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And please don’t use Fannie and Freddie as counter-examples. Until they were nationalized after utter failure, those mortgage giants were run as private entities – complete with stockholders and highly paid executives – all backed with implicit government guarantees. They were the worst kind of public-private partnerships. We can do better.
Won’t we lose our banking talent by so drastically lowering the salaries?
Yes we would, and thank goodness. There are thousands of very bright people who are drawn into banking because of the enormous financial rewards. Collectively, they are harming our economy. We would be much better off if that enormous talent pool flowed into medicine, science and education.
Just think about what the current system is doing: We lure our best and brightest into finance because they can literally make millions of dollars per HOUR. And in order to do so, they create enormous hazards for our economy. If someone from another planet looked our way, they would surely ask: “Why do you deploy some of the best talent on Earth to destroy yourselves?”
But isn’t this outright socialism?
This is about as socialist as your local police and fire departments. Over the course of history, we have learned that some services best serve the commonwealth when run as public trusts.
Overall, the free-market works reasonably well in the non-financial economy. (Yes it needs very tough regulations to protect the environment, public health and the workforce. And having a larger labor movement would serve as a badly need check and balance to concentrated corporate power.) But our private banking sector defies the most fundamental laws of capitalism: Both banking profits and losses should go to the entrepreneurs and their investors, not the public. Furthermore, if you really care about preserving capitalism in the real economy, we can’t allow finance capital to run hog wild, creating instability and crashes in its wake. Sooner or later, we’ll be forced to nationalize the banking sector. In fact, we already did. We bailed them out. We guaranteed hundreds of billions of toxic assets. We provided trillions in virtually free loans. Under the rules of capitalism, we should own them already given that level of support. (You can be sure, Warren Buffet would own them all, if he provided that kind of financing.) We just didn’t have the guts to take them on.
Look around and you’ll see the wreckage of big private banking wherever you look. The unemployed, the empty houses, the struggling families who are underwater, the collapsing state and local budgets — all of that was caused by our banking system run amok.
How the hell could this possibly happen in America with a banking lobby that owns Congress? Doesn’t that make this scheme a bit fantastic and unrealistic?
It sure does. But doesn’t that admonition apply also to any and all banking reforms? Right now, with the banksters in control, even the most minor reforms are challenged every inch of the way. So what’s realistic right now? Just about nothing.
But that wasn’t the case at the height of the 2008 crash when every bank was on its knees begging for help. That was the time to act. But we didn’t. Why? One reason is because progressives didn’t have a vision of what banking should look like. We defaulted to the idea that private banking was a given, and therefore our “reforms” failed to offer an alternative. The progressive goal seemed to be to put teeth into Dodd-Frank. How realistic was that?
I think it’s very realistic to begin thinking real hard about what we’ll demand the next time the system crashes…and it will. Are we going to accept, yet again, that the big banks get bailed out and then remain in private hands? Or will we have a rational plan for turning them into public utilities?
Of course just having a plan doesn’t make it so. But if we don’t know what we really want, we’ll get nothing, or even worse we’ll get more attacks on public services, public employees and environmental regulations.
There’s also hard, cold politics to consider: By demanding the end of large-scale private banking we might help to shift the debate. If the idea spreads and gains credence, then reforms like Glass-Steagall or busting up the big banks will start looking mild in comparison to the abolition of private banking as a whole.
You know it’s true. We need to end too-big-to-fail, instead of proposing reforms that are too little, too late.
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