The Financial Crisis Inquiry Committee will hold its first hearing this Wednesday, January 13th (stay tuned for live coverage on ND20 with blogger Mike Konzcal). As our nation's preeminent bankers take the stand tomorrow at the first hearings of the FCIC, we may want to step back from questions of how (How did you almost bring down the entire global financial system? How will you spend the millions of dollars you paid yourself in bonuses you earned on the basis of highly questionable accounting? And of course how do you sleep at night?). More important, perhaps, are questions of what. What purpose were you chartered to serve? And what responsibility to the US taxpayer did you assume when you accepted that charter?
Mr. Lloyd C. Blankfein (Chairman of the Board and CEO, Goldman Sachs Group, Inc); Mr. James Dimon (Chairman of the Board and CEO, JPMorgan Chase & Company); Mr. John J. Mack (Chairman of the Board, Morgan Stanley); and Mr. Brian T. Moynihan (CEO and President, Bank of America Corporation) all run institutions that were originally set up to serve a public need. Specifically, banks receive a charter from the government to issue FDIC insured deposits and to make loans and investments. Because of this important public purpose, banks are awarded access to the lender of last resort and to government guarantees on their deposit base.
Briefly, this is how it worked in the good old days:
1. You make a loan. This debits your reserve account, and you credit a receivable account.
2. The loan gets deposited, which credits that reserve account, and credits a liability
Jamie, Lloyd, Vikram, is that so hard to understand? Sure it's not sexy, but let's face it: we don't charter banks to build aircraft carriers, they don't build bridges, and we don't ask them to design computer software. That's not their public purpose.
Bankers in turn should spend less time devising newfangled products like credit default swaps and should pay more attention to the simple question: Who or what is a reasonable credit risk?
When we keep banking relatively simple, both households and business firms benefit from the resultant stable access to credit. And society benefits from the resultant financial stability.
Why should any bank exist if it can't fulfill this simple mandate?
We ban all sort of risk-taking behavior, whether it be drug use, speeding, or drinking underage. Why not ban behavior that puts our financial system at risk and deprives people of their homes, their pensions, and their livelihoods?
What should be foremost in the mind of each commissioner, then, is the question of why banks have not been doing what they were created to do. Goldman Sachs bankers can do God's work in their own spare time. Their current activities are more akin to cars driving too fast on the crowded roads. Fun for the driver -- until the massive pileup. There is no public purpose in allowing the cars to drive fast in the first place. Why don't we adopt some rules of the road for our banks?
Today in general, Wall Street bankers are not lenders. They are speculators that serve no useful public purpose. If the FCIC was able to expose that to all and sundry, then perhaps Congress would finally grow a pair and start to shut down these predators, before they shut down the global economy once and for all.
This post originally appeared on New Deal 2.0
On this subject, Abe Lincoln said the following just before his assin@tion:
"The government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the tax payers will be saved immense sums of interest. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government's greatest creative opportunity"
Get ready for a very long "submarine economy" as the Japanese put it, provided we can somehow avoid a complete collapse.
When a so-called investment bank is 'leveraging' at 50 to 1, where does that 50 come from?
What is that 50 made up of?
Is it money?
How does it get to be money?
Whose money is it?
Whose account was debited?
Is money not the same thing as currency?
Are all things denominated in money ($USD) actually money?
It's really confusing.
Is an investment bank actually a bank?
Does it take deposits and make loans?
Is a bank holding company a bank?
Can a bank holding company own an investment bank?
Or a commercial bank?
Or an insurance company?
Or a brokerage house?
Can a bank holding company that owns an investment bank or a brokerage house become a commercial bank?
Can the investment banks risk-taking and losses threaten the commercial bank?
And, if the commercial bank loses, then does the government step in and pay depositors?
Can the investment banks 50 to 1 leveraging and risk-taking threaten and destroy the commercial banking industry so as to threaten the entire US and global economy?
Or,is that what already happened?
The Money System Common
www.economicstability.org
and indeed much of the Financial Services Industry no longer serve the public need, because of their
modes of operation today. What then? We (U.S. citizens) have succumbed to the idea of a 'service-based' economy, in which supposed growth occurs not through the production of goods and services, but through usury and artificial economic constructs (Derivatives) that create NOTHING.
Moving through this phase (because the clock cannot be turned back) will be very challenging, to say the least. Can it be done? Probably...but not if the collective interest of the population is more engrossed by 'reality TV' than reality itself.
Insurance companies, Wall Street, and the banks are in league with bin laden who’s plainly stated goal is to bankrupt the United States like they did the soviet union.
David Graham Phillips “The Treason of the Senate.”
“Treason is a strong word, but not too strong, rather too weak, to characterize the situation in which the Senate is the eager, resourceful, indefatigable agent of interests as hostile to the American people as any invading army could be.”
“The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power." FDR
Socialism for the rich and capitalism for the poor (is) that in the advanced capitalist societies state policies assure that more resources flow to the rich than to the poor, for example in form of transfer payments.
Corporate welfare is widely used to describe the bestowal of favorable treatment to particular corporations by the government.
Capitalist political economy toward large corporations allows them to "privatize profits and socialize losses.
http://www.fairelectionsnow.org/volunteer/petition
Banks That Bundled Bad Debt Also Bet Against It - NYTimes.com
http://www.nytimes.com/2009/12/24/business/24trading.html?_r=2&pagewanted=all
"The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen. When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else's house and then committing arson."
Sylvain R. Raynes
R & R Consulting
The New York Times
December 23, 2009
As the Congress wrestles with the political and financial aftermath of the Great Financial Blowout of 2008, a great deal of time and attention is being paid on the possibility of reform legislation regarding banks and consumer protection. Reforms of the regulation of financial companies, over-the-counter derivatives and executive compensation are just some of the possibilities. But don't hold your breath for any real change in the political equation.
There is already so much "disclosure" in the public record regarding the misdeeds of the major banks and Sell Side brokers that reform already ought to be a done deal. Read the excellent report, "Banks Bundled Bad Debt, Bet Against It and Won," by Gretchen Morgenson and Louise Story, in The New York Times from December 23, 2009, then tell us why the executives of the firms involved escaped prosecution.
The "keepers of the money" should be have some of the harshest restrictions and oversight in place, yet they run the world, instead. Insider information indeed.
Abolish the Fed, Ban the Corporation with all of the privileges of personhood and none of the obligations, and Ban money changing of any kind during political campaigns and to Congress.
When you take away the incentive to steal and commit fraud, you take the problem.