Publicly-owned banks were instrumental in funding Germany’s “economic miracle” after the devastation of World War II. Although the German public banks have been targeted in the last decade for takedown by their private competitors, the model remains a viable alternative to the private profiteering being protested on Wall Street today.
One of the demands voiced by protesters in the Occupy Wall Street movement is for a “public option” in banking. What that means was explained by Dr. Michael Hudson, Professor of Economics at the University of Missouri in Kansas City, in an interview by Paul Jay of the Real News Network on October 6:
[T]he demand isn’t simply to make a public bank but is to treat the banks generally as a public utility, just as you treat electric companies as a public utility. . . . Just as there was pressure for a public option in health care, there should be a public option in banking. There should be a government bank that offers credit card rates without punitive 30% interest rates, without penalties, without raising the rate if you don’t pay your electric bill. This is how America got strong in the 19th and early 20th century, by essentially having public infrastructure, just like you’d have roads and bridges. . . . The idea of public infrastructure was to lower the cost of living and to lower the cost of doing business.
We don’t hear much about a public banking option in the United States, but a number of countries already have a resilient public banking sector. A May 2010 article in The Economist noted that the strong and stable publicly-owned banks of India, China and Brazil helped those countries weather the banking crisis afflicting most of the world in the last few years.
In the U.S., North Dakota is the only state to own its own bank. It is also the only state that has sported a budget surplus every year since the 2008 credit crisis. It has the lowest unemployment rate in the country and the lowest default rate on loans. It also has oil, but so do other states that are not doing so well. Still, the media tend to attribute North Dakota’s success to its oil fields.
Business Insider’s Courtney Comstock has a great summary of former IMF chief economist Simon Johnson’s evisceration of the giant banks’ arguments regarding capital requirements:
[Johnson's] argument in a nutshell: bankers from the big 6 are outright lying so that they can continue to take on risk and keep their profitable trading operations running.
The issue: BASEL III regulations (originated in Switzerland, written by all of the world’s Central Banks) require banks to have a capital requirement of 7% of equity, which is high enough as far as banks are concerned, but not high enough as far as U.S. regulators are concerned. U.S. regulators want to tack on an extra 3%. (Or maybe just 2% to 2.5%, according to a rumor on CNBC last week.)
Bankers do not want capital requirements to be too high for many reasons, a couple of which are laid out by a banker who emailed us here, and 4 others which Reuters detailed last week:
“Holding capital hostage” will hurt the struggling economy because it will mean fewer loans at a time when lending is already depressed.
Establishing huge capital buffers is an admission by regulators that last year’s Dodd-Frank financial overhaul does not accomplish its goal of reducing risk.
If banks hold onto more capital and make fewer loans, borrowers will turn to the “shadow banking sector” – hedge funds, for example — which has little or no oversight.
Tough standards in the United States would create a competitive disadvantage vis à vis other countries.
All of these are wrong, according to Simon Johnson, who blasted each of them using the following arguments:
Capital requirements are a restriction on the liability side of the balance sheet — they have nothing to do with the asset side (in what you invest or to whom you lend).
During the Dodd-Frank debates last year, [everyone] said it would be a bad idea for Congress to legislate capital requirements and should leave them to be set by regulators after Basel III… Now the banks want to say that this is not his job as authorized by Dodd-Frank. This argument will impress only lawmakers looking for any excuse to help the big banks.
The “shadow banking sector” — hedge funds, for example — grew rapidly in large part because it was a popular way for very big banks to evade existing capital requirements before 2008, even though those standards were very low… It would be a disaster if this were to happen again.
[Just because your friend says it's a good idea to jump off a bridge...] If China, India or any other country wants to produce electricity using a technology that severely damages local health, why would the United States want to do the same?
As I’ve repeatedly noted, the government’s policies discourage lending to Main Street and the little guy.
And Comstock goes on to note:
Making all of this more interesting is an op-ed written by a regional bank CEO a couple of days ago. Right now, regional banks are subject to the same regulations as the big 6, but they are totally different beasts.
Bob Wilmers, M&T Bank CEO, writes that the Big 6 should be subject to stricter regulations like higher capital requirements because they trade so much, and it’s risky, but smaller banks, like his, should not be subject to such high capital requirements because they actually use the free capital on their balance sheets to lend to entrepreneurs, etc.
“And the great owners, who must lose their land in an upheaval, the great owners with access to history, with eyes to read history and to know the great fact: when property accumulates in too few hands it is taken away. And that companion fact: when a majority of the people are hungry and cold they will take by force what they need. And the little screaming fact that sounds through all history: repression works only to strengthen and knit the repressed.” – John Steinbeck – Grapes of Wrath
John Steinbeck wrote his masterpiece The Grapes of Wrath at the age of 37 in 1939, at the tail end of the Great Depression. Steinbeck won the Nobel Prize and Pulitzer Prize for literature. John Ford then made a classic film adaption in 1941, starring Henry Fonda. It is considered one of the top 25 films in American history. The book was also one of the most banned in US history. Steinbeck was ridiculed as a communist and anti-capitalist by showing support for the working poor. Some things never change, as the moneyed interests that control the media message have attempted to deflect the blame for our current Depression away from their fraudulent deeds. The novel stands as a chronicle of the Great Depression and as a commentary on the economic and social system that gave rise to it. Steinbeck’s opus to the working poor reverberates across the decades. He wrote the novel in the midst of the last Fourth Turning Crisis. His themes of man’s inhumanity to man, the dignity and rage of the working class, and the selfishness and greed of the moneyed class ring true today.
Steinbeck became the champion of the working class. When he decided to write a novel about the plight of migrant farm workers, he took his task very seriously. To prepare, he lived with an Oklahoma farm family and made the journey with them to California. Seventy years later the plight of the working class is the same. If Steinbeck were alive today he would live with a Michigan auto manufacturing family making a journey to fantasyland of green energy, where automobiles ran on corn and sunshine. The working class bore the brunt of the Great Depression in the 1930s and they are bearing the burden during our current Greater Depression. Steinbeck knew who the culprits were seventy years ago. We know who the culprits are today. They are one in the same. The moneyed banking interests caused the Great Depression and they created the disastrous collapse that has thus far destroyed 7 million middle class jobs. Steinbeck understood that the poor working class of this country had more dignity and compassion for their fellow man than any Wall Street banker out for enrichment at the expense of the working class.
Okies and the Land of Milk & Honey “How can you frighten a man whose hunger is not only in his own cramped stomach but in the wretched bellies of his children? You can’t scare him–he has known a fear beyond every other.” – John Steinbeck – Grapes of Wrath
I think we should start our own banks…Here’s how it will work…Everyone turn in the Federal Reserve notes for newly minted recycled [from old money] bills…Lets break this up and start with states. We’ll start with state rights and while we’re at it, entirely just forget about the “FED Government”…seriously!!!
Let’s start there and take this a little deeper. At this point since no one even knows who owns the paper on most of the real estate out there…we’ll start by granting *amnesty* to all home-owners… That’s right…Just like the old west, stake your claim and it’s yours…We will need to see some kind of loan proof however… Land not owned by an American citizen is hereby confiscated…yup…Ya know that mine the Russians just bought here in WY…Don’t own it anymore…reverts back to it’s original ownership, and if the original owner doesn’t know what to do with it I’m sure there are lots of unemployed people needing jobs and the state would gladly take that off your hands…. hmmmm~jude
Islamic Development Bank, the Jeddah-based multilateral lender, said the Mega Islamic Bank will have an initial paid up capital of $1bn.
Mega Islamic Bank shall provide “liquidity management solutions in an effort to create an Islamic interbank market,” Islamic Development Bank said in an e-mailed statement. The bank will also originate and finance large projects across Muslim countries, IDB said.
Demand for services complying with Shariah is increasing about 15 percent annually and assets under management may almost triple to $2.8 trillion by 2015, according to the Kuala Lumpur based Islamic Financial Services Board, a standards body for the industry.
Nomura International is acting as financial adviser, Norton Rose is the legal adviser and Ernst & Young is consulting on MIB, IDB said
Malaysia is expected to issue one “mega Islamic bank” license by the end of the year, central bank Governor Zeti Akhtar Aziz told reporters in Kuala Lumpur on October 27.
Riot police face demonstrators in Athens earlier today. Photograph: Aris Messinis/AFP/Getty Images
Inside a freezing, derelict military barracks on the crest of a hill in the middle of Germany, Bernd Niesel single-handedly carries on with his labour of love.
The 67-year-old retired serviceman oversees a shrine to the Deutsche Mark, the symbol of postwar German success, running a small museum devoted to the remarkable birth and lamented death of the currency. The mark was born behind barbed wire in total secrecy in this barracks in 1948 in what became known as the “conclave of Rothwesten”. The currency met an early death at the age of 50 in 1998 (though notes and coins were in circulation until 2001). But as the German opinion polls show every week at the moment, 30%-40% are hoping for a resurrection.
“Certainly for the older generation,” said Niesel, “the feeling is very much one of nostalgia – ‘if only we had the D-mark again’.” The sentiment is hardly surprising given the turmoil besetting the D-mark’s successor, the euro.
Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky and the Wall Street Journal all say that the U.S. economy is a giant Ponzi scheme.
Virtually all independent economists and financial experts say that rampant fraud was largely responsible for the financial crisis. See this and this.
But many on Wall Street and in D.C. – and many investors – believe that we should just “go with the flow”. They hope that we can restart our economy and make some more money if we just let things continue the way they are.
But the assumption that a system built on fraud can continue without crashing is false.
In fact, top economists and financial experts agree that – unless fraud is prosecuted – the economy cannot recover.
Fraud Leads to a Break Down in Trust and Instability in the Markets
As Alan Greenspan said recently:
Fraud creates very considerable instability in competitive markets. If you cannot trust your counterparties, it would not work.
What if the greatest scam ever perpetrated was blatantly exposed, and the US media didn’t cover it? Does that mean the scam could keep going? That’s what we are about to find out.
I understand the importance of the new WikiLeaks documents. However, we must not let them distract us from the new information the Federal Reserve was forced to release. Even if WikiLeaks reveals documents from inside a large American bank, as huge as that could be, it will most likely pale in comparison to what we just found out from the one-time peek we got into the inner-workings of the Federal Reserve. This is the Wall Street equivalent of the Pentagon Papers.
I’ve written many reports detailing the crimes of Wall Street during this crisis. The level of fraud, from top to bottom, has been staggering. The lack of accountability and the complete disregard for the rule of law have made me and many of my colleagues extremely cynical and jaded when it comes to new evidence to pile on top of the mountain that we have already gathered. But we must not let our cynicism cloud our vision on the details within this new information.
Just when I thought the banksters couldn’t possibly shock me anymore… they did.
We were finally granted the honor and privilege of finding out the specifics, a limited one-time Federal Reserve view, of a secret taxpayer funded “backdoor bailout” by a small group of unelected bankers. This data release reveals “emergency lending programs” that doled out $12.3 TRILLION in taxpayer money – $3.3 trillion in liquidity, $9 trillion in “other financial arrangements.”
Wait, what? Did you say $12.3 TRILLION tax dollars were thrown around in secrecy by unelected bankers… and Congress didn’t know any of the details?
The Federal Reserve releaseda stunning report showing the details of bailouts that occurred during the peak of the credit crisis. They won’t call it “bailouts” but giving money when others won’t is exactly that. What the report shows is that the Fed operated as a global pawnshop taking in practically anything the banks had for collateral. What is even more disturbing is that the Federal Reserve did not enact any punitive charges to these borrowers so you had banks like Goldman Sachs utilizing the crisis to siphon off cheap collateral. The Fed is quick to point out that “taxpayers were fully protected” but mention little of the destruction they have caused to the US dollar. This is a hidden cost to Americans and it also didn’t help that they were the fuel that set off the biggest global housing bubble ever witnessed by humanity. A total of $9 trillion in short-term loans were made to 18 financial institutions. Still think the banking bailout didn’t happen or cost us nothing? Let us first look at the explosion of assets on the Fed balance sheet.
The Fed is still carrying longer term debt on its books that shouldn’t be there:
Publicly-owned banks were instrumental in funding Germany’s “economic miracle” after the devastation of World War II. Although the German public banks have been targeted in the last decade for takedown by their private competitors, the model remains a viable alternative to the private profiteering being protested on Wall Street today.
