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To many any claim of nationalization of banks seems scary. How can that be scarier than what we have and what we have been through? After-all, we deregulated banks by repealing the Glass-Steagall Act of 1933 that separated the speculative side of banking from commercial banking. The reality is the word speculative and banking should never be used in the same sentence or thought. That it is without causing much consternation speaks to the level of indoctrination in the American society relative to the real purpose of a banking sector.

In my book “As I See It: Class Warfare The Only Resort To Right Wing Doom” I stated

Government by and of the people should nationalize banks. After the financial meltdown of 2008 it was proven that corporations operated under the premise of socializing debt and privatizing profits. After-all, the government (we the people), bailed the banks out to prevent an economic collapse. In the process those running these businesses were reaping the benefits of their banks being saved by the taxpayers by awarding themselves big multi-million dollar bonuses. The justification being if these weren’t paid these failed business leaders would go elsewhere where they would be better rewarded. Of course there was nowhere to go. In other words they created a false option plausible to some that resulted in them keeping their jobs on the false premise that there were greener pastures out there. During the financial debate these titans of failed finance did not even want a small tax to ensure against their future propensity for failure. Given that in practice the taxpayers are ultimately on the hook, private banks serve no function a civil servant could not perform at a better price.

Today Salon printed an excerpt from Robert Kuttner’s book “Debtors' Prison: The Politics of Austerity Versus Possibility” that further illustrates the necessity for the nationalization of our banking sector. When we have a banking sector that promotes the following narrative it is clear the banking sector is not intent on serving the masses but only the few.

The idea that anxiety about future deficits harms investor or consumer confidence is contradicted by both economic theory and evidence. At this writing, the U.S. government is able to borrow from private money markets for 10 years at interest rates well under 2 percent and for 30 years at less than 3 percent. If markets were concerned that higher deficits 5 or even 25 years from now would cause rising inflation or a weaker dollar, they would not dream of lending the government money for 30 years at 3 percent interest. Consumers are reluctant to spend and businesses hesitant to invest because of reduced purchasing power in a weak economy. Abstract worries about the federal deficit are simply not part of this calculus.

[source]

When economic theory and economic history reveals that the exact opposite is needed as stated below it is evident that there are other economic issues at play.

The last great financial collapse, by contrast, transformed America’s economics. First, however, the Roosevelt administration needed to transform politics. FDR’s reforms during the Great Depression constrained both the financial abuses that caused the crash of 1929 and the political power of Wall Street. Deficit-financed public spending under the New Deal restored growth rates but did not eliminate joblessness. The much larger spending of World War II — with deficits averaging 26 percent of gross domestic product for each of the four war years — finally brought the economy back to full employment, setting the stage for the postwar recovery.

By the war’s end, the U.S. government’s public debt exceeded 120 percent of GDP, almost twice today’s ratio. America worked off that debt not by tightening its belt but by liberating the economy’s potential. In 1945, there was no panel like President Obama’s Bowles-Simpson commission targeting the debt ratio a decade into the future and commending 10 years of budget cuts. Rather, the greater worry was that absent the stimulus of war and with 12 million newly jobless GIs returning home, the civilian economy would revert to depression. So America doubled down on its public investments with programs like the GI Bill and the Marshall Plan. For three decades, the economy grew faster than the debt, and the debt dwindled to less than 30 percent of GDP. Finance was well regulated so that there was no speculation in the public debt. The Department of the Treasury pegged the rate that the government would pay for its bonds at an affordable 2.5 percent. The Federal Reserve Board provided liquidity as necessary.

The Franklin Roosevelt era ushered in an exceptional period in the dismal history of debt politics. Not only were banks well regulated, but the government used innovative public institutions such as the Reconstruction Finance Corporation to recapitalize banks and industrial enterprises and the Home Owners’ Loan Corporation to refinance home mortgages. Chastened by the catastrophe of the reparations extracted from Germany after World War I, the victorious Allies in 1948 wrote off nearly all of the Nazi debt so that the German economy could recover and then sweetened the pot with Marshall Plan aid. Globally, the Bretton Woods accord created a new international monetary system that limited the power of private financiers, offered new public forms of credit and biased the financial system toward economic expansion.

In 1936, John Maynard Keynes provocatively called for “the euthanasia of the rentier.” He meant that once an economy was stabilized into a high-growth regime of managed capitalism, combining low real interest rates with strictures against speculation, and using macroeconomic management of the business cycle to maintain full employment, capital markets would efficiently and even passively channel financial investment into productive enterprise. In such a world, there would still be innovative entrepreneurs, but the parasitic role of a purely financial class reaping immense profits from the manipulation of paper would dwindle to insignificance. Legitimate passive investors — pension funds, life insurance companies, small savers, and the proverbial trust accounts of widows and orphans — would reap decent returns, but there would be neither windfalls for the financial middlemen nor catastrophic risks imposed by them on the rest of the economy. Stripped of the hyperbole, this picture describes the orderly but dynamic economy of the 1940s, 1950s and 1960s, a time when finance was harnessed to the public interest, true innovators were rewarded, most investors earned merely normal returns and windfall speculative profits were not available — because the rules of the game gave priority to investment in the real productive economy.

[source]

The more one look at how debt has been used the more it becomes evident that the banking sector is a fraud on our economy by being a medium of pilfering wealth from the middle class in many forms. The banking sector has been complicit in promoting a fraudulent and immoral austerity for fear of being repaid with inflated currency. The banking sector has been complicit in the maintenance of low and stagnant wages by offering ever increasing credit that gave the middle class a semblance of wealth-less and low wage prosperity.

The banking sector has been complicit in the diminishment of upward mobility by providing student loans that removed pressure from states and federal governments to adequately fund college education. The banking sector was complicit in the near destruction of the world’s economy by creating financial instruments like credit default swaps and other speculative instruments that were designed to make profits on money and not any service or product in the economy at large. The banking sector was complicit in the speculation and overpricing of housing by creating loan products that gave home buyers the semblance of higher home price affordability.

If the above mentioned sins are insufficient to deem the banking sector a fraud on the American economy and with that the American people, then what is?  It will take a form of re-indoctrination to remove the notion from our psyche that a private banking sector is somehow more efficient than or provide better service than a civil servant could. Given their track record, we have nothing to lose. It is evident that the nationalization of the banking sector is the only way possible that the American economy can be saved and a real free enterprise system maintained where wealth is developed from real products and services and not the manipulation of money or other form of capital.



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Comment Preferences

  •  was this an older passage? (2+ / 0-)
    Recommended by:
    virginislandsguy, VClib
    By the war’s end, the U.S. government’s public debt exceeded 120 percent of GDP, almost twice today’s ratio.
    Public debt is about 100% of GDP at the moment.
  •  If we didn't nationalize banks in fall 2008... (7+ / 0-)

    ...then it's not too likely we will do it now.  Why don't you spend your energy on something that has a non-zero chance of actually happening?

    You know, I sometimes think if I could see, I'd be kicking a lot of ass. -Stevie Wonder at the Glastonbury Festival, 2010

    by Rich in PA on Mon May 06, 2013 at 05:36:46 AM PDT

    •  Some banking functions... (0+ / 0-)

      ...need to be in the private sector. High-risk activities like underwriting, prop trading, and insurance should not be run by political appointees using public funds.

      The temptation is very great for them to IPO companies that are politically favored and cost taxpayers billions.

      Some people believe that markets are always right. I think they are usually wrong, but this is one case where we should not let the government make the decisions.

  •  We need to narrow the focus. (3+ / 0-)
    Recommended by:
    shrike, unfangus, Odysseus

    Nobody (including me) will be in favor of total nationalization. It's too scary.

    But let's carve out some segments that are too important to leave to private enterprise:

    - Savings accounts
    - Checking accounts
    - Payment processing (debit cards, wire transfers, etc)

    The reason why some banks are "too big to fail" is that they are holding (as hostage) the ordinary accounts of millions of working Americans. We need to end this.

    We should open up a Public Option Bank, run by the Federal Government. The bank performs simple functions:

    - Deposit your savings and you can earn interest based on the t-bill rate.
    - You can by CDs that are federally guaranteed and pay Treasury rates.
    - You can write checks and deposit checks. No more rip-off check cashing stores!
    - You can get a debit card.
    - There are no minimum balances and it is all Federally insured.

    If Citibank wants to gamble money on derivatives, fine. Let them. But keep them away from our money while they do it.

    •  The bigger gamble is mortgages. (3+ / 0-)
      Recommended by:
      FG, Odysseus, virginislandsguy

      That's what brought the system down: mortgages.

      •  wrong, (1+ / 0-)
        Recommended by:
        Wino

        gambling brought the system down.Mortgages were just a part of the 12 trillion dollar derivatives casino.This is often used by those who extend the argument of poor greedy people being responsible for the financial collapse for accepting loans for homes they couldn't afford.Total rubbish.The collapse was entirely the fault of RICH greedy people selling trash to other greedy schemers who knew if the house of cards came down the government would save their asses.

        'The tyranny of the ignoramuses is absolute and inescapable' A.Einstein

    •  And this Public Option Bank cannot extend credit. (3+ / 0-)

      Managing credit takes expertise the government does not have.  If you bounce a check it just bounces.  No penalty and let the account holder sort it out with the payee.

      I am all on board with this to kill off the payday loan sharks.

      "The way to see by faith is to shut the eye of reason." - Thomas Paine

      by shrike on Mon May 06, 2013 at 07:20:12 AM PDT

      [ Parent ]

      •  a bank (1+ / 0-)
        Recommended by:
        misslegalbeagle

        that cannot extend credit is worthless.The whole point of a 'State' bank is to return to a system that provides capital for enterprises involved in the production of goods and services,something the casino capitalists of the big six no longer do.See North Dakota State Bank for an example of what a 'nationalized' bank should look like.

        'The tyranny of the ignoramuses is absolute and inescapable'  A.Einstein

        •  No, that is the point of a commercial bank (0+ / 0-)
          that provides capital for enterprises involved in the production of goods and services
          A state bank cannot assess risk because they have no penalty for failure.

          "The way to see by faith is to shut the eye of reason." - Thomas Paine

          by shrike on Tue May 07, 2013 at 03:22:33 PM PDT

          [ Parent ]

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