Close the 'zombie' banks and use Troubled Asset Recovery Program funds to create a banking and financial system that will help provide real strength and vitality to the nation's economy - not a mirage of such economic attributes.
To restore the efficacy of our nation’s economy, comprehensive renovation and effective regulation of America’s banking and financial system – not a continuation of the present ineffectual and unregulated ‘zombie’ system – seem urgently needed.
Presently, we have a Madoff-like banking and financial system that decimated peoples’ investments and corrupted the nation’s economic system. These dual, pernicious feats were made possible by a banking and financial system which mostly courted investments that offered quick and transitory profits while minimally investing in sustainable and permanent, wealth-producing economic entities.
Continuing below the fold, a quotation from Federalist Paper No. 1 (written by Alexander Hamilton) is offered as a historical perspective on the zealous ‘defenders’ of the people’s rights and liberties, and the failures of the current banking and financial system are highlighted.
In Federalist Paper No. 1, Alexander Hamilton begins his arguments in support of the adoption of the new Constitution – our present Constitution. As part of his initial discussions for the adoption of the new Constitution, Hamilton addresses the opponents of the Constitution who are using the issues of liberty and despotism as the bases for their opposition.
Below is a passage from one of Hamilton’s Federalist Papers in which he argued for adoption of our Constitution. In the passage (boldfaced emphases added), Hamilton describes how the arguments of the ‘proponents’ of liberty can lead to perverted results, and that "dangerous ambitions" may be behind the zealous arguments for the rights of the people – a la the arguments for laissez faire economic policy put forth during the previous administrations of Reagan, Bush I, Clinton, and Bush II.
An enlightened zeal for the energy and efficiency of government will be stigmatized, as the off-spring of a temper fond of despotic power and hostile to the principles of liberty. An over-scrupulous jealousy of danger to the rights of the people, which is more commonly the fault of the head than of the heart, will be represented as mere pretence and artifice; the bait for popularity at the expense of the good. It will be forgotten on the one hand, that jealousy is the usual concomitant of violent love, and that the noble enthusiasm of liberty is too apt to be infected with a spirit of narrow and illiberal distrust. On the other hand, it will be equally forgotten, that the vigour of government is essential to the security of liberty; that, in contemplation of a sound and well informed judgment, their interest can never be separated; and that a dangerous ambition more often lurks behind the specious mask of zeal for the rights of the people, than under the forbidding appearance of zeal for the firmness and efficiency of government. History will teach us, that the former has been found a much more certain road to the introduction of despotism, than the latter, and that of those men who have overturned the liberties of republics the greatest number have begun their career, by paying an obsequious court to the people, commencing Demogogues and ending Tyrants. Alexander Hamilton, The Federalist No.1. Source: The Federalist Papers by Alexander Hamilton, James Madison and John Jay: Edited and with an Introduction by Garry Wills, based on the scholarly text, The Federalist by Jacob Cooke, Wesleyan University, 1961.
The current banking and financial system was arguably imbued with its asymmetrical qualities during the Reagan-Bush I-Clinton-Bush II era. Vocal and zealous arguments that laissez faire economic policies were good for the liberty and the rights of the people caused the relaxation of regulations and complete abrogation of them in the case of the Glass-Steagall Act. This new, banking and financial system has failed to meet the needs of the people, their economic prosperity, and the nation’s productive economy (i.e., an economy that helped create and sustain companies that provided new and permanent-wealth-building products or services). `
The converse is true. The current banking and financial system served well the financial ‘geniuses’ who developed investment vehicles that only met the goals and objectives of the false economy. The false economy placed more value in creating exotic and arcane financial instruments than in creating permanent and real wealth-producing companies.
Today, we have credit-default swaps, interest rate swaps, and other complex, nominally useful financial instruments that have helped a few financial ‘Einsteins’ get exorbitantly wealthy while fundamentally failing the nation’s productive economy; and in the process strikingly creating a dangerous imbalance in economic prosperity.
As Paul Krugman wrote in his New York Times column of Saturday, 2009 April 11, " Making Banking Boring"; we now have a nation in debt comparable to the debt level just prior the stock market crash of 1929 and the ensuing depression.
Two passages from Krugman’s column, which amplify the failures of our present banking and financial system, are highlighted below:
After 1980, however, as the political winds shifted, many of the regulations on banks were lifted — and banking became exciting again. Debt began rising rapidly, eventually reaching just about the same level relative to G.D.P. as in 1929. And the financial industry exploded in size. By the middle of this decade, it accounted for a third of corporate profits. Paul Krugman
and
Much of the seeming success of the financial industry has now been revealed as an illusion. (Citigroup stock has lost more than 90 percent of its value since Mr. Weill congratulated himself.) Worse yet, the collapse of the financial house of cards has wreaked havoc with the rest of the economy, with world trade and industrial output actually falling faster than they did in the Great Depression. And the catastrophe has led to calls for much more regulation of the financial industry. Paul Krugman
It is time to end the illusion of success and return to a banking and financial system that provides real financing for the productive economy of a great nation - not a financial system predominated by arcane and casino style, wealth-destroying financial instruments.
The current banking and financial system provides a mere apparition of success – if allowed to continue as presently constructed it will continue to offer the illusions of a strong national economy. To meet the needs of all Americans, our nation must have an economy with real strength and vitality – not a mirage of a strong and dynamic economy.