The profit maximization mentality of private banking inevitably leads to short-term short-sighted money-making schemes that inflate the money supply and drive all the negative externalities of economic inequality.
A National Public Bank will provide a long-term vehicle to fund those needs essential to the health and general welfare of the U.S. population, as well as provide real-time capital injection into crucial economic innovations, especially those that curb the damages done by the short-term thinking of profit maximization.
Biological economics confirms that all life on earth practices economics; organisms can only exist within the closed-loop circular economic environment of Earth by maintaining homeostasis, through a balanced economic equation.
The arbitrary invention of our current human economic system—which ties fictitious commodities like money and property rights to real-world resources—has inadvertently encouraged overconsumption and wealth inequality. This has created the current homeostatic imbalance threatening the planet and every living thing on it. To balance this economic equation, a monetary source needs to be assigned to manage all the basic biological economic functions that organisms require to maintain homeostasis relative to the natural environment.
The economics of the human organism, for example, requires energy production, transportation of resources, reproduction, adaption (cellular programming or education), waste management, health services, communication, nutrition, shelter, and self-defense mechanisms. The individual cells that labor within the human organism receive non-negotiable access to these essential services, and so should the individual American who labors.
The conversation needs to evolve away from politics, environmental advocacy, unions of concerned or unconcerned citizens, and other ineffectual strategies, and turn toward the creation of a National Public Bank, which can A) tie money to the anchor of combined human effort (or labor) and B) use it to promote the general welfare through financing our most essential human needs, which will counterbalance the inflationary short-termism of human-contrived economics that is destroying us just slowly enough that people—who are only built to react in the moment—will not be able to stop it until it is too late.
The World of Private Bank Profit Maximization
Private Banking only extracts value from the American People. When people have enough excess money to give over to private investment, through deposits, stocks, bonds, mutual funds, etc., the return on investment represents a small percentage of what Wall Street was able to extract from the value of other fellow citizens; likely, your return on investment was a small percentage of some money Wall Street extracted from you; just a small token of appreciation from those few you have made excessively wealthy.
Here are some typical…… of the profit maximization paradigm:
Quarterly profit reporting pressures
NYU professor Tensie Whelan compares companies focusing on quarterly performance to teachers being judged by how well their students perform on regular standardized tests; teachers merely teach to score well on the test, and companies merely work to score well on their quarterly profit reports.3
What is really happening with quarterly reporting is that regulators want to curb insider trading, because insiders know more about what is happening in the company and may act on it before the shareholder is even aware changes have occurred in the company. In reality, shareholders are not investing in what the company represents, but merely trying to score while the company numbers appear favorable, and get out before the stock prices might fall. If insiders are selling their own stocks, it would appear they do not believe in whatever the company is selling, either. In both cases, the idea that companies are there to create something of value to people is missing. Warren Buffet has argued that reporting quarterly earnings focuses companies on short-term profits at the expense of long-term value, but companies have a choice whether to create value for people or extract value from the market.
Even while companies like Amazon, Tesla, or Facebook floundered in the beginning,3 they were selling an idea many investors believe in, and therefore investors stuck it out. [for people who have excess money to invest, they either day trade for the short-term cash, or invest for the long-term cash; neither is particularly noble, but the long-term investor is at least weighing the value of the product.
Wall Street is quick to kill anything that drops in profitability; companies get taken over and broken up unless shareholders are appeased. This mentality led to company’s artificially manipulating their own stock prices, and handing shareholder’s bonuses, too, in the form of shareholder dividends.
Economist William Lazonick5 of the Academic-Industry Research Network is not a fan of the stock buyback. CEOs—who averaged over $160 million each from 2003-2012—generally stuck to the story that maximizing shareholder value was their main priority, even though investors who buy outstanding shares in a company are only interested in the stock price rising, and not in any value creation efforts by the company. While CEOs and shareholders focus solely on inflating share prices, taxpayers are investing in government to do all the research and innovation for the private sector, while workers putting in all the labor hope CEOs will consider real value creation that leads to sustainable employment opportunities. Lazonick argues that taxpayers and workers incur all the risk while CEOs and shareholders—who cleverly control the narrative—reap all the rewards. Many in the academic world do not see the U.S. being a serious competitor in the world of advanced technology if this profit maximization paradigm continues much longer.
Stock-based Pay, open-market buybacks, and maximizing shareholder value: just three cringe-worthy negative externalities of Wall Street short-term thinking.
Rapid trading generates most revenue
High-frequency trading (HFT) is a type of algorithmic trading in finance characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools.
While there is no single definition of HFT, among its key attributes are highly sophisticated algorithms, co-location, and very short-term investment horizons in trading securities. HFT uses proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second.
In 2016, HFT on average initiated 10–40% of trading volume in equities, and 10–15% of volume in foreign exchange and commodities. High-frequency traders move in and out of short-term positions at high volumes and high speeds aiming to capture sometimes a fraction of a cent in profit on every trade. HFT firms do not consume significant amounts of capital, accumulate positions or hold their portfolios overnight. As a result, HFT has a potential Sharpe ratio (a measure of reward to risk) tens of times higher than traditional buy-and-hold strategies. High-frequency traders typically compete against other HFTs, rather than long-term investors. HFT firms make up the low margins with incredibly high volumes of trades, frequently numbering in the millions.
High-frequency traders generated about $21 billion in profits last year, the Tabb Group, a research firm, estimates.4
Industrywide, annual revenue is estimated at $6.1 billion in 2021, down considerably from more than $22 billion in 2011.
Instant loan sales to others prevail over patience
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two parties, buys them back shortly afterwards, usually the following day, at a slightly higher price.
The repo market is an important source of funds for large financial institutions in the non-depository banking sector, which has grown to rival the traditional depository banking sector in size. Large institutional investors such as money market mutual funds lend money to financial institutions such as investment banks, either in exchange for (or secured by) collateral, such as Treasury bonds and mortgage-backed securities held by the borrower financial institutions. An estimated $1 trillion per day in collateral value is transacted in the U.S. repo markets.
In 2007–2008, a run on the repo market, in which funding for investment banks was either unavailable or at very high interest rates, was a key aspect of the subprime mortgage crisis that led to the Great Recession. During September 2019, the U.S. Federal Reserve intervened in the role of investor to provide funds in the repo markets, when overnight lending rates jumped due to a series of technical factors that had limited the supply of funds available.
When transacted by the Federal Open Market Committee of the Federal Reserve in open market operations, repurchase agreements add reservesto the banking system and then after a specified period of time withdraw them; reverse repos initially drain reserves and later add them back. This tool can also be used to stabilize interest rates, and the Federal Reserve has used it to adjust the federal funds rate to match the target rate.
Under a repurchase agreement, the Federal Reserve (Fed) buys U.S. Treasury securities, U.S. agency securities, or mortgage-backed securitiesfrom a primary dealer who agrees to buy them back within typically one to seven days; a reverse repo is the opposite. Thus, the Fed describes these transactions from the counterparty’s viewpoint rather than from their own viewpoint.
If the Federal Reserve is one of the transacting parties, the RP is called a “system repo”, but if they are trading on behalf of a customer (e.g., a foreign central bank), it is called a “customer repo”. Until 2003, the Fed did not use the term “reverse repo”—which it believed implied that it was borrowing money (counter to its charter)—but used the term “matched sale” instead.
Short-term gains rule market allocation
Leading up to and after Wall Street’s 2008 eco-system collapse, 449 of the 500 companies listed on the S&P 500 stock index spent their company’s earnings on buying back their own stock on the open market and handing out dividends to their investors.2 Corporate executives used up 91% of the company’s profits to enhance their stock prices because executive bonuses are paid in stock options and stock awards. Harvard Business Review reports that stock options now represent over half what large company CEOs get paid in the United States.3
Open-market buybacks also temporarily lift a company’s stock price, helping it to hit quarterly earnings per share (EPS) targets;2 just another one of the side effects of meeting short-term expectations. When company executives invest 91% in their own prosperity, only 9% can now go to either A) employee prosperity, through wages or—at the very least—stable employment, or B) shared prosperity, which comes from the company producing something of value to its customers.
There has been a direct correlation between the wealthiest squeezing maximum profits for themselves and economic collapses like the Great Depression and the more recent Financial Crisis. In the era of shareholder dividends and stock-based pay, the U.S. has lost many of its once stable jobs to “offshoring” (businesses relocating production to utilize cheaper labor).
The Securities Exchange Act in 1934 was put in place to curb the frivolous conduct of Wall Street during the period leading up to the Great Depression, and like all regulatory legislation, was systematically rolled back. As Wall Street gained a foothold in government during the Reagan and Clinton years, the SEC, the Federal Reserve, Fannie Mae, and many other key agencies came under the control of Wall Street insiders, who paved the way for the dot.com and housing bubbles that burst at the turn of the current century.
Market allocation or market division schemes are agreements in which competitors divide markets among themselves. In such schemes, competing firms allocate specific customers or types of customers, products, or territories among themselves. For example, one competitor will be allowed to sell to, or bid on contracts let by, certain customers or types of customers. In return, he or she will not sell to, or bid on contracts let by, customers allocated to the other competitors. In other schemes, competitors agree to sell only to customers in certain geographic areas and refuse to sell to, or quote intentionally high prices to, customers in geographic areas allocated to conspirator companies.
They are anticompetitive agreements where companies divide markets amongst themselves.
American consumers have the right to expect the benefits of free and open competition — the best goods and services at the lowest prices. Public and private organizations often rely on a competitive bidding process to achieve that end. The competitive process only works, however, when competitors set prices honestly and independently. When competitors collude, prices are inflated and the customer is cheated. Price fixing, bid rigging, and other forms of collusion are illegal and are subject to criminal prosecution by the Antitrust Division of the United States Department of Justice.
In recent years, the Antitrust Division has successfully prosecuted regional, national, and international conspiracies affecting construction, agricultural products, manufacturing, service industries, consumer products, and many other sectors of our economy. Many of these prosecutions resulted from information uncovered by members of the general public who reported the information to the Antitrust Division. Working together, we can continue the effort to protect and promote free and open competition in the market-places of America.
Bid rigging, price fixing, and other collusion can be very difficult to detect. Collusive agreements are usually reached in secret, with only the participants having knowledge of the scheme. However, suspicions may be aroused by unusual bidding or pricing patterns or something a vendor says or does.
*share buybacks, dividends, high velocity trading make perfect sense in the mad dash for cash, where creating no real value is the predictable externality. Wall Street is about growing
The Ethos of Long-Term National Public Bank Priorities
Infrastructure with multi-decade time horizon
There is no reason why America’s infrastructure report card should always be down in the “C-“ to “D” range. The American Society of Civil Engineers (ASCE)6 grades 17 different categories. Water mains break every 2 minutes and is currently underfunded. 43% of America’s roadways remain in mediocre to poor condition. Our Airport terminals need to expand, and our airplanes still pollute; the ASCE gives it a “D+” grade. Bridge repair gets a “C”—we are doing better, but 231,000 bridges still need repairs. Broadband- or high-speed internet access—is seriously lagging; 65% of U.S. counties are not up to speed connection-wise. This is important for online education and healthcare access. An estimated one in five school children are without the connection speed to do online schoolwork.
America’s dams get a “D grade. When dams fail, the potential for loss of human life is high, and because over 56% of dams are privately owned, spending money on repairs is not as high a priority as the public would prefer. U.S. energy is in need of a clear federal policy, to ensure safe, reliable, and green solutions going forward.
Hazardous Waste Management gets a “D+;” through the cleanup program known as “Superfund,” government is chipping away at old hazardous waste issues, while the Resource Conservation and Recovery Act (RCRA) is in place to manage new waste generation from the moment it is created until its disposal. More than 80% of all generated hazardous waste is produced by the chemical manufacturing industry and the petroleum and coal products manufacturing industry. Over half the nation’s hazardous waste is generated in the state of Texas.
Other areas include rails, schools, transit, levees, inland waterways, ports, public parks, solid waste, wastewater, and stormwater. All of them hover around D+ except for ports (B-) and rails (B).
Countercyclical lending role
Priority sectors needing patience
– Manufacturing innovations
– Infrastructure platforms
– Agriculture capacity
Social returns over fast ROI decides lending
Summary of Differences
Private banks – mentality of impatient traders
Conclusion: private banks bring nothing of value to Americans, but are merely an intermediary entity claiming to service larger economic exchanges, while often extracting well over 100% for this service.
National Public bank – mentality of economy stewards, patient investing in nation’s potential
Humanity currently sits on top of the world because, economically speaking, it represents an adaptable species. In nature, “too big” is destined to fail, because it cannot consume enough to continue growing, but also because it cannot adapt fast enough once it grows too big.
It is important to veer from the negative liberty of predatorial and parasitic extraction, and move toward the positive liberty of internal growth, which represents the shedding of our ignorance.