End Big Banks: Save Our Economy and Our Democracy

We need to end big banks that are too big to fail and we can. We need to because they are crushing our economy and corrupting our democracy. We can because they are few in number without many allies – and growing numbers of experts and concerned citizens realize the danger that comes from having banks that are so big and interconnected that they will fall like dominoes and destroy the economy if one of them goes bankrupt. 

No task we face is more urgent. As I discussed in “Preventing the Next Big Bank Bailout,” an embryonic movement is underway to end too-big-to-fail banks. A progressive alliance can build on this foundation, help it succeed, and stay together afterwards to achieve more improvements in national economic policy.

The five biggest banks hold more money in deposits than the other 7,000 banks combined. They divert money from the productive “real economy” into the nonproductive “paper economy.” They waste taxpayer money with subsidies that enable them to reap enormous profits. And they use their political power to block legislation that would help regulate the financial industry and boost the economy.

Community and regional banks are the primary source of loans for businesses and consumers. Thanks to the subsidies the big banks receive from the federal government, those commercial banks are being driven into bankruptcy by the big banks. Since the commercial banks elect a majority of the directors of the regional Federal Reserve Banks who regulate those banks, heads of those district Feds have recently begun to forcefully criticize the industry’s move toward monopoly.  This division within the ranks of the financial industry offers a strategic opportunity for reform.

Consumer advocates, libertarians, and free market fundamentalists also share this concern about the threat to open competition. Both right-wing Tea Party activists and left-wing radicals object to government bailouts of private banks. These elements could also join a broad coalition to end too-big-to-fail banks.

To build this movement, progressive activists who focus on local issues need to devote more resources to correcting national policy. Until we deal with national policy, we’ll continue to be swamped by the misery, hardship, and injustice resulting from failed national policies. Taking on national issues is not easy, but it is necessary. By identifying achievable, step-by-step objectives that move us toward meaningful change, we can succeed.

Progressives also need to overcome the widespread animosity between liberals who want short-term reforms and radicals who want longer-term systemic change. Liberals need to “connect the dots” and better appreciate the need for structural reform. And radicals need to overcome their resistance to “half measures” and better appreciate the need to mobilize enough power to actually begin changing the system. The mutual contempt often seen in both camps needs to end, as it has occasionally in American history. Both liberals and radicals need to recognize that most people in the other camp are sincerely motivated to help reduce suffering and injustice. And both camps are needed, for they complement one another.

In his excellent article in the August 16, 2012 New York Review of Books titled “The Left vs. Liberals,” Sean Wilentz cites the Minnesota Farmer-Labor Party as a rare example of such reconciliation. We would do well to learn from this history. In my essay “Transforming the System with Evolutionary Revolution,” I offer a framework for such a synthesis rooted in “evolutionary revolution,” a phrase used by Gandhi. By achieving near-term reforms, progressive alliances can move us toward longer-term systemic transformation. Revolution is never-ending. If we are deeply committed to ongoing positive change, no victory or defeat will prompt us to withdraw.

While affirming eventual fundamental transformation in their own work, progressives can also build single-issue coalitions with others who don’t share the same longer-term goals. A coalition to end too-big-to-fail banks is an example.

A primary task we face is the need to inspire people who are largely inactive to become more actively engaged. We need to prompt them to do more than vote in elections and sign Internet petitions by offering them the opportunity to make an impact. We need more community organizers, even if most of those organizers devote only a few hours a week to their efforts. We need people who invite friends, relatives, acquaintances, and neighbors to house meetings where they can talk face-to-face, develop meaningful friendships, support one another, and discuss methods for eliciting more involvement to deal with national economic policy.

The Net-based efforts to end too-big-to-fail banks reported on in “Preventing the Next Big Bank Bailout” are encouraging. My hope is that a grassroots effort emerges soon to complement those efforts and organize people face-to-face. Following is a proposal for how to build this movement.

An End Too-Big-to-Fail Banks Alliance

Goal: To end too-big-to-fail banks in order to: 1) Help prevent another major financial crisis; 2) Avoid more taxpayer bailouts; 3) Reduce the political power of the big banks; 4) Facilitate greater investment in public-service jobs to meet pressing needs. 

Basic principles:

• In the spirit of Gandhi and King, the coalition will:

• Focus on winnable short-term objectives that build support for our long-term goal.

• Communicate respectfully without scapegoating or demonizing opponents.

• Seek win-win solutions that will be better for taxpayers, the banks, and all Americans (through negotiation and when needed compromise).

• Commit ourselves to nonviolence in word and deed during this campaign.

• The initial organizing committee will:

• Assure that the project is inclusive.

• Establish mechanisms to assure democratic control of the project.

• Operate in an open, transparent manner.

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Possible Initial Campaign 

• Form an Ad Hoc Committee for a Wells Fargo Dialog.
• Compose an invitation to the Wells Fargo chief executive, whose office is in San Francisco, to participate in a public forum on the question: How can we prevent another bank bailout? 

• This invitation would clearly explain our aim to carefully structure the forum to assure an orderly, respectful, and sincere attempt to move toward a deeper mutual understanding of the issue.

• Possible early endorsers include: Episcopal Diocese; Temple Emmanuel, Ed Lee, Nancy Pelosi, Barbara Lee.

• Possible panelists include: Robert Reich, Van Jones, Alice Walker.

• Gather broad support for that invitation.
• Present the invitation to the Wells Fargo chief executive.
• If he declines the invitation and we gain sufficient support, conduct a series of steadily escalating peaceful demonstrations designed to build support for the Dialog. 
• Encourage supporters in other cities to demonstrate at local Wells Fargo branches calling on Wells Fargo to “sit down and talk.”
• If the Wells Fargo chief executive still refuses, convene a community meeting (without the chief executive) to answer the proposed focus question: How can we prevent another bank bailout? 
• At that meeting, seek support for a proposal to break up banks that are too big to fail.
• Gather signatories on printed and online petitions and endorsements from bodies of elected officials, while engaging in peaceful demonstrations as needed.

I’ll share this article with activists in the San Francisco Bay Area, ask them for feedback, and tell them I’ll be available to assist if a diverse, member-controlled component to this movement develops. If you want to be kept informed, please let me know.

If we assure that our banks are small enough to fail without devastating the economy, release their stranglehold on our economy, and diminish their political power, we can create a sustainable economy that provides everyone with a decent opportunity to thrive.

Transforming the System with Evolutionary Revolution

Since the birth of centralized agriculture, the wealthy have used their advantages to benefit themselves, their friends, and their families at the expense of others. This quest for wealth and power has been the driving force in every society.

Like any system, our global social system consists of inter-dependent elements that work together to serve a particular function – that is, to enable those with wealth and power to increase their wealth and power.

Its key elements include: the government, the economy, mainstream media, and education; informal institutions such as the family; our culture; and ourselves as individuals, who reinforce the system.

Individuals and groups have to be accountable for their actions, but no one element controls the system, which is self-perpetuating and for which we are all responsible.

Without opposing public pressure, society becomes increasingly top-heavy, unstable, and undemocratic. The culture becomes more materialistic, dehumanized, and authoritarian, and individuals become more goal-oriented, competitive, and selfish.

Goals

To create a new society, we need to establish that humanity’s primary mission is to serve the human family. If we balance self-interest and community needs, and protect the planet, we can take care of ourselves and our families as well as our nation and the global community. Self-empowerment fosters community empowerment.

With a deep, clear commitment to evolutionary revolution, we can steadily transform society with reforms that improve living conditions.

Means

Because life is mysterious, wonderful, and awe-inspiring, human beings cherish beauty, spread joy, love others as they love themselves, and foster strong communities that nurture personal development, caring relationships, and healthy families.

Gandhi’s three-fold path -- nurturing personal development; creating model communities based on mutual support; and engaging in political action -- enables us to move forward with compassion.

• By engaging in ongoing personal development, we can undo our negative conditioning. We can, for example, become less arrogant, self-centered, competitive, judgmental, and dominating (or submissive). 
• By building model communities, we can demonstrate the kind of society we seek and grow joyous communities that attract others.
• By undertaking political campaigns focused on achievable objectives and win-win solutions rooted in the quest for reconciliation through negotiation, we can build momentum by improving public policy. 

These efforts reinforce one another. If we integrate the personal, the social, and the political, we can strengthen each effort. By becoming better human beings, we better serve others and our environment. Strong communities nurture strong individuals and provide a foundation for effective political action. Effective political action enhances personal strength and builds social infrastructure.

If we act from love, honor our values, match our means with our goals, and support each other's personal growth, we can move toward holistic, fundamental transformation. With teamwork, participatory democracy, and collective wisdom, we can create a better world that will stand the test of time.

Preventing the Next Big Bank Bailout

NOTE: A growing movement is underway to split too big to fail banks into smaller units. Please share this article, explore the degree of interest in this effort, and let me know what you learn. Let’s keep each other informed about ways to contribute to this endeavor.

The nation’s largest banks are crushing the economy and corrupting the government. A recent report from the Federal Reserve Bank of Dallas warned  that our big banks pose “a clear and present danger to the U.S. economy,” have “increased oligopoly power,” and “remain difficult to control because they have the lawyers and the money to resist the pressures of federal regulation.”

Out of more than 7,000 banks, the top seven hold 40 percent of total deposits. The biggest banks  -- Bank of America, Chase, Citigroup, Wells Fargo, Goldman Sachs, Metlife, and Morgan Stanley -- are too big to fail because they loan so much money to each other. They depend on each other to meet their obligations. If one bank can’t, the others may be unable to make their own payments, causing all of them to fall like dominoes. Large investors lose money, businesses and consumers can’t borrow money, and soon the economy completely collapses.

When that threat emerges, taxpayers are forced to save the megabanks. The 2008 bailout authorized the government to use $700 billion to buy or insure shaky bank assets.

In addition, the Federal Reserve has allowed banks to borrow money for next to nothing and then lend the money to the government at a much higher rate, which Fortune magazine contributing editor William D. Cohan has called “an outright and ongoing gift from American taxpayers to Wall Street.”

Confident of a bailout, megabanks speculate about future prices with investments that are highly profitable but very risky. Fox Business Network senior correspondent Charles Gasparino noted:

The reason Too Big To Fail is so dangerous is that it provides a level of comfort to the Wall Street risk takers — enabling them to act like riverboat gamblers and simply bet more and more until the system comes crashing down, as it did four years ago. Why fear, when the taxpayer is on the hook for your losses?

The Economic Price

Jesse Eisinger, who shares a Pulitzer Prize for stories about the economy, wrote in his New York Times column:

The financial industry has strayed far from [helping] companies that want to raise capital so they can sell people things they want. Instead, it is a machine to enrich itself, fleecing customers and widening income inequality. When it goes off the rails, it impoverishes the rest of us. When the crises come, as they inevitably do, banks hold the economy hostage, warning that they will shoot us in the head if we don’t bail them out.

The economy also suffers from subsidizing Wall Street in the following ways:

• Taxpayers’ money can be used more productively to hire public-service workers to meet social and environmental needs.
• Megabanks enable depositors to hide trillions of dollars in secret, tax-free foreign accounts, compelling taxpayers to make up for the tens of billions dollars a year in lost tax revenue.
• The big banks oppose progressive taxation based on ability, requiring middle-income households to pay more. A 5% increase in taxes paid by the top 1%, who take home an average of $2 million before taxes, can generate an additional $150 billion a year, which can be used to boost the economy.
• Governmental support enables big banks to drive commercial banks into bankruptcy by undercutting their interest rates. 
• .The big banks have conspired to move global interest rates up or down for their own benefit, resulting in higher rates for borrowers, including local governments.
• Speculative trading of stocks, bonds, and currencies sucks money out of the productive real economy into the non-productive paper economy.  
• Herd-like enthusiasm leads to unrealistically high prices, or bubbles. Panic sets in when the bubbles burst and speculators rush to get out before others do. 

As MIT economist Simon Johnson concluded, “The real costs of the [2007] crisis — millions of jobs lost, growth derailed, lives disrupted and enormous damage to our public finances.…. The damage will be with us for a long time.”

The Political Price

The extreme concentration of wealth in the hands of seven big banks provides them with enormous power. In 1913, future Supreme Court Justice Louis Brandeis wrote:

The growth of the nation…and all our activities are in the hands of a few men…. The dominant element in our financial oligarchy is the investment banker…. These bankers bestride as masters of America’s business world…. 

We face the same situation today. Legislators, regulators, and administrators know that if they don’t challenge the banks, they may be offered much higher paying jobs when they retire from public service. And banks and their lobbyists influence candidates with campaign donations and gifts. With their near-monopoly, the big banks block legislation and dominate the agencies that regulate them. They are too big to fail, too big to manage, and too big to regulate.

The twelve regional Federal Reserve Banks regulate the commercial banks in their district. Those commercial banks elect a majority of the board of directors for each regional Federal Reserve Bank. In recent weeks, four regional Federal Reserve presidents have expressed concern about how the big banks are hurting local banks.

The power of the megabanks has permitted them to avoid prosecution for crimes that contributed to the 2007 crisis. As director of the Academy Award-winning documentary Inside Job, Charles Ferguson wrote in the New York Times:

The world’s largest financial institutions earned several hundred billion dollars in fake profits. Some of them made billions by using derivatives to bet against the very investments they sold to their customers as safe…. Yet despite substantial evidence of large-scale fraud, nobody has gone to jail, nobody’s compensation has been clawed back, and only a few firms have paid even trivial fines. 

The Way Forward

Sixty percent of Americans support strong Wall Street reform. Growing numbers of top-level bankers, former bankers, economists, and other financial experts urge splitting up banks that are too big to fail. Even Sandy Weill, the former Citigroup chief executive who created the first megabank, said in a CNBC interview:

What we should probably do is go and split up investment banking from [commercial] banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.

The media are covering the issue extensively. Senators and congresspersons have introduced legislation to limit the size of these financial conglomerates. Calls for breaking up the big banks already receive support across the political spectrum. Progressives United, an advocacy group founded by former Senator Russ Feingold, is circulating an End “Too Big to Fail” petition. Van Jones’ Rebuild the Dream has declared its intention to help make “’too big to fail’ just a memory.” We can strengthen this movement with a diverse, member-controlled grassroots component.

Given the nature of international competition, a movement to break up megabanks must ultimately be global. Citizens in other countries need to push for the same goal, but we can’t wait for them to act. If we are to ride out future financial storms, we must prepare. To do nothing will almost guarantee catastrophe.

The damage inflicted on our people, our economy and our democracy is massive. Government is paralyzed; change must be bottom up. We need to free up funds for public-service jobs, prevent another crisis, fortify our democracy, and reduce the injustice that results when so much money is concentrated in the hands of a tiny minority.

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Wade Lee Hudson has been an activist and community organizer in the San Francisco Bay Area since 1962. Michael Larsen and Leonard Roy Frank helped immensely in writing this article. Rob Waters, David Hartsough, Steven Shults, and Roma Guy helped as well.