Too Big To Fail

I’m a marketing guy, not a financial planner. I earned a B.A. in English. I did not get a degree in business and I do not have any acronyms like CFP, CPA, CPM, CMA, CFA or ChFC behind my name. In other words, I do not dispense stock advice and I cannot help you in any way legally with your portfolio or future investments.

Not that the legalese is out of the way, I can tell you that I sold my Bank of America stock in June. I’ve always picked stocks based on a few fundamental things. Is it a good company? Do I trust them? Do I understand the business that they’re in? Do they have a good product at a fair price? Do I think they’ll be around in 10 years? 

When applying this test, I sold my stock. I used to bank with BofA. It’s a long story, but the proverbial “straw that broke the camel’s back” was being charged $8 to speak with a live human being.

In a replay of what almost brought down Wells Fargo a few years ago, Bank of America has started cheating its own customers. In January, thousands of BofA customers who used Zelle found that money was missing from their accounts. In June, the Consumer Finance Protection Bureau fined the bank more than $250 million for charging illegal fees.

During the Great Recession, several big banks were bailed out by the U.S. government, because they were deemed “too big to fail.” In layman’s terms this meant these banks – namely BofA, Wells Fargo, Citi, JP Morgan-Chase, Morgan Stanley, and Goldman Sachs – were deemed fundamentally important to the U.S. economy because of their size. From 2008 to 2011, over 400 banks failed in the U.S., but not the “big guys,” because they were bailed out by the U.S. Treasury.

When a bank or any other business becomes so big that it doesn’t have to worry about failing, it gets arrogant. And as the old adage says “arrogance breeds contempt.” Examples of banks like Wells Fargo and Bank of America (and others) bilking their own customers are examples of contempt. 

Once upon a time J.P. Morgan (yes, the same guy who has a bank named after him) created a triple monopoly – controlling the steel, electric, and railroad industries. The U.S. government stepped in and busted up the monopolies to protect American consumers. Yet, today, the U.S. government protects the bank monopolies from failing.

QOTW: Is it time to end the policy of “too big to fail?” Email me your thoughts!