Why don't we turn the banks into regulated public utilities?
For households, why isn't access to financial power put on the same basis as access to electrical power or the power to heat your house?* The bill comes in the mail, and if you don't pay it, there's a shut-off.** When I started beating the drums for this idea six months ago, I figured it was crazy talk -- but then that's the role of the marginalized DFHs in our discourse. Now, this idea is almost visible through the Overton Window. James Kwak in Baseline Scenario quotes Nicholas Brady, of all people:
I believe that we need a simpler system centered on deposit-based banks. Under this approach, individual accounts in the depository banks would continue to be protected up to $250,000 and these banks would have access to the country’s central bank. These institutions would not be allowed to participate in markets involving inordinate leverage or equity transactions that would risk their deposit-protecting charter. In contrast to the current mode, when asked what their primary purpose is, the banks’ chief executives wouldn’t talk first about shareholder return. Instead they would stand up and say: “Our institution’s primary purpose is to repay the depositors’ money.” . . .
The highly innovative [ha ha] shadow banking system with its mantra of lower transaction costs, which would continue to introduce new concepts, would fund itself from the money markets and other sources but without federal guarantees and access to America’s central bank. Institutions that currently straddle the two funding markets would have to choose which type of business to pursue.
Borrow at 2%, lend at 3%, on the back nine by 4:00. That's what banking would be like if it were a regulated public utility.** And rightly so. Why don't we fund a bank like this, that would do people some good, with the trillions we're throwing at the banksters?
This reinforces a theme that Simon has been sounding recently: the divide is not between left and right, but between people who want to preserve the current financial system in its basic outlines (a little more regulation, a little more disclosure, exchanges for derivatives, etc.) and people who think it must be dramatically reshaped.
NOTE If Nicholas Brady is to believed, Bush I did a better job in its crisis than the Money Democrat faction of the Party is doing in ours:
Among the indisputable points we laid out were that new money commitments had dried up in the past 12 months and that many banks were negotiating private sales of LDC paper at steep discounts while maintaining their claim on the countries that the loans were still worth 100 cents on the dollar. [Sound familiar?] There were more, and they were equally sobering. We used these irrefutable facts as a starting point in all subsequent meetings. Our rule was that no suggestions were permitted to be discussed if they didn’t accept the Truth Serum. They were off the table. Goodbye. Don’t waste time. . .
First we should just come out and say it: the financial system that led us to the brink of disaster is broken.
I don't think that for Summers, Geithner, Emmanuel, or Obama, the idea that the financial system is broken is even on the table. The entire Obama administration plan -- the stress tests, PPIP, the whole contraption -- seems designed to let us avoid taking the truth serum, ever. It's not going to work. And the insiders know this.
NOTE * Leaving aside the Enron approach of privatizing it all and then looting it, naturally.
NOTE ** But what about all the loan evaluations and the collateral? I bet if the cut-offs were sufficiently Draconian, and involved future access to public credit, defaults would be low. And for defaulters, a private system would be available -- much like private systems handle the edge cases in single payer medical systems.
UPDATE Forbes chimes in.