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Let’s Not Wait for the Next Financial Crisis to Nationalize Wall Street Banks

It’s time for quantitative easing, but for the people instead of the powerful.

The Marriner S. Eccles building of the United States Federal Reserve in Washington, D.C., on July 24, 2017.

If you were going to storm a central symbol of power and corruption today, where would you go and what would you do once you got there? It’s a thought experiment that Marxist geographer David Harvey posed in a speech I heard this past year, and I’ve been thinking about it ever since.

I’m happy to have in-studio two guests who may have some answers to his question. Nomi Prins is a journalist and former Goldman Sachs director, the author of six books, the latest being Collusion: How Central Bankers Rigged the World. Thomas Hanna is research director at The Democracy Collaborative and the author of Our Common Wealth: The Return of Public Ownership in the United States.

Laura Flanders: As you can tell, that question has been lingering with me ever since I heard David raise it. Is he right? Is it the Fed that we would storm?

Nomi Prins: Well, what’s interesting about what he said is the Federal Reserve, the actual physical building in Washington, is really removed from the sidewalk and there’s a bunch of policemen in front of it. I was just there on Monday. It’s basically a very austere stay-away building. It’s the same thing with the Bank of England in London and so forth. There is this “awayness.”

It’s actually practically not so easy?

Prins: It’s not. You have to go through much more security measures and putting your name in books and stuff to get into the Fed than you do to get into the Capitol Building. But also what’s happened very recently, in the last 10 years in particular, is the Federal Reserve’s created a lot of money, $4.5 trillion worth of money, that it has to effectively be stowed onto the private banking system, with the idea that it will go to the general public, which, of course, it hasn’t. The idea of storming the Fed or taking back that money — of course, it was electronically created — is conceptually the right place to get to the source.

But it’s not sitting there in big piles of gold bullion or anything?

Prins: There is some, but the multi-trillions of dollars are actually sitting with the banks that the Fed is supposed to be speculating, and it was in all sorts of other market and financial asset purposes.

What’s your take, Thomas, on what David Harvey had to say?

Thomas Hanna: I think 10 years ago, President Obama had a meeting with some bankers and he said, “My administration’s the only thing standing between you and the pitchforks: the people who are out on the streets.” I think that instead of siding with the bankers against the people, maybe the government in the next crisis should side with the people, and the storming will be the nationalization or the takeover of many of these Wall Street banks that are going down.

What do you think? That they’ll just say, “Okay, fine. Take this all away from us?” I mean, how do you actually seize assets? You’re talking about public ownership, municipal ownership. We might not be taking national ownership of things, although we could. But even at the very local level, do people just willingly give up their private companies?

Hanna: Well, at the national level during the last financial crisis, we did actually take over several companies — Fannie Mae, Freddie Mac, GMAC, parts of Citigroup, AIG, for instance. When these big banks are going down on a crisis, we have an opportunity. We can either bail them out, give them free cash, or we can take something in exchange for that cash, and that should be ownership shares with voting rights. At the local level, there’s ways to get ownership of businesses and enterprises. Public referendums have been used in many cases. The public can, through a voting process, decide to take ownership or to municipalize electric utility, like in Boulder, Colorado, for instance. There are also ways to get around the legislature. The entire state of Nebraska’s energy system was taken over and put into public ownership by the people going around the corporate-controlled legislature. They did referendums and bond issues and so on and so forth….

Prins: The thing with the public bank.… It actually has been shown to adhere to the public good, the public demand to actual, real economic growth at the foundational level of our economy that allows people to have jobs, to move about, to be involved in research and development projects, and to build a stronger country.

Do those nice public banks that you might have in your state or your town have any chance of standing up against, as you say, the central bankers have rigged the world?

Prins: Well, this is a problem. If you look at something like North Dakota, which is the only state that has a public bank, one of the reasons they have it is because they take the tax receipts from people and from companies that operate there. Then they utilize those back into the economy. They’re able to effectively work their economy in a very positive manner.… The Federal Reserve, of course, doesn’t have that necessity. They talk about bailing out the private banks as somehow being good for the public, but they’re not giving the money or requiring that money go in any sort of extra meaningful way to the public. It’s not even true.

Want to come in on that, [Thomas]? I mean the scale problem? It seems to me your local public banking system is up against it when we’re talking about the global economy. But maybe Nomi’s right.

Hanna: Well, I think the Bank of North Dakota shows that it plays a role in the banking ecosystem in that state. The Bank of North Dakota essentially works with local banks, with credit unions, community banks. It backstops them. As Nomi said, that all state revenues go in to capitalize the bank and so on and so forth. I think we need to make structures, and integrated structures of public banks at different levels, integrated with local banks. Maybe if we, in the next crisis, took over one of the large Wall Street banks, that could support a network of regional public banks at the state level.

If you were to go back to David Harvey’s question about storming the Fed, and the question is what would we do there, you’re saying, well, you’d maybe take inventory but then you’d move on to the local banking systems. Is that right?

Prins: Well, I am saying that the way the current Federal Reserve system is structured, it works for the large private banks. It doesn’t just work for them for ransom money in an emergency, for ransom money all the time. It agrees to their mergers. It has allowed bigger banks to take over smaller banks since its inception because it gets to have a say in that, and what it always says is, yes, you can do that. It has created and have been involved in creating the larger banks that were powerful to begin with because they were the ones who actually required the Fed to be there for them.

So it could do something completely different? We could have a Fed run completely differently, right?

Hanna: Yeah. In the last crisis, the Federal Reserve did certain things that it’s actually not allowed to do any more. The Dodd-Frank legislation actually, for all of its weaknesses in certain areas, bound the hands of the Federal Reserve to do some of these equity purchases to individual companies and banks that was used during the last financial crisis. Through legislation in the federal government, you can put certain conditions and restrictions and what not on the Federal Reserve to make it act differently potentially.

We’ve had people on the show that were talking about occupying the Fed, meaning occupy Wall Street. I thought of that when I read your book, Nomi, and you said if the 20th century was the century of Wall Street; the 21st is the century of the central bankers. Is that what you said?

Prins: That’s right, because … central banks … have effectively created a lot of the seed money to allow the private banks to sustain the types of risks that they sustain and continue to speculate as they do with deposits. It’s this core idea of government support, even though it’s supposed to be independent from the Fed, as something that they have to their benefit. The Fed, by no law — and there are some restrictions that come in here and there, although they can get around some of them if they were in an emergency, because ultimately, they have an emergency clause in their charter. Yes, Congress can take that back and do things, but they don’t. They trust this relationship. The Fed has, as do central banks, no actual limitation. There is no law in any country that limits the amount of money they can manufacture in what they deem to be a crisis situation. That’s a lot of power.

Great. Let’s get the printing presses running and feed everybody and house everybody and, I don’t know, give everyone free school.

Hanna: Yeah. I mean quantitative easing, the process that the Federal Reserve used to create money during the last financial crisis, can be used in different circumstances for different purposes.

Isn’t that one of the things that Jeremy Corbyn proposed kind of —

Hanna: Yeah, quantitative easing for the people.

— the Labour Party in the U.K.?

Hanna: There’s also discussion of quantitative easing for the planet. Some of my colleagues at The Democracy Collaborative are working on a proposal that perhaps we could use quantitative easing to buy out some of the fossil fuel companies to mitigate the climate crisis over the next decade or so.

Prins: Right, because at the end of the day, what the Fed has done, by quantitative easing, it has created money and it has decided who it gives it to and what it receives in return. That has been predominantly financial institutions and the largest private banks throughout the world — the Fed and other central banks…. If you take $22 trillion that’s currently on offer by the major developed central banks of the world to their financial systems and you leverage that by 10 times, you have a lot of money to fix many, many problems and grow economies throughout the world.

I’m imagining they might say, “You’re giving us a really hard time, but the system, which is to say capitalism, did not crash, did not collapse in 2008. We’re all still here. People still have their jobs. Businesses are still taking over. Think twice before you critique what we’re up to. We’ve actually held it all together.”

Prins: I have that question posed to me by people at these institutions and on a daily basis since the financial crisis. The reality is we don’t really know what would have happened, but what we do know … was that it would have been cheaper if you’re going to go to the root of creating money to buy up all of the subprime mortgages that were at risk at the crux of the financial crisis, which effectively were more at risk because of how much they were manipulated by derivatives and other things throughout the financial system, and literally buy all of them. You would have spent a fraction in a shorter period of time than what has been spent and what continues to be on subsidy to the financial system throughout the world.

We’re always told subsidies are a tricky and unstable thing, and can’t be kept up forever. Can this uneasy, fragile situation that you’ve just described survive?

Prins: It has been surviving because they don’t know what else to do…. Again, this goes through this global process. They’ve ran into some issues. They don’t want to dump all of the bonds that they bought and receive the money back from the banks. That will create actually a mass catastrophe. They’ve created a catch-22 for themselves. They could divert it to public banks. They could divert it to public works.

I was going to say, you have a lot of ideas of what they could do.

Hanna: The things that they put in place after the financial crisis haven’t really changed the structure of the system in any significant way. The banks are bigger than they were before. We’re bound to have another financial crisis at some point. We don’t know when, we don’t know where, we don’t know how bad, but there will be another financial crisis because what’s been put in place just isn’t sufficient, and I think everyone knows that. We need to be starting to think differently. What are the structural interventions that we can do?

Are we thinking differently? I mean, we’ve got a new congressional majority in the House. We’ve got some campaigns that are getting into gear this year and the next. Are the new crop of politicians, in this country or internationally, seeing some of these possibilities, running on any of these major structural change plans?

Hanna: I think so. I think there’s a great hunger in the new crop of politicians, especially in the House, for some new ideas, for some really big interventions. If you look at the stuff around the Green New Deal, some of that might involve public banking. A lot of people are talking about that. I really think there’s an opportunity here to get some really refreshing ideas into the discussion. In the last financial crisis, 33 senators, I believe it was, voted to break up the big banks as an amendment to Dodd-Frank. It didn’t pass, but that’s a huge majority of senators if you think about it. We can build on that in the next crisis or in the coming years.

Public ownership of certain national institutions has been very popular in the British Labour Party manifesto from what I understand.

Hanna: Postal banking here in the United States has been popular amongst some senators to give the post office, which is a publicly owned enterprise, the ability to provide banking services, which is common around the rest of the world.

Globally, is there a mounting pressure for any of this real change?

Prins: Well, I think globally we’ve seen places, even in Germany, where they actually have a public banking system, and in China, where it’s not quite a public banking system, but where the central bank actually supports the building of infrastructure within China and within the trade alliances of countries around China. There are numbers of other places where the idea of using capital for the actual public good and economic stability and real growth is actually put into practice. With respect to green, there was a BRICS bank that was created a number of years ago … it’s now called the New Development Bank, but the idea is that those countries get together and the money that they raise within that bank, that infrastructure bank, [goes] to green development projects. That was basically one of the charters of that recently created institution. It can happen.

So take over the [International Monetary Fund] and make it work for us?

Prins: Right.

Sounds good to me. Something like that.

Hanna: The U.K. had a green investment bank, publicly owned, and then they privatized it under the last government. It is an option.… Banco Popular in Costa Rica is a leading ecological lender in that country because it was the will of the people. They have a popular planning process that allows them to determine what the bank should do, and they decided to go green.

All right. You two have accomplished the perfect job, which is to take me from a knife edge of anxiety to actually feeling encouraged, so thank you both. It’s great to have you. Nomi Prins is the author of Collusion, Thomas Hanna of Our Common Wealth. You can find more of my interviews with them and more information about their books at our website. Thanks for watching. Thanks, you two. That was great.

Hanna: Thank you.

Prins: Thank you very much, Laura.

This interview has been edited for clarity and length.

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