Posts Tagged ‘Federal Reserve’

If there is one good thing about the current global economic crisis it is that it provides us the opportunity to consider radical solutions to our economic problems that would not be considered otherwise.  Today, Mr. Bernanke of the Federal Reserve announced another radical solution to the problem of short term debt.  The Fed has announced that they will begin buying very large amounts of short term debt so that businesses can function. These short term debts are really IOUs for short term loans that businesses use to make payroll and also to pay for their everyday expenses.  The U.S. commercial banks are reluctant to accept these IOUs because they aren’t sure the small businesses will even be in existence when the notes are due.

In the past the commercial banks often sold these IOUs to each other, but that market has pretty much dried up. Basically no one wants to take any risks now, so the Fed has had to step in and buy the IOUs from the lending banks.  This pretty much makes commercial bank loans a pass-through operation with the real lender to business now being the Federal Reserve.

Meanwhile, we are being treated to the spectacle of investment bank managers being grilled by Congress about what in the world they were thinking during the past year. One of the really interesting revelations is that these managers were paid $100 million or more every year. One has to wonder: is there really anybody in the entire world whose work is actually worth $100 million or more every year?  I don’t think so.  The average salary for a brain surgeon is about $400, 000 per year.  The average salary for a nuclear physicists and rocket scientists is about $105, 000 per year.  Are these bankers really a thousand times more intelligent that our best scientists and doctors? One only has to look at their deeds to know that they are in fact about 1,000 times dumber.

Which all leads me to suggest that we take a hard look at a couple of basic assumptions about how our economy is structured. We have a mix of private industry and government in our economy, both of which provide certain services. The whole thing doesn’t seem to have a rational plan – it just sort of evolved that way over time. So we buy our food from private industry (supermarkets), but we buy our water from the government (usually a city or town).  We fly on airplanes that are owned by private companies and we pay them directly for their services, but we drive on roads that are owned by the government and we pay for these by taxes.  We get a lot of our packages delivered by private companies (like FEDEX), but our mail is delivered by the U.S. Post Office (It is part of the executive branch of the government).

So – why is it that private organizations (banks) are our source of money?  Couldn’t the government operate at least some of banks that ordinary citizens use too?  If we consider the provision of money something like the provision of water or roads, doesn’t it make sense to have national banks providing this service?  These banks would be operated by the government with strict government controls.  Wouldn’t government operated banks be less likely to rip off the consumer because they aren’t trying to make enormous profits? Wouldn’t the bank managers of government operated banks be less likely to make insane mortgage loans to people who couldn’t possibly pay them because the managers wouldn’t be paid bonuses that depend upon the total amount of loans they made?  Isn’t the real reason we got into this economic meltdown the absolute greed of the private banks and the lack of government control over their lending practices?

The simple fact is that Ben Bernanke, beginning today, is already operating a de facto national bank for small businesses because all the private banking businesses are on life support and they don’t want to play.  The time has come to rethink our entire banking structure. Maybe it would be fine to have some private banks that make insane loans and reap huge profits. Perhaps there is a place for them in our economy.  We could call them Republican Banks. But at the same time, it seems to me, we need a system of National Banks that can carry on our everyday business so that the next time the greedy bankers in the private banks get carried away and start hallucinating about obscene profits they can be allowed to fail and evaporate and none of us will really care or even take notice.

Wouldn’t that be nice?

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