The Banks: Capitalism's Own Worst Enemy

By Sandy Prisant

This morning I closed all my bank accounts at  J P Morgan Chase. It was where my father opened my very first account when I was 16. I remember Mr. Marty, the branch manager in Great Neck, NY. Nice smile. Nice man. 

How things have changed.  I had opened additional accounts with the guarantee of no-fee checking for life a few years ago, but this month Chase has swooped in and arrogantly broken that guarantee for all customers. No apologies. No explanations. This hardly caused a ripple, because we all now expect banks to abuse us to an extraordinary degree.

In recent days, Goldman Sachs has announced bonuses of SIXTEEN BILLION TWO HUNDRED MILLION DOLLARS for results in the same year that 1.2 million American families lost their homes .  And now we learn that US taxpayers will be picking up tens of millions in legal fees for some of our public bankers at Fannie and Freddie Mae, whom are millionaires in their own right, but with the ethics of bag ladies (New York Times/Jan 24).  In the same  week, two other financial institutions are petitioning the courts to burn their sub prime loan records.

The questions abound:

• What has happened to the re-establishment of banking regulation that was so vital in ending the last Depression? The stripping of Glass-Steiglitz regulation is a primary cause of this Depression. What is Washington waiting for?
• We created TARP to keep the banks and the economy liquid. The banks, on their own, decided to take the money, but not pass it on.Single-handedly they have made America illiquid. Can neither the Fed nor the Comptroller of the Currency oblige banks to make sound loans--as has been required in the United Kingdom?
• In short, if the Banks were a foreign enemy or terrorist organization, could they do any greater harm, more effectively, to the United States?
• And could they do it with greater disdain? 

The root of the word "capitalism" is "capital".  It is our understanding that in a free enterprise system, capital is the core element in economic development and that it comes through institutions called banks.  In this  Post-Prosperity Era, banks have decided they are not here to provide capital, but to charge fees for everything imaginable, pay out little or no interest but demand huge credit card fees and interest, while simultaneously repossess our homes. That's their entire business model.

Except for those bank shareholders who receive dividends, there is in fact no "Capitalism" being conducted by these institutions. 

Recently people were fascinated to see Goldman "invest" a large sum in Facebook, suggesting that website was worth billions, but Goldman was proving nothing of the sort. In fact the investment bank was simply doing what it does best:  (1)Acquiring equity that could be re-sold to existing or new clients at a profit and with commissions and (2) Putting itself in an almost unassailable position to earn hundreds of millions more for handling Facebook's IPO in the next five years.

Any corporation has the right to make a profit. But only banks have as their raison d'etre facilitating not just a nation's profits, but its economic survival through Main Street liquidity.

The banks are quite clearly telling us that is not their role and they want nothing to do with it.  In the words of  Nobel Laureate in Economics, Joseph Stieglitz: "If bankers win, they walk off with the proceeds, and if they lose, taxpayers pick up the tab."

Which leaves us with the greatest question of all:  If banks no longer will provide capital, what is the future of Capitalism? A recent study shows almost half of all Americans believe our nation's best days are behind us. With banks like ours, we can't blame this one on China.

The Future Doesn't Work

Editor's Note:  As we enter Year 4 of this Depression, history reminds us that we are at the nadir of the economic cycle. The budget cutting, the downsizing, the firings--it's all been done.  The savings for "a rainy day" will now begin running out for most Americans and small business at an accelerated pace, this year and next--which brings us to ideas for solutions.  According to the American voter, we should now try a solution that has already proven it will not work:

The Texas Omen

By PAUL KRUGMAN 

January 6, 2011

Wait — Texas? Wasn’t Texas supposed to be thriving even as the rest of America suffered? Didn’t its governor declare, during his re-election campaign, that “we have billions in surplus”? Yes, it was, and yes, he did. But reality has now intruded, in the form of a deficit expected to run as high as $25 billion over the next two years.


And that reality has implications for the nation as a whole. For Texas is where the modern conservative theory of budgeting — the belief that you should never raise taxes under any circumstances, that you can always balance the budget by cutting wasteful spending — has been implemented most completely. If the theory can’t make it there, it can’t make it anywhere.

These are tough times for state governments. Huge deficits loom almost everywhere, from California to New York, from New Jersey to Texas.
How bad is the Texas deficit? Comparing budget crises among states is tricky, for technical reasons. Still, data from the Center on Budget and Policy Priorities suggest that the Texas budget gap is worse than New York’s, about as bad as California’s, but not quite up to New Jersey levels.

The point, however, is that just the other day Texas was being touted as a role model (and still is by commentators who haven’t been keeping up with the news). It was the state the recession supposedly passed by, thanks to its low taxes and business-friendly policies. Its governor boasted that its budget was in good shape thanks to his “tough conservative decisions.”

Oh, and at a time when there’s a full-court press on to demonize public-sector unions as the source of all our woes, Texas is nearly demon-free: less than 20 percent of public-sector workers there are covered by union contracts, compared with almost 75 percent in New York.

So what happened to the “Texas miracle” many people were talking about even a few months ago?

Part of the answer is that reports of a recession-proof state were greatly exaggerated. It’s true that Texas job losses haven’t been as severe as those in the nation as a whole since the recession began in 2007. But Texas has a rapidly growing population — largely, suggests Harvard’s Edward Glaeser, because its liberal land-use and zoning policies have kept housing cheap. There’s nothing wrong with that; but given that rising population, Texas needs to create jobs more rapidly than the rest of the country just to keep up with a growing work force.

And when you look at unemployment, Texas doesn’t seem particularly special: its unemployment rate is below the national average, thanks in part to high oil prices, but it’s about the same as the unemployment rate in New York or Massachusetts.
What about the budget? The truth is that the Texas state government has relied for years on smoke and mirrors to create the illusion of sound finances in the face of a serious “structural” budget deficit — that is, a deficit that persists even when the economy is doing well. When the recession struck, hitting revenue in Texas just as it did everywhere else, that illusion was bound to collapse.

The only thing that let Gov. Rick Perry get away, temporarily, with claims of a surplus was the fact that Texas enacts budgets only once every two years, and the last budget was put in place before the depth of the economic downturn was clear. Now the next budget must be passed — and Texas may have a $25 billion hole to fill. Now what?
Given the complete dominance of conservative ideology in Texas politics, tax increases are out of the question. So it has to be spending cuts.

Yet Mr. Perry wasn’t lying about those “tough conservative decisions”: Texas has indeed taken a hard, you might say brutal, line toward its most vulnerable citizens. Among the states, Texas ranks near the bottom in education spending per pupil, while leading the nation in the percentage of residents without health insurance. It’s hard to imagine what will happen if the state tries to eliminate its huge deficit purely through further cuts.
I don’t know how the mess in Texas will end up being resolved. But the signs don’t look good, either for the state or for the nation.

Right now, triumphant conservatives in Washington are declaring that they can cut taxes and still balance the budget by slashing spending. Yet they haven’t been able to do that even in Texas, which is willing both to impose great pain (by its stinginess on health care) and to shortchange the future (by neglecting education). How are they supposed to pull it off nationally, especially when the incoming Republicans have declared Medicare, Social Security and defense off limits?


People used to say that the future happens first in California, but these days what happens in Texas is probably a better omen. And what we’re seeing right now is a future that doesn’t work.