by William Greider March 2009
1. Euthanasia for insolvent banks. Transferring their losses to the public will not restore the trillions in capital the nation has lost and the bankers destroyed. It merely relieves the bankers, their creditors and shareholders of the pain. Govt must step up and take control of the system to supervise a just unwinding of the mess– whether we call it nationalization or something else. Handing out money and leaving the bankers in control is nutty, also morally wrong. The public understands this. Only Washington does it see the irrationality of what they are attempting.
2. The Fed must be democratized and effectively stripped of its peculiar anti-democratic qualities. A new federal agency — accountable to elected Congress and elected President — can be formed with the working parts of the central bank except without heavyweight bankers on the board of directors at 12 regional banks. SEE especially the NY Federal Reserve Bank’s board.
3. Because of its gross failure, the reformed Fed would be confined to conducting monetary policy and stripped of its regulatory functions. A different section of Treassury can assume responsiblity for regulations, including strong anti-trust law and other rules that limit and guide financial behavior.
4. The law against usury will be restored. The banking/and financial firms will be stripped of “too big to fail” protection and put on formal notice that at a certain point in their growth banks will be treated as “too big to save.” At that point, they will be stripped of all govt protections and subsidies, therefore doomed.
5. A new banking system — smaller and more diverse and responsible to the public interest– can arise to fill the hole left by the demise of Citigroup et al. This is where the great public resources should be devoted, not to saving the mastadons. I would add the category of public banks operating as non-profit cooperatives (like North Dakota State Bank) can be an important cross-check on private commercial banking — a competitve model that offers credit on non-usurious terms and keeps the big boys honest. These would be chartered with special attention to providng financing for small entrepeneurial enterprises that need reliable credit and start-up capital for enviromental innovation and other public priorities. This is the new frontier in finance and cannot wait for conventional bankers to understand its importance to the country.
6. Once the FR is domesticated in a democratic fashion, it must then be reformed to assume broader supervision of the nonbank financial firms in the “shadow banking system,” every institution of accumulated capital that does lending and interacts with regulated commercial banks in dangerous ways. Hedge funds, private equity, pension funds mutual fundsetc. See my recent Nation article, “Fixing the Fed ” for further explanation of how the Fed failed its duty and how it can repaired with internal reforms.
7. Our first political challenge is to throw logs in the path of Wall Street’s “reform” agenda and prevent Congress from again taking hasty action that makes things worse and blocks real reform. The anxious desire of Congress (and probably Obama) is to run a package through quickly and assure the public the whole mess will be taken care of by the cloistered, secretive Federal Reserve and the black box will expend public money beyond public scrutiny.
8. The Federal Reserve is preparing to celebrate its 100th anniversary in 2013. That is the year the Temple should be dismantled or thoroughly transformed, then born again as an authentic instrument of democracy.
