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04 May 2010 By Stephen Lendman
Be wary when Washington talks
reform. Nearly always it's bogus and ends up making a
bad situation worse, the likely outcome this time
addressing longstanding Wall Street abuses not easily
changed at a time tinkering around the edges or
papering them over won't work.
Case in point - the House passed
"Wall Street Reform and Consumer Protection Act of
2009" (HR 4173) and current Senate debate on the
"Restoring American Financial Stability Act of 2010"
(S. 3217). This writer addressed both measures on
April 1:
See http://sjlendman.blogspot.com/2010/04/bogus-washington-proposed-financial.html.
Still a work in progress, the
Senate bill will be as bogus as the House one, so
whatever reconciliation produces will be another
promise made, another broken. Business as usual will
persist so don't be fooled - on this measure or any
other, including the appalling health care bill that
made a dysfunctional system worse, and took a giant
step toward ending Medicare, one of the main reasons
it was enacted, besides enriching corporate
providers.
Instead of restraining financial
fraud, House and Senate bills sanctify it. They leave
too big to fail banks in place, permit greater
consolidation, and let Wall Street casinos game the
system with public money, gambling with unregulated
exotic and fraudulent derivatives and other
securities.
In Washington, the more things
change, the more they worsen, and the public always
gets scammed - fooled again because power and
privilege trump people.
Lobbyists and corporate lawyers
write legislation affecting their interests and get
precisely what they want, a few public-friendly crumbs
added for deception.
Consider a few measures likely to
pass or not change:
-- a financial aristocracy will
be coronated;
-- Wall Street will keep running
the country;
-- fraud and bailouts will be
institutionalized;
-- selling toxic junk to unwary
buyers won't be touched;
-- excessive executive pay,
bonuses and perks won't be curbed;
-- credit agency scams will
continue;
-- giant banks, insurers and
other financial firms will be green-lighted to get
bigger;
-- an Office of National
Insurance in the Senate bill will override state laws
and regulations not in line with international
agreements; further, the US Treasury will be empowered
to enter into them without consent of Congress, so the
net effect will undermine consumer protections, not
enhance them;
-- criminal prosecutions won't
happen, except for a few lambs perhaps thrown to the
wolves, taking the fall for their bosses, the way it
always works, or as someone once said - only little
people have to pay with the rarest of rare exceptions
to prove the rule; and
-- except for its emergency
lending facilities in the Senate bill, the Federal
Reserve won't be audited, and what's done will be
redacted to keep Congress and the public in the dark;
the Fed functions in secrecy; Senate bill provision
714, entitled "Audit of Financial Institutions
Examination Council," will keep it that way; remember,
the Fed is a Wall Street owned banking cartel serving
its member banks in the 12 Fed districts, not the
public it's empowered to scam and has with impunity
for nearly 100 years.
Solution: shut it down or
nationalize it, encourage establishing state and
locally-owned banks, take banking out of private hands
and make it a highly regulated public utility - topics
never considered, discussed, or reported in the
mainstream. They are below.
Fundamental change is essential.
A systemic makeover is vital. In collusion with
Washington, Wall Street predators wrecked the economy,
profiting "all the way to the bank," and are now well
advanced in their newest schemes, this time with
public money, gambling with what's needed to fix
America by rebuilding crumbling infrastructure, aiding
budget-strapped states and cities, producing jobs, and
helping homeowners facing foreclosure or in it.
As long as the privately owned
Fed controls the nation's money, reform won't happen.
Earlier, this writer explained that since established
by the 1913 Federal Reserve Act, the dollar eroded to
5% of its former worth. We've also had rising consumer
debt; record budget and trade deficits; an
unsustainable national debt; a high level of personal
and business bankruptcies; millions of lost homes;
loss of the nation's manufacturing base; soaring
poverty levels; an unprecedented wealth transfer to
the rich; the gradual destruction of the middle class;
sustained massive fraud for private gain; and a hugely
unstable economy lurching from one crisis to another,
followed by calls for reform that fail.
Is this time different? Analyst
Mike Larson writes for Money and Markets, run by
investor safety advocate Martin Weiss. His latest
commentaries stress:
"The great interest rate
explosion of 2010-2011," the result of a massive
credit bubble starting to burst, especially because of
the doubling of US Treasuries to $7.6 trillion in the
past seven years, and, at the present pace, will more
than double again in the next decade to over $18
trillion and become toxic junk vulnerable to crashing
along the way.
Larson explains that when rates
rise sharply, bond prices (valuations) crash, and
that's what he sees ahead, the result of profligate
Fed/Treasury policies making America like Greece and
other troubled EU nations.
"Financial Ebola Sweeps Through
Global Bond Markets," he shows in a frightening graph
on Greece, its two year note rates exploding from 2.1%
in October 2009 to 18.9% in late April. Over the same
period, the country's 10 year notes (due July 19,
2019) crashed 39%. "That is bond market Armageddon,"
he said. It's happening in real time, spreading to all
troubled countries, and it augurs the next stage in
the financial crisis, worst than the first, because
governments let banking fraud persist instead of
curbing it to save disaster.
What better reason for change,
what's not considered by Congress. With out-of-control
public debt, fraud a way of life on Wall Street, and
politicians blessing it like always, the eventual lid
blowing will reverberate globally, crushing people,
not bankers, who'll keep gaming the system to get
richer, larger, and more powerful at the public's
expense.
The Case for
State-Owned Banks
The clear lesson - The private
sector failed. A new way is essential. Public utility
banking at state and local levels is an attractive
alternative based on North Dakota's experience. The
time is now, and the name of the game is change,
fairness, workability, and freedom from predatory too
big to fail banks that are too big to exist, so
shouldn't. Shut them down. Break them up. Nationalize
them. Replace them with publicly owned ones that
work.
North Dakota's experience is
instructive. What does it have that others don't? It
has the nation's only state-owned bank, the Bank of
North Dakota (BND). Established in 1919, it's financed
industrial, commercial, and agricultural growth
soundly, something no other state can match because
they're not run like North Dakota.
BND also provides residential and
student loans, and operates as a banker's bank,
financing private sector lenders with accounts, backed
by the full faith and credit of the state, not the
FDIC (now bankrupt), and for over 90 years it's
worked.
Well enough to encourage other
states to check it out, including Illinois,
Massachusetts, Virginia, Washington and others in
touch with the bank to learn more at a time they're
struggling to balance budgets by cutting expenses,
laying off staff, reducing services, and raising taxes
- counterproductive measures when stimulus is needed.
During hard times, North Dakota
also had the largest $1.3 billion budget surplus in
its history, cut income and property taxes as a
result, expanded the state's Homestead Property Tax
program for seniors and disabled people, and has the
nation's lowest unemployment rate at 4%. The model
works. It's time all states tried it to fix their
financial crisis at a time Washington proposed change
promises worse ahead endangering them with
insolvency.
Ellen Brown does exceptional
financial writing, her book, "Web of Debt (now in a
new edition), must reading on how the Fed and Wall
Street usurped money creation power, and how we can
take it back.
She calls the Bank of North
Dakota a "credit machine (delivering) sound financial
services that promote agriculture, commerce and
industry" as follows. It "create(s) 'credit' with
accounting entries on (its) books" through fractional
reserve banking that multiplies each deposited amount
about tenfold in the form of loans or
computer-generated funds. As a result, it can re-lend
many times over, and the more deposits, the greater
amount of it for sustained, productive growth. If
other states (and cities) owned public banks, they'd
be as prosperous as North Dakota, be able to rebate
taxes not raise them, and expand employment and public
services, not retrench.
BND "chiefly acts as a central
bank, with functions similar to those of a branch of
the Federal Reserve." Although 100% state owned, it
"avoids rivalry with private banks by partnering with
them." They do most lending, "BND then com(ing) in to
participate in the loan, share the risk, buy down the
interest rate and buy up loans, thereby freeing up
banks to lend more. (It also) provide(s) a secondary
market for real estate loans, which it buys from local
banks."
Its property market function
helped it "avoid the credit crisis that afflicted Wall
Street when the secondary market for loans collapsed
in late 2007 and helped it reduce its foreclosure
rate. (Its other services) include guarantees for
entrepreneurial startups and student loans, the
purchase of municipal bonds from public institutions,
and a well-funded disaster loan program." When the
state didn't meet its budget "a few years ago, the BND
met the shortfall."
In sum, state-owned banks have
"enormous advantages over small private
institutions....Their asset bases are not marred by
oversized salaries and bonuses, they have no
shareholders" demanding high returns, and they don't
speculate in derivatives or other high-risk
investments. As a result, BND is healthy with a 25%
return on equity, paying "a hefty dividend to the
state" annually, so it begs the question why other
states don't operate the same way. As their crises
deepen, some are considering becoming credit machines
like North Dakota, but why have they waited this long,
and will they act now?
Media Coverage
On April 18, McClatchy-Tribune
writer Jake Grovum headlined, "State-owned bank in
North Dakota an inspiration," saying:
The BND "has come to be seen both
in and out of the state as a beacon of economic
stability and financial independence." Moreover, since
1997, it provided over $350 million in profits for the
state's general fund.
Other states may follow suit,
advocates, like Brown, saying "the benefits are
obvious." Yet private bankers like Chris Cole have
reservations. A senior VP and senior regulatory
counsel at Independent Community Bankers of America,
he said "lending to small businesses is making a
comeback and has been keeping up with demand from
qualified applicants."
Others disagree, saying banks are
reluctant to lend. On March 12, McClatchy writer Kevin
Hall headlined, "Small firms would like to hire you,
if only they could get loans," citing the continued
credit crunch affecting businesses like Quantum Energy
Solutions co-owner Jim Collins saying he was turned
down and can't expand.
Small Business Administration
head, Karen Mills, said: "There's a big gap in access
to credit for small firms now, and it's a huge
problem. We have a sense that the banks are not back
to lending the way that they need to be, going
forward. If we're going to come out of this recession
and get people back working, it's going to be because
we give small businesses the support that they need."
It's especially serious because
small business accounts for around two-thirds of
private hiring. Starve them and harm the economy, as
they're its growth engine. Yet they're even having
trouble tapping existing credit lines, let alone get
new ones.
According to Brookings
Institution researcher Douglas Elliott, "The anecdotal
evidence certainly suggests there's a credit crunch
for small business." Even thriving concerns can't get
loans. According to another analyst, "The banks don't
want to take a chance on anybody that might fail" in a
very risky environment, one that has credit
contracting at a record pace, at least through Q 1
2010. The evidence shows banks aren't lending and
repaid loans aren't being replaced with new ones, no
matter how fast the money supply expands.
What better argument for public
banks with every incentive to want to stimulate state
and local growth, especially when Wall Street prefers
to speculate, not lend as banks are supposed to do,
and their model hurts everyone except their bottom
line.
Hartwick College, New York
Research/Scholar Adrian Kuzminski cites 19th century
"proto-populist, Edward Kellogg....a kind of
godfather" to later monetary populists and a
"profound" writer on monetary issues, yet little
known.
He "advocated a decentralized but
nationally regulated monetary system based on
non-usurious, low-interest public loans to
individuals. His vision inspired 19th-century
mutualists, greenbackers, populists, and others who
sought to restructure the monetary system to
redistribute wealth."
He proposed a public credit model
with local public banks replacing private monopoly
control, charging what the market will bear, and
profiting hugely at borrowers' expense.
"Once lent out....public credit
notes would flow into circulation, providing the basis
for a new currency backed by the assets of individual
borrowers....A centralized national currency would be
replaced....by a locally issued currency....subject to
common national standards, ensuring that each local
public credit bank reliably issued equivalent units of
currency."
For Kellogg, every dollar would
have the same value nationally and would be freely
interchangeable with all others. His goal was publicly
controlled economic decentralization, and to maintain
a stable currency, he said rates must be fixed by law,
if necessary by a constitutional amendment.
Australian economist Steve Keen
believes financial reform is essential, but his
"analysis of how credit is created (makes him)
skeptical that any new system will 'hold' so long as
financiers can make money by financing asset-price
speculation. (He thinks history shows) that every
system we've tried so far has finally succumbed to a
debt-financed asset-price bubble, whose bursting has
brought in at best a recession and at worst a
Depression."
He worries as well about publicly
created credit so long as "money can still be used to
speculate on asset prices." He proposes measures to
curb it and suggests ideas of his own. For Brown and
others, it's to use public credit for productive
industrial development, and as long as new money
produces goods and services, it'll work
inflation-free.
It's why late 17th-early 18th
century colonial America thrived inflation-free for
over 25 years, beginning after Massachusetts (in 1691)
issued its own paper money (called scrip) and other
colonies followed.
Lincoln was also successful after
he refused to pay bankers up to 36% interest and got
Congress to pass the 1862 Legal Tender Act, empowering
the Treasury to issue "greenbacks," public money.
Without paying interest to bankers, his achievements
were remarkable. Besides building the world's largest
army and defeating the South, he turned the country
into an industrial giant, launched the steel industry,
the continental railroad system, and a new era of farm
machinery and cheap tools. He also established free
higher education and much more.
He did it by nationalizing
control of banking so government could create its own
interest free money, as required under the
Constitution's Article I, Section 8 giving Congress
alone the power "To coin Money, (and) regulate the
Value thereof." Bankers do it illegally, and that's
the problem, so it's crucial to stop them once in for
all. No new law is needed to do it.
Enforce the one in place and
revoke the 1913 Federal Reserve Act, enacted in the
middle of night on December 23 after many in Congress
left for Christmas, and others there hadn't read it.
It didn't matter as, like today, the language was so
vague that only its crafters knew the scheme was to
let private bankers usurp money control, in violation
of Article I, Section 8. It's time to reverse this
ugly chapter once and for all.
In her August 5, 2009 article
titled "The Public Option in Banking: How We Can Beat
Wall Street at Its Own Game," Brown cites the "litany
of abuses (by) profligate banks that nearly destroyed
our economic system," and may end up doing it given
their reluctance to change and no authority demanding
it.
The alternative, she says is "pit(ting)
the public banking option against the private (one)
and see which works best. My money is on the public
option." Why not, it's a sure bet given how badly the
private model failed - defrauding the public with the
full faith and credit of Washington, its partner in
crime.
Stephen Lendman lives in
Chicago and can be reached at lendmanstephen@sbcglobal.net.
Also visit his blog site at sjlendman.blogspot.com and
listen to cutting-edge discussions with distinguished
guests on the Progressive Radio News Hour on the
Progressive Radio Network Thursdays at 10AM US Central
time and Saturdays and Sundays at noon. All programs
are archived for easy listening.
http://www.progressiveradionetwork.com/the-progressive-news-hour/.
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