The Case for Nationalizing the U.S. Banking System

From the outset of this discussion, I'll preempt my thoughts by saying that while this is a topic I've deliberated over, it is not one that I claim any special knowledge or expertise. That said, from what I've read and heard from other commentators on the subject, I have not seen a compelling argument for keeping the U.S. banking system as is. To the contrary, an honest survey of history on the subject suggests that the right course of action for our policy makers in the midst of yet another financial crisis largely created by poor banking practices may indeed be to initiate the process of total nationalization of the U.S. banking system.

Before discarding the proposal outright as socialistic and anti-American, note that the very first bank to be granted corporate status in the U.S. was the nationalized Bank of the United States established in 1792. This fact is important to understanding that the current status quo of a privatized system is not the way it always has been, and need not be the way it inevitably must be. The U.S. Government has the power, and can, if it so chooses, use that power to nationalize the U.S. banking system in order to protect her interests and the interests of her citizenry.

The U.S. has frequently used nationalization and quasi-nationalization models to provide critical services to the public. Some public needs deemed too important to put private profits ahead of have been taken over by the government (or are heavily regulated and are in effect government controlled) even though conceptually these services could have been privatized, these include: policing, the military, public transportation, fire service, mail, certain aspects of the health care system (and perhaps one day - the entire healthcare system), water services, electricity, education, libraries, social services, at times - the railroad system, and most recently through the Transportation Security Agency - airport security. In each of these cases, policy makers made the decision that these services are too vital to a modern functioning society to be beholden to the profit motive. As it currently exists, the U.S. banking system has the luxury of being backed by the U.S. Government - public funding - but yet has the freedom to put this asset (public backing) at extreme risk by making self-interested investment decisions driven by the greed for higher and higher profits. Banks are the only type of business that I can think of that has such a cozy and convenient deal.

This poor structure has been the primary culprit to the majority of financial turmoils in the United States. The argument has been made and it is one that I agree with, that the financial crisis of 1819, 1836, 1857, 1873, 1893, 1907, 1929, 1987, and 2008 were largely created by bad banking practices. The regularity of these events is striking. It is also striking just how much we have dragged our feet in addressing the elephant problem in the room: a banking system headed by extremely wealthy and powerful people but yet benefit from a system that bails them out when they make a decision that puts the economic system on the brink of collapse.

There is something deeply troubling to me that in 2009, not even a year removed from federal bailouts saving it and every other bank in the U.S., Goldman Sachs insiders were set to receive $23 billion in bonuses, the largest bank pay-out in history and double what Goldman Sachs employees received as compensation in 2008. Remember, through a backdoor bailout deal of AIG, Goldman Sachs received full compensation for its failed derivatives contracts with AIG. Who paid AIG's full bill to Goldman Sachs? You did - the U.S. Government did. The U.S. put $182 billion through AIG to pay off counter party banks around the world; Goldman Sachs was paid roughly $13 billion through this back-end deal - a bad deal that Timothy Geithner (a former employee of Goldman Sachs and current Treasury head) and others preferred to keep from public disclosure. Thankfully, the news finally came out. Hopefully, we finally have the nerve and the will to make a change 200 years in the making: the nationalization of the U.S. banking system.

Take the private profit-motive out of the U.S. banking system, and give the public back its Constitutional right to fully govern money supply free of any special strings attached for the Wall Street elite.

Peace

JMac