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Michael Hudson on #OccupyWallStreet and the Need to Treat Banks as Utilities

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On the Real News Network, Michael Hudson discusses some possible ideas for reforming finance to deal with the concerns raised by the OccupyWallStreet movement. I’ve noticed both here and on some news stories I heard in passing on MSNBC on Friday that the OccupyWallStreet movement has already succeeded in expanding the space of what is now being discussed as remedies.


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88 comments

  1. barry

    A very simple, free market solution, that requires no legislation

    Any employee of an FDIC insured institution (or any non-bank that borrows at the a FRB discount window) who received more than $250K in total compensation in any year is personally liable for any loss that that threatens the viability of that institution. The FDIC can go back a period of five years in assessing losses.

    Ken Lewis, Brian Moniyhan, Jamie Dimon, even Hank Paulson no longer have a ‘free put option’ to screw the taxpayers.

    You will suddenly and immediately see: 1) GS/MS abandoning their FDIC charters, 2) a massive improvement/upgrade in internal risk management, 3) a realization that markets such as CDS are more akin to gambling than trading, 4) boards suddenly interested in proper accounting,

    And as to the tears shed by the likes of Erin “Brains” Burnett and Rush “Man Tits” Limbaugh, about the exodus of talent from banks, I would only say: “Hallelujah and good riddance”

      1. barry

        The creators of the modern financial system did their best to put in place checks and balances. These were essentially undone by the Saint Ronald of Reagan.

        Since then, banks and investment banks received a ‘free put option’ (often called the Greenspan Put but better termed the “Saint Ronald of Reagan Put” that says all gains go to the bank and losses beyond a limit go to the taxpayer.

        This rule certainly doesn’t eliminate the put but makes those who benefit the most pay a premium so the option is no longer free.

        The risk to the taxpayers is still large, but the now the Ken Lewis and John Thains of the world have an incentive to avoid losses.

        1. aet

          Privatize the risk; an excellent idea – and a return to what once was.

          Privatize the risk = re-institute all New deal regs as to finance which have been dismantled since 1980.

          And do it as quickly, as was the TARP, or the “debate” over invading Iraq.

          When richie righties want stuff, it cannot be done or happen fast enough, and price to be paid by the Gov is NEVER a consideration! Is it not time to speed up the government helps for the poor weak and sick, too?

          1. Nathanael

            The terms “right” and “left” come from the French Revolution, and originally referred to the monarchists (elitists par excellence) who sat on the right side, and the democrats/republicans who sat on the left side, in the National Assembly.

            I think it is quite fair to consider those members of the 1% who think of themselves as a power elite who deserve to remain in power, and those who act as their lackeys, as “right-wingers”, because they’re the new monarchists.

            I think it is quite fair to consider those who oppose them and support equality of opportunity to be “left-wingers”.

            Now, does that match up with way “left” and “right” have been used in the electoral politics of the US? No, it doesn’t, does it? But I’m not willing to give up the terms just because they were misused by corrupt politicians.

        2. Steve

          Barry:

          Your points are well made.

          I hate to burst your bubble, but Glass-Steagall repeal (the Gramm-Leach-Bliley Act) was signed by William J. Clinton.

          There’s plenty of blame to go around. This should not be a blue-red issue.

          The banking oligarchs own the system and both parties. They are in the process of blowing themselves up. Unfortunately, they are taking the rest of us with them.

          We need a rainbow coalition of liberals, libertarians, democrats, old-fashioned conservatives, Greens…whomever…to stop this madness.

          1. Glen

            Steve, I have to agree. Anybody who thinks that the Democratic party will fix this mess is living fourty years in the past.

            In fact, we might have more bang for our “buck” fixing this problem by getting money out of politics as Dylan Ratigan suggests. That way, we should be get started in fixing government.

            As for the FIRE sector, I think a good first step is no more bailouts – it’s got to be a form of BK – shareholders are wiped out, bondholders get cents on the dollar, the healthy part of the bank is sold to solvent banks, and the bad debt is wiped out of existence.

          2. barry

            What does Glass-Steagall have to do with anything?

            I believe banks could underwrite mortgage securities starting way back in 1987 (over the objections of Paul Volcker) in a 3-2 decision by Fed Governors appointed by the Saint Ronald of Reagan.

            It was the Saint Ronald of Reagan who started the Too Big to Fail concept.

          3. Jonas the Bold

            Everything is connected to everything.

            We are all in, at this point.

            Time to question what you believe is true and open you mind to what is unthinkable.

          4. LucyLulu

            The biggest problem with repealing Glass-Seagal, IMO, was it set up financial institutions to become too big to fail. As long as banks were separate from investment houses were separate from insurers, no single entity (or 4 or 5) could grow large enough to dwarf the rest of the industry and whose insolvency could threaten the entire global economy.

            The MBS problem, with the advent of cheap money and lenders writing loans without retaining risk, may well have become a major issue irregardless. However, AIG (which would have only had its still profitable insurance arm) could not have written CDS’s and any financial institution that failed probably could have been easily handled in the same manner as main street banks that have failed.

    1. anon

      Also, regarding “simple” messages and solutions, here’s a statement from the Occupation, as reported by Matt Stoller in an interview on Virtually Speaking with Jay Ackroyd, an on-line alternative media podcast:
      “When there is just one injustice, we’ll have just one message”
      (@36:06).

      The podcast, which may be of interest to Naked Capitalism readers given the response to Matt Stoller’s pieces here, can be heard or downloaded at the following link:
      http://www.blogtalkradio.com/virtuallyspeaking/2011/10/07/matt-stoller-virtually-speaking-with-jay-ackroyd-1

      1. aet

        That’s right: who, precisely, wants – or needs – a “simple message”?

        perhaps those who would wish to figure a way to stymy these protests against perceived injustice, thee protests against what appears Official State connivance on dis-possessing “unconnected” Americans.

        And it is the perception, more than the actuality, which counts for most, when it comes to politics.

        The right-wing knows that all too well. And operates as they do because of it. Goebbelsian “persuasion” of the crowds…

        1. anon48

          “That’s right: who, precisely, wants – or needs – a simple message?”

          Can’t say they want it- but- my perception is that the OWS leadership ABSOLUTELY NEEDS to develop such a message, providing direction of their limited resources and support in applying pressure towards where it would be most effective . e.g. If it turns out that they primarily support of improving the plight of young people who have been bamboozled into borrowing huge sums to so-called educational institutions to finance the purchase degree certificates that turn out to be worth only a small fraction of the cost. Then they could focus all of the efforts on pressuring elected officials to reduce government funding for institutions until the university system is reformed so that the financial future of high school grads do not continue to be eviscerated because of their naiveté.

          On the other hand, if the principal purpose of OWS is to punish Wall Street greed, then pressure should be placed on enforcement agencies (SEC, DOJ and state AG offices) to pursue investigations on a grand scale. My sense is that there are probably many enforcement personnel who would be willing to move against the perpetrators if such a process could generated enough political.

          The point is that significant change will not occur without an appropriate level of external stimulus. The amount of stimulus needed to overcome the inertia of the current status quo will be tremendous. If OWS chooses, as a group, to instead spray its limited resources in all directions, they won’t be very effective. If all they do is choose to sit around and continue to chant the equivalent of “this is wrong” or “we are the 99%” they may be able to generate a lot of sympathy but that won’t generate change either. Ultimately, for them to succeed they have to identify their primary purpose in the simplest of terms, and from that further develop a prioritized list of goals, and then focus their resources accordingly. That is unless you believe the change process will ignite entirely on its own, sorta like spontaneous human combustion.

          1. Antifa

            No, absolutely no.

            The first goal of OWS is to shut down Wall Street. Physically occupy the whole place and stop the gears.

            The game of politics is over. This is an armed struggle, with one side’s weapon non-violence.

            OWS is the 99%. Walk in the the tens and tens of thousands and sit down. That’s the only way to get change.

            Because the one and only message of OWS is, “No, this has to stop!”

          2. anon48

            Antifa, go check the OWS website (forum tab). They ARE looking for a few good very specific ideas as we speak.

          3. Maximilien

            I disagree, anon48. The first step is merely to pressure the establishment; to exert the force of the people against an immovable elite. Over time, the strengths of the people will be revealed and cracks will appear in the ranks of the elite. When they do, that will be the time to strike at specific injustices, to drive a wedge into the wall of power.

            For the protesters to declare themselves too soon, that would be a mistake. It would give the perfidious pens, the treacherous talking heads of the MSM the kind of open target they can so easily destroy. And with it, perhaps, the movement itself.

          4. tiebie66

            Absolutely NO from me too.

            In previous posts (on another thread) the issue of OWS demands were discussed and I felt then, and still do now, that it would simply create a vulnerability and expose the movement to attack because someone will figure out how to spin the demands in an unfavorable way. This would end up in the MSM leaving the OWS with little ability to defend itself or counter the spin, thus ceding their current advantage to their adversaries. No, keep the adversaries on the defensive instead.

            I feel the same way about a (simple) message. Perhaps the only demand or message should be an insistence on answers as pointed out by other commenters.

            I fully expect the cry for messages or demands or for the need to do something to become increasingly shrill as the anxiety mounts. And why is the anxiety mounting, and mounting so quickly, I wonder?

          5. Nathanael

            It’s almost comical.

            “We want justice!”

            “What are their demands? They have no demands!”

            “We want justice!”

            “They’re so non-specific!”

            “We want the criminals to go to prison!”

            “They have no demands!”

            “We want ordinary Americans to have a chance!”

            “Why don’t they have any clear demands?”

            It’s comical. The demands are actually obvious and the elite is being deliberately obtuse!

      2. Nathanael

        David Dayen coined the term “Justice Democrats” for the miniscule collection of politicians in the Democratic Party (Grayson, perhaps — Schneiderman, certainly) who are actually fighting for justice *for all*.

        I suppose we could also talk of “Justice Republicans” — but I’m having trouble coming up with any other than Ron Paul. Even his *son* doesn’t qualify.

        1. Nathanael

          I guess I’m saying that “Justice” is the message, and any terms which make that clear will probably help.

          The elite are wilfully refusing to admit how simple that message actually is.

    2. Lyle

      Just to make matters clear when Hank Paulson resigned from Goldman Sachs it had nothing that was FDIC insured in the corporate structure. This is why the investment banks had to go to the SEC hat in hand to set up a voluntary regulation scheme, or the Europeans would have done it for them (and they got the permission for essentially unlimited leverage as a part of the deal) Technically Mozzillo would be caught in the scheme, because Countrywide did have an S&L. Perhaps clearer would be to make the trading parts of investment banks like they used to be unlimited liability partnerships, where if you become a partner you put everything you own at risk.

  2. mmckinl

    Great analysis by Michael Hudson. However we need a public banking system not just an option. Even leaving the door open a crack banksters will once again prevail.

    We need a Public Banking System that creates our currency and credit without debt. Why should we borrow our own money?
    The people should benefit from the profit and prerogative of money creation … not banksters.

    We need to remove all leverage from our money supply. Investment bankers should not be allowed any subsidized leverage what-so-ever. Only when we have control of our life blood, the money supply, will we be in control of our destiny.

    1. vv111y

      Not a bad idea, worth considering.

      I also wonder about the insurance industry. That doesn’t seem like a service which makes sense as a for-profit enterprise.

      It’s not a win-win transaction, it’s a win-lose. Money goes to either profits OR payout for needs, not both.

      1. mmckinl

        Health insurance needs to be single payer. All the existing models, Canada, UK, Australia point to huge net savings for society, up to 50%.

        Single payer also has many other benefits including a healthier and more protected population, a more competitive labor cost and a redistribution of wealth from richer to poorer communities.

        I haven’t spent much time looking at home, auto other insurances but off hand I would say that a public utility model would be the best course.

        The reason for this is the investment side of the insurance industry and the micromanagement needed for this type of insurance.

        1. aet

          Don’t call them “investment banks”; call them what they are: investment houses.

          The investment houses don’t operate like banks regular folks use, you know. Why do you permit your politicians to cater to private interests, rather than to public interests?

          Have they no public spirit?
          Perhaps Americans ought to start electing people who do which to serve the public, instead of private, interests.

          OTOH, you can lead a horse to water, but you cannot make them drink. People need to make their own decisions, as to whom the elect to public service.

          1. aet

            Correcting typos in my above: who wish to serve the public;….whom they elect to the public’s service…

        2. aet

          And you are very right about health care: the money profit motive does not work well in that sphere – except, it seems to increase misery and deny needed care by way of the “price mechanism”.

          Just as the money profit motive in the sphere of corrections – I mean prisons – also produces rotten and ugly outcomes.

          No helping others without a money profit?
          What kind of rotten principle is that to use as a basis for social life?

          1. sgt_doom

            And of the greatest importance, and unfortunately least understood, are the two top cost drivers in healthcare, all too conveniently left out of every discussion:

            (1) Hedge fund speculation (over 90 dedicated healthcare hedge funds in 2007) across the ENTIRE healthcare sector (that includes everything from medical instrument companies, to medical personnel agencies, to R&D labs, and the usual medical testing labs and clinics and private hospitals and clinics; and,

            (2) Private equity firm leveraged buyouts across the ENTIRE healthcare sector — truly has had devastating and detrimental economic impacts.

          2. rotter

            And I think there are other terrible consequences for the economy and society. With so much effort going into a for profit health care system, the production of actual wealth is abandoned. we cant go on “creating wealth” with an imaginary (finance) economy. money is not wealth,or to the extent that it represents a nations wealth, it is wealth a nation produced in its fields and factories or stole from others who did.At some point we will produce wealth again, or the collapses and shocks and prosperity destruction will continue, until we reach some equillibrium near the true bottom.

    2. vv111y

      Actually I should say I agree. It’s very odd that some for-profit market participants have this money creation license but the rest don’t.
      Or as you say that it is not the exclusive domain of government. Growing up I just assumed that was how our system worked, it just makes sense. In TV shows counterfeiters went to jail.

      1. aet

        Agreed as to the privatization of the money supply, via the creation of new kinds of credit facilities.
        Look at your plastic: why are you paying fees to use your own money?

  3. F. Beard

    As much as I respect and like Dr. Hudson, his solution does not leave usury-based money behind.

    Usury is not needed at all since: Government does not need to borrow money and as for the private sector it can finance itself with equity based money – common stock.

    Usury should not be banned but certainly government should neither support it nor practice it itself.

  4. vv111y

    How about lowing barrier to entry and giving the financial industry the FOSS (free open source software) treatment?

    Kind of like a National Bank, except the Government only acts as a third party for all recording of transactions and duplication of account info.

    That way any kind of free software systems – using peoples own computers combined with the internet – can be set up between participants for any kind of financial activity, with the Gov offering it’s service.

    end result is no concentration of power ala big banks. Corps can try to consolidate and setup monopolies like some try with FOSS, but you can take the fight there.

    1. Nathanael

      It’s been tried, but the problem is there ends up being no safe place to put your money. Even if you get your money from an entirely honest and dedicated banker, one bad run of news, people stop taking money issued by that banker (think checks), there’s a bank run, money gone.

      You can have private, open-source banking *if* you also have a super-secure government-backed bank. In most countries these were called “post office banks”, and offered very very secure savings (and sometimes checking) accounts and *nothing much else*.

  5. rf

    This is kind of utopian bullshit. Even if you remove all the “crime” from banking, remove the brokerage function from banks and eliminate any fees the basic business of the bank is left (the utility, right).

    So bank takes in deposits and uses those deposits to make loans. So whats to be regulated as a utility – the rate paid on deposits and the rate charged on loans or the margin. Good luck – regulating the margin means certainty that the loans will be paid back (good, wholesome loans of course for green energy and pretty homes in the suburbs). Sorry to be glib but do you see how this gets difficult fast?

    By its very nature the less risky the loan the more the banks make because this margin is so much better understood – like mortgage loans. Mortgage default rates were super low forever until recently, get it?

    You expect a government bank to do better? really?

    The utility part of banking lends itself towards safety that always leads to its own demise and this really can’t be fixed. The answer is to make sure banks can fail without blowing up the world left to their own devices. There’s plenty of ways to do that but the number one problem is government deposit insurance. Remove this subsidy and banks become more responsible and their principle source of funds becomes more risk averse.

    Banks can’t be a utility by nature but creating a large cheap pool of ready funds for them to loan out makes them dangerous. If a big bank is in the brokerage biz, prop trading, leveraged lending etc… how long will depositors keep their money there if they risk losing it. Not long at a zero interest rate.

    1. barry

      Banks are run by incompetents who are worshipped by the ilk of Erin “Brains” Burnett and Rush “Man Tits” Limbaugh.

      These GOOPERs live in mortal fear that Welfare Queens like Jamie Dimon, Vikram Pandit, the superstars at GS and MS might leave the womb of the FDIC if we say mean things about them.

    2. Cahal

      ‘So bank takes in deposits and uses those deposits to make loans.’

      No they create them simulatenously through double entry bookkeeping. There’s no reason a Central Bank cannot do this instead.

      ‘You expect a government bank to do better? really?’

      Yes, I don’t expect a government bank to ‘innovate’ financial products continuously in the pursuit of illusory profits.

      ‘There’s plenty of ways to do that but the number one problem is government deposit insurance. Remove this subsidy and banks become more responsible and their principle source of funds becomes more risk averse.’

      By this logic we should remove limited liability laws too. There’s no reason to remove government guarantees – people’s savings should be protected.

      1. rf

        I understand the accounting, the utility function is take in deposits, make loans. Loans go bad.

        Government won’t do better, its run by humans just like the banks are already – think FNMA.

        How about a money market fund instead of a bank savings account. How about lowering the FDIC insurance to $5000. I mean only the 1% has $250,000 in the bank anyway right? With no insurance there’s no need to protect anyone because the money won’t remain there for no interest. The the banks can loose all the money they want.

        1. Yves Smith Post author

          You are arguing from belief, not evidence. We had 50 years of very heavily regulated banking and it worked better than what we have now. Paul Volcker is if anything more vociferous on this issue that people like Hudson and I are.

          1. F. Beard

            We had 50 years of very heavily regulated banking and it worked better than what we have now. Yves Smith

            My hobby used to be tools. I love new designs. Anyway, it seems to me that things were stagnant in the tool design area until the 1980s when Regan came along and then things seem to explode.

            Imo, that’s the problem with banking; if banking is heavily regulated then we have a stagnant economy and if lightly regulated then we have an unstable economy.

            And then there is the moral question. Should whites be allowed to steal purchasing power from blacks and browns because on average they are more “credit-worthy”?

        2. Cahal

          The point is not that ‘people make mistakes’, it’s that a government run bank would have different goals to a private sector one and so would behave differently. How can you not see that?

        3. Cahal

          ‘I understand the accounting, the utility function is take in deposits, make loans. Loans go bad.’

          No! Make deposits and loans at the same time.

    3. 1whoknu

      Try looking up history for the State Bank of North Dakota, then come back and tell us that a bank as a Utility won’t work.

      1. rf

        Right, good example from Mr. Moore – first, they gain stability from oil/gas revenue from the state tax. Also, they are highly concentrated in student loans, energy and agriculture. Wait until those loans turn to dogshit and let’s talk (and they will when no one can pay back the student loans or oil drops in price, or we stop grain subsidies to the midwest…). It just so happens that home loans were not there biz.

        1. Yves Smith Post author

          You don’t know what you are talking about. The Bank of North Dakota is the custodian for the state’s tax receipts. They do NOT keep the proceeds of the taxes.

          You’ve just demonstrated you know squat about banking.

          And the Bank of ND has been lending through multiple economic cycles for nearly 100 years and has a great record in terms of loan losses. So your other charge is they have turkeys on their book that have yet to come home to roost. But this is again an unsubstantiated claim, and given we’ve just demonstrated you don’t understand banking, I don’t take your skills as an analyst very seriously.

          There is no evidence of that, and plenty of private sector banks (start with the biggest) that have VASTLY worse records (they had to be rescued, or were you asleep during the crisis?) and many are still plenty wobbly.

    4. Glen

      I have to agree with 1whoknu. The state bank of North Dakota is doing quite well whereas the majority of the megabanks in the US are insolvent and had to be bailed out by the taxpayer.

      I certainly cannot argue with you that the “private” banks are successful at stealing money and calling it profit. I would disagree with you that these are still functioning as a “bank” and have to agree with Prof. Hudson that these are functioning more as criminal gangs.

    5. SidFinster

      Until fairly recently, banks were that tightly regulated. How much interest banks could pay out, how much interest they could charge, what products they could offer, what products only banks could offer, what products banks could not offer, when they could be open, when they had to be open, how many branches they could have and where, all set by law and regulation.

      Banks were also subject to aggressive and far-reaching scheduled and unscheduled inspections by a host of regulators to make sure that they complied with every tittle iota and jot of the law.

      Still, in those days banks almost never lost money (even if banking was no way to get rich quick) and banks were quite staid, establishment-type places (think Bob Dole or Eisenhower). Bankers then kept bankers’ hours.

      Strangely enough, the United States was not exactly starved for loan capital, either.

  6. o.jeff

    We should consider remedies that actually will fix the problem.

    I would divide the financial industry into two categories of institutions. The depository banks would operate a narrow set of services. They would take deposits from people and corporations. They would provide services like ATMs, debit cards, online banking, bill payment, checking accounts, wire transfers, etc. However, these banks NEVER LEND MONEY, nor do they “invest” money in any way. They literally warehouse the money you deposit. There is no need for FDIC or central bank for these institutions, because they take no risk–except theft or fire/casualty risk (for which they obtain commercial insurance). They very likely would charge for their services.

    The second type of institution is the lending bank. They perform all loans, including credit cards, auto loans, personal loans, home loans, mortgage loans, and commercial loans, letters of credit, etc. However, THEY DO NOT ACCEPT DEPOSITS. These banks get their money in several ways: from private capital or from public stock offerings. They may also sell bonds to obtain lending funds, but no bond may have a term of less than 1 year and bonds may not make up more than 25% of the banks lending funds. Because there are no depositors, there can be no “run” on this bank from depositors. And, because the bond funding is quite limited and the term is > 1 year, a run from bondholders is less likely. Again, because there are no depositors, there will be no FDIC required for these banks either.

    The central bank role is limited to processing payments. The central bank is not needed in the role of lender of last resort, and it would be illegal for the government to ever bail out a lending institution. If the lending institution gets into trouble, they are simply liquidated according to existing bankruptcy laws.

    New money is spent into the economy by the federal government at a rate equal to population growth.

    This system is also compatible with a hard money/commodity money standard.

  7. Jack Straw

    My favorite part of “The Social Network” was the fact that the “purpose” of Facebook wasn’t at all established, except negatively, that it shouldn’t be this, or that …

    Rep. Cantor’s comments yesterday – I don’t even know where to start. I am surprised (and maybe disturbed) by how rattled he seems to be.

    One thing that struck me at my local “occupation” was how tight the regulation of public assembly is. Assuming that these protests could be the one thing that is effective in cutting through the clutter of the hyper-media blob, there are a million little and no-so-little ways that the PsTB can strangle dissent without having to appear to be doing so.

    1. readerOfTeaLeaves

      I was just kind of chuckling over the fact that last week had (for me) great sadness with the passing of Steve Jobs, some other amazing things are happening.

      Cantor does not appear to be a fan of Millennials doing their Zombie Stagger through parks near NYC’s financial district ;-))

      Meanwhile, Bloomberg is scolding the protestors because the business of NYC *is* finance, and they’re hurting the business scene. More chuckles here:
      http://www.guardian.co.uk/world/2011/oct/08/bloomberg-occupy-wall-street-jobs

      But for another chuckle, Barry Ritholtz has up a great OWS Monopoly gameboard: http://www.ritholtz.com/blog/2011/10/monopoly-occupy-wall-street-edition/
      (Apart from being personally affronted that Seattle is priced at a mere $300 on the gameboard, which puts us on a par with SF, I would buy this gameboard in a heartbeat and buy up Derivative Railroad as fast as I could roll the dice ;-)

      Cantor can preen and shriek all he wants. The rest of us are finally starting to have a few good chuckles and I take Cantor as a barometer of the fragility and rigidity of a system that is in dire straits.

      But I don’t think it’s just OWS that’s getting under Cantor’s skin.
      In less than one week, Dylan Ratigan’s GetMoneyOut campaign has signed up over 157,000 pissed off Americans insisting on eradicating obscene campaign donations in an era of unregulated campaign spending, post Citizens United.
      http://www.getmoneyout.com/

      Cantor, like Boehner (and like Reid, Obama, and all the rest in DC) has obviously built his power base on his ability to raise campaign donations. Post Citizens United, when 3 donors alone contribute over $200,000,000, he is in the cat bird’s seat as long as he does the bidding of his contributors. If he had to base his power on actually representing his *constituents*, could he keep his job?

      Between the OWS folks and the rapid — truly impressive — surge in under one week of the GetMoneyOut (of federal elections) movement, Cantor and his pals ought to be quaking in fear.

      Now, to top it off there are thousands of us watch Michael Hudson calmly explain how simple and workable the idea of banks as utilities really is — more reason for Cantor and his paymasters to feel wobbly.

      1. readerOfTeaLeaves

        Oh, how I wish for EDIT buttons at NC…

        I was just kind of chuckling over the fact that last week had (for me) great sadness with the passing of Steve Jobs, some other amazing things are happening.

        Should have read:
        I was just kind of chuckling over the fact that despite the fact that last week had (for me) great sadness with the passing of Steve Jobs, some other amazing things are happening. <And some of them were not only funny, but reason to feel cheerful.

  8. R Foreman

    Throw the criminals in jail !

    Any US offical facilitating these continuing criminal networks, such as Barry Obama and Timmy Geitner, need to be taken into custody for trial.

    Investigations into the Robert Rubin criminal organization should commence immediately !

    1. citalopram

      Actually, I think an even better solution after a trial would be to put a bullet into the heads of all these politicians, financiers banksters who precipitated this mess. I call it the Chinese solution.

  9. jal

    The OWS movement are full of people who need to learn and want to learn.
    Use this gathering to teach them.

    They need to learn the message that Karl has been preaching.

    THE CONSEQUENCES OF EXP., AND LEVERAGING.

    Do your part to pass on what Karl has taught you and soon they will know what has to be done.

    STOUT-HEARTED MEN

    Give me some men who are stout-hearted men,
    Who will fight, for the right they adore,
    Start me with ten who are stout-hearted men,
    And I’ll soon give you ten thousand more.
    Shoulder to shoulder and bolder and bolder,
    They grow as they go to the fore.
    Then there’s nothing in the world can halt or mar a plan,
    When stout-hearted men can stick together man to man.

  10. Blurtman

    Wasn’t the idea that manufacturing would be replaced by FIRE? And so what would happen to US GDP if banks became utilities and could no longer manufacture fictitious products and revenue?

    1. LifelongLib

      The idea (at least in 1970 or so) was that “routine” manufacturing would be offshored but that advanced countries would move into products that required developed infrastructure and a large skilled workforce. Of course that would also have required massive government investment in education, training, and R and D. Only the first thing (offshoring) actually happened though.

  11. Jackrabbit

    DEMANDS

    Hudson applauds the fact that OWS has no demands and then goes on to talk and talk about OWS demands.

    Why is public debate about OWS so often corralled into a discussion of demands?

    A list of demands can compromise OWS in so many ways. Some would see demands as holding up society in a terrorist-like way. Others attack would attack or lambast specific demands, and finally, politicians would offer roadmaps and other devices) whose rejection would paint the protesters as unrealistic and uncooperative.

    1. Glenn Condell

      ‘Hudson applauds the fact that OWS has no demands and then goes on to talk and talk about OWS demands.’

      I have done the same thing myself twice today alone. Hudson must like me side with Walt Whitman on the question of self-contradiction.

      I think the should they/shouldn’t they argument re demands is unfortunate – what ought to be clear is that the protesters, representing such a wide cross-section of the populace (99%) share a revulsion with and opposition to current economic and political arrangements. They all agree that these are inadequate and even dangerous.

      Where they may disagree is in what measures are most appropriate to address these problems. The mass agreement that things are crook is not where the movement’s weak point is located; it’s the suddenly diffuse nature of action plans from various participants once you move past the nods of agreement on how bad things are; each wedded to their own silver bullet preferred options. Hence the establishment, apparently just eager to help, demanding some demands. ‘Those OWSers, talk to any 3 of them and you’ll get 5 different stories, they can’t even agree with themselves let alone each other”1

      I think those OWSers chosen to talk to the media need to be on the same page with this. Don’t try and hide your own hard won and fiercely held opinions, but ensure that every iteration of them is accompanied by a qualification that demands/ ideal solutions are for the next phase, that what’s crucial now is the solidarity of feeling that ‘everything is broken’ and that authorities in govt and finance (media will follow) acknowledge (perhaps only under the cosh of potential revolution in the streets) the seriousness of the movement and the broadness of its base, providing a space for alternative ideas to emerge and compete… and so the second phase would begin.

      An imaginary OWS doorstop: ‘well, I personally think jail time for bankers and new regulatory agencies staffed by community reps is the first step, but my friend here thinks a return to Glass-Steagall and no money elections will do the trick, but neither of us are making a demand of our pet solutions, they will all go into the mix later on and we can vote for them via Twitter if we have to. No, the point here is not that we thousands have arrived from all points to brave the cold with the same agenda, that would be impossible. We are here because we, the 99%, agree that the system has failed and now threatens our future. How exactly we go about fixing things will take time and effort, but for now the priority is to force the deadwood in our political parties and financial sector and corporate media to recognise that we are the nation, not them, and that ultimately we will prevail. The threat we pose to their privileges should, we hope, force them into not just concessions but into a realisation that genuine change is required not just for our survival, but for theirs too. The longer they hold us out, the more forcefully we will break in.’

  12. 2little2late

    “….there are a million little and no-so-little ways that the PsTB can strangle dissent without having to appear to be doing so.”

    True. Our freedom to assemble comes with a fine print sheet similar to a CC. Since my local gathering has been disallowed food or shelter of any type, so says the well armed Sheriff of Occupationland, the revolution will be nipped before it gets off the soon to be frozen ground. Sleeping hungry on concrete rolls the clock back to Solzhenitsyn’s day. Nightsticks await those who attempt a soup line.

    Pretty telling situation when combined with the fact that until just recently the only decent and accurate backstory to what’s going on with the re-occupation of America has been visible only on Russia Today and Al Jazeera. The USA’s bending over backwards media unintentionally reveals the marionette strings that we’re not supposed to see. I swear I saw Daley’s lips move when Obama spoke a couple of days ago.

    1. readerOfTeaLeaves

      Consider that a lot of pension funds, including those of cops and firefighters, have been looted and *their* benefits severely cut.
      Economically, we’re all in this together.

  13. Hugh

    Banks as currently constituted are not responsive to society’s needs and our actively destructive of its interests. Putting aside that our political system is completely corrupt and would preclude any of this, there are several ways banks could be reconstituted, either as public or private entities. Much about how this would be done would depend upon how the rest of the financial system was reset, but in general the focus would be on the offering of plain vanilla products and services. The parameters would be sharply limited but it still would not need to be a one size fits all, national model, but rather a community oriented one.

  14. F. Beard

    Your comment is awaiting moderation.

    What did I say? I notice The Daily Telegraph has my last comment “awaiting moderation” too via Disqus.

    Oh well, I guess it is a honor.

    1. Yves Smith Post author

      Too many links (a spammer trick) or the use of certain words gets a comment put in moderation.

      1. F. Beard

        It must be a no-no to mention “us*ry”. That was the dirtiest word in my comment and I had no links.

        One does sound like a kook these days to mention “us*ry” but some of the greatest men in history have opposed it.

        1. R Foreman

          The sanctity of debt-money shall be inviolate.. so sayeth Timmah Geitner obi-won Bernanke the wise.

          So who you gonna believe, the wise old central banker, or your own lying eyes ?

          You owe. You were born owing, and you will die owing. It is the natural order of things, that some will make payments to eke a meager existence, while others will deign to accept your unworthy payments.

          You have no equity, other than that pathetic little thing you might own at the end of 30 years, assuming there’s no economic bust and the asset is seized from your control.

          1. F. Beard

            The sanctity of debt-money shall be inviolate.. R Foreman

            No problem. The Congress/the US Treasury could bailout the entire population (and the banks too) by:

            1) Forbidding the banks from creating any more “horizontal money” (loaning deposits into existence) – so-called “credit”. This would be massively deflationary as existing credit was paid off with none to replace it. Genuine loans (no money creation) could still be made.

            2) Sending monthly bailout checks to every US adult citizen (including savers) equal in total to the amount of credit paid off the previous month. The checks would continue (tapering off over time) until all credit was paid off.

            The above would bailout everyone, including the banks, with no serious price inflation risk since the money supply (base money + credit) would remain constant.

            As for US Government debt, it can be paid off as it comes due easily. According to the MMT folks, in the case of foreign debt, it just means moving money from an interest-paying account at the Fed to a non-interest-paying account at the Fed. Not a big deal.

            Many people scoff at bailouts but if they go to the victims of the banks (the entire US population) and if they can be done without serious price inflation (or deflation) risk, then why not? Because the banks would have to stop creating deposits from thin air? How is that bad when there would be new legal tender to make genuine loans with?

          2. F. Beard

            You have no equity, … R Foreman

            Without the counterfeiting cartel, the banking system, to borrow from, I’d bet that corporations would have been forced by competitive pressure to pay their workers with common stock. Instead, the workers’ jobs have been automated and outsourced away with their own stolen purchasing power.

  15. Dave of Maryland

    Hey everybody -

    The powers that be will want the Occupy crowd gone before the next big crisis. Which someone on the Beeb said could be in 2-3 weeks. They gotta be gone by then because when (not if) the next crisis hits and they gotta shovel more bucketfuls of money at the bankers, they don’t want a nucleus around which 100,000 angry New Yorkers could form. There’s at least that many unhappy people a subway ride away. It ain’t gonna be pretty.

    Got white knuckles yet?

  16. Paul Tioxon

    Immanentize the Eschaton. We have been called up from the people, we have been called by the people, we have been called up for the people. No Thing means Every Thing, All Things must be this way.

  17. steelhead23

    I should avoid talking about things I do not understand, but the major banks have been afforded a series of benefits – access to Fed credit windows, first dibs on Treasury securities, interest on excess reserves. Thus, for banksters to claim foul as we push to reform the the credit system in the public interest, is the epitome of chutzpah. I have long held that for-profit banking is a menace and should be eradicated. Banking is a utility function in the economy – it produces nothing. Yes, credit facilitates growth and modern economies cannot function without credit. But once profit becomes the goal of bankers, the likelihood of banking going from a utility to a parasite grows. My suggestion to accomplish the objective of removing profit from commercial banking would be to offer FDIC deposit insurance only to banks organized as not-for-profit entities. Such niceties as interest on excess reserves and primary dealer status might also be offered only to not-for-profit institutions. Sure, there would still be investment banks serving mergers and acquisitions – they would need to be regulated like the wayward children they are. But they would shrink. Shrinking the size of these institutions would diminish the sway they have over decisions makers, both because they would have less wealth to donate toward elections and because they would no longer hold the sword of Damocles over the global economy. Perhaps this would not work, but I would love someone like Yves to tell me why. My preference for socialization of banking rather than regulation is simple – eventually regulatory systems get broken – the profit-seekers break them.

  18. sara

    Clinton>Glass Steagall repeal – my understanding is that the Republicans had veto proof votes & Clinton could not veto the Gramm-Leach-Bliley Act) signed by him.

      1. Jane Doe

        I don’t understand your logic. Are you saying because it was already being destroyed before hand that the regulations were not in fact necessary as 2008 would suggest?

      2. Yves Smith Post author

        I suspect he’s saying that the formal repeal of GS was a non-event, it was effectively dead by the mid 1990s.

    1. Hugh

      The Republicans did not have veto proof majorities in either House in 1999. The Gramm-Leach-Bliley act, part of the Financial Services Modernization bill passed because there was from the start considerable Democratic support for it in the House. There was, however, initial Democratic opposition to it in the Senate. The bill went to conference and only then did both Houses pass the final version with veto proof majorities. It would be completely unrealistic to think that Bill Clinton and Larry Summers were sitting on the sideline during this process. Indeed it’s been known for years that Summers worked hard to get the repeal of Glass-Steagall passed. So it was never Republicans presenting Clinton with a fait accompli and forcing him to do he wasn’t happy doing.

      From wiki on Gramm-Leach-Bliley:

      The House passed its version of the Financial Services Act of 1999 on 1 July 1999 by a bipartisan vote of 343-86 (Republicans 205–16; Democrats 138–69; Independent 0–1), two months after the Senate had already passed its version of the bill on May 6 by a much-narrower 54–44 vote along basically-partisan lines (53 Republicans and one Democrat in favor; 44 Democrats opposed).

      On November 4, the final bill resolving the differences was passed by the Senate 90-8,[14][15] and by the House 362-57.

  19. 60sradical

    At some point 3 major financial dynamics must be faced and thoroughly understood by a unique critical mass of thinkers.
    1. The American central bank call “The Federal Reserve System”.
    2. The concept/reality of Fiat Money beginning at the Fed.
    3. The reality of further Fiat Money generated by the entire private banking system with interest payback automtically factored into it.
    If this is not done, we are left with tinkering and regulation band-aids and the moneyed elite remain always one step ahead.

  20. Small and medium enterprise

    I always want to talk about the interchange charges for using the cc and debit processing systems. Even Walmart and the retailing behemoths couldn’t wrestle this 3% tithe away from the Banks. Its a staggering amount of money, so huge the almost-cute word “fees” is not nearly weighty enough. It’s a straight mainline pipe into the river of daily transactions; sucking out 97% more than the cost of providing it. I’m sure some d-bag sock puppet will reply, but the facts are manifest and you can talk to the hand.

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