The colossal abuse of the public by private banks is well documented: 1) mortgage scams whereby millions of people were fraudulently tricked into accepting mortgages they could not afford and did not want, leading to millions of foreclosures and throwing millions of people out of their homes; 2) the municipal bond bid-rigging scam whereby private banks cheated municipalities out of millions of dollars in interest payments – monies that the banksters then appropriated for themselves; 3) the LIBOR scandal whereby huge private banks in the City of London conspired to rig interest rates on trillions of dollars of investments, cheating the public out of millions if not billions of dollars in interest which again the banksters appropriated for themselves; 4) hoarding capital and in effect carrying out a capital strike in which private banks refuse to lend to families and businesses thereby compounding their economic problems. So-called “financial innovation” and deregulation in the 1980-2007 period led to the greatest transfer of wealth from the 99% to the 1% in the world’s history. Mortgage backed securities, collateralized loan obligations, credit default swaps et. al. are financial weapons of mass destruction. The concentration of wealth and power enabled the banksters to then insist on and get a public rescue to the tune of $13 trillion dollars.
These abuses can be stopped by public banks acting in the public’s interest. Unlike private banks that are profit seeking, public banks are set up by a state or city government and are charged to operate in the public good. Public funds such as tax revenue, which is normally deposited in a private bank, is instead deposited in the public bank and used to make loans, with the interest going back into the government treasury. They can also finance public works rather than having to pay interest on bonds for such projects. Public bank employees won’t have the incentive to speculate and steal like the unregulated banksters did and still do. As civil servants they do not get bonuses, commissions, deferred compensation, carried interest, stock options, etc – just a taxable salary like the public school teachers, firemen, policemen and state public employees, like the general public.
How can public banks be made accountable to the public and the community in which they are located? That is a discussion worth having. We are very fortunate to have the foremost public bank specialist coming to our conference – Ellen Hodgson Brown, JD. She is President of the Public Banking Institute and author of Web of Debt and The Public Bank Solution: From Austerity to Prosperity. She speaks the first morning of our conference July 30.
In her Web of Debt, Ellen Brown explains how money came to be issued by central banks instead of governments. Today the US Federal Reserve, itself a private bank owned by the mega private banks in the US, issues our currency, the US dollar, but it hasn’t always been this way. Lincoln financed the Civil War with greenbacks, US government issued script. The US Federal Reserve was founded in 1913 at the behest of the wealthiest people in the US. That same year, the US government began borrowing money to finance its operations from private banks, and it implemented the first income tax to pay the interest on the public debt. The US government could have issued the currency interest free.
Since the great financial crisis of 2007-08, the Federal Reserve has implemented a policy of “quantitative easing.” This means it swaps good money – US Treasury bills and bonds – for worthless assets (MBSs, CDOs, credit default swaps, etc,) that the banks are still holding. The wealthy who own the banks refuse to get a “hair cut;” they refuse to lose any money on their wild and reckless gambling and rather insist that the public get the hair cut. The US public debt today is about $17.5 trillion dollars.
The entire country could be run like the state of North Dakota with its public bank and the lowest number of foreclosures and bankruptcies in the US, and the lowest unemployment. At a time when unemployment, homelessness and hunger are at an all time high, when one third of the US population leaves in or near poverty, how can we have such a huge national debt and nothing to show for it except lots of weapons?
Would nationalizing the banks and running them as public banks to benefit the common good jeopardize the US dollar’s status as the world’s reserve currency? It would probably make the US dollar stronger. Public Banks can clearly avoid the reckless excesses of “too big to fail and jail” banks. They can be mandated to lend to cooperatives and small businesses. David Schweickart, also speaking the first day of the conference, in his After Capitalism has elaborated a model of public investment that achieves these goals. Austerity and poverty are not inevitable dictates of a so-called free market system. They are the result of policy, and policy can be changed to benefit everyone, not just the 1%. There are solutions to the economic crisis; there is hope.
Betsy Bowman is a Research Associate and President of the Center for Global Justice.