The Bank of America was recently downgraded by Moody’s Investors Service. Fourteen other banks were also downgraded, but B of A was rated in the lowest group. Moody’s commented that the banks in this lowest group “…had problems with risk management or have a history of high volatility.” How the mighty have fallen.
The bank was founded in San Francisco in 1904 by A. P. Giannini, the son of Italian immigrants. He never attended a university, but he took courses at a private business school and made money in the produce business. His friends complained that they could not obtain the loans they needed to enlarge their businesses, so he opened a bank. It was located in a building that had been a saloon. 

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Originally it was called Bank of Italy. At the B of A branch where my parents banked in San Francisco, in the 1960s there was still a portrait of Giannini and a copy of the old Bank of Italy charter on the wall. Remembering your roots helps you know who you are.
Giannini opened a bank for “little people.” He felt prospective borrowers’ hands − if they were calloused, he knew the person was a hard worker. His bank stayed open past the usual “bankers’ hours” of 10 to 3 on weekdays, so people didn’t have to take time off work. He opened neighborhood branches, so people didn’t have to go downtown.
Though it was limited by law to California, Bank of America became one of the largest banks in the world. Then banks were allowed to spread nationwide, and it merged with NationsBank, which was involved in trading derivatives. Its acquisition of the failing Countrywide did it no good. And in 2009, Bank of America required a bailout from the federal government to avoid insolvency.
What happened to the “little people’s” bank that caused it to expand into a huge, bloated conglomeration on the verge of failure? Here is a clue − Giannini’s first name was Amadeo, which means “love of God.” As young people would say, that’s so yesterday.
The founders of our nation knew that in order to remain free, people had to control themselves, based on moral principles derived from religion. Otherwise, an authoritarian government would have to control them. Current “progressive” politicians want to institute an authoritarian government, so to them, self-reliant people are undesirable.
Yes, regulations are needed. But the government officials who wrote and enforced them were a major part of the problem. What makes us think that now they will be part of the solution? Will members of Congress like Barney Frank, who exerted strong pressure on the Fed and on financial institutions to give home loans to those unlikely to repay them, now become advocates of prudence? On the contrary, many believe that the downgrades were the direct results of government actions.
When we bought our home years ago, we got the loan from Great Western Savings, a reliable California firm. Then it was bought by Washington Mutual, a nationwide firm that went on to produce the biggest bank failure in American history. Reportedly it paid employees according to how many loans they wrote, not how sound the loans were.
Such shenanigans were made possible by “securitizing” the loans. The bad ones were bundled with the good, then dumped onto unwary investors. If banks were still limited to one state, and were unable to lay off risky loans onto pseudo-governmental agencies like Fannie Mae and Freddie Mac, they would never have made these risky loans. Only a fool would risk his own money or his own job in such a careless manner.
Great Western, a solid firm with a solid name, became WaMu, with a name that sounded like a circus clown − and with the brainless antics to go with it. And then WaMu was bought by JPMorgan Chase.
We went from A. P. Giannini, the produce dealer who loaned money to “little people” if they were hard workers, to high-flying financial wizards with MBAs from prestigious universities, who loaned money to people unlikely to be able to pay it back. But the wizards were so traumatized by the crisis their own recklessness had caused that now they are reluctant to loan money even to excellent credit risks.
There is an old saying that a cat won’t sit on a hot stove twice, but she won’t sit on a cold stove either. One might say that bank executives with MBAs from prestigious universities have no more sense than cats. But that would be an insult to cats.
Management is most effective when it is as close as possible to what is being managed. But worship of bigness has led to management being as remote as possible. Managers look more impressive that way. They get bigger desks, bigger offices, bigger titles, bigger staffs, bigger bonuses – and cause bigger problems. Instead of A. P. Giannini, who sat at a desk in the lobby and talked to clients, we now have The Great and Powerful Oz, who rattles a piece of tin to simulate thunder and speaks through a megaphone, but who hides behind a curtain to conceal his inadequacies.
● We need to stop worshipping the idol of bigness, and regain our respect for what actually works, rather than what looks impressive.
● We need to stop worshipping the idol of central control, and again teach young people to control themselves.
● We need to stop worshipping the idol of higher education, which too often turns out to be leftist indoctrination, and regain our respect for practical knowledge obtained from trade schools and hands-on experience.
● We need to think about what will happen years from now, rather than focusing on the next quarterly report.
● We need to reform estate-tax laws that inhibit a family business from being bequeathed to the founder’s children, so he agrees to be bought out by a large corporation.
● We need to reinstitute laws that restrict banks to one state, or at least one region, and to consider restoring the separation of commercial banking from investment banking. (The law requiring separation was repealed in 1999, when Bill Clinton was president.)
● We need to require banks to maintain larger cash reserves, which would have enabled them to withstand the recent crisis – the way Canadian banks have done.
● We need to forbid “securitizing” shaky loans, then duping customers into buying them.
● We need to remember that no matter what system we adopt – free enterprise, socialism, whatever – we depend on conscientious people to make it work, and these people get their values from religion, whether they recognize this or not.
● We need to regain our respect for people who actually do something, not merely theorize.
● We need to regain our respect for people with calluses on their hands, not on their behinds.
Europeans worship bigness – first in the form of imperialism, which led to two world wars, and then in the form of socialism and the European Union, which are in serious trouble. The end result of the worship of bigness is globalization. Perhaps exporting skilled jobs and importing unskilled workers is not a brilliant move.
Sometimes smaller is better. Sometimes local is better. Sometimes doing less is better. America’s government bonds have already been downgraded. If we continue our reckless over-spending and over-borrowing, more downgrades are inevitable. In the end, nothing is too big to fail, including America itself. In the end, “Too big to fail” is a euphemism for “Too big not to fail.” Perhaps we can have a nation of 314 million people or centralized control, but not both.
Paradoxically, the Bank of Italy was a typically American success story. But today’s bloated Bank of America is neither typically American nor a success story. Perhaps there is a lesson here.
Dr. Stolinsky writes on political and social issues. Contact: dstol@prodigy.net. You are welcome to publish or post these articles, provided that you cite the author and website.
www.stolinsky.com