Friday, January 29, 2016

Did Wall Street Banks (Who Have Lost $219.7B So Far) Create the Oil Crash To Receive Bailouts (Oil Could Fall to $20)?  (Just Askin')  The Populist Revolution:  Bernie and Beyond  (Kantner Starship Sails)


Up against the wall.

This is the most incredibly bad news.

And so unbelievable.

I loved this man, this gifted, matchless artist.

I'll never forget how his beautifully moving music informed my youth.

What bliss it was to spend an afternoon in my dorm room listening to the Airplane, and then the Starship, and then all of the other transmutations of musical envelopmentness that he and they provided.

That's how it felt:  completely enveloped in blissful love.

I had all his/their albums.

What a happy life.

I was kissed by Jorma and Jack one afternoon before a performance.

What phenomenal luck.

But never Paul.

I was never close enough.

But he was an idyll provider for me.

Paul Kantner can not pass away.

Sail on, sailor.

You sailed into our hearts.

To stay.

5 Wall Street Banks Have Lost $219.7 Billion in Market Cap in 7 Months

We get the inside word on how the Obama exit from the national stage will be managed from the "New York Times:"

BALTIMORE — When President Obama addressed the annual retreat for House Democratic lawmakers in 2009, the event had the buoyant exuberance of a pep rally as he urged his party’s robust majority — then 257 members strong — to help muscle through his economic stimulus plan.

But as Mr. Obama speaks at this year’s retreat here on Thursday evening, he will stand before a far smaller and less popular audience:  188 Democratic lawmakers in a minority caucus with virtually no chance of moving back into power in the November elections.

. . . Some Democrats hold Mr. Obama responsible for that, saying their party’s lawmakers took the blame for the president’s aggressive and often unpopular agenda to revive the economy and adopt sweeping health care legislation during his first two years in office. And some say Mr. Obama showed indifference to the political circumstances of rank-and-file lawmakers and missed an opportunity to seize on the undercurrents of populism and anti-establishment sentiment that began coursing through the electorate after the partisan battle over health care.

“The main Democrat nationally, and the only one who could be heard, was silent on the huge structural issues that more and more Americans were facing,” said Stanley Greenberg, a veteran Democratic pollster who blames Mr. Obama for Democratic House losses in 2010 and 2014. “His silence on those things left the voters without much motivation to vote.”

Mr. Greenberg said Mr. Obama and Ms. Pelosi would be remembered for making transformative changes during 2009 and 2010, when the president confronted an economic crisis, Ms. Pelosi wielded the speaker’s gavel to corral support, and Senate Democrats controlled the 60 votes needed to overcome Republican filibusters.

“We will look at those two years as enduring,” he said. But he said Mr. Obama’s legacy would also include the political death of Ms. Pelosi’s once-powerful majority. “Part of his legacy is the off-year elections,” he said.

Administration officials reject that critique, noting the historic pattern of losses that a president’s party often sustains in off-year elections and the eight House seats Democrats regained when Mr. Obama was on the ballot in 2012. They say Mr. Obama was a prolific fund-raiser and a frequent campaigner for Democratic candidates whenever he was asked; the president hosted 17 fund-raising events across the country in 2013 and 2014, they said.

Some Congressional Democrats said it was not enough — not necessarily because Mr. Obama could have done more but because there could never be enough fund-raising given the nature of modern political campaigns. “If the president had allocated 50 more of his days to raising money,” Representative Brad Sherman, Democrat of California, said at a reception to mark the start of the retreat in Baltimore, “we would have more Democratic members here.”

In a lunchtime speech here, Vice President Joseph R. Biden Jr. told the Democratic lawmakers he believed that they could win back the House if they drew a sharper contrast with Republicans.

“I think we can win; I think the House we can win,” Mr. Biden said. “I think we have to focus — and we didn’t do it enough the last time in my view. The best way to win is to run on what we have done and what we stand for, and run on what more we are trying to do, making clear what we think we have to do to finish the agenda and then contrast that to what they are for and what they oppose.”

As for Republicans, he said, “They opposed every single, solitary initiative that you supported over the last seven years if you were here that long to support this recovery.”

And, yet, not a word about the massive state gerrymandering that has eliminated representative districts by drawing districts that put the vast majority of Democratic voters in a few closely-packed districts versus the more numerous sparcely-populated Republican-dominated districts.

Let alone all the (frigging new) wars and drone victims that have occurred in the last seven years.

I'm sure these had nothing to do with the Democratic voters who didn't vote (or voted for another party).

The "New York Times!"

Stand up and take a bow.

Those hearings triggered an in-depth investigation and more outrageous disclosures in 2014 of an out-of-control Wall Street by the Senate’s Permanent Subcommittee on Investigations, then chaired by Senator Carl Levin, another Senator that refused to be silenced by Wall Street. Levin’s Subcommittee found that Wall Street banks had set up secret shell companies to gain control of a stunning amount of the nation’s industrial commodities – such as oil, aluminum, copper, natural gas, and even uranium – on a scale that “appears to be unprecedented in U.S. history,” according to a 400-page report released by the Subcommittee.
Since Republicans took control of both the Senate and House in January 2015 and appointed their own Committee and Subcommittee chairs, we’ve heard almost nothing further about this critical matter – proving once again how Wall Street gets its way on Capitol Hill.

Not that I agree that Obama is worried about how his legacy will be viewed, but the rest of the essay below is pretty much spot on.

Go Bernie!

Bernie Sanders Meets With Obama Today:  What They Might Talk About

By Pam Martens and Russ Martens
January 27, 2016
Expensive media real estate is reporting that presidential candidate, Senator Bernie Sanders of Vermont, will meet with President Obama in the Oval Office today. Much is being made of the fact that the meeting comes less than a week before the politically important Iowa caucuses and just two days after "Politico" published an exclusive interview with the President in which he appeared to favor a Clinton presidency. (Memo to the President:  this election is about finding an authentic non-establishment candidate, so your opinion as the quintessential establishment figure is not likely to sway folks – at least not in a good way.)

The first thing that came to mind when we heard about the meeting was that one or more kingpins on Wall Street might have asked the President to whisper in Senator Sanders’ ear to stop repeating at every campaign stop that the business model of Wall Street is fraud. Sanders is also regularly stating on the stump that one of his top priorities as President will be to break up those Wall Street banks that would require another taxpayer bailout if they should fail.

Would Wall Street actually be brazen enough to try to censor the message of a sitting U.S. Senator? Back in March of last year, Reuters reported that representatives of Citigroup, JPMorgan, Goldman Sachs and Bank of America “have met to discuss ways to urge Democrats, including [Elizabeth] Warren and Ohio Senator Sherrod Brown, to soften their party’s tone toward Wall Street.” The article noted that withholding campaign donations to Senate Democrats was one option that was on the table at the Wall Street banks.

Wall Street’s guns were out for Senators Elizabeth Warren and Sherrod Brown because both were mincing few words about the serial corruption on Wall Street. Senator Warren is also a lead sponsor of legislation to separate insured deposit banks from investment banks and brokerage firms that speculate in stocks, bonds and derivatives, thus restoring the Glass-Steagall Act that successfully protected the country’s financial system for 66 years until the Bill Clinton administration repealed it in 1999. Just nine years after its repeal, Wall Street imploded in a fashion similar to the 1929 crash – the reason that the Glass-Steagall Act was enacted in the first place in 1933.

Senator Sherrod Brown had raised eyebrows on Wall Street with his hearings that rooted out the unfathomable levels of physical holdings of oil, metals and other commodities that a negligent Federal Reserve had allowed Wall Street banks to take ownership of and control, unilaterally repealing decades of banking law with no Congressional input or even awareness.

Those hearings triggered an in-depth investigation and more outrageous disclosures in 2014 of an out-of-control Wall Street by the Senate’s Permanent Subcommittee on Investigations, then chaired by Senator Carl Levin, another Senator that refused to be silenced by Wall Street. Levin’s Subcommittee found that Wall Street banks had set up secret shell companies to gain control of a stunning amount of the nation’s industrial commodities – such as oil, aluminum, copper, natural gas, and even uranium – on a scale that “appears to be unprecedented in U.S. history,” according to a 400-page report released by the Subcommittee.

Since Republicans took control of both the Senate and House in January 2015 and appointed their own Committee and Subcommittee chairs, we’ve heard almost nothing further about this critical matter – proving once again how Wall Street gets its way on Capitol Hill.

Say something nice, if you say anything at all, about Wall Street became the mantra back in 2013. CNBC’s Maria Bartiromo (now on Fox) appeared on NBC’s "Meet the Press" on September 15, 2013 – the fifth anniversary of the Wall Street crash. Bartiromo had this to say:

Bartiromo: “We need to get beyond the conversation of is Wall Street evil, are the bankers evil and causing pain; and toward the conversation of, how do you create sustainable economic growth? That will answer the issue of inequality. Because with growth comes jobs.”
Fortunately for Americans, there are still Democrats in the U.S. Senate and a handful of Republicans who understand that Wall Street’s serial corruption and wealth transfer system is at the very heart of wealth and income inequality in America. America is also fortunate to have one Presidential candidate, Senator Bernie Sanders, who is serious about changing this reality.

Just last week we were reminded of just how little progress has been made on reforming Wall Street since President Obama took office in January 2009. JPMorgan Chase said in filings that it had awarded its Chairman and CEO, Jamie Dimon, total compensation of $27 million for 2015, an increase of 35 percent from the prior year. The obscene compensation came despite the fact that Dimon’s company became an admitted felon in 2015 for rigging foreign currency (Forex) markets. No major U.S. bank had ever before carried the taint of felon in U.S. financial history. After an unprecedented run of serial crimes against the investing public, detailed here by two attorneys who think this is on a par with a crime syndicate family, why is Jamie Dimon even still heading a major Wall Street bank, let alone getting a 35 percent pay increase?

The two attorneys, Helen Davis Chaitman and Lance Gotthoffer, who published a book about JPMorgan’s facilitation of the Bernie Madoff Ponzi scheme (which garnered it a deferred prosecution agreement from Eric Holder’s U.S. Justice Department), wrote the following about Dimon and JPMorgan Chase in May of last year:

If Carlo Gambino were alive, he’d be kissing the toes of Jamie Dimon out of abject admiration. Gambino and his cronies were like small-time pickpockets by comparison; and they went to prison for their crimes. They could never have foreseen that America would be run by the Obama/Holder team. As we demonstrated in Chapter 4 of JP Madoff, it is no exaggeration to say that JPMorgan operates like a crime syndicate. That’s why we suggested in Chapter 5 that it be criminally prosecuted under RICO — and punished like the members of other crime syndicates have been punished. And, believe it or not, even the participants in the Forex scheme knew they were acting like organized crime does.

“In its plea agreement with JP Morgan, the DOJ recites it had evidence sufficient to prove that: ‘In furtherance of the conspiracy, the defendant [JPMorgan] and its co-conspirators engaged in communications, including near daily conversations, some of which were in code, in an exclusive electronic chat room which chat room participants, as well as others in the [relevant] Market referred to as ‘The Cartel’ or ‘The Mafia.’ ”
On the same day last week that the news broke of Dimon’s obscene pay, the "Dow Jones" news site, "MarketWatch,"  published an article revealing that Wall Street is underwriting a significant amount of Initial Public Offerings (IPOs, meaning companies being sold to investors as publicly traded companies for the first time) whose auditors have issued a “going concern” warning. This warning, as the article explains, means that auditors are signaling that “there is reasonable doubt the company can stick it out over the next year — also frequently leads to a bankruptcy filing.”

The job of Wall Street is to fairly and responsibly allocate capital to companies which can help America grow and create good-paying jobs.

Underwriting IPOs for companies whose time frame for surviving may be less than a year sounds like a replay of the Bust of 2000 which destroyed trust in Wall Street and wiped out $4 trillion of investors’ wealth.

A third article came out last Thursday from Mark Karlin, Editor of "Buzzflash" at "Truthout," calling attention to Senator Warren’s upbraiding of Obama’s Justice Department’s and other regulators’ settlement with Goldman Sachs over its subprime mortgage abuses. Senator Warren had this to say on her Facebook page:

“In the 2008 financial crisis, we lost trillions in wealth and millions of people lost their homes and their jobs because of Wall Street recklessness. Today, Goldman Sachs announced it will pay $5.1 billion for its role in precipitating the economic collapse by misleading investors about the quality of the junk mortgage securities they peddled. Seven years later. No admission of guilt. No individuals are going to jail. A payment that’s barely a fraction of the billions investors lost – and the trillions our economy lost – because of this fraud. And over half of it could be tax deductible! That’s not justice — it’s a white flag of surrender.”
President Obama is clearly worried about his legacy and his career prospects that will ensue from that legacy. The time to have worried about that was when he contemplated who should run his Justice Department and his Treasury Department and his SEC. Thanks to those decisions, the country has a great deal more to worry about now than the President’s legacy.

All it would take to set America back on the right financial course are these 31 words in Wall Street reform legislation:

“No bank holding insured deposits can own or be affiliated with an investment bank, broker-dealer, futures commission merchant, insurance company or engage in the underwriting of stocks, bonds or derivatives.”
That’s the essence of restoring the Glass-Steagall Act and curtailing the unbridled looting of the public by the Wall Street machine.

And when it goes down again . . .

It goes downnnnnnn.

Hello 4th world!

Did Wall Street Banks Create the Oil Crash?

Price of West Texas Intermediate Crude Oil Before and After the 2008 Crash

Price of West Texas Intermediate Crude Oil Before and After the 2008 Crash
By Pam Martens and Russ Martens: January 26, 2016 
From June 2008 to the depth of the Wall Street financial crash in early 2009, U.S. domestic crude oil lost 70 percent of its value, falling from over $140 to the low $40s. But then a strange thing happened. Despite weak global economic growth, oil went back to over $100 by 2011 and traded between the $80s and a little over $100 until June 2014. Since then, it has plunged by 72 percent – a bigger crash than when Wall Street was collapsing.
The chart of crude oil has the distinct feel of a pump and dump scheme, a technique that Wall Street has turned into an art form in the past. Think limited partnerships priced at par on client statements as they disintegrated in price in the real world; rigged research leading to the Bust and a $4 trillion stock wipeout; and the securitization of AAA-rated toxic waste creating the subprime mortgage meltdown that cratered the U.S. housing market along with century-old firms on Wall Street.
Pretty much everything that’s done on Wall Street is some variation of pump and dump. Here’s why we’re particularly suspicious of the oil price action.
Americans know far too little about what was actually happening on Wall Street leading up to the crash of 2008. The Financial Crisis Inquiry Commission released its detailed final report in January 2011. But by July 2013, Senator Sherrod Brown, Chair of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection had learned that Wall Street banks had amassed unprecedented amounts of physical crude oil, metals and other commodity assets in the period leading up to the crash. This came as a complete shock to Congress despite endless hearings that had been held on the crash.
On July 23, 2013, Senator Brown opened a hearing on this opaque perversion of banking law, comparing today’s Wall Street banks to the Wall Street trusts that had a stranglehold on the country in the early 1900s. Senator Brown remarked:
“There has been little public awareness of or debate about the massive expansion of our largest financial institutions into new areas of the economy. That is in part because regulators, our regulators, have been less than transparent about basic facts, about their regulatory philosophy, about their future plans in regards to these entities.
“Most of the information that we have has been acquired by combing through company statements in SEC filings, news reports, and direct conversations with industry. It is also because these institutions are so complex, so dense, so opaque that they are impossible to fully understand. The six largest U.S. bank holding companies have 14,420 subsidiaries, only 19 of which are traditional banks.

“Their physical commodities activities are not comprehensively or understandably reported. They are very deep within various subsidiaries, like their fixed-income currency and commodities units, Asset Management Divisions, and other business lines. Their specific activities are not transparent. They are not subject to transparency in any way. They are often buried in arcane regulatory filings.
“Taxpayers have a right to know what is happening and to have a say in our financial system because taxpayers, as we know, are the ones who will be asked to rescue these mega banks yet again, possibly as a result of activities that are unrelated to banking.”
The findings of this hearing were so troubling that the U.S. Senate’s Permanent Subcommittee on Investigations commenced an in-depth investigation. The Subcommittee, then chaired by Senator Carl Levin, held a two-day hearing on the matter in November  2014, which included a 400-page report of hair-raising findings.
Of particular interest was the jaw-dropping physical oil assets owned by Morgan Stanley, an institution that most people viewed as an investment bank advising on mergers and acquisitions and a retail brokerage firm with over 15,000 brokers advising moms and pops and institutions on their investment portfolios. Levin’s Subcommittee unearthed the following about Morgan Stanley:

Morgan Stanley had purchased massive physical oil holdings, including the purchase of TransMontaigne, which managed almost 50 oil sites within the United States and Canada. It also had a majority ownership stake in Heidmar, which “managed a fleet of 100 vessels delivering oil internationally.” Morgan Stanley also owned Olco Petroleum, “which blended oils, sponsored storage facilities, and ran about 200 retail gasoline stations in Canada.”
The report raised further concerns as to just what Morgan Stanley had morphed into with this finding:
“One of Morgan Stanley’s primary physical oil activities was to store vast quantities of oil in facilities located within the United States and abroad.  According to Morgan Stanley, in the New York-New Jersey-Connecticut area alone, by 2011, it had leases on oil storage facilities with a total capacity of 8.2 million barrels, increasing to 9.1 million barrels in 2012, and then decreasing to 7.7 million barrels in 2013. Morgan Stanley also had storage facilities in Europe and Asia.  According to the Federal Reserve, by 2012, Morgan Stanley held ‘operating leases on over 100 oil storage tank fields with 58 million barrels of storage capacity globally.’ ”
Let that sink in for a moment. With financial derivatives and 58 million barrels of physical storage capacity, it might not be so hard to manipulate the oil market.
The Subcommittee got its hands on an internal Federal Reserve memo from 2011, which acknowledged that the Fed knew what a sprawling industrial octopus Morgan Stanley had become, even though the Fed had granted it bank holding company status during the 2008 crash and injected a cumulative total of $2 trillion in below market-rate loans into Morgan Stanley to help it survive the crash. The Fed memo said that Morgan Stanley “controls a ‘vertically-integrated model’ spanning crude oil production, distillation, storage, land and water transport, and both wholesale and retail distribution.”
According to the Subcommittee’s finding, Morgan Stanley “used its storage facilities to build inventories with millions of barrels of different types of oil.”
Morgan Stanley was not the only mega Wall Street bank singled out in the study. Among its numerous findings of fact were the following:
“Incurring New Systemic Risks.  Due to their physical commodity activities, Goldman, JPMorgan, and Morgan Stanley incurred increased financial, operational, and catastrophic event risks, faced accusations of unfair trading advantages, conflicts of interest, and market manipulation, and intensified problems with being too big to manage or regulate, introducing new systemic risks into the U.S. financial system.
“Using Ineffective Size Limits.  Prudential safeguards limiting the size of physical commodity activities are riddled with exclusions and applied in an uncoordinated, incoherent, and ineffective fashion, allowing JPMorgan, for example, to hold physical commodities with a market value of $17.4 billion – nearly 12% of its Tier 1 capital – while at the same time calculating the market value of its physical commodity holdings for purposes of complying with the Federal Reserve limit at just $6.6 billion.”
At another hearing on January 15, 2014, Norman Bay, the Director of the Office of Enforcement at the Federal Energy Regulatory Commission (FERC), explained how the rigging of the commodities markets might be conducted:
“A fundamental point necessary to understanding many of our manipulation cases is that financial and physical energy markets are interrelated…a manipulator can use physical trades (or other energy transactions that affect physical prices) to move prices in a way that benefits his overall financial position.  One useful way of looking at manipulation is that the physical transaction is a ‘tool’ that is used to ‘target’ a physical price…The purpose of using the tool to target a physical price is to raise or lower that price in a way that will increase the value of a ‘benefitting position’ (like a Financial Transmission Right or FTR product in energy markets, a swap, a futures contract, or other derivative).
“Increasing the value of the benefitting position is the goal or motive of the manipulative scheme.  The manipulator may lose money in its physical trades, but the scheme is profitable because the financial positions are benefitted above and beyond the physical losses.”
Wall Street mega banks are able to leverage their oil trades in the futures market by a factor of 95 to 1 or greater. Typically, margin of 5 percent or less is required of large oil speculators on the major commodity futures exchanges. If you know the direction of prices, you can make a killing using very little of your own firm’s capital. And if you also own the physical commodities, you can call yourself a bona fide hedger and avoid rules meant to rein in risky or manipulative trading.
Morgan Stanley has reduced its holdings of oil assets and storage capacity in recent years. Exactly how much remains is not known. In a November 2, 2015 press release, Morgan Stanley announced that it had completed the sale of its Global Oil Merchanting unit of its Commodities division to Castleton Commodities International LLC. The financial terms were not disclosed, however, the Financial Times reported that its Heidmar assets were not part of the deal.
The Federal Reserve, the sole regulator in the United States of bank holding companies, has known since at least 2009 that the mega Wall Street banks were building massive positions in physical commodities. It was that year that 60 Minutes revealed that Morgan Stanley had the capacity to store and hold 20 million barrels of oil and Goldman Sachs had taken stakes in companies that owned oil storage terminals – while both firms’ oil analysts made public statements that oil would reach $150 and $200 per barrel, respectively.
Now that Morgan Stanley has shed significant exposure to oil, its analysts are singing a different tune. Earlier this month on January 11, Bloomberg News reported that Morgan Stanley was predicting that “Oil is particularly leveraged to the dollar” and could potentially fall to $20.


The Populist Revolution:  Bernie and Beyond

The world is undergoing a populist revival. From the revolt against austerity led by the Syriza Party in Greece and the Podemos Party in Spain, to Jeremy Corbyn’s surprise victory as Labour leader in the UK, to Donald Trump’s ascendancy in the Republican polls, to Bernie Sanders’ surprisingly strong challenge to Hillary Clinton – contenders with their fingers on the popular pulse are surging ahead of their establishment rivals.
Today’s populist revolt mimics an earlier one that reached its peak in the US in the 1890s. Then it was all about challenging Wall Street, reclaiming the government’s power to create money, curing rampant deflation with US Notes (Greenbacks) or silver coins (then considered the money of the people), nationalizing the banks, and establishing a central bank that actually responded to the will of the people.
Over a century later, Occupy Wall Street revived the populist challenge, armed this time with the Internet and mass media to spread the word. The Occupy movement shined a spotlight on the corrupt culture of greed unleashed by deregulating Wall Street, widening the yawning gap between the 1% and the 99% and destroying jobs, households and the economy.

Donald Trump’s populist campaign has not focused much on Wall Street; but Bernie Sanders’ has, in spades. Sanders has picked up the baton where Occupy left off, and the disenfranchised Millennials who composed that movement have flocked behind him.

The Failure of Regulation

Sanders’ focus on Wall Street has forced his opponent Hillary Clinton to respond to the challenge. Clinton maintains that Sanders’ proposals sound good but “will never make it in real life.” Her solution is largely to preserve the status quo while imposing more bank regulation.

That approach, however, was already tried with the Dodd-Frank Act, which has not solved the problem although it is currently the longest and most complicated bill ever passed by the US legislature. Dodd-Frank purported to eliminate bailouts, but it did this by replacing them with “bail-ins” – confiscating the funds of bank creditors, including depositors, to keep too-big-to-fail banks afloat. The costs were merely shifted from the people-as-taxpayers to the people-as-creditors.

Worse, the massive tangle of new regulations has hamstrung the smaller community banks that make the majority of loans to small and medium sized businesses, which in turn create most of the jobs. More regulation would simply force more community banks to sell out to their larger competitors, making the too-bigs even bigger.

In any case, regulatory tweaking has proved to be an inadequate response. Banks backed by an army of lobbyists simply get the laws changed, so that what was formerly criminal behavior becomes legal. (See, e.g., CitiGroup’s redrafting of the “push out” rule in December 2015 that completely vitiated the legislative intent.)

What Sanders is proposing, by contrast, is a real financial revolution, a fundamental change in the system itself. His proposals include eliminating "Too Big to Fail" by breaking up the biggest banks; protecting consumer deposits by reinstating the Glass-Steagall Act (separating investment from depository banking); reviving postal banks as safe depository alternatives; and reforming the Federal Reserve, enlisting it in the service of the people.

Time to Revive the Original Populist Agenda?

Sanders’ proposals are a good start. But critics counter that breaking up the biggest banks would be costly, disruptive and destabilizing; and it would not eliminate Wall Street corruption and mismanagement.

Banks today have usurped the power to create the national money supply. As the Bank of England recently acknowledged, banks create money whenever they make loans. Banks determine who gets the money and on what terms. Reducing the biggest banks to less than $50 billion in assets (the Dodd-Frank limit for “too big to fail”) would not make them more trustworthy stewards of that power and privilege.

How can banking be made to serve the needs of the people and the economy, while preserving the more functional aspects of today’s highly sophisticated global banking system? Perhaps it is time to reconsider the proposals of the early populists. The direct approach to “occupying” the banks is to simply step into their shoes and make them public utilities. Insolvent megabanks can be nationalized – as they were before 2008. (More on that shortly.)

Making banks public utilities can happen on a local level as well. States and cities can establish publicly-owned depository banks on the highly profitable and efficient model of the Bank of North Dakota. Public banks can partner with community banks to direct credit where it is needed locally; and they can reduce the costs of government by recycling bank profits for public use, eliminating outsized Wall Street fees and obviating the need for derivatives to mitigate risk.

At the federal level, not only can postal banks serve as safe depositories and affordable credit alternatives, but the central bank can provide is it just a source of interest-free credit for the nation – as was done, for example, with Canada’s central bank from 1939 to 1974. The U.S. Treasury could also reclaim the power to issue, not just pocket change, but a major portion of the money supply – as was done by the American colonists in the 18th century and by President Abraham Lincoln in the 19thcentury.

Nationalization: Not As Radical As It Sounds

Radical as it sounds today, nationalizing failed megabanks was actually standard operating procedure before 2008. Nationalization was one of three options open to the FDIC when a bank failed. The other two were (1) closure and liquidation, and (2) merger with a healthy bank. Most failures were resolved using the merger option, but for very large banks, nationalization was sometimes considered the best choice for taxpayers.  The leading U.S. example was Continental Illinois, the seventh-largest bank in the country when it failed in 1984. The FDIC wiped out existing shareholders, infused capital, took over bad assets, replaced senior management, and owned the bank for about a decade, running it as a commercial enterprise.

What was a truly radical departure from accepted practice was the unprecedented wave of government bailouts after the 2008 banking crisis. The taxpayers bore the losses, while culpable bank management not only escaped civil and criminal penalties but made off with record bonuses.

In a July 2012 article in "The New York Times" titled “Wall Street Is Too Big to Regulate,” Gar Alperovitz noted that the five biggest banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs — then had combined assets amounting to more than half the nation’s economy. He wrote:

With high-paid lobbyists contesting every proposed regulation, it is increasingly clear that big banks can never be effectively controlled as private businesses.  If an enterprise (or five of them) is so large and so concentrated that competition and regulation are impossible, the most market-friendly step is to nationalize its functions. . . .

Nationalization isn’t as difficult as it sounds.  We tend to forget that we did, in fact, nationalize General Motors in 2009; the government still owns a controlling share of its stock.  We also essentially nationalized the American International Group, one of the largest insurance companies in the world, and the government still owns roughly 60 percent of its stock.
A more market-friendly term than nationalization is “receivership” – taking over insolvent banks and cleaning them up. But as Dr. Michael Hudson observed in a 2009 article, real nationalization does not mean simply imposing losses on the government and then selling the asset back to the private sector. He wrote:

Real nationalization occurs when governments act in the public interest to take over private property. . . . Nationalizing the banks along these lines would mean that the government would supply the nation’s credit needs. The Treasury would become the source of new money, replacing commercial bank credit. Presumably this credit would be lent out for economically and socially productive purposes, not merely to inflate asset prices while loading down households and business with debt as has occurred under today’s commercial bank lending policies.
A Network of Locally-Controlled Public Banks

“Nationalizing” the banks implies top-down federal control, but this need not be the result. We could have a system of publicly-owned banks that were locally controlled, operating independently to serve the needs of their own communities.

As noted earlier, banks create the money they lend simply by writing it into accounts. Money comes into existence as a debit in the borrower’s account, and it is extinguished when the debt is repaid. This happens at a grassroots level through local banks, creating and destroying money organically according to the demands of the community. Making these banks public institutions would differ from the current system only in that the banks would have a mandate to serve the public interest, and the profits would be returned to the local government for public use.

Although most of the money supply would continue to be created and destroyed locally as loans, there would still be a need for the government-issued currency envisioned by the early populists, to fill gaps in demand as needed to keep supply and demand in balance. This could be achieved with a national dividend issued by the federal Treasury to all citizens, or by “quantitative easing for the people” as envisioned by Jeremy Corbyn, or by quantitative easing targeted at infrastructure.

For decades, private sector banking has been left to its own devices. The private-only banking model has been thoroughly tested, and it has proven to be a disastrous failure. We need a banking system that truly serves the needs of the people, and that objective can best be achieved with banks that are owned and operated by and for the people.

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