- Be wary when Washington talks reform. Nearly always it's
bogus and ends up making a bad situation worse, the likely outcome this
time addressing longstanding Wall Street abuses not easily changed at a
time tinkering around the edges or papering them over won't work.
- Case in point - the House passed "Wall Street Reform
and Consumer Protection Act of 2009" (HR 4173) and current Senate
debate on the "Restoring American Financial Stability Act of 2010"
(S. 3217). This writer addressed both measures on April 1:
- See http://sjlendman.blogspot.com/2010/04/bogus-washington-proposed-financial.html.
- Still a work in progress, the Senate bill will be as
bogus as the House one, so whatever reconciliation produces will be another
promise made, another broken. Business as usual will persist so don't be
fooled - on this measure or any other, including the appalling health care
bill that made a dysfunctional system worse, and took a giant step toward
ending Medicare, one of the main reasons it was enacted, besides enriching
- Instead of restraining financial fraud, House and Senate
bills sanctify it. They leave too big to fail banks in place, permit greater
consolidation, and let Wall Street casinos game the system with public
money, gambling with unregulated exotic and fraudulent derivatives and
- In Washington, the more things change, the more they
worsen, and the public always gets scammed - fooled again because power
and privilege trump people.
- Lobbyists and corporate lawyers write legislation affecting
their interests and get precisely what they want, a few public-friendly
crumbs added for deception.
- Consider a few measures likely to pass or not change:
- -- a financial aristocracy will be coronated;
- -- Wall Street will keep running the country;
- -- fraud and bailouts will be institutionalized;
- -- selling toxic junk to unwary buyers won't be touched;
- -- excessive executive pay, bonuses and perks won't be
- -- credit agency scams will continue;
- -- giant banks, insurers and other financial firms will
be green-lighted to get bigger;
- -- an Office of National Insurance in the Senate bill
will override state laws and regulations not in line with international
agreements; further, the US Treasury will be empowered to enter into them
without consent of Congress, so the net effect will undermine consumer
protections, not enhance them;
- -- criminal prosecutions won't happen, except for a few
lambs perhaps thrown to the wolves, taking the fall for their bosses, the
way it always works, or as someone once said - only little people have
to pay with the rarest of rare exceptions to prove the rule; and
- -- except for its emergency lending facilities in the
Senate bill, the Federal Reserve won't be audited, and what's done will
be redacted to keep Congress and the public in the dark; the Fed functions
in secrecy; Senate bill provision 714, entitled "Audit of Financial
Institutions Examination Council," will keep it that way; remember,
the Fed is a Wall Street owned banking cartel serving its member banks
in the 12 Fed districts, not the public it's empowered to scam and has
with impunity for nearly 100 years.
- Solution: shut it down or nationalize it, encourage establishing
state and locally-owned banks, take banking out of private hands and make
it a highly regulated public utility - topics never considered, discussed,
or reported in the mainstream. They are below.
- Fundamental change is essential. A systemic makeover
is vital. In collusion with Washington, Wall Street predators wrecked the
economy, profiting "all the way to the bank," and are now well
advanced in their newest schemes, this time with public money, gambling
with what's needed to fix America by rebuilding crumbling infrastructure,
aiding budget-strapped states and cities, producing jobs, and helping homeowners
facing foreclosure or in it.
- As long as the privately owned Fed controls the nation's
money, reform won't happen. Earlier, this writer explained that since established
by the 1913 Federal Reserve Act, the dollar eroded to 5% of its former
worth. We've also had rising consumer debt; record budget and trade deficits;
an unsustainable national debt; a high level of personal and business bankruptcies;
millions of lost homes; loss of the nation's manufacturing base; soaring
poverty levels; an unprecedented wealth transfer to the rich; the gradual
destruction of the middle class; sustained massive fraud for private gain;
and a hugely unstable economy lurching from one crisis to another, followed
by calls for reform that fail.
- Is this time different? Analyst Mike Larson writes for
Money and Markets, run by investor safety advocate Martin Weiss. His latest
- "The great interest rate explosion of 2010-2011,"
the result of a massive credit bubble starting to burst, especially because
of the doubling of US Treasuries to $7.6 trillion in the past seven years,
and, at the present pace, will more than double again in the next decade
to over $18 trillion and become toxic junk vulnerable to crashing along
- Larson explains that when rates rise sharply, bond prices
(valuations) crash, and that's what he sees ahead, the result of profligate
Fed/Treasury policies making America like Greece and other troubled EU
- "Financial Ebola Sweeps Through Global Bond Markets,"
he shows in a frightening graph on Greece, its two year note rates exploding
from 2.1% in October 2009 to 18.9% in late April. Over the same period,
the country's 10 year notes (due July 19, 2019) crashed 39%. "That
is bond market Armageddon," he said. It's happening in real time,
spreading to all troubled countries, and it augurs the next stage in the
financial crisis, worst than the first, because governments let banking
fraud persist instead of curbing it to save disaster.
- What better reason for change, what's not considered
by Congress. With out-of-control public debt, fraud a way of life on Wall
Street, and politicians blessing it like always, the eventual lid blowing
will reverberate globally, crushing people, not bankers, who'll keep gaming
the system to get richer, larger, and more powerful at the public's expense.
- The Case for State-Owned Banks
- The clear lesson - The private sector failed. A new way
is essential. Public utility banking at state and local levels is an attractive
alternative based on North Dakota's experience. The time is now, and the
name of the game is change, fairness, workability, and freedom from predatory
too big to fail banks that are too big to exist, so shouldn't. Shut them
down. Break them up. Nationalize them. Replace them with publicly owned
ones that work.
- North Dakota's experience is instructive. What does it
have that others don't? It has the nation's only state-owned bank, the
Bank of North Dakota (BND). Established in 1919, it's financed industrial,
commercial, and agricultural growth soundly, something no other state can
match because they're not run like North Dakota.
- BND also provides residential and student loans, and
operates as a banker's bank, financing private sector lenders with accounts,
backed by the full faith and credit of the state, not the FDIC (now bankrupt),
and for over 90 years it's worked.
- Well enough to encourage other states to check it out,
including Illinois, Massachusetts, Virginia, Washington and others in touch
with the bank to learn more at a time they're struggling to balance budgets
by cutting expenses, laying off staff, reducing services, and raising taxes
- counterproductive measures when stimulus is needed.
- During hard times, North Dakota also had the largest
$1.3 billion budget surplus in its history, cut income and property taxes
as a result, expanded the state's Homestead Property Tax program for seniors
and disabled people, and has the nation's lowest unemployment rate at 4%.
The model works. It's time all states tried it to fix their financial crisis
at a time Washington proposed change promises worse ahead endangering them
- Ellen Brown does exceptional financial writing, her book,
"Web of Debt (now in a new edition), must reading on how the Fed and
Wall Street usurped money creation power, and how we can take it back.
- She calls the Bank of North Dakota a "credit machine
(delivering) sound financial services that promote agriculture, commerce
and industry" as follows. It "create(s) 'credit' with accounting
entries on (its) books" through fractional reserve banking that multiplies
each deposited amount about tenfold in the form of loans or computer-generated
funds. As a result, it can re-lend many times over, and the more deposits,
the greater amount of it for sustained, productive growth. If other states
(and cities) owned public banks, they'd be as prosperous as North Dakota,
be able to rebate taxes not raise them, and expand employment and public
services, not retrench.
- BND "chiefly acts as a central bank, with functions
similar to those of a branch of the Federal Reserve." Although 100%
state owned, it "avoids rivalry with private banks by partnering with
them." They do most lending, "BND then com(ing) in to participate
in the loan, share the risk, buy down the interest rate and buy up loans,
thereby freeing up banks to lend more. (It also) provide(s) a secondary
market for real estate loans, which it buys from local banks."
- Its property market function helped it "avoid the
credit crisis that afflicted Wall Street when the secondary market for
loans collapsed in late 2007 and helped it reduce its foreclosure rate.
(Its other services) include guarantees for entrepreneurial startups and
student loans, the purchase of municipal bonds from public institutions,
and a well-funded disaster loan program." When the state didn't meet
its budget "a few years ago, the BND met the shortfall."
- In sum, state-owned banks have "enormous advantages
over small private institutions....Their asset bases are not marred by
oversized salaries and bonuses, they have no shareholders" demanding
high returns, and they don't speculate in derivatives or other high-risk
investments. As a result, BND is healthy with a 25% return on equity, paying
"a hefty dividend to the state" annually, so it begs the question
why other states don't operate the same way. As their crises deepen, some
are considering becoming credit machines like North Dakota, but why have
they waited this long, and will they act now?
- Media Coverage
- On April 18, McClatchy-Tribune writer Jake Grovum headlined,
"State-owned bank in North Dakota an inspiration," saying:
- The BND "has come to be seen both in and out of
the state as a beacon of economic stability and financial independence."
Moreover, since 1997, it provided over $350 million in profits for the
state's general fund.
- Other states may follow suit, advocates, like Brown,
saying "the benefits are obvious." Yet private bankers like Chris
Cole have reservations. A senior VP and senior regulatory counsel at Independent
Community Bankers of America, he said "lending to small businesses
is making a comeback and has been keeping up with demand from qualified
- Others disagree, saying banks are reluctant to lend.
On March 12, McClatchy writer Kevin Hall headlined, "Small firms would
like to hire you, if only they could get loans," citing the continued
credit crunch affecting businesses like Quantum Energy Solutions co-owner
Jim Collins saying he was turned down and can't expand.
- Small Business Administration head, Karen Mills, said:
"There's a big gap in access to credit for small firms now, and it's
a huge problem. We have a sense that the banks are not back to lending
the way that they need to be, going forward. If we're going to come out
of this recession and get people back working, it's going to be because
we give small businesses the support that they need."
- It's especially serious because small business accounts
for around two-thirds of private hiring. Starve them and harm the economy,
as they're its growth engine. Yet they're even having trouble tapping existing
credit lines, let alone get new ones.
- According to Brookings Institution researcher Douglas
Elliott, "The anecdotal evidence certainly suggests there's a credit
crunch for small business." Even thriving concerns can't get loans.
According to another analyst, "The banks don't want to take a chance
on anybody that might fail" in a very risky environment, one that
has credit contracting at a record pace, at least through Q 1 2010. The
evidence shows banks aren't lending and repaid loans aren't being replaced
with new ones, no matter how fast the money supply expands.
- What better argument for public banks with every incentive
to want to stimulate state and local growth, especially when Wall Street
prefers to speculate, not lend as banks are supposed to do, and their model
hurts everyone except their bottom line.
- Hartwick College, New York Research/Scholar Adrian Kuzminski
cites 19th century "proto-populist, Edward Kellogg....a kind of godfather"
to later monetary populists and a "profound" writer on monetary
issues, yet little known.
- He "advocated a decentralized but nationally regulated
monetary system based on non-usurious, low-interest public loans to individuals.
His vision inspired 19th-century mutualists, greenbackers, populists, and
others who sought to restructure the monetary system to redistribute wealth."
- He proposed a public credit model with local public banks
replacing private monopoly control, charging what the market will bear,
and profiting hugely at borrowers' expense.
- "Once lent out....public credit notes would flow
into circulation, providing the basis for a new currency backed by the
assets of individual borrowers....A centralized national currency would
be replaced....by a locally issued currency....subject to common national
standards, ensuring that each local public credit bank reliably issued
equivalent units of currency."
- For Kellogg, every dollar would have the same value nationally
and would be freely interchangeable with all others. His goal was publicly
controlled economic decentralization, and to maintain a stable currency,
he said rates must be fixed by law, if necessary by a constitutional amendment.
- Australian economist Steve Keen believes financial reform
is essential, but his "analysis of how credit is created (makes him)
skeptical that any new system will 'hold' so long as financiers can make
money by financing asset-price speculation. (He thinks history shows) that
every system we've tried so far has finally succumbed to a debt-financed
asset-price bubble, whose bursting has brought in at best a recession and
at worst a Depression."
- He worries as well about publicly created credit so long
as "money can still be used to speculate on asset prices." He
proposes measures to curb it and suggests ideas of his own. For Brown and
others, it's to use public credit for productive industrial development,
and as long as new money produces goods and services, it'll work inflation-free.
- It's why late 17th-early 18th century colonial America
thrived inflation-free for over 25 years, beginning after Massachusetts
(in 1691) issued its own paper money (called scrip) and other colonies
- Lincoln was also successful after he refused to pay bankers
up to 36% interest and got Congress to pass the 1862 Legal Tender Act,
empowering the Treasury to issue "greenbacks," public money.
Without paying interest to bankers, his achievements were remarkable. Besides
building the world's largest army and defeating the South, he turned the
country into an industrial giant, launched the steel industry, the continental
railroad system, and a new era of farm machinery and cheap tools. He also
established free higher education and much more.
- He did it by nationalizing control of banking so government
could create its own interest free money, as required under the Constitution's
Article I, Section 8 giving Congress alone the power "To coin Money,
(and) regulate the Value thereof." Bankers do it illegally, and that's
the problem, so it's crucial to stop them once in for all. No new law is
needed to do it.
- Enforce the one in place and revoke the 1913 Federal
Reserve Act, enacted in the middle of night on December 23 after many in
Congress left for Christmas, and others there hadn't read it. It didn't
matter as, like today, the language was so vague that only its crafters
knew the scheme was to let private bankers usurp money control, in violation
of Article I, Section 8. It's time to reverse this ugly chapter once and
- In her August 5, 2009 article titled "The Public
Option in Banking: How We Can Beat Wall Street at Its Own Game," Brown
cites the "litany of abuses (by) profligate banks that nearly destroyed
our economic system," and may end up doing it given their reluctance
to change and no authority demanding it.
- The alternative, she says is "pit(ting) the public
banking option against the private (one) and see which works best. My money
is on the public option." Why not, it's a sure bet given how badly
the private model failed - defrauding the public with the full faith and
credit of Washington, its partner in crime.
- Stephen Lendman lives in Chicago and can be reached at
email@example.com. Also visit his blog site at sjlendman.blogspot.com
and listen to cutting-edge discussions with distinguished guests on the
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