Several banks have collapsed over the last several weeks.
Silvergate and Signature were the two main banks used by risky, flawed and unproven crypto companies.
- Silver Valley bank provided initial funding to the declining and volatile financial tech and pharmaceutical startups until those companies could, hopefully, raise money from initially selling stock. It also managed the wealth of the super rich founders of the successful startups. Many of their clients have accounts in the millions of dollars, well above the $250,000 FDIC insured levels. In fact, $150 billion of its $175 billion in deposits were uninsured
The failure of Silver Valley and Signature – the 2nd and 3rd largest bank failures in U.S. history – triggered panicked customers to withdraw nearly $100 billion from their accounts, mostly from mid-sized banks, in one recent week. Several other banks, First Republic and Western Alliance, have seen their market value plummet. Fears of a full-scale banking crisis can – as in the past – deepen a larger financial and economic crisis.
Risky and speculative business decisions, like making huge bets on crypto currencies and startups, should not be incentivized, but that’s how the current financial system works: keeping all your wins but shedding all your losses. Call it corporatizing gains and socializing pains.
The 2008 financial crisis resulted in more than $16 trillion in total financial assistance from the Federal Reserve doled out to many of the largest financial entities in the U.S and the world – institutions responsible for their reckless subprime mortgage lending practices. This followed President Obama’s pledge to protect bankers from prosecution.
How are banking institutions once again being shielded, protected and subsidized?
Lax financial regulations. The post-2008 financial crisis reform bill “Dodd-Frank Wall Street Reform and Consumer Protection Act” – a flawed and inadequate response to the too-big-to-fail problem – was further weakened by a 2018 law that reduced bank oversight and paved the way for more risk-taking and industry consolidation.
Teetering banks looking for cash to cover bad investments and debts have turned to an unlikely source: Federal Home Loan Banks (FHLB): federally-created financial institutions meant to provide affordable mortgages to low and moderate income individuals and for community development.
- The San Francisco regional branch in 2022 loaned nearly $40 billion to Silver Valley and Silvergate, as well as First Republic and Western Alliance.
The New York FHLB branch loaned last year Signature bank $11 billion and, ominously, Citibank $19 billion – one of the largest banks in the U.S.
Compare these bailouts to the lack of public financial emergency assistance for people experiencing a housing, health, employment, education or a small business crisis. It’s rugged individualism when it comes to those who aren’t super rich or corporations.
Insure the uninsured. The Treasury Department, Federal Reserve and FDIC have agreed that all Silicon Valley and Signature bank customers can access all their money above the $250,000 insurance limit – a bonanza for the very rich. The Fed also announced an expansive emergency lending program to banks. Both are intended to boost confidence in the banking system.
If all this isn’t enough, banks and the super rich now want unlimited FDIC insurance
- Midsize banks want a suspension of a $250,000 insurance limit for 2 two years.
Mega banks like JPMorgan Chase want all bank deposits insured as well. Why? It may have something to do with 69 percent of its deposits, or $1.06 trillion, being uninsured at year’s end. It’s, no doubt, similar for other mega banks.
Compare the concerns of the super rich about where to store all their money and banks on how to entice as many deposits as possible to the financial reality of the public. More than half of the population can’t afford a $1000 emergency. When broken down by generation, that’s 85% of Gen Zers and 79% of millennials.
Why are banks so powerful?
- Financial and monetary matters are incredibly complex, some of it intentional, to intimidate and resign people to leave it all to “experts.” It doesn’t help, however, that the public is mostly illiterate on monetary/financial matters. Political economy, including the strengths and weaknesses of our monetary and financial systems – including how it centralizes wealth and power – have never been a part of high school curricula since public schools became an institution of the masses in1892. Henry Ford once said, “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
Banks provide money – the central life blood for companies to start and expand businesses. Specifically, the money banks loan to individuals and businesses isn’t drawn from their deposits. Banks create money “out of thin air” as debt, which must be repaid with interest. This creates indebtedness and enormous financial power.
Banks translate their financial power into political power by threats of calling in debts of companies and governments (that would result in immediate bankruptcy) and determining what sector of society (i.e. housing or crypto currencies) or locations (cities or suburbia) loans will be given.They also are a political force. The Finance, Insurance and Real Estate (FIRE) industry is #1 in federal political campaign contributions and #2 sector in money spent in federal lobbying.
- Financial crises have been used in the past to consolidate both economic and political power: to make “too big to fail” banks even bigger through consolidation, reducing regulations given “emergency conditions” and to force indebted public entities to privatize/corporatize public assets that banks can both profit from and can control over.
It didn't used to be this way.
The First and Second National Banks of the United States had federal charters for a specific number of years. Neither were renewed by the government as it was felt that they didn’t serve the public benefit, if not becoming too powerful.
Banks were the most closely controlled business category for the first several decades of U.S. history. Separate charters or licenses to form a banking institution in many states stipulated rigid conditions to ensure financial accountability to shareholders and democratic accountability to the people. This included charters issued for a few years before they had to be renewed, limits of the number of shares issued, interest rates on loans and debt limits; county residential requirements for directors, and directors being personally liable for debts beyond a certain limit. Over time, individual charters were replaced with general incorporation laws. An Act to Regulate Banks in Ohio in 1842 included many of these and additional provisions – as well as these:
- Punishment of “[a]ny president, director, trustee…or other officer… consenting to a violation of any of the provisions [above] … shall be fined… and imprisoned in the cell or dungeon of the county jail, and fed on bread and water only…”
- Punishment for embezzling “shall be imprisoned in the penitentiary, and kept at hard labor…”
It doesn’t have to be this way
- Immediate banking reforms are needed to eliminate the “moral hazard” of financial institutions – that is, to reduce the incentive for financial risk-taking knowing that it will have to bear the full cost of that risk. A range of other laws are needed to legitimately assess the health of banks, to break up “too-big-to-fail” banks, and other rules to protect consumers and the economy. However, such reforms, even if passed, don’t address their two fundamental sources of power.
The U.S. Constitution (Sec 8, Art 3, Sec 5) states “ [The Congress shall have Power . . . ] To coin Money….” Coin is a verb, meaning to create. The financial/economic power of banks to create our money as debt AND decide where it will go must end. A proposal to achieve this is the American Monetary Reform Act, that would democratize money creation for public benefit rather than banking greed.
- Financial corporations are, arguably, the most economically and politically powerful of all corporate entities in this country and world. Our forebears understood the necessity of tightly controlling and rigidly defining the actions of banking corporations. Passing Move to Amend’s We the People Amendment to abolish all corporate constitutional rights and end the constitutional doctrine that political money spent in elections equals First Amendment-protected free speech is an essential step to reversing the massive power of the financial industry and the ever-growing democracy crisis.
Tara, George, Dolores, Jason, Alfonso, Dylan, Ambrosia, Jennie, Shelly, Daniel, Jessica Joni, Keyan, Michael, Margaret & Greg
Move to Amend National Team
p.s. Unlike private banking corporations, Move to Amend can’t create money “out of thin air” through computer keystrokes. Instead, we rely on our supporters like you and your “investments” to create authentic democracy. Please donate – preferably by becoming a monthly donor. Just as you may have a certain sum automatically taken out of your salary and deposited in a separate “savings account,” please consider automatically donating a certain amount every month to Move to Amend. Knowing how much we can “bank” on each month helps us plan our work. Thank you for considering!