Any number of commentators, economists, and politicians have said that it would be a horrible idea if the Federal Government were to get into the banking business itself. And you know something? A few of their concerns should actually be taken seriously. After all, can you imagine the kind of government owned/run banking system we'd have if the Republicans set it up for the benefit of their rich friends in the finance world?
Unfortunately, when you add up the trillions of dollars it would take to (A) ressurect aggregate demand in the economy, and (B) 'fix' the banking system in a way that will please Wall Street and the millionaire bankers who ruined our economy, the cost far exceeds the price that we can afford to pay. We have no choice but to have Congress start up it's own bank because that is the only option we can afford.
Go ahead and look over the numbers. The big names in banking and on Wall Street keep telling President Obama and Congress that we absolutely must keep pumping hundreds of billions of dollars into the private banks or else they will go bankrupt and the entire economy will screech to a halt. But you know what? They aren't telling the politicians the whole truth.
There IS a cheaper alternative to the endless calls for Congress to pump more billions into failed banks. Right now, Congress is getting very little for its money. It has already pumped hundreds of billions into the financial sector and only a very small percentage of those billions has ended up in the hands of borrowers. This is because the banks need to hoard the free money from the taxpayers in order to balance out the toxic assets that they are carrying on their balance sheets, or else they will go bankrupt. What we need is a more efficient way to get taxpayer dollars into the hands of borrowers so that our economy can finally recover.
The way to do this is for Congress to create and fully capitalize its own bank. Call it The Taxpayers' Bank. If it were to do this, Congress could be confident that 95% of the money it provides to the bank would end up in the hands of borrowers, instead of the small fraction of the billions that Sec'y Paulson threw at them. That's the kind of fiscal crisis efficiency we need if we want to be able to afford anything else that the American people on Main Street need during this difficult time.
A fully capitalized Taxpayers' Bank would be able to help home owners directly by offering to refinance homes on lending terms that private banks will not grant. Typically, holders of risky mortgages, including banks, do not want to give them up because---on paper at least---those loans are the most profitable. The Taxpayers' Bank would not care about maximizing profits, but would be primarily concerned with providing home owners with some relief on fair terms. Of course, this bank would also be ready to lend to businesses that are desperately in need of credit to weather the current economic storm.
Once Congress sets up its own bank, it could then deal with the problem of the toxic assets on bank balance sheets by simply requiring that they write them off, which is what banks usually do when loans are non-performing for a period of time. Or let them sell them on the open market for whatever price they can get. Of course, when the banks do this, they will go bankrupt; but it won't matter because the Taxpayers' Bank will be providing for the all of the Main Street economy's banking needs.
After most of the banks have gone bankrupt, we will see what kind of private banking industry rises from the ashes. At that time, with all of the poison removed from the financial sector of the economy, between the surviving banks and the Taxpayers' Bank we would be able to return to economic normalcy with a fresh slate. That is when a decision could be made to re-privatize the Taxpayers' Bank, although I'm not sure why we'd even want to consider the option. Banking is too important an industry to trust to a bunch of crazed, profit-lusting, risk-taking gamblers, who use other people's money to pursure their own greedy ambitions.
(For those who claim that it would not be a good idea for the government to get into the banking business, understand that banking is not rocket science. When Congress forms its Taxpayers' Bank, it would not need to hire anyone who is currently working on Wall Street or in the banking sector to run it. Simply hire some professors from academia who teach future bankers how to do their jobs to make the major decisions and then hire loan officers, etc., from private sector banks. Private banks follow criteria when they make loans and a government bank would do the same thing. Not needed: professionals who clearly did not understand risk when they ruined the private banking industry.)
The President and Congress need to wake up to the fact that we simply cannot afford to throw trillions of dollars at banks that have become black holes. If the private banking industry has been the heart of the economy, then Congress can perform bypass surgery, restoring blood flow to the Main Street economy TEMPORARILY, while all the cancerous tissue (toxic ‘assets’) are removed (written off) from the patient. Once Moral Hazard has worked its ‘creative destruction’ on the utterly discredited private banking community, Congress would then be free to ‘re-privatize’ the Taxpayers’ Bank, and everyone could live happily ever after.
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