influences and obstacles which go far beyond the actions and lifespan of an individual.’ In as much as they hinder the proper human development of people or impoverish them, then they clearly fit his definition.

At the heart of that structure of sin lies the principle of usury. Usury is a question not just for the banks and moneylenders to reflect upon, but the Church as well. (See accompanying editorial.)

The whole story of Jesus and his teachings focuses on freeing people from pain and injustice and treating them with a dignity that befits a son or daughter of God. One could argue that even within our own country, the major banks are walking all over the poor and the disaffected. Needing $500 to keep a bank account open is hardly showing respect for a person. Upping the bank charges so as to create undue profits for the shareholders is just as immoral. So is refusing bank accounts to the poor.

Wrong as it all may be, Kim is not likely to find much sympathy in the harsh and rather cruel world of banking. Until hearts of stone are touched by grace, they remain hearts of stone.

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