We Can’t Get There From Here

If the government is going to give billions, even trillions of our tax dollars to the banks, we should own them. Nationalize the banks.

When progressive Democrats say this, what they usually mean is that the government should take over the large investment banks and bank holding companies which have been the recipients of tax-funded government bailouts — Citigroup and Bank of America, for example — restructure them, and then continue to operate them in the public interest, either through direct ownership of a majority stake in each company’s equity, or after repatriating them at a fair price to a new, and presumably more responsible group of capitalists, through stringent new regulations, and even government seats on their Boards of Directors. The presumption, of course, is that in recent years these banking conglomerates have been run, and in most cases continue to be run, solely in the interest of the bankers and their shareholders, with little or no regard for the public interest.

Such a plan sounds like a good idea; certainly Stiglitz and Krugman seem to think so, and they know far more about such things than most of us do. The difficulty I have with it is that as far as I can tell, there’s little practical difference these days between the government owning the banks and the banks owning the government.

Strictly speaking, I’m making a political observation here, not an economic one, but consider just one recent event, the defeat of the Durbin Amendment in the Senate last Thursday. This amendment to the Senate Housing Bill (S.891) would have brought the bill into conformity with a bill passed earlier by the House by allowing homeowners facing foreclosure on their homes to seek a court-administered adjustment of both the interest and the outstanding principal on their loans. Among the most significant of the groups lobbying against the amendment was the Mortage Bankers Association, which celebrated its victory in this widely linked video:

Consider also that one of the members of the board of the association is an executive of Chase Bank, a division of JP Morgan-Chase, and another is an executive of Wells Fargo Bank, each of which received a federal bailout package of $25 billion dollars. Finally, consider that one of the reasons given by the association for its opposition to the amendment was that it would create a moral hazard, meaning that it would encourage people in the future to buy houses that they couldn’t afford, and legally burden their mortgage bankers with the loss when they were unable to make their payments.

Frankly, when offered by an industry whose practices in the past decade came very close to destroying the entire global economy, this doesn’t even pass the smell test. Bankers who overindulged in risk, were salvaged by billions of dollars of tax-supported cash infusions, and then spent millions of those dollars lobbying senators to defeat a bill which would have afforded similar relief to ordinary homeowners have an amazing amount of gall, it seems to me, to even think of offering opinions on moral hazard.

Let me be perfectly clear. In talking about the series of events leading up to the defeat of Senator Durbin’s amendment, I’m not arguing guilt by association, take no particular pleasure in bashing what some have called greedy plutocrats, and have no need or desire to rely on some sort of post hoc ergo propter hoc explanation for why the vote went the way it did.

The relationship between bankers, federal bailout money and lobbying — which I’m by no means alone in pointing out — may in fact be purely coincidental. I’m even willing to accept the proposition that these folks genuinely believe that they’re acting in the public interest, despite the obvious appearances to the contrary.

The problem is that, from my perspective, there’s no public in their version of the public interest, there’s just them and the people they know and do business with — those who, in a more combative time, we might have called their class — and outside that familiar circle, they see only an undifferentiated and faceless mass which includes most of the rest of us. In other words, our needs, let alone our opinions, aren’t a part of the public interest which anyone in their position is obliged to take seriously.

More to the point, we have no way at present — absolutely no way — of making them do otherwise. The idea of democracy, that there’s some sort of virtuous path between the will of the people and the actions of its putative representatives, has no force in a society which treats money as the legal equivalent of speech. If anything has become obvious in the United States since the end of WWII, it’s the fact that money is now the only effective form of political speech.

We listen to candidates tell us what we want to hear, we vote for them, and then when they get to our state capitals, or to Washington, they do what people with money tell them to do. To be fair, if they refuse, if they take a broader view of the public interest, the people with money won’t provide them with the means to speak to us come the next election, and in our era, they literally have no other way to speak to us without it.

There’s plenty of blame to go around for this, but in the end, most of it is ours to shoulder. Fundamentally, this is, as I’ve already said, more a political burden than an economic one, one which we’ll eventually have to accept no matter what we make of the economic vices and virtues of global capitalism and the corporate state. Those vices and virtues are real enough, and will, I hope, provide an interesting subject for more than one future post.