Monday, February 23, 2009

Let’s Start a Bank!


Copyright © 2009 by Mark Gabrish Conlan for Zenger’s Newsmagazine • All rights reserved

The Obama administration didn’t get off to a good start when its treasury secretary, Tim Geithner, made a big, much ballyhooed speech announcing his plans to restore the failed banking system — and, to the extent that he offered any specifics, he sounded a lot like his immediate predecessor, Henry Paulson. Dragged kicking and screaming to the idea that government ought to do something to bail out the financial sector, Paulson infamously put forth a three-page bill before Congress and said, “Give me $700 billion and don’t ask me what I’m going to do with it. Just trust me.” That’s about what Geithner did, only his non-plan’s price tag could end up over $2 trillion.

What’s more, nobody really knows just what, if anything, the American taxpayers (and the Chinese and Japanese national banks that are the principal creditors lending the U.S. government money for all the big deficits we’re running) got for the first $350 billion of the Paulson bailout. We were supposed to get the spigots of credit reopened to water an increasingly parched economy in which businesses are forced to lay people off because they can’t borrow money, and even people who could otherwise afford to buy houses or cars at current market prices can’t do so because they can’t get loans.

Instead, the banks that got offered the money took it and — pardon the pun — banked it. Either they paid it as “bonuses” to the brilliant executives who drove America’s financial system off the cliff in the first place, or they paid it as shareholders’ dividends, or they used it to buy each other up, or they just kept it, waiting for the recession to pass on its own before they deign to start making loans again. They offered the usual hollow justifications — we can’t lend money in such an “uncertain” environment, we’ve already promised our employees the bonuses, we can’t risk not paying them and losing them to our competitors, and anyway we’re private companies and how dare you tell us what we can do with “our” money?

Except it’s not their money; it’s our money. With no reason to believe that throwing any more taxpayer money (much of which, being borrowed money, will have to be paid back by generations of taxpayers yet to be born) at the existing financial system will have any more positive result, it’s time for an out-of-the-box solution. And I don’t mean purchasing the so-called “toxic assets” of existing financial institutions or a sham “nationalization” that will just leave taxpayers holding the bag for the losses the big banks, investment firms, hedge funds and whatnot took as a result of the collapse of the housing bubble. Those would be just more of what Ralph Nader has called “lemon socialism,” in which government takes over all the failing industries and the private sector keeps the ones that actually make money.

No, the solution is simple: let’s start a bank! Let the U.S. government take the $350 billion left in the original bailout and the money Geithner was going to ask for from Congress for another, even more expensive one and use it to capitalize a United States government-owned bank. This public bank would function like any private bank — or at least like private banks were supposed to function before they got infected with the go-go spirit of the last three deregulated decades. It will accept deposits and sell people savings accounts, money-market funds, CD’s and other financial instruments.

Most important of all, it will lend people money. Like a properly run private bank, it will do so after first assessing their financial standing and the likelihood that they will repay loans. It will follow the provisions of the 1977 Community Reinvestment Act (the one Republican propagandists are falsely blaming for the housing crisis) and lend without discrimination based on race or gender “consistent with safe and sound operation,” as the statute itself says. It won’t be obligated under the CRA to make loans to people of color who can’t pay them back — just as the private banks aren’t now, despite what you may have heard from the shrieking voices on talk radio.

By providing an alternative source of capital than the increasingly risk-averse private sector, the new government bank will create a mechanism to re-stimulate the private economy without depending on private financial institutions that have dropped the ball in the current crisis. Properly run, the bank can fulfill the promise former California State Senator Tom Hayden made when he started the short-lived Campaign for Economic Democracy (CED) in the late 1970’s to “get government out of the revenue-consuming business and into the revenue-producing business.” What’s more, a government bank that starts turning a profit on its loans will encourage the private banks to get back into the lending business that much sooner.

Where will we find the people to run the new bank? The same place Franklin Roosevelt did when he launched the New Deal programs in the 1930’s: from young people who’ve been to school and had enough real-world financial training to know how to read a loan application and say yea or nay based on the principles of “safe and sound operation” (something private bankers and financiers haven’t been too good at lately), but haven’t been part of finance or government long enough to be corrupted by the conventional wisdom.

Can a public bank actually succeed? Decades of Right-wing propaganda has convinced all too many Americans that only the private sector can run any sort of economic enterprise, but there are plenty of examples from our own history that say that isn’t so. One of the most interesting — and directly relevant — is the Federal National Mortgage Association (FNMC), colloquially known as Fannie Mae, which did fine from 1938, when it was chartered under President Roosevelt to do one of the things I’m suggesting the public bank do — make loans available to low-income home buyers — until 1968, when President Johnson, in one of his many programs aimed at concealing the true cost of the Viet Nam war, spun it off to the private sector.

There’s been a lot of talk about how the economic collapse of last September and the precarious cycle of booms and busts since the New Deal-era regulations were junked, one by one, over the last 30 years, has opened the door to alternatives to a market-driven economy. So far, though, all the proposed solutions we’ve seen — from Bush or Obama, from Congressional Republicans and Democrats, from the corporate media and establishment pundits — all are stuck in the old way of thinking. They all seem to involve throwing money at the private sector and saying, “Please — pretty please — do something socially responsible.” It isn’t working now and it isn’t going to work. There’s a better way to invest the billions or trillions of dollars it would cost to bail out the existing financial sector — and it’s to get that money directly to the people who need it through a new, publicly owned bank.