The Move Your Money campaign has focused on moving personal financial accounts at major banks to credit unions, and that’s a worthy goal. However, if you are more ambitious and want to know how to extract more money from TBTF banks, consider this:
On the investing side, a bank’s biggest source of revenue is from the stock market, and I don’t mean you, the small investor. Small investors are just the suckers that banks use to increase their own profits. Don’t help them. Move your investment account to a financial advisor. Petition your employer to move its employee retirement plans away from big banks. If you are fortunate enough to be launching an initial public stock offering, avoid doing it through big banks. Recent legislation has made it easier and less expensive for more small companies to launch IPOs.
IPOs. Taking a company public in an Initial Public (stock) Offering generates fees, but it also gets a bank’s hooks into company ownership. The bank will buy shares for itself at a low (perhaps undervalued) price before the public release, then push its brokers to sell the new shares to small investors. The trading activity usually bumps the price up, at least in the short term. Depending on the company’s outlook, the bank may sell then for a profit or hold the shares longer in anticipation of a greater profit.
For example, you may have read about the initial offering for 5% of Groupon, put together by Morgan Stanley, Goldman Sachs and Credit Suisse. The initial stock evaluation was $16 to $18 per share. That’s what the banks paid. On the open market, they sold 35 million shares at $20. The share price peak was $31.14, or 55% above the initial price, making the market value of Groupon almost $20 billion for a short time. The share price settled around $28.00. If the banks sold at the peak or even at $28.00, they would bag more than a 50% markup. Not bad for a day’s work. What do you want to bet that the small investors who bought Groupon through Morgan Stanley, Goldman Sachs, and Credit Suisse bought at $20 or more?
Trading on Their Own Accounts: Banks have their own accounts in which they hold and trade stocks. But wait, you may ask, since a trade is technically the result of a price negotiation between buyer and seller, does that mean that I as a small investor am competing with big banks—maybe even my own broker—for profit? Isn’t that a conflict of interest? Yes. Yes, it is.
Foundations, charities, unions, and universities you support need to get out from under the thumb of big banks too. Tell them so. Tell them often. The next two months are prime fundraising time—they will hear you.
Institutional Investing: 80% of the stock market is owned by 10% of the people, which is largely the colleges and universities, foundations, unions, and families that make up the institutional investors who dominate the market. Institutional investors typically use management teams that include both in-house and big bank members, and the big banks spend a lot of resources to attract these massive investors and keep them happy. The handful of institutional investors who control most of our money choose TBTF banks in part precisely because they are TBTF—after all, institutional investors have much more than the FDIC insured maximum invested.
However, this gives big banks not only big management fees but trading authority over enough of the market to cause measurable market movement. We use market movement to take the daily temperature of business and also as an economic indicator. Now it’s in the control of a handful of banks—and it was before the crash. Did Congress do something the big banks don’t like? Banks have authority to trade enough of the market to make it look like “the market” doesn’t like what Congress did—financial regulation, environmental regulation, Obamacare, you name it. In essence, this is a “back door” way that banks influence politics in this country (the front door being lobbyists, ALEC, the Chamber of Commerce, etc.)
Does this mean that a foundation that supports cancer research may actually be managed in a way that facilitates the companies that produce the most carcinogens? Yes, it does.
Does this mean that a university foundation’s assets may be used to support the companies that are paying lobbyists to convince legislators to cut education budgets? Yes, it does.
Does this mean that banks may use institutional investors as they use small investors—as buyers for what the bank wants to sell? Yes, it does.
Does this mean that your charitable donation may be supporting conservative political goals? Indirectly yes, it may.
Use all of these arguments to convince the organization of your choice to move its money too. We are (almost) all the 99%.
Image: Move Your Money Project