Breaking The Banks

As you might expect, the announced bank settlement is drawing all kinds of reactions. Some think the settlement is too little, some think it is too much. Almost everybody thinks it’s political – everybody, that is, who thinks about it. I doubt most people think much about it at all. But everyone seems to think that the banks will pay.

Except – remember that the banks in question are corporations. Corporations are always pass-through entities. Every dollar that goes in to the coffers ultimately goes out – to employees, suppliers, shareholders, and governments. We use the word “profits” very loosely – “profits” are just an accounting artifact (which is why “non-profits” have “profits”). All too confusing for most people. The bottom line, with the banks, is that it’s most likely shareholders who will suffer financially.

Serves them right, huh?

Except Рremember that the bulk of shareholders are different kind of retirement pools: pension funds, 401Ks, etc.  Another big group of shareholders consists of endowments of all kinds Рfor universities, charities, foundations, etc.

So, in the bank settlement, who ends up paying? Ultimately, a lot of people pay a little bit each. Pensions are slightly less secure, 401Ks are a little diminished, scholarships are a little less generous – the pain spreads wide and far.

I have no opinion regarding the “goodness” of the settlement. I do, however, worry that people see it as a free lunch, impacting only some bankers. It simply doesn’t work that way.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: