Post by Admin on Jul 11, 2018 13:10:44 GMT
Reclaiming the State
William Mitchell & Thomas Fazi
www.plutobooks.com/9780745337326/reclaiming-the-state/
"DEFANGING THE BANKS
The fundamental incompatibility between the essentially public nature of finance and the profit motive intrinsic to the private ownership of the banks – which has led to the [2008] global financial crisis and its very destructive aftermath, and results in a continuous privatisation of profits and socialisation of losses – NEED TO BE ADDRESSED HEAD-ON.
The ONLY STRUCTURAL solution to this incompatibility – which represents a HUGE IMPEDIMENT to the construction of a society ‘guided by the pursuit of the COMMON GOOD, SOCIAL JUSTICE and the RECONSTRUCTION OF BALANCED RELATIONS BETWEEN HUMANS AND THE OTHER COMPONENTS OF NATURE’ – is the NATIONALISATION (SOCIALISATION) OF THE BANKING SECTOR. As Frédéric Lordon proposes, nothing less than ‘total deprivatisation of the banking sector’ needs to carried out.
Simply put, BANKS SHOULD BE PUBLICLY OWNED AND DEMOCRATICALLY CONTROLLED. Toussaint and others note that socialisising the banking sector means:
(1) Expropriating the large shareholders WITHOUT COMPENSATION;
(2) Granting a monopoly of banking activities to the PUBLIC SECTOR, with ONE SINGLE EXCEPTION – the existence of a small cooperative banking sector (subject to the same fundamental rules as the public sector);
(3) Creating a public service for savings, credit and investment.
Public ownership in itself is no panacea, of course. There are countless examples around the world of public banks that behave no differently than their private counterparts. Therefore, measures should be introduced to ensure that THE PUBLIC SYSTEM DOES NOT REPLICATE THE PROFIT-SEEKING MODEL OF THE PRIVATE BANKS. In terms of operational guidelines, THE ONLY USEFUL FUNCTION THAT A BANK SHOULD PERFORM IS TO PARTICIPATE IN THE PAYMENTS SYSTEM, AND PROVIDE LOANS TO CREDITWORTHY CUSTOMERS. In other words, banks should return to their original purpose: allocating money to businesses and families and aiding the growth of the economy.
So how might we ensure that the operations of the public banking system satisfy our conception of social/public purpose?
First, the newly nationalised banks should only be permitted to lend directly to borrowers. Attention should always be focused on what is a reasonable credit risk, with aim of avoiding some of the Minskian fluctuations in credit availability over the business cycle. ALL LOANS SHOULD BE KEPT ON THE BANK’S BALANCE SHEETS. This would stop all third-party commission deals that might involve banks acting as ‘brokers’ and on-selling loans or other financial assets for profit. BANKS SHOULD NOT BE PERMITTED TO SPECULATE AS COUNTER-PARTIES WITH OTHER BANKS.
Moreover, new social, labour and environmental criteria, such as the working conditions that business borrowers provide to their workforce, should be introduced to determine how the banking system allocates credit.
Second, banks should not be allowed to accept ANY FINANCIAL ASSET AS COLLATERAL TO SUPPORT LOANS. The collateral should be the ESTIMATED VALUE OF THE INCOME STREAM ON THE ASSET FOR WHICH THE LOAN IS BEING ADVANCED. This will force banks to appraise the credit risk more fully. One of the factors that led to the [2008] financial crisis was the increasing inability [or unwillingness] of the banks to appraise this risk properly. Further, the foreclosure scandal that followed the financial crisis would not have occurred if these stipulations have been in place.
Third, banks should be prevented from having OFF-BALANCE SHEET ASSETS.
Fourth, banks should never be allowed to trade in credit default insurance.
Fifth, banks should not engage in ANY OTHER COMMERCIAL ACTIVITY.
Sixth, banks should not allowed to underwrite contracts in foreign interest rates, nor issue FOREIGN CURRENCY-DENOMINATED LOANS.
THE RESULT OF THESE SUGGESTIONS WOULD BE TO RENDER ILLEGAL A HUGE RAFT OF TRANSACTIONS THAT ARE CURRENTLY CONSIDERED PART OF NORMAL BANKING.
On the question bank governance, bank management should be restructured to include representatives of unions, community and social movements, and elected officials. More generally, a new bank charter should be democratically drafted, with CITIZEN PARTICIPATION, laying out the wider social goals that the public banking system should serve.
Steering the activities of banks towards the advancement of the common good would go a long way towards eliminating the dysfunctional, antisocial nature of private banking, and ensuring that these ‘public’ institutions serve the public purpose. The socialisation of banks should thus ‘be part of an expansive vision that reshape the practices and uses of credit along egalitarian lines.’
The case for bank nationalisation is also based on an acknowledgement of the fact that the FUNDAMENTAL REPONSIBILITY OF GOVERNMENT MACROECONOMIC POLICY IS TO MAXIMISE REAL NATIONAL OUTPUT IN A WAY THAT IS SUSTAINABLE (SOCIALLY,ECONOMICALLY, ENVIRONMENTALLY) [AND JUST]. This in turn requires FINANCIAL STABILITY. An economy’s financial system is stable if its key financial institutions and markets function ‘normally’.
The essential requirements of a stable financial system are:
1. Clearly defined property rights;
2. Central bank oversight of the payments system;
3. Capital adequacy standards for financial institutions;
4. Bank depositor protection;
5. An institutional lender of last resort that can intervene when private institutions refuse to lend solvent borrowers in times of liquidity crisis;
6. An institution to ameliorate coordination failure among private investors/creditors;
7. The provision of exit strategies to insolvent institutions.
While some of these requirements can be provided by private institutions, they ALL FALL WITHIN THE DOMAIN OF GOVERNMENT. As a consequence, there is nothing intrinsically ‘private’ that has to be present in the banking system for these requirements to be met. THE STABILITY OF THE FINANCIAL SYSTEM IS FUNDAMENTALLY A PUBLIC GOOD, AND SHOULD THUS BE THE LEGITIMATE RESPONSIBILITY OF GOVERNMENT."
Reclaiming the State
William Mitchell & Thomas Fazi
William Mitchell & Thomas Fazi
www.plutobooks.com/9780745337326/reclaiming-the-state/
"DEFANGING THE BANKS
The fundamental incompatibility between the essentially public nature of finance and the profit motive intrinsic to the private ownership of the banks – which has led to the [2008] global financial crisis and its very destructive aftermath, and results in a continuous privatisation of profits and socialisation of losses – NEED TO BE ADDRESSED HEAD-ON.
The ONLY STRUCTURAL solution to this incompatibility – which represents a HUGE IMPEDIMENT to the construction of a society ‘guided by the pursuit of the COMMON GOOD, SOCIAL JUSTICE and the RECONSTRUCTION OF BALANCED RELATIONS BETWEEN HUMANS AND THE OTHER COMPONENTS OF NATURE’ – is the NATIONALISATION (SOCIALISATION) OF THE BANKING SECTOR. As Frédéric Lordon proposes, nothing less than ‘total deprivatisation of the banking sector’ needs to carried out.
Simply put, BANKS SHOULD BE PUBLICLY OWNED AND DEMOCRATICALLY CONTROLLED. Toussaint and others note that socialisising the banking sector means:
(1) Expropriating the large shareholders WITHOUT COMPENSATION;
(2) Granting a monopoly of banking activities to the PUBLIC SECTOR, with ONE SINGLE EXCEPTION – the existence of a small cooperative banking sector (subject to the same fundamental rules as the public sector);
(3) Creating a public service for savings, credit and investment.
Public ownership in itself is no panacea, of course. There are countless examples around the world of public banks that behave no differently than their private counterparts. Therefore, measures should be introduced to ensure that THE PUBLIC SYSTEM DOES NOT REPLICATE THE PROFIT-SEEKING MODEL OF THE PRIVATE BANKS. In terms of operational guidelines, THE ONLY USEFUL FUNCTION THAT A BANK SHOULD PERFORM IS TO PARTICIPATE IN THE PAYMENTS SYSTEM, AND PROVIDE LOANS TO CREDITWORTHY CUSTOMERS. In other words, banks should return to their original purpose: allocating money to businesses and families and aiding the growth of the economy.
So how might we ensure that the operations of the public banking system satisfy our conception of social/public purpose?
First, the newly nationalised banks should only be permitted to lend directly to borrowers. Attention should always be focused on what is a reasonable credit risk, with aim of avoiding some of the Minskian fluctuations in credit availability over the business cycle. ALL LOANS SHOULD BE KEPT ON THE BANK’S BALANCE SHEETS. This would stop all third-party commission deals that might involve banks acting as ‘brokers’ and on-selling loans or other financial assets for profit. BANKS SHOULD NOT BE PERMITTED TO SPECULATE AS COUNTER-PARTIES WITH OTHER BANKS.
Moreover, new social, labour and environmental criteria, such as the working conditions that business borrowers provide to their workforce, should be introduced to determine how the banking system allocates credit.
Second, banks should not be allowed to accept ANY FINANCIAL ASSET AS COLLATERAL TO SUPPORT LOANS. The collateral should be the ESTIMATED VALUE OF THE INCOME STREAM ON THE ASSET FOR WHICH THE LOAN IS BEING ADVANCED. This will force banks to appraise the credit risk more fully. One of the factors that led to the [2008] financial crisis was the increasing inability [or unwillingness] of the banks to appraise this risk properly. Further, the foreclosure scandal that followed the financial crisis would not have occurred if these stipulations have been in place.
Third, banks should be prevented from having OFF-BALANCE SHEET ASSETS.
Fourth, banks should never be allowed to trade in credit default insurance.
Fifth, banks should not engage in ANY OTHER COMMERCIAL ACTIVITY.
Sixth, banks should not allowed to underwrite contracts in foreign interest rates, nor issue FOREIGN CURRENCY-DENOMINATED LOANS.
THE RESULT OF THESE SUGGESTIONS WOULD BE TO RENDER ILLEGAL A HUGE RAFT OF TRANSACTIONS THAT ARE CURRENTLY CONSIDERED PART OF NORMAL BANKING.
On the question bank governance, bank management should be restructured to include representatives of unions, community and social movements, and elected officials. More generally, a new bank charter should be democratically drafted, with CITIZEN PARTICIPATION, laying out the wider social goals that the public banking system should serve.
Steering the activities of banks towards the advancement of the common good would go a long way towards eliminating the dysfunctional, antisocial nature of private banking, and ensuring that these ‘public’ institutions serve the public purpose. The socialisation of banks should thus ‘be part of an expansive vision that reshape the practices and uses of credit along egalitarian lines.’
The case for bank nationalisation is also based on an acknowledgement of the fact that the FUNDAMENTAL REPONSIBILITY OF GOVERNMENT MACROECONOMIC POLICY IS TO MAXIMISE REAL NATIONAL OUTPUT IN A WAY THAT IS SUSTAINABLE (SOCIALLY,ECONOMICALLY, ENVIRONMENTALLY) [AND JUST]. This in turn requires FINANCIAL STABILITY. An economy’s financial system is stable if its key financial institutions and markets function ‘normally’.
The essential requirements of a stable financial system are:
1. Clearly defined property rights;
2. Central bank oversight of the payments system;
3. Capital adequacy standards for financial institutions;
4. Bank depositor protection;
5. An institutional lender of last resort that can intervene when private institutions refuse to lend solvent borrowers in times of liquidity crisis;
6. An institution to ameliorate coordination failure among private investors/creditors;
7. The provision of exit strategies to insolvent institutions.
While some of these requirements can be provided by private institutions, they ALL FALL WITHIN THE DOMAIN OF GOVERNMENT. As a consequence, there is nothing intrinsically ‘private’ that has to be present in the banking system for these requirements to be met. THE STABILITY OF THE FINANCIAL SYSTEM IS FUNDAMENTALLY A PUBLIC GOOD, AND SHOULD THUS BE THE LEGITIMATE RESPONSIBILITY OF GOVERNMENT."
Reclaiming the State
William Mitchell & Thomas Fazi