Banking, Corporations and Government

　

I want to pick up from "inset banking system"...

Present day banks as a general rule are not terribly good at helping the average human at the moment, though it has to be said that we would be in a much worse economic state without them. What I object to mostly is the notion that banks are somehow just another corporation that deserves to be a corporation just like any other corporation. This is absurd - there are bank charters or similar statutes and laws in almost every single jurisdiction around the world that provide banks with very powerful and unique privileges that other corporations simply do not have, like lending more money then they actually have as just one major example. Put it this way, you can`t just start a mom and pop bank in your basement; the regulations are a bit stiff. Hence, even competition in the banking market is skewed. Banks do not fit the usual profile for a corporation.

As banks have embraced the notion of being just another profit driven corporation, they have forgotten their most useful purpose in society, which in my view is to ensure that money remains in circulation and not unduly hoarded, while simultaneously allowing an individual to accumulate wealth so that an individual can have a realistic chance to earn and save for a retirement. The banks are in some aspects one of the worst offenders of wealth accumulation - witness their massive profits. This is slightly odd considering that they loan more money then they have, but in the process of doing this, they have reborn a debt-slave game that has been frowned upon by past societies several times. Credit cards and mortgages are examples of this game and not withstanding the value of loans (of which there are many), the banks thrive on the recalcitrant repayers of those loans and seek to keep such people in the position of paying off the minimum in order to maximize their profits and they do this at the expense of maintaining the flow of money throughout society. Banks loan money so that they can hoard it by collecting interest on the loan. In order to obtain the maximum amount of interest, they need to identify and keep the somewhat recalcitrant repayers of such loans (in other words, those that are trying their best to repay the loans, but really are making no headway whatsoever). Through this process the banks accept that some of the loans will default and then they kick these defaulters to the kerb as deadbeats, thereby dissociating them from society. Banks squeeze what they can from an individual and as soon as the gig is up, they get rid of that individual.

If banks cared about maintaining an individual’s involvement in society they could use the statistics they already collect and analyze to identify those people that need help out of the debt trap and, as just one example, proactively reduce the interest rates they are charging. In many, many circumstances, banks will reduce your rate right now if you call them up and tell them that you are going to transfer your loan balance to another institution, so the banks can`t argue that it is unprofitable to reduce their interest rates (and you can’t argue that the banks are totally crap if you don’t fight with them for their lowest rate, though it would be nice not to have to have the fight in the first place). But really – banks don’t care about maintaining an individual’s involvement in society.

Moral hazard I hear from the champions of privatization and capitalism? With the truly amazing trend of giving massive amounts of money to the banks to ‘stabilize the banking system’ I have to say that I would rather deal with the moral hazard of some individuals in society than the moral hazard of the very powerful banks and bankers. Any system has faults and ways to abuse it, the question to me, at least with respect to banks and ‘fixing the banking system’, is why are we as a society so prepared to let banks off the hook and not a collection of individual people who are vastly less able to abuse the generosity of the government? Somehow helping banks is seemingly more palatable to society. Not to me.

　

I wonder why in America, the government didn’t just use the money they gave to the banks to create state housing projects by buying the properties that were in foreclosure. This would have cleared the banks’ books of the bad loans and given the government something in return for clearing the bad loans. In addition, the ‘people who had no right to own a home in the first place’ (whatever that means) wouldn’t own a home directly – only vicariously through their government. Further, more people would still have a roof over their heads (instead of more empty houses) and the value of the non-defaulters’ houses would be better off since the government would have maintained at least some of the demand for property. Housing bubble yes, but it was created by the bad loans in the first place, so no difference there. Isn’t the government supposed to represent the people?...or wait, is it the banks? Actions speak loader than words here I think. In reality government represent both banks and people, but as I mentioned earlier, the banks are dramatically better positioned to abuse the government’s generosity and to shape the opinions and decisions of government. Too much privilege for banks. This must change!

　

Food for thought – why do we not view government as a special corporation, just like the banks? When I hear arguments against government involvement I often hear that "government has no place in (insert suitable example of private enterprise)". What I don’t hear, but seems implicit to me, is that private entities do. Why the distinction? Why does the government, as a collection of people, have less of a right to get involved in activities than a private entity? They make the laws – conflict of interest is a common response I get to that question. But the government (at least in a democracy), even with the conflict is at least accountable to the people that it is involved with. I cannot say the same for private entities – there is no redress for the punter or accountability for the actions of the private institution unless government gets involved.

In a conversation I had recently with a friend of mine, it was pointed out that Forbes magazine had rated Canada as the top country in the world for doing business (http://www.forbes.com/lists/2011/6/best-countries-11_land.html), citing a strong banking system and low corporate tax rates among other things. It was also pointed out to me that Forbes magazine is a magazine printed by billionaires to help people become billionaires and hence, the subtle message might be – Canada will let you suck it dry better than any other country right now. Some accolades are just not ones that you want if you value a future in which we all strive to improve everyone in society thereby developing a stronger society as a whole.