Yesterday we
looked into the arguments for and against a new Glass-Steagall act. We concluded that both advocates and
opponents were missing the real point: that a well-designed system must include
sound internal controls.
With that in mind,
here’s how those in favor of a new Glass-Steagall are arguing . . . and how
they should be arguing:
1. “Too-big-to-fail banks
are bigger, riskier, and more ungovernable than ever.” Opponents claim mere size is not the issue,
in fact, bigger is less risky.
Both advocates and
opponents miss the point here. Both
claim something that is only subjective opinion.
The objective fact is that
banks are too big, period. Essential competition
and separation of function are rapidly disappearing. An effective monopoly or financial trust is
coming into being, which is clearly not in the public interest.
2. “The argument that [repeal
of] Glass-Steagall didn’t cause the 2008 financial crisis is wrong.” Opponents insist that the repeal of
Glass-Steagall didn’t cause the crisis, it was specific actions by individuals
and groups that caused it.
. . . who would not have
been able to do what they did had Glass-Steagall still been in effect. This particular rebuttal by opponents comes
close to outright dishonesty. It’s like
saying repeal of laws against speeding had nothing to do with an immediate
increase in traffic fatalities, or that few people died directly from
starvation in Ireland from 1846 to 1852, only from hunger-related diseases, so
there was no famine.
3. “Repeal of the Act has
not worked as promised.” Opponents say
the repeal has worked as promised.
To be perfectly frank,
neither the advocates nor the opponents are talking sense here. Advocates, how can an act that has been
repealed “work” at all? Non-existence
does not exist, and therefore cannot do anything. Opponents, what you really mean is that you
can now do as you damned well please, and argue forever whether you did
anything wrong when you get caught.
4. “The repeal of
Glass-Steagall is further corrupting the culture of banking – if such a thing
is possible.” Opponents say it made the
culture of banking less risky, and therefore less corrupt, if it was even
corrupt at all.
Neither advocates nor
opponents really understand banking. For
one thing, they wouldn’t be arguing about Glass-Steagall the way they are if
they did. For another, advocates’
assumption that banking is inherently corrupt is as fatuous as opponents’
insisting that the banking system is a model of institutional rectitude.
People can be corrupt or
virtuous. Institutions and systems are
not corrupt (in the sense of being evil) or virtuous. Institutions — social habits — can be corrupt
in the sense they are badly designed or embody bad principles, and therefore
embody “structures of injustice” that encourage wrongdoing, but objectively
evil? No. That’s like saying all laws are evil because
there were laws allowing slavery, or political parties are evil because the
Nazi party and the Fascists were political organizations.
5. “Too-big-to-fail banks
are a threat to our democracy.”
Opponents say that they are essential to maintenance of the free
enterprise system.
Sorry, opponents. The judges went with the advocates on this
one. Monopolies are a threat to democracy, even if you play word games and call it
a democratic republic or a free enterprise system. Monopolies are the sort of democratic
behavior that Aristotle warned brings about the end of democracy.
So, what is to be done?
First, stop all the word
games, and restore sound internal controls to the financial system. Reinstitute specialization and separation of
function. Break up monopolistic banking
consortiums. Call it a new
Glass-Steagall if you like, but just do it — and make it much stronger than the
original, e.g., mandating that
clearinghouses and the Federal Reserve, possibly even banks over a certain
size, be owned by every citizen — directly, not through the government. A bank, especially a central bank, is in effect
a public “financial utility” as well as a resource and should not be under
control of a small group.
That’s for starters. The best thing to do then is enact a Capital Homestead Act. The only way to have a truly democratic
banking system is to ensure that as many people as possible have a stake in
keeping a direct eye on it — which gives them a reason to learn how banking really works, not the bizarre Keynesian
fantasies they learn even in the best business schools. (As a Certified Public Accountant, this
writer knows for a fact that the usual explanation of how banks create money is
— to be polite — hooey.)
A Capital Homestead Act
will also vest ordinary people with property, and thus with power — “Power,” as
Daniel Webster said, “naturally and necessarily follows property.” When people are powerless, they have no
leverage with the politicians or the bankers.
When they have property, and thus power, all of a sudden the politicians
and bankers start to pay attention, or they don’t get reelected and they lose
customers, respectively.
In other words, as we’ve
been saying for years, it’s a case of “Own or Be Owned.”
#30#