In January 2016, as her poll numbers began to weaken, Hillary Clinton began to criticize Bernie Sanders’ support for a renewal of Glass-Steagall’s limitations on commercial banks, arguing it would not have prevented the development of the Crisis---and therefore the need for the huge bailout---that occurred in 2008.
It struck me as a rather odd argument for her to make, given that Glass-Steagall is merely one of many proposals that finance industry wonks had come up with which all seek in some way to more strictly regulate the behavior of Wall Street’s powerful financial players.
What made her criticism so perplexing to me was the fact that none of her own proposals are any more certain to prevent another financial crisis (requiring a Congressional bailout) than Bernie Sanders’ Glass-Steagall proposal is.
Indeed, the key question she asks of Bernie Sanders---would your proposal have prevented the 2008 crisis?---is a request for a guarantee of effectiveness which none of the banking reform proposals that anyone has offered can provide.
No banking reform proposal, that is, except for one...
You see, there is always The Socialist Alternative.
The Socialist Alternative to regular Wall Street bailouts would involve a decision by Congress to get the federal government involved in the business of offering ‘plain vanilla’ banking services to the public.
The financial industry would become partially Socialized, since the government would only be establishing its presence within that portion of the financial services industry that is absolutely vital to the economic interests of Main Street.
The rest of the Investment Casino activities that bank managers have always wanted to exploit would be fully open to them. Indeed, Congress could even take the extra step of deregulating the banking industry entirely, giving bankers complete freedom in determining the scope of their investment activities.
Of course, it would also mean the end of F.D.I.C. protection for their depositors. They’d have to insure these deposits through a private insurance company, instead.
Congress could provide this vital service to the wage-earners and business-owners of Main Street to give them a guarantee that they will never again be told that they must agree to a bailout of the high rolling Banksters---thereby rewarding them for their bad behavior---or else suffer a severe economic contraction created by massive banking failures.
No bailout would every again be needed because no for-profit financial institution would ever again be considered Too Big To Fail. Indeed, they could all fail together and the federal government’s banking arm would be perfectly capable of providing for all of Main Street’s liquidity needs.
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Now, the Banksters have long enjoyed having the government around to bail them out when they screw up in their risky bets with other people’s money. And so they would campaign against this Socialist alternative in ways that are entirely predictable.
They will suggest, for example, that the banking operations which currently provide for Main Street’s needs for financial services require some kind of arcane knowledge that only profit-lusting privately-owned bankers are privy too, but there is absolutely no truth to this notion whatsoever.
To understand just how easy it would be for Congress to enter into the financial services industry as a Main Street banker, let us review the Socialist options Congress could have pursued back in 2008, if only it had had the wisdom to do so.
Once it became clear that there was a real possibility of the entire banking industry seizing up if some kind of government intervention did not occur, Congress had the option of creating a ‘Taxpayers’ Bank’, one fully capitalized with taxpayers’ money (or with newly-created money from the Fed---essentially the same thing it does now for commercial banks).
This ‘Taxpayers’ Bank’ could have offered basic checking and savings accounts for depositors, mortgages and refinancing on favorable terms, and all non-financial businesses could have been provided with loans, and consumers could have been approved for big-ticket purchases.
Legislation could have authorized the Secretary of the Treasury to use funds provided by Congress to buy up the assets of Washington Mutual (and any other bank facing bankruptcy) at fire sale prices and then operate the bank in the name of The American People, to serve the general public interest.
If more banks continued to fail, the Treasury Secretary would simply buy up more of these failed bank’s assets for pennies on the dollar, and then expand the Taxpayers’ Bank reach accordingly. After all the worthless paper assets of these failed companies were written off the books, the new Taxpayers’ Bank ‘branch’ could then have been fully capitalized with Taxpayer funds.
After the boards of directors and other key personnel were sacked and replaced with employees beholden to Congress and the American People (perhaps some Academic Idealists?), the banks would of course have retained the 'essential personnel' needed to immediately begin lending to Main Street customers according to the new guidelines established by Congress.
If, at the same time that Congress was intervening in the banking industry, it had also increased its spending on infrastructure and human capital by $2 trillion, the stimulus would have propelled the Main Street economy into high gear, creating an ECONOMIC BOOM for the American People living on Main Street---low unemployment and high demand for business' products---at the very same time that the criminals of Wall Street and the financial sector were experiencing the harsh punishment of the marketplace for their economic sins.
If indeed Congress had acted quickly in 2008 to create its own Taxpayers’ Bank, it would have been able to dismiss with a laugh the idea that any of the financial institutions threatened by the crisis were Too Big To Fail. It would have been able to provide for the American people something called Economic Justice.
Now, I must say that I wouldn’t be surprised if Hillary Clinton ended up expressing alarm at this proposal, claiming that it would never, ever, ever come about. But Bernie, I rather suspect, would see it as precisely the kind of Democratic Socialism he has in mind for the American people.