Public confidence in capitalisms institutions has disintegrated – the combined product of unbelievable wealth inequality, chronic unemployment, sky-high costs of health care and education, racist policing, crackdowns on protesters, endless wars, and systematic environmental destruction. The cherry on top is the incredible record of banking-sector scandals, crises, and failures since the start of the Great Recession.
Earlier in 2012, the largest U.S. banks – Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, and Ally Financial – received a slap on the wrist by the federal government after being forced to pay a combined $5 billion to over one million homeowners victimized by their deplorable foreclosure and mortgage practices (Democracy Now, 2/10/12). During the summer, the banks went wild. Wells Fargo and GFI Mortgage Bankers overcharged people of color on interest rates and mortgage fees and then paid chump change to settle federal allegations (Reuters, 7/12/12 & NY Times, 8/28/12). The CEO of Peregrine Financial Group, Inc. admitted in his suicide note that he embezzled more than $100 million from clients over almost two decades. He added that hiding this from regulators was childs play (CBS News, 7/13/12).
But all this pales in comparison to the criminal Barclays Bank which, along with 16 other major banks, manipulated LIBOR, the most widely used interest rate governing $800 trillion worth of financial transactions globally. No one has been put behind bars for committing the largest consumer fraud and insider trading in world history (BBC News, 8/9/12).
And the bank robberies continue. In October 2012 alone, the American Civil Liberties Union sued Morgan Stanley for targeting Black-American borrowers with risky, expensive loans (NY Times, 10/15/12). Federal prosecutors fined Bank of America a measly 1/20th of its quarterly earnings for continuing Countrywides fraudulent loan program after acquiring Countrywide (Democracy Now, 10/25/12).
Corruption, dysfunction, and wealth accumulation in the financial sector is neither novel nor accidental but is the inevitable result of a system where banks and corporations reap colossal rewards for unchecked greed. Occupy Wall Street brought this message to the fore by challenging the enormous power of big banks and big business over our lives. Lest we forget, Wall Street (not workers!) is to blame for the economic recession that has propelled poverty in the U.S. and many European nations to levels unseen for half a century, the robo-signing and fraudclosures that have robbed hundreds of thousands of families of their homes, the $32 trillion that the rich have refused to invest in living-wage jobs stowed abroad in tax-free havens, the outrageous compensation of bank executives who make 380 times more than the average worker (CNN, 4/19/12), and the virtual monopoly finance wields over the economy, with the six largest U.S. banks accounting for 2/3 of all total goods and services produced in the economy (www.federalreserve.gov).
The Wall Street casino also controls the puppet strings of elected officials through lobbying power, which explains why pro-consumer and environmental protection bills are few and far between in the flurry of pro-corporate bills pushed through Capitol Hill. After the Dodd-Frank Act was passed, Wall Street lobbyists spent $100 million to take it down (PBS Frontline, 3/21/12). The result has been a watered-down-to-almost-meaningless piece of financial regulation, and legislators are still fighting over its precise wording behind closed doors.
As Richard Fisher, President of the Federal Reserve Bank of Dallas, put it, If youre a megabank and you operate in 20 states, you have 40 senators, right? (PBS Frontline, 3/21/12).
Why Bank Reform Isn’t Enough
We must stop giving financial elites the keys to our car so they can keep crashing it over and over again into our house, then demanding that we sweep up the rubble. We can start by building movements and running independent candidates of the 99% to push for a comprehensive program of bank reform. However, these measures will not be enough if we dont also fight for full public and democratic control of the big banks. This can safeguard reforms from being rolled back the first chance the 1% gets, as happened when Democratic President Bill Clinton repealed the Depression-era Glass-Steagall Act that stopped banks from becoming too big to fail.
Clearly we cant always trust capitalist governments to faithfully and consistently regulate the institutions that fund their politicians. Consider the LIBOR scandal: U.S. financial regulators knew about it long before media exposure forced them to take punitive action (NPR, 7/21/12). Nobel Prize-winning economist George Stigler documented how regulations are often designed and operated primarily to benefit involved parties (NY Times, 7/22/12). This is why we must kick Wall Street out of the drivers seat of government.
What about breaking up the big banks? This will weaken them but, once again, it cant ultimately address the epic failure of the capitalist banking system. Even free-market thinkers of the Chicago School like Milton Friedman admit that corporate lawyers could easily obstruct antitrust efforts. And even if antitrust efforts succeed in the short term, experiences in other industries – including Standard Oil and AT&T; – show that the banks can amalgamate again later (NY Times, 7/22/12). In any case, the size of a bank is not directly related to fraud and fleecing customers. Breaking up the banks would minimize their impact on the economy should they fail, but it wont necessarily reverse their rapacious and predatory practices. Some of the worst offenders are payday loan outfits, for example.
Moreover, although consumers can and should pull out their money from banks and use non-profit credit unions, credit unions cannot provide the final solution, either. The volatile capitalist economy is prone to crises and collapse, which means any large bank that takes a nose-dive will drag the economy – including medium-sized banks and credit unions, as well as entire countries – along with it. The underlying problem lies in the root of the capitalist system, which massively rewards reckless profiteering. This is why none of the aforementioned steps is guaranteed to last without ordinary people seizing permanent public ownership of the banks and dismantling the capitalist system, root and branch.
Taking Public Ownership of the Banks
Banks and industries have been nationalized before – such as during the 2008 crisis – but this has not led to genuine public ownership because it was implemented only as a temporary measure to preserve rotten institutions. Capitalist governments staffed by pre-bought politicians bailed out floundering industries with taxpayer dollars. They also recoiled from slashing executive pay and, in most cases, left in place the same executive boards that ploughed these institutions to the ground in the first place! There is little to no public oversight or management, and profits continue to be pocketed by top executives instead of directed toward social services and job creation. Both the Bush and Obama administrations partially nationalized a number of banks but sought zero control over banks daily operations, leaving credit-starved small businesses and consumers at the mercy of taxpayer-funded loan sharks.
Along with taking banks into full public ownership, more fundamental change in the economic structure is necessary to halt the banking disasters that workers and the poor pay for out of our pockets, out of our pensions, and out of our health care.
Imagine if boards of directors were replaced by elected committees composed of skilled workers and whistleblowers from the financial industries, as well as communities directly affected by banking decisions. Imagine if they democratically called the shots on how the banks should be run and where the profits should go. Instead of paying CEOs 380 times an average workers salary to do what they do best – rob the taxpayer, kick families out to the street, and crash the economy – these rank-and-file committees could invest societys financial resources in social and environmental needs instead of banksters greed.
Toward a Democratically Planned Economy!
Publicly owned and operated banks could be part of the transition to a broader democratically planned socialist economy, where similar measures could be applied to other industries, such as oil, energy, health care, and agriculture. Socialist Alternative fights for public ownership of the top 500 corporations in order to redirect profits and societys resources into retooling the economy with green jobs and technology. Lets put 12.3 million unemployed people back to work for the benefit of the 99%, not the 1%! We can no longer accept the corrupt and criminal rule of the privileged elite over our lives, nor can we tolerate the endemic economic, human, and environmental crises of capitalism anymore!
[Editor’s Note: This same article was originally published under the title “The Legacy of Wall Street’s Devastation – Why We Call for Public Ownership of the Banks” online and also in Justice newspaper, issue #85.]