03/18/2010 05:12 am ET Updated Dec 06, 2017

Financial Crisis Inquiry Commission: What Is the Proper Role of Banks in Our Society?

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