To many any claim of nationalization of banks seems scary. How can that be scarier than what we have and what we have been through? After-all, we deregulated banks by repealing the Glass-Steagall Act of 1933 that separated the speculative side of banking from commercial banking. The reality is the word speculative and banking should never be used in the same sentence or thought. That it is without causing much consternation speaks to the level of indoctrination in the American society relative to the real purpose of a banking sector.
In my book “As I See It: Class Warfare The Only Resort To Right Wing Doom” I stated
Government by and of the people should nationalize banks. After the financial meltdown of 2008 it was proven that corporations operated under the premise of socializing debt and privatizing profits. After-all, the government (we the people), bailed the banks out to prevent an economic collapse. In the process those running these businesses were reaping the benefits of their banks being saved by the taxpayers by awarding themselves big multi-million dollar bonuses. The justification being if these weren’t paid these failed business leaders would go elsewhere where they would be better rewarded. Of course there was nowhere to go. In other words they created a false option plausible to some that resulted in them keeping their jobs on the false premise that there were greener pastures out there. During the financial debate these titans of failed finance did not even want a small tax to ensure against their future propensity for failure. Given that in practice the taxpayers are ultimately on the hook, private banks serve no function a civil servant could not perform at a better price.
Today Salon printed an excerpt from Robert Kuttner’s book “Debtors’ Prison: The Politics of Austerity Versus Possibility” that further illustrates the necessity for the nationalization of our banking sector. When we have a banking sector that promotes the following narrative it is clear the banking sector is not intent on serving the masses but only the few.
The idea that anxiety about future deficits harms investor or consumer confidence is contradicted by both economic theory and evidence. At this writing, the U.S. government is able to borrow from private money markets for 10 years at interest rates well under 2 percent and for 30 years at less than 3 percent. If markets were concerned that higher deficits 5 or even 25 years from now would cause rising inflation or a weaker dollar, they would not dream of lending the government money for 30 years at 3 percent interest. Consumers are reluctant to spend and businesses hesitant to invest because of reduced purchasing power in a weak economy. Abstract worries about the federal deficit are simply not part of this calculus.
When economic theory and economic history reveals that the exact opposite is needed as stated below it is evident that there are other economic issues at play.
The last great financial collapse, by contrast, transformed America’s economics. First, however, the Roosevelt administration needed to transform politics. FDR’s reforms during the Great Depression constrained both the financial abuses that caused the crash of 1929 and the political power of Wall Street. Deficit-financed public spending under the New Deal restored growth rates but did not eliminate joblessness. The much larger spending of World War II — with deficits averaging 26 percent of gross domestic product for each of the four war years — finally brought the economy back to full employment, setting the stage for the postwar recovery.
By the war’s end, the U.S. government’s public debt exceeded 120 percent of GDP, almost twice today’s ratio. America worked off that debt not by tightening its belt but by liberating the economy’s potential. In 1945, there was no panel like President Obama’s Bowles-Simpson commission targeting the debt ratio a decade into the future and commending 10 years of budget cuts. Rather, the greater worry was that absent the stimulus of war and with 12 million newly jobless GIs returning home, the civilian economy would revert to depression. So America doubled down on its public investments with programs like the GI Bill and the Marshall Plan. For three decades, the economy grew faster than the debt, and the debt dwindled to less than 30 percent of GDP. Finance was well regulated so that there was no speculation in the public debt. The Department of the Treasury pegged the rate that the government would pay for its bonds at an affordable 2.5 percent. The Federal Reserve Board provided liquidity as necessary.
The Franklin Roosevelt era ushered in an exceptional period in the dismal history of debt politics. Not only were banks well regulated, but the government used innovative public institutions such as the Reconstruction Finance Corporation to recapitalize banks and industrial enterprises and the Home Owners’ Loan Corporation to refinance home mortgages. Chastened by the catastrophe of the reparations extracted from Germany after World War I, the victorious Allies in 1948 wrote off nearly all of the Nazi debt so that the German economy could recover and then sweetened the pot with Marshall Plan aid. Globally, the Bretton Woods accord created a new international monetary system that limited the power of private financiers, offered new public forms of credit and biased the financial system toward economic expansion.
In 1936, John Maynard Keynes provocatively called for “the euthanasia of the rentier.” He meant that once an economy was stabilized into a high-growth regime of managed capitalism, combining low real interest rates with strictures against speculation, and using macroeconomic management of the business cycle to maintain full employment, capital markets would efficiently and even passively channel financial investment into productive enterprise. In such a world, there would still be innovative entrepreneurs, but the parasitic role of a purely financial class reaping immense profits from the manipulation of paper would dwindle to insignificance. Legitimate passive investors — pension funds, life insurance companies, small savers, and the proverbial trust accounts of widows and orphans — would reap decent returns, but there would be neither windfalls for the financial middlemen nor catastrophic risks imposed by them on the rest of the economy. Stripped of the hyperbole, this picture describes the orderly but dynamic economy of the 1940s, 1950s and 1960s, a time when finance was harnessed to the public interest, true innovators were rewarded, most investors earned merely normal returns and windfall speculative profits were not available — because the rules of the game gave priority to investment in the real productive economy.
The more one look at how debt has been used the more it becomes evident that the banking sector is a fraud on our economy by being a medium of pilfering wealth from the middle class in many forms. The banking sector has been complicit in promoting a fraudulent and immoral austerity for fear of being repaid with inflated currency. The banking sector has been complicit in the maintenance of low and stagnant wages by offering ever increasing credit that gave the middle class a semblance of wealth-less and low wage prosperity.
The banking sector has been complicit in the diminishment of upward mobility by providing student loans that removed pressure from states and federal governments to adequately fund college education. The banking sector was complicit in the near destruction of the world’s economy by creating financial instruments like credit default swaps and other speculative instruments that were designed to make profits on money and not any service or product in the economy at large. The banking sector was complicit in the speculation and overpricing of housing by creating loan products that gave home buyers the semblance of higher home price affordability.
If the above mentioned sins are insufficient to deem the banking sector a fraud on the American economy and with that the American people, then what is? It will take a form of re-indoctrination to remove the notion from our psyche that a private banking sector is somehow more efficient than or provide better service than a civil servant could. Given their track record, we have nothing to lose. It is evident that the nationalization of the banking sector is the only way possible that the American economy can be saved and a real free enterprise system maintained where wealth is developed from real products and services and not the manipulation of money or other form of capital.
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Copyright 2013 Egberto Willies