Writing in Dissent Magazine [www.dissentmagazine.org], Greg Smithsimon makes a strong argument for bank nationalization. As Smithsimon points out in the article, publicly owned does not have to mean government owned.
Smithsimon writes:
The Obama administration has gone to great lengths to insist that if nationalization of banks is necessary, it will only be temporary—as if the general public thinks the U.S. government was planning to permanently nationalize banks.
Yet that’s exactly what should be done. Time and time again, our experiences in the United States and in the global economy have taught us that banks are like weapons of mass destruction: they can cause so much damage to our society that they have to be guarded by stable states rather than rogue private interests who will exploit them for their own dangerous ends. On a regular basis privately held banks decimate our economy and those of an inexhaustible list of other countries. The inevitability of privately owned banks wriggling free of regulation and engaging in dangerous speculative activity for private gain is by now clear. The cost is unacceptably high.
The Realities and Benefits of Nationalized Banks
Nationalizing the banks can bring us two different sets of improvements to our current situation: As retail banks, they will provide consumers with healthy, stable replacements for the bankrupt zombie banks now paralyzing the economy. As democratized versions of the Federal Reserve Bank, they can oversee financial reform and fiscal policy that serve the needs of real Americans.
If we nationalize retail banks, they can provide checking and savings accounts, make loans for homes and small businesses, and do so without the speculative madness that private banks recently exhibited. Thus state banks would restore liquidity to the credit markets, confidence in the banking system, and sanity to lending practices.
What would this look like? Dozens of countries already have such state-owned banks. The state-owned CGD is Portugal’s largest bank. Most such countries have “post banks,” including Greece, New Zealand, and Ireland. Typically, they are state-owned banks in which customers make deposits and withdrawals at the counter of their local post office. Israel just created a separate postal bank company in 2006. Great Britain’s National Savings and Investments is state owned, and just last month a British survey showed 75 percent of the public supports creation of a new, publicly owned post bank as an alternative to private banks.
This would not be a new idea in the United States, which had a post bank until 1967. (The attraction of the bank originally was that only its deposits were insured by the full faith and credit of the United States. The FDIC eventually extended that benefit to private banks as well, but the recent banking debacles raise the question of whether such public guarantees should be made without the kind of oversight offered by public control.) Thus one promising model is for the United States to convert failed private banks into a system of publicly owned banks that could use depositor savings to make responsible home and business loans.
Beyond creating stable retail banks, public banks are also useful for macro-level policy purposes: state-run central banks set interest rates and implement de facto regulatory safeguards, and the more that macro-level banks are in the hands of the public instead of bankers on loan from Citibank, the more they can operate in the public interest rather than in the interest of speculative investment banks.
The Federal Reserve is already a state-run, not-for-profit, macro-level bank. But while it’s a government agency, its board of directors are made up of bankers from the very institutions that have lately run amok (and then aground). The Fed sets interest rates and makes important policy decisions about the U.S. economy. But in a perverse reversal of democracy, many of its executives are actually picked and installed in their positions by the private banks themselves. The desire for a more democratic bank dates to the Fed’s creation. Populists like William Jennings Bryan wanted the bank under public control, but banks wanted it controlled by bankers. The bankers won. While most Fed directors are picked by the private banks, the board of governors at the top is appointed by the president. And past presidents have almost always selected yet more bankers for those fourteen-year governorships.
At the moment, the Fed has two vacancies that could be filled by people who actually live up to the Fed’s mandate that governors represent groups like consumers and labor unions. While the first step is to begin appointing Federal Reserve governors who don’t represent the banking industry, the next step would be to let the public choose the second-tier directors rather than the banks, either through elections, state appointments, or other more representative means. If done poorly, political control could mean the bank would do the bidding of whatever political party was in power. But just as the Fed has successfully assuaged private banks’s fears that a member from Citibank would only represent Citibank interests (rather than those of Citibank and the rest of its ilk), so insulation from political influence can be structured into a more responsive, democratic, and transparent Federal Reserve Bank. In this model, nationalizing a bank would mean giving the public a real voice in an institution it already owns.
Read the complete article at:
http://www.dissentmagazine.org/online.php?id=232
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