While Private Banks Help Themselves, Public Banks Could Help Communities
Short-term short-sighted thinking is apredictable survival strategy within the hostile environment of profit maximization. Private banks are the apex predators in this virtual economic reality; they feed upon the real economy, but unlike natural predators, they do not create balance, diversity, or healthy ecosystems. Their insatiable hunger is unsustainable.
Profit, inflation, wealth inequality, predatory lending, credit boom and bust cycles, etc.—all are naturally-occurring phenomenon within the economic environment of profit maximization, and thus will never be eliminated until we alter the parasitic top-down paradigm from which they were conceived. A National Public Bank—first envisioned by United States founder Alexander Hamilton and legitimized by the First United States Congress and Supreme Court—empowers growth from the bottom up, which would finally sever modern economics from its roots in the earliest forms of oppression.
Simply put, when America needs trillions of dollars in infrastructure, private banks will not be there to provide it. When distressed communities need capital injection, private banks will not be offering this, either. When America needs a financial mechanism to address soil degradation, antibiotic-resistant bacteria, forever chemicals, mass extinction, ecosystem collapse, global warming, environmental racism, food and banking deserts, predatory lending, unlivable wages, unaffordable housing / healthcare and education, sustainable energy solutions, national and household debt, “big government,” mass incarceration, inflation, and continuing bank collapses and bailouts, that mechanism will not be a private bank.
All the negative externalities just mentioned are forms of violence inherent to the profit maximization model; private banks serve as the engine driving this economic violence. Destruction simply generates more opportunities for profit, and thus profit maximization creates its own positive feedback loop. When destruction becomes unprofitable, losses are passed onto the taxpayer, who is also the laborer and the consumer.
Taxation. Labor. Consumption. The capitalist is the least important component in the overall economic equation. No one can blame capitalists, however, for marketing themselves as the most important component; it is up to the people—who have always craved the comfort and certainty of some overseeing higher power—to release themselves from this comforting narrative (that consequently drives most human suffering), and begin a new comforting narrative based on mutualistic economic principles and the notion that the higher power actually resides within each of us, and grows exponentially as we economically join ourselves together.
National Public Banks are long-term oriented public-facing entities that remove excess money from the reach of predatory self-interest and reinvest it to serve the needs of the real economy. Large banks are short-term oriented private entities that flood the economy with excess debt, disguised as money; the private sector then lies in wait to see where consumers choose to spend their hard-earned wages, and the answer is that people will consistently spend money on essential needs. With their recent land grab, Wall Street now holds a controlling interest in the price of housing; coupled with their control of agriculture, energy, transportation, healthcare, etc., they can work their inflationary strategies and squeeze the maximum amount of labor value out of the American people. Americans have no choice but to swap their labor for overpriced essential needs, which eventually saddles them with the debt—upon which all money is created— perpetually driving this inflation / debt spiral until the American people finally decide that enough is enough.
Wall Street has become too big to regulate. The best and only strategy to keep these large predators in check is for government to reassert its Money Powers—as well as its power to Tax and Spend toward the General Welfare—and reestablish the founders originalist intention: to grow America from the ground up, with a publicly-owned bank. Only a people’s bank, designed to strengthen America from the bottom up, can A) fill in the economic gaps that private banks are unmotivated to fill, B) serve as competition to balance out private sector profit maximization tactics, C) offer lower rates and good loan terms for small business, agriculture, manufacturing, and other priority areas, and D) focus on long term prosperity, which will consequently provide a stable market presence through the inevitable boom and bust cycles of the short-term oriented profit maximization model we currently employ.
Dodd-Frank Deregulations Disincentivize Small Business Lending
It was 1998 when the Commodity Futures Trading Commission attempted to advise government about the growing—and completely unregulated—derivatives market; this exchange exposed the quiet complicity between the alleged separate and independent entities of Wall Street, the Federal Reserve, Congress, and the Supreme Court. Soon after, then-Treasury Secretary Robert Rubin, Fed chairman Alan Greenspan, and President Clinton not only opted to leave Wall Street alone, they began efforts that directly resulted in the Commodity Futures Modernization Act of 2000, the legislation that gave rise to the unregulated credit default swaps that brought the entire western economy to its knees eight short years later.
From the ashes of the Financial Crisis arose the 2,300-page Wall Street reform act known as Dodd-Frank, which was immediately set upon by Wall Street lawyers, who systematically yanked all the regulatory teeth out of this Congressional Act.
- The Consumer Financial Protection Bureau was supposed to oversee the Fed; then it became an office inside the Fed. The Supreme Court somehow found time to also rule against this government agency, claiming its leadership structure was “unconstitutional.” (Privately created money is also unconstitutional, but the Supreme Court has never been inclined to make any ruling whatsoever concerning this fact.)
- The Volcker Rule was supposed to reestablish the financial wall between commercial banks and investment banks, which was knocked down in 1999 by the Gramm-Leach-Bliley Act. It also was supposed to discourage banks from gambling on speculative short-term bets that only benefit the bank, while deflecting the risk onto their customers and the U.S. taxpayer (through the FDIC). Instead, the rule—passed in 2010, and finalized in 2013—was immediately stalled until 2014, where the Federal Reserve extended its implementation until the 2018 “Regulatory Relief” Act rolled back many Dodd-Frank regulations. In 2019, the Comptroller of the Currency further amended the Volcker Rule. In 2020, the FDIC loosened bank gambling restrictions. Recently, the Commodity Futures Trading Commission proposed rolling back the rules governing derivatives, the SEC weakened rules regulating asset management firms, and the Financial Stability Oversight Council exempt nonbank financial companies from legislative oversight.2 Importantly, it was these same entities that boldly set out—in 2010—to implement Dodd-Frank; the combination of lawyers, lobbyists, and legal tender apparently convinced them otherwise.
- Title II was supposed to force Wall Street to put $19 billion into a large reserve fund in case they ever crashed the economy again; instead, the America taxpayer is now back on the hook to bail out any future big bank failures.
All attempts to regulate private banks has been a waste of taxpayer time and money; those with an unlimited supply of privately fabricated money can afford an army of lawyers to serve as a human shield against any war fought with words. How could violence not escalate from verbal to physical, given the infringement of personal liberty profit maximization exacts on most Americans? Eventually, people will directly correlate all violence—insurrection, riots, robbery, school shootings, suicide, addiction, etc.—to the forced imbalance created by the profit maximization model.
Meanwhile, research claims that the overall level of risk bank holding companies incurred after the Financial Crisis did not measurably decline; after all the hand-slapping and harsh words, private banks managed to skirt the new regulations and simply make different unregulated investments. When predators get hungry and need to be fed, rules and other stationary obstacles can easily be side-stepped.
Media claims that trillions were lost in the Financial Crisis, but more precisely, trillions in real wealth was exchanged from the bottom to the top. This exchange felt extreme for many Americans, but since 1975, income distributions have diverged such that the idle 1% have managed to pocket $50 trillion in wealth that would have been added to the paychecks of the hard-working bottom 90%, had income inequality not gone from intolerable to unsustainable1 (this does not even include the unequal taxation of the bottom 90% compared to the wealthiest Americans, who continue to skirt this stationary obstacle as well).
Profit Incentives Generate Big Bonuses, Little Real World Benefit
Proprietary traders make speculative bets using investment bank capital. If they lose it, they may be fired; the base salary is not very good, anyway. The real money is in the bonuses they receive if they make money for the bank. Around the time of the Financial Crisis, traders averaged $300,000 in bonuses, but payouts of up to $15 million were not uncommon. Once traders gained the bank’s trust, they might receive contracts compensating them as much as 15% of whatever gains they could manufacture; this not only incentivized risky behavior, but lots of rule breaking, bending, and skirting.
Wall Street’s incentive structure pays big when traders win, and if traders lose money, they are not required to pay it back, because they are gambling with house money, not their own. The amount of leverage exerted can become excessive—if anyone bothered to keep track of it—but this lack of transparency allows for the blissful ignorance required to maximize short-term rewards without concern for any long-term consequences.3
Meanwhile, back in the real economy, people need food. They need local jobs to pay for food. They need affordable credit to create small businesses, that create the local jobs that pay for food. Unfortunately, big banks make more money gambling than investing in small potatoes, or any other similar food products.
Federal land banks (FLBs) provide loans to farmers and ranchers; they are regulated by the FCA (the Farm Credit Administration), which is part of the U.S. Department of Agriculture. The Farm Service Agency and Small Business Administration lenders will help finance any necessary farm equipment. The Farm Credit System (FCS) is in place to help rural businesses, which includes farms, forestry services, fisheries, and various park and recreation businesses.4
Similarly, the Small Business Administration (SBA) offers several loan options to help manufacturers increase production or purchase any needed equipment or raw materials.
Here is what Americans should take away from this information:
- All these banking services are provided through government intervention. Private banks would never risk investing in these ventures without government absorbing the risk.
- Even then, small farms and other businesses must meet “specific eligibility criteria” to receive any help. Farms must already be established before they can seek financing; new farmers are out of luck unless they ally themselves with older farmers who will finance them until they are established. Manufacturers must have three years of annual sales over $2 million to qualify for a loan; smaller manufacturers are also out of luck.
Clearly, there is a financial gap that private banks are unwilling to fill. Clearly, government is taking taxpayer money and using it to back small businesses that not only create jobs, but also provide for the general welfare of the communities they serve. As usual, government must subsidize the private sector to carry out a necessary job that the private sector has no personal incentive to accommodate. The private sector bank becomes an intermediary where none is needed, wasting taxpayer money. Farmers, manufacturers, and other small businesses need affordable credit, and private banks are not obligated to provide it unless government tax money “incentivizes” them to do so.
Meanwhile, through various subsidies to large agriculture, energy, or transportation businesses, for example, government has essentially hired wolves to watch over their sheep. Even as government feeds big business, big business cannot help but eat up all the smaller competition around it, as is their nature. They predictably grow too big to fail, because there is eventually no one else left to do the job. The competition gets driven out of business because the subsidies basically serve as a payoff to big business to keep their prices affordable, which makes smaller businesses unable to compete on prices. Government is merely paying the difference between the inflated price and the affordable price: somehow government reasons that this is a win-win for big business and the America people, except that the government payoff is coming out of taxpayer pockets. Subsidies should nurture new businesses, not feed the problems of A) an already stifling wealth inequality, B) an already rigged competition for access to capital, which C) makes it impossible for local communities to lift themselves up without having to pay the usury rates offered by private banks.
The U.S. Small Business Administration was founded (in 1953) to be a resource and an advocate for American entrepreneurs and local business owners. Like Fannie Mae or Freddie Mac, the SBA is an independent government agency, which allegedly means that executive authority cannot directly control it; unfortunately, it has not been immune to private sector influence.
Between the FSA and the SBA, loans and loan guarantees total over $75 billion; as always, private banks receive the rewards, while the taxpayer incurs the risk. The American taxpayer essentially backs $75 billion worth of their own loans, while the private banks siphons away interest profits on money that would be valueless without the people’s government standing behind it. Again, all this leads to one obvious question: why do we need private banks to peddle public money, especially when they are under no obligation to serve the public interest? However flawed government is, it has always been more sensitive to protecting the people than the private sector. The reason it is flawed, by the way, is that it opted to jettison its National Public Bank and instead serve as the now financially bloated backstop for all damages incurred from private profit maximization.
Alexander Hamilton’s National Bank Solution
Though very rarely mentioned, there is an American School of Economics5 (also called the “National System”), which refers to the philosophy of American founders like Alexander Hamilton and John Adams (or later, Abraham Lincoln), who believed a central government was needed to stabilize the U.S. economy and ensure the general welfare of every American; this is reflected in the Constitution they drafted, and upgraded America from a loose Confederation of states to a sovereign nation. The vehicle chosen to promote the general welfare and unite these colonies was a national public bank, that promoted the growth of productive enterprises such as agriculture, manufacturing, and industry. It also served as a “development” bank—to finance the foundational infrastructure necessary to facilitate all national and international U.S. economic exchange. Finally, it served as a store of all the debt that colonies had accrued throughout their battle for independence.
Another main pillar within this school of thought came to be known as “protectionism,” a two-prong strategy which imposed moderate tariffs on imports, which were then used to provide government subsidies (originally referred to as “bounties”) to support the growth of domestic manufacturing, agriculture, and all manner of innovation. This kind of efficient, circular economy running through the People’s Bank was meant to tie the fates of Americans together—to sink or swim as one nation—a fully connected, united organism.
Sadly, the private economics of slavery was in opposition to a unified whole; they preferred a loose confederation of states. Why? They wanted to maximize their profits through slave labor, and only wanted unification if it happened to serve their needs. Instead of embracing the economic strategy which gained America its independence, wealthy slaveowners, land barons, and other medieval throwbacks opted to consistently bring the country to its knees with its short-term thinking, forcing government to intervene. The Financial Crisis of 2007- 2008 was not an anomaly; it was a well-established American tradition, founded on the unconstitutional privatization of U.S. Money Powers.
Private erosion of this American School of economics has allowed the wealthiest to control government-backed U.S. money creation, government tax money, government subsidized innovation, and the slow privatization of our general welfare: healthcare, education, agriculture, housing, energy, transportation, retirement security, etc. Biologically, wealth inequality represents the parasitic extraction of our economic lifeblood, which is not money, it is American labor, the only real source of value in any economic equation. Money is a fictitious commodity that has always been used by those who create the money to extract labor from those who do not. This is why the original federalist founders wanted all the People to own the Money Powers.
The inelastic demand of essential human needs is the key driver of inflation, which is a purposeful strategy designed to escalate labor effort and the profit derived from it. Once the cycle of wealth inequality is put in motion, all manner of violence becomes profitable, and when our government subsidizes and privatizes these negative externalities, there will be no end to the violence: war and prisons, addictions and poor health, gun violence and police violence, homicide and suicide; again, a list of the negative externalities of profit maximization is mind-numbing, and no amount of taxpayer money can buy enough bandaid solutions to fix them all. It is time for a “Plan B.”
Privately created money is debt-based, meaning that it is printed before it has any value; it has no value because only American labor can create value. While this money is floated out into the economy, inflationary tactics such as economic rent and price-gouging ensues, to snatch up the excess currency before actual labor pays back the debt. Although this “debt” is eventually cancelled on the books of private banks, the actual loan was repurchased and securitized at the time of its origination, so that the mortgage payments are rerouted to Wall Street, meaning that the labor value used to repay the debt was not “destroyed” but instead funneled toward Wall Street investors. Debt money always rises to the top, forcing those on the bottom—the underpaid wage earner—to come begging to the private banks for even more imaginary debt money, which only perpetuates this cycle of debt. America currently owes $34 trillion in National Debt and $17.3 trillion in household debt—which includes mortgage, credit card, and student debt (a trillion is a difficult number to fathom: just add 12 zeros onto the 34).
Where the vision of federalists like Alexander Hamilton and slaveowners like Thomas Jefferson intersect is the idea that America should be built from the ground up, which Jefferson correctly saw as the simple economic exchanges that occur at the community level.
A National Public Bank, as envisioned by Hamilton, and eventually embraced by Jefferson, is to ensure everyone who creates economic growth—through their dual role as laborer and consumer—is rewarded for their effort. By filtering the sum of American labor through the National Public Bank, money would become the sum of human labor, making labor the gold standard upon which prosperity would be measured. This would stop the creation of excess money, that simply devalues the money that is already circulating in the economy and drives so-called inflation, which is more accurately visualized as the subtle devaluation of our labor value.
The general welfare is best served when people are given the equal opportunity to contribute—and benefit—from the rising tide they help create. This will tie our fates together, so that when each community succeeds and flourishes, the economic pie grows for the entire nation. Rational self-interest is the strategy of survival in a paradigm of disunity or disconnection. Biologically, mutualism—where everyone benefits—has always outperformed parasitism and predation, our current strategies, which we euphemistically call “competition,” but is simply a more subtle form of violence involving forced economic conflict where none is warranted.
Public Banks as Agents for People and Communities
Agent banks manage the financial and cash transaction needs of the individuals or businesses who employ them. As a mechanism to fund U.S. commerce, National Public Banks can set up deposit accounts for small businesses and entrepreneurs in every community, then manage their financial needs utilizing low rates and fair loan terms. As an agent for the community, local branches of the public bank could help manage the loans they originate, making sure to cover loan payments through established deposit accounts.
Currently, SBA loans attempt to offer the lowest rates on the market, but even these rates can fluctuate based upon the actions of the Federal Reserve, the amount of the loan, or the private lending partner being used. Meanwhile, federal government has stepped up with offerings like the Minority Business Development Agency (MBDA) and Economic Development Administration (EDA) to help distressed communities in the wake of the COVID-19 crisis. National Public Banks would offer a stable presence through every crisis, natural disaster, or profit-driven economic cycle, but more importantly, it will lift up current distressed communities6 who are naturally vulnerable when these privately created economic shocks come along. Communities are the organs of the larger body we refer to as the United States, and unless we strengthen the immunity of these vital organs, the entire body is compromised. It is time for preventive medicine, instead of triage after the fact; while triage is profitable to those who own the Band-Aids, it ultimately serves yet another negative externality within the unyielding environment of profit maximization we voluntarily navigate.
Private Banks seek short-term profits for themselves. National Public Banks seek long-term prosperity for everyone, per their mandate to promote the general welfare. Handing out welfare checks is not only unsustainable and specifically targeted (not “general”), but also creates an ever-increasing hole out of which taxpayers must climb. The general welfare is better served by creating the opportunity for communities to labor toward their own economic certainty. By giving communities control over their affordable essential needs—food, water, shelter, education, healthcare, preventive health services, green energy, communication and transportation grids, waste management, etc.—a direct correlation between labor and prosperity could again be established (something our ancestors called “the American Dream,” but lately has been relegated to a smaller and smaller subset of Americans).
The profit maximization paradigm, from which Wall Street was conceived, is based on the illusion that there is a way to be prosperous without having to do labor. This is not some modern version of the American Dream, but the rationale first introduced by early oppressors. Through the transgenerational trauma historically experienced by the oppressed, people have either chosen to remain oppressed, or rise up and become the next oppressors. The profit maximization environment—based on the hierarchal economics of early religious oppression—creates oppressors and oppressed; no matter how much we love our neighbor will not fix this the reality of this economic arrangement.
Every community needs essential economic infrastructure to deliver affordable basic needs. Small businesses need funding. Distressed communities need funding. We need a
clear mechanism to address pollution, ecosystem collapse, global warming, environmental racism, food and banking deserts, predatory lending, unlivable wages, unaffordable housing, national and household debt, “big government,” mass incarceration, and many other issues that only serve to confirm the reckless way we secure the liberty and general welfare of the American people. Profit maximization is a short-term survival strategy with no long-term prognosis for human survival; how much longer can we afford to kick this can of worms down the road? A National Public Bank would help mathematically balance out the inequality in our current economic equation. Consider it. Preferably, sooner than later.