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The Fight for Economic Democracy

The Yin and Yang of Banking, Work, Wealth and Health

by KEVIN ZEESE and Dr. MARGARET FLOWERS

This week, the economy continues to reveal the failure of banking reform, how that failure may worsen and why we need to move toward a well-regulated, public banking system.  Reports continue to show a foundering “economic recovery” that is not producing sufficient jobs. More people are talking about new ways to approach the jobs crisis and wealth divide. It was a yin yang week in the economy where economic failure may lead to real solutions.

There was some potentially good news in this New York Times article, JPMorgan Chase Faces Full-Court Press of Federal Investigations, which showed we may get some accountability from the biggest bank in the United States. The article describes how JP Morgan Chase is facing eight regulatory actions.  Will anything come of it?  Will enough come of it?  We’re not confident of it considering this report in Real News that showed how the new SEC head once represented Wall Street “Wonder Boy Dimon.”

And, we see blatant corruption as the former DOJ’s Lanny Breuer cashes in with a new job that pays $4 million a year at a corporate law firm in DC, after his tenure at DOJ produced no prosecutions of big banks for security fraud.  Sadly, we expect a similar outcome to what we are seeing in the libor litigation where this week a judge dismissed most claims ruling in favor of  the Big Banks.

The risks to the financial system are ridiculously high with the unregulated derivatives market now valued worldwide at over $1.2 quadrillion in notional value. In real dollars, US Big Banks have $12 trillion at risk, an amount almost equal to the US GDP. This shows, as Dean Baker points out in The London Whale and the real link between the US economy and Cyprus, that the connection between Cyprus and the US is the failure to adequately regulate the Big Banks – which are too big to fail, jail or regulate.

The political power of the Big Banks is evident in the notorious Trans-Pacific Partnership.  This once secret negotiation pushed aggressively by President Obama would be a gift to big finance and other transnational corporations.  We explain why in TransPacific Partnership Will Undermine Democracy, Empower Transnational Corporations. The agreement will provide corporations a back door to get laws passed that they could not get passed openly on Internet freedom, protecting profits of pharmaceuticals, privatizing healthcare, undermining the environment, lowering wages of workers and more.  Also, central to the agreement is further de-regulation of big finance. On the Real News, we emphasized that to pass this anti-democracy law, the president needs Congress to put aside constitutional checks and balances and “Fast Track” it by giving him Trade Promotion Authority.

Of course, the highlight of the week that triggered more discussion of public banks was Cyprus. The Lesson from Cyprus: Europe Is Politically Bankrupt shows that that the European economy is at risk, but also shows that the Cyprus model of taking a portion of savings to bail out the big banks is now a viable one. Watch out Spain, Italy, Greece . . .  Of course the wealthy money launderers still have lots of places to turn after Cyprus. But the message for the rest of us, including Americans, is that it can happen here.  Ellen Brown highlights a joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012 that plans for a “bail-in” (rather than a bail out) where depositors save the banks through conversion of their savings into bank stock.

If the theft of your bank accounts is not enough to wake you up to push for public banks, there were several more reasons that came forward this week. On Real News, Michael Hudson points out that public banking is needed to stop “cannibalization” of the economy. He notes that as long as banking is left in private hands, austerity will push the US economy down into further collapse.  We need to broaden control of the money supply to the people through government to end the rule of Wall Street. The public banking issue will get a boost from the Public Banking Institute’s national conference this June in California.

Across the country, 1,300 local governments are putting future generations deep into the debt of Wall Street with bonds for building schools and public infrastructure. They are using “capital appreciation bonds” that do not require immediate payments but when the payments come due, governments end up owing much more, e.g. a 22 million loan will end up costing $154 million. Would public banks engage in such anti-public interest practices?

The only public bank in the United States in North Dakota continues to do well. The bank has existed in Republican North Dakota for more than 90 years. It helps the state’s community banks, businesses, consumers, and students obtain loans at reasonable rates while delivering a handsome profit to its owners – the 700,000 residents of North Dakota – by providing more than $70 million to the state budget. California would have an extra $3.8 billion a year in state revenues if it had a public Bank of California.

And, we can look to our history, public banking helped to make US colonies prosperous because they controlled their own money supply. Benjamin Franklin was proud of colonial “scrip,” money made by each colony without debt to bankers, and talked about it when he visited Great Britain. When the British heard this, they passed laws forbidding it in 1751 and even more so in 1763.  Some blame the revolution on the colonies’ loss of control over their money supply.

It is not only public banking that is seeing advances, but also alternative currencies. This week an Internet, virtual currency, bitcoins, already bigger than many sovereign currencies, passed a mark when the bitcoin total value topped $1 billion.

If we combined prosecution of bankers and the breaking up of Big Banks with public banking, we would begin to create a finance system for the people.

Of course, finance for the people would only begin to solve the economic problems we face. When we look at the budget we also see out-of-control military spending.  Polls show that if the people decided the budget, we’d see big cuts to weapons and war. Maybe it is time for participatory budgeting as well as public banks. At the local level we’d see more schools like these that are going solar, saving money and avoiding cuts to teachers.

The big problem, perhaps the root of many of the economic and social problems we currently face, is the wealth divide. This is made worse by a jobs crisis that includes not only high unemployment and underemployment, but also lower wage jobs that do not create wealth for workers. There are efforts to change this.

In Cleveland, the Evergreen Cooperatives produced a video about their newest co-op, Green City Growers.  You can see the pride of the political, economic and philanthropic leadership of Cleveland, as well as the pride of the worker-owners in this video. Evergreen is spreading the word about its co-op model that builds wealth for workers.

Worker ownership is at the foundation of a new democratic economy. Activists with Occupy Sandy are supporting worker-owned cooperatives as part of the rebuilding process after Hurricane Sandy.

On the jobs front, Dean Baker writes that we could learn from Germany about how to reduce unemployment.  Germany’s unemployment rate is about two points lower than the US even though its economy is not booming. Why? Workers work fewer hours so they have more free time, and so there are more jobs. Research shows that working fewer hours would also be good for the climate.

Unfortunately, more educated youth in the US are working minimum wage jobs, 284,000, a record, which no doubt explains the $3 billion in student loans written off in the first two months of 2013. And, in the US low-wage workers are being exploited and pushed into fewer  hours of work so employers can avoid providing health insurance.

Reducing employer health insurance is the wrong reason to shrink hours and will cause more problems. Already, US health care costs are out of control as these 21 charts from the Washington Post show. But, even worse, a study this week predicts we might see a 30 percent premium increase in the individual insurance market.  Overpriced, under-insurance is going to lead to more “death by for-profit health care” as Occupy off-shoot, Strike Debt makes clear in their report on medical debt. The solution of course, is a single payer system – improved Medicare-for-all.

All of this adds up to economic democracy – public banking for the public interest, worker owned and managed enterprises, participatory budgeting and a national program of health care for all. Perhaps out of the “yin” of economic crisis we can build a “yang” of a new economy that serves all of us, not just the tiny minority with concentrated wealth.

This article is based on a weekly newsletter for ItsOurEconomy.us. To sign up for the newsletter, click here. You can also hear this week’s Clearing the FOG program on big finance fraud and public banks with Bill Black and Ellen Brown.

Kevin Zeese JD and Margaret Flowers MD co-host Clearing the FOG  on We Act Radio 1480 AM Washington, DC and on Economic Democracy Media, co-direct It’s Our Economy and are organizers of the Occupation of Washington, DC. Their twitters are @KBZeese and @MFlowers8.