By Steven Tiell
Most Americans can describe ways they are being screwed by the economic and political decisions our government is making. No matter which recovery or bailout plan you consider, there are significant flaws, and we’re left trying to figure out which option will screw us the least. This doesn’t leave us much hope for a stable future.
But what if there’s a way we can treat this current calamity as an opportunity to regain control of our monetary systems and provide hope for a secure, sustainable future for generations to come?
Looking at the current crisis, we can see the wagons circling around nationalization – or “temporary nationalization.” After all, this is what Sweden did and they managed a relatively quick recovery, albeit with an economy a mere 2.5% the size of ours and with only a handful of banks. Nationalization is basically what happens when the FDIC takes over a bank – this bankruptcy for a bank is called an “intervention.” The FDIC does it all the time for retail banks and there’s a neat and orderly process for everything. The problem is, however, we’ve never “intervened” with our investment banks – just the retail ones. Most investment banks are huge and their transactions can be measured in terms of the GDP. Many argue that these banks are simply too big to fail and that is why our government has been pumping money into them.
The Treasury is currently “stress testing” these banks by going through their books and valuing their assets at what they’re actually worth (instead of the inflated prices they’ve been keeping them at in order to stave off intervention). By the time the Treasury is through, they should have a good idea how bad the situation is for each of these major investment banks and be able to form an action plan.
The writing on the wall is pretty clear that this action plan will most likely include some form of nationalization – call it receivership or intervention or whatever else you’d like, nationalization appears to be a foregone conclusion. So then what happens?
The current thinking is that the government will take over operation of these banks and gradually chop them up and sell the pieces to private investors; as that’s going on, Congress will establish tougher regulations so none of these newly capitalized banks can become too big to fail again. But in the minds of most people, this method still fails the moral hazard test (you don’t reward those who failed) because ultimately, these banks will be sold back to the market and to many of the same people who got us in this mess in the first place. And in another generation or two, the entire process will ultimately repeat itself (assuming Congress fails to properly regulate the banking sector or those regulations get whittled away just like they did during Greenspan’s tenure and the Bush Administration).
Instead of reselling the seized banks, I propose they should be pooled and used to form the basis of a new, decoupled public utility – The Finance Public Utility (FPU). The FPU would also become the custodian of all shares of solvent banks purchased by The Fed on behalf of citizens and would assume the government’s risk obligations as well. The FPU would not, however, be run by the government. The only role government would have would be the same it has today – to exercise its authority to intervene, pass legislation to form the FPU, and transfer public banking assets to the FPU. Once assets are under the umbrella of the FPU, our government would have no direct involvement in the public utility. Congress will continue to regulate the banking sector, and that will include the FPU. The FPU would be run by its own board and executive team.
If we go back and trace the milestones that led to this series of events, I argue that we need to go all the way back to when our government relinquished control of our money supply to private institutions. One of the bankers of that time, Mayer Anselm Rothschild said it best, “Permit me to issue and control the money of a nation, and I care not who makes its laws.” It’s not that today’s banks are too big to fail; they’re too powerful to fail.
For those banks that are able to raise the private capital they need to stay afloat, they should be allowed to continue operations. For those who are not, they should be seized by the government and handed back to the people as a new breed of public utility. In fact, this is exactly the reason we have public utilities in the first place – to maintain an infrastructure for a public service. What is more of a public service than providing the lending and capital market facilities the public needs with the very same money the taxpayer is ultimately responsible for? Do we really want to sell this right back to the short-term-profit oriented oligarchy that was responsible for this mess in the first place? As President Abraham Lincoln said, “the privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government’s greatest creative opportunity.”
With the FPU, our government can finally return this privilege to the taxpayers. The FPU’s charter would be to maximize capital efficiency for individual citizens and its corporate structure should enshrine the FPU’s obligation for social benefit. There are mechanisms to do this today, such as B-Corp, but none are officially sanctioned under federal tax code. Sure, there are arguments for making the FPU a for-profit, non-profit, or not-for-profit, but we would be remiss to overlook the opportunity for finally recognizing the vast contributions socially responsible businesses can make in society – especially when it comes to finance!
The bottom line is that a nation’s economy is fundamental to its security – political security, national security, financial security, cultural security, etc. To gift that public trust to private, profit-maximizing investors is short-sighted and negligent on the part of government. This is our greatest opportunity to catapult future generations into an era of sustainable economic prosperity. Let’s not waste it by giving control of our money supply back to the criminals who perpetrated this fraud – that would be the greatest moral hazard of them all.
Steven Tiell is a high-tech innovator, sustainability consultant, economic theorist, and political junky. In addition to helping governments and large corporations make their business practices and policies more sustainable, he also helps to teach the Economics and Capital Markets course at Presidio School of Management.