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Bankers Win Both Ways: Now They Can Take Both Taxpayer and Depositor Money

Posted on Mar 29, 2014

Photo by Chewey734 (CC BY 2.0)

By Ellen Brown, Web of Debt

(Page 2)

What Happened to Nationalizing Failed Banks?

Underlying all this frantic wheeling and dealing is the presumption that the “zombie banks” must be kept alive at all costs—alive and in the hands of private bankers, who can then continue to speculate and reap outsized bonuses while the people bear the losses.

But that’s not the only alternative. In the 1990s, the expectation even in the United States was that failed megabanks would be nationalized. That route was pursued quite successfully not only in Sweden and Finland but in the US in the case of Continental Illinois, then the fourth-largest bank in the country and the largest-ever bankruptcy. According to William Engdahl, writing in September 2008:

[I]n almost every case of recent banking crises in which emergency action was needed to save the financial system, the most economical (to taxpayers) method was to have the Government, as in Sweden or Finland in the early 1990’s, nationalize the troubled banks [and] take over their management and assets … In the Swedish case the end cost to taxpayers was estimated to have been almost nil.

Typically, nationalization involves taking on the insolvent bank’s bad debts, getting the bank back on its feet, and returning it to private owners, who are then free to put depositors’ money at risk again. But better would be to keep the nationalized mega-bank as a public utility, serving the needs of the people because it is owned by the people.

As argued by George Irvin in Social Europe Journal in October 2011:

[T]he financial sector needs more than just regulation; it needs a large measure of public sector control—that’s right, the n-word: nationalisation. Finance is a public good, far too important to be run entirely for private bankers. At the very least, we need a large public investment bank tasked with modernising and greening our infrastructure . . . . [I]nstead of trashing the Eurozone and going back to a dozen minor currencies fluctuating daily, let’s have a Eurozone Ministry of Finance (Treasury) with the necessary fiscal muscle to deliver European public goods like more jobs, better wages and pensions and a sustainable environment.

A Third Alternative—Turn the Government Money Tap Back On

A giant flaw in the current banking scheme is that private banks, not governments, now create virtually the entire money supply; and they do it by creating interest-bearing debt. The debt inevitably grows faster than the money supply, because the interest is not created along with the principal in the original loan.

For a clever explanation of how all this works in graphic cartoon form, see the following short French video “Government Debt Explained.”

MrQuelquesMinutes:

The problem is exacerbated in the Eurozone, because no one has the power to create money ex nihilo as needed to balance the system, not even the central bank itself. This flaw could be remedied either by allowing nations individually to issue money debt-free or, as suggested by George Irvin, by giving a joint Eurozone Treasury that power.

The Bank of England just admitted in its Quarterly Bulletin that banks do not actually lend the money of their depositors. What they lend is bank credit created on their books. In the U.S. today, finance charges on this credit-money amount to between 30 and 40 percent of the economy, depending on whose numbers you believe. In a monetary system in which money is issued by the government and credit is issued by public banks, this “rentiering” can be avoided. Government money will not come into existence as a debt at interest, and any finance costs incurred by the public banks’ debtors will represent Treasury income that offsets taxation.

New money can be added to the money supply without creating inflation, at least to the extent of the “output gap”—the difference between actual GDP or actual output and potential GDP. In the US, that figure is about $1 trillion annually; and for the EU is roughly €520 billion ($715 billion). A joint Eurozone Treasury could add this sum to the money supply debt-free, creating the euros necessary to create jobs, rebuild infrastructure, protect the environment, and maintain a flourishing economy.

Ellen Brown is an attorney, founder of the Public Banking Institute, and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books, including the best-selling Web of Debt and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.

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