Ire is mounting against Goldman Sachs and the other 'Too-Big-Too-Fail' banks.
Goldman Sachs was in the sights of Occupy this week.
Protestors tried to close down some of the nation’s largest ports on the West Coast and succeeded in closing down some. On the East Coast, they went to the World Financial Center in Manhattan. (In case you are scratching your head about the connection between the ports and the fifth largest U.S. bank, Goldman Sachs owns part of Carrix Inc, a subsidiary of which is the largest U.S.-owned terminal operator.) Others took their complaint to Princeton, where business-suited protestors disrupted recruiting events by Goldman Sachs and J.P. Morgan Chase by “mic-checking” a list of the banks’ sins. (Watch the videos here.)
Ire is mounting against Goldman Sachs and the other “Too-Big-Too-Fail” (TBTF) banks. The increasing attention thanks to the Occupy Movement is but one reason out of several (“Banks got bailed out, we got sold out!”). The recent scathing revelations by Bloomberg News about how much the Federal Reserve coughed up to bail the banks out is another.
After years of trying to get the Fed to release the figures on the bank loans it made, Bloomberg was finally able to report that the Fed had “committed $7.77 trillion in below-market loans and guarantees to rescuing the financial system; and that these nearly interest-free loans came without strings attached.” (Some say it was far more, as you’ll read below.)
Pumped up with ocean-liner loads of cash, the big banks made out like bandits, reaping some $13 billion in windfall profits: while paying next to nothing in interest, they are charging customers “whatever the market will bear.” Meanwhile, they still haven’t addressed the ticking time bomb that threatens to make the 2008 meltdown look like losing some spare change – the fact that their wholesale slicing and dicing of mortgages into abstruse financial instruments means that some 70% have no clear title and hence could be worthless, as Christopher Ketcham reports in a terrific – and terrifying – article in the January 2012 issue of Harper’s Magazine.
The U.S. taxpayer has paid a high price for the Fed’s bailout largesse. To get the details on just how high, read this post from former Congressman Alan Grayson.
It’ll knock your socks off.
Suffice it to say that while the funding “helped preserve a broken status quo,” as the Bloomberg report put it, Americans were going away empty-handed when they tried to borrow money for a home, car or small business. As Grayson tartly inquires, “If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can't find a full-time job?”
That isn’t what was supposed to happen – at least according to the official story. The American taxpayer was told the banks were bailed out to get credit flowing again. The credit flowed all right, but not to where it was reportedly intended: Main Street.
And Main Street is the real job creator, not Wall Street.
Over the past 10 years, local businesses have created two-thirds of the new jobs, while large corporations have taken more than 2.6 million jobs out of the economy. But if the credit dries up, so will job creation. So a growing number of states and communities are looking to alternatives to the big banks to fund local and regional enterprise and employment.
The easiest place to look is to the nearly seven thousand small, locally owned community banks across the land. I’ve parked some of my funds in Florence Savings Bank in western Massachusetts, whose popular bumper sticker reads, “Don’t Blame Me; I Bank Locally.” FSB came through the financial meltdown unscathed; it donates $50,000 to local charities voted on by its customers; and it’s still lending to local businesses and homebuyers, as always. Banks like FSB control only 11 percent of banking assets in the U.S., but they loan out to small businesses and farms almost three times as much as the four biggest banks that control 40 percent of banking assets.
Lots of people are moving their money out of the big banks to community banks and credit unions. On “Bank Transfer Day” in November, 40,000 people shifted $90 million over. That may not seem like much – but it was on top of the 650,000 who moved $4.5 billion in deposits in the weeks leading up to the big day.
In a new report, A Main Street Fix For Wall Street’s Failure, David Korten and John Cavanugh advocate reversing “the process of banking consolidation and rebuild[ing] a national system of community-based, community-accountable financial institutions devoted to building community wealth. Break up the mega-banks and implement tax and regulatory policies that favor appropriate-scale community financial institutions. Give particular preference to community financial institutions organized as cooperatives or owned by nonprofits devoted to building community wealth.”
One way to support community-based institutions would be for the Fed to give them the same favorable terms they showered on the big banks (and stop loaning money to the TBTF banks.)
Another option is for states to establish publicly owned banks, like the Bank of North Dakota. As banking analyst Ellen Brown pointed out, “By 2011, only one state will have escaped the credit crunch that is pushing other states toward insolvency: North Dakota. North Dakota is also the only state that owns its own bank. The state has its own credit machine, making it independent of the Wall Street banking crisis that has infected the rest of the country.” The BND is a “state partnership bank,” meaning it shares the financing (and risk) on loans made by local banks, thereby boosting their ability to lend. Eight other states are now considering forming their own publicly owned banks on the BND model.
Another model is the Common Good Bank, founded by William Spademan. The bank’s mission is “to design and create the framework for [a] new economy by integrating a fast-growing mutual credit system with a new type of bank account, so that community-centered decision-making, money-creation, innovation, cooperation, and economic justice can connect seamlessly to the current mainstream economy. This hybrid system lets us have tomorrow's economy today -- serving also as a transitional system that can lead us quickly to a society that benefits everyone.”
That’s a heady goal, but one that Spademan is already starting to implement by means of an alternative currency he calls R Credits, which he plans to roll out in March 2012. He says that it overcomes the limitations of other alternative currency systems by being easy to use and exchange with U.S. dollars. In addition, the Common Good Bank will offer Common Good Accounts that “any chartered bank or credit union can offer to its customers.
A banking system that can serve the 99%, instead of Wall Street’s 1%, needs new rules and concepts. That’s the purpose of the New Rules Project’s Community Banking Initiative, to devise the “the empirical and conceptual underpinnings for a community-scaled financial system, which will reduce systemic risk and strengthen local economies, and to identify public policies that can revitalize such a system.”
And here’s a thought: One result of the recent climate talks in Durban is that the Green Climate Fund moved marginally forward, although many details remain to be worked out. Why not institute a Financial Transactions Tax, as was recently proposed in the U.S. Congress and link it to funding climate adaptation and mitigation?
It could raise $650 billion a year, according to Kate Horner of Friends of the Earth. Instead of crashing economies and trashing the planet, it seems banks and other financial institutions could actually become heroes to them.
Related: The Common Good Enterprise: A New Term for an Emerging Sector