In a previous note I unfairly sneered that Left Blogistan’s Progressive Intellectuals had failed to come up with a progressive plan for bank reform. But, be still my heart, OpenLeft and Jane and others have produced a radical plan, Henry George’s deep economics combined with Abbie Hoffman’s irreverence and Naomi Wolf’s moral insight to fundamentally change American Economic structure. Just kidding. What they have come up with is interesting though, because of its very timidity and political/economic naivete. Let’s look at what “left” means.
Here we go: Emma Goldman eat your heart out.
Step 1: Naive Fantasy.
1. Insolvent banks that are too big to fail must incur only a temporary FDIC intervention — no more taxpayer subsidies.
The idea that FDIC takeovers do not involve taxpayer subsidy is laughable. Furthermore, the idea that the $2Trillion international behemoth that is Citibank could be folded away like it was the Suburban Bank of Tacoma Park is remarkably naive. Shockingly, US FDIC rules may not govern Citibanks holdings in Mexico and Japan.
Step 2: Underwear Gnome Economics.
2. Banks must be broken up and sold back to the private market with new antitrust rules in place — new banks, managed by new people.
Who are these “new people”? The structural problem with the US economy is that “deregulation” has created massive concentrations of wealth and oligopolies. To fix this, the “New Way” proposes we sell parts of banks into the over-concentrated market. Because, apparently, shifting wealth from Citibank to Blackrock is a radical change. Are they serious? Ah, but there will be “regulation”.
Any bank that poses systemic risk through the creation of complex financial instruments and consolidation efforts, or otherwise known as “too big to fail” means that it’s too big for a free market to function.
This plank is remarkable in its evasion of the core issue of how to decentralize the banking industry in a world market. What exactly will count as a “complex financial instrument”? Do the authors realize that 15 of the largest 20 banks in the world are not US banks?
Step 3: Bureaucracy
3. A new agency — accountable to an elected Congress and an elected President and with no ties to the nation’s 12 largest banks — must be created to enforce strong anti-trust laws and other rules that limit and guide the behavior of financial firms, and to restrict harmful features and practices in financial products.
Well, we have an agency accountable to an elected Congress and elected President that is supposed to enforce anti-trust. It is called “The Department of Justice”. Unfortunately, we know that an elected congress run by Tom Delay and “elected” President like GW Bush will not enforce anti-trust laws or any regulations and, sadly, one run by Chris Dodd and Bill Clinton/Robert Rubin won’t either.
So in the end, “the criticism from the Left” comes down to what? Some regulations and maybe shuffling the bureaucracy. The fact is that policies already instituted by this Administration involve far more comprehensive democratization of the economy than anything proposed here.