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.
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