Thursday, August 02, 2018

#YouToo: Public Banking Would End Parasitic Pimpster Bankster Rapinage...,


nakedcapitalism |  Michael Palmieri: So, Michael we’ve talked a little bit about the different indicators that point towards a financial crisis. It’s also clear from what you just stated from a regulatory standpoint that the U.S. is extremely vulnerable. Back in 2008 many argue that there was a huge opportunity lost in terms of transforming our private banking system to a publicly owned banking system. Recently the Democracy Collaborative published a report titled,The Crisis Next Time: Planning for Public ownership as Alternative to Corporate Bailouts. That was put out by Thomas Hanna. He was calling for a transition from private to public banking. He also made the point, which you’ve made in earlier episodes, that it’s not a question of ifanother financial crisis is going to occur, but when. Can you speak a little bit about how public banking as an alternative would differ from the current corporate private banking system we have today?

Michael Hudson: Sure. I’m actually part of the Democracy Collaborative. The best way to think about this is that suppose that back in 2008, Obama and Wall Street bagman Tim Geithner had not blocked Sheila Bair from taking over Citigroup and other insolvent banks. She wrote that Citigroup had gambled with money and were incompetent, and outright crooked. She wanted to take them over.
Now suppose that Citibank would had been taken over by the government and operated as a public bank. How would a public bank have operated differently from Citibank?

For one thing, a public entity wouldn’t make corporate takeover loans and raids. They wouldn’t lend to payday loan sharks. Instead they’d make local branches so that people didn’t have to go to payday loan sharks, but could borrow from a local bank branch or a post office bank in the local communities that are redlined by the big banks.

A public entity wouldn’t make gambling loans for derivatives. What a public bank woulddo is what’s called the vanilla bread-and-butter operation of serving small depositors, savers and consumers. You let them have checking accounts, you clear their checks, pay their bills automatically, but you don’t make gambling and financial loans.

Banks have sort of turned away from small customers. They’ve certainly turned away from the low-income neighborhoods, and they’re not even lending to businesses anymore. More and more American companies are issuing their own commercial paper to avoid the banks. In other words, a company will issue an IOU itself, and pay interest more than pension funds or mutual funds can get from the banks. So the money funds such as Vanguard are buying commercial paper from these companies, because the banks are not making these loans.

So a public bank would do what banks are supposed to do productively, which is to help finance basic production and basic consumption, but not financial gambling at the top where all the risk is. That’s the business model of the big banks, and some will lose money and crash like in 2008. A public bank wouldn’t make junk mortgage loans. It wouldn’t engage in consumer fraud. It wouldn’t be like Wells Fargo. It wouldn’t be like Citibank. This is so obvious that what is needed is a bank whose business plan is not exploitation of consumers, not fraud, and isn’t gambling. That basically is the case for public ownership.