Key bad guys in the Silicon Valley Bank saga are at the Federal Reserve. It's time to end the era of central bank supremacy and fire the Fed as our most important bank regulator.
A little more of the history of the Cubb-Citibank deal. I was in the room when the deal died in the office of AAG Thomas Kauper (antitrust). Chubb shared its vision of an insurance agent siting next to the Citibank bank's lending officer. The Citibank lawyer in the room looked like he wanted to be somewhere else because our theory of anticompetitive "tying effects" had just been vindicated. The Division, with the approval of the AG, notified Citibank that it would file suit the next morning. Well into that evening while we were finishing up motion papers, our leader got a call from Walt Wriston himself to tell us that he was calling off the merger. Our leader pointed out that that was a board action. My understanding is that Wriston said if the board did not do what he told them to do, he would be out of the job, but he was not going to allow that. Indeed, the next day Citibank announced that the merger was off and the board confirmed that a day or so later. Those were days when we actually enforced antitrust law.
Matt, as one of the reader's comments said "you really hit this one out off the ball park". Most of comments on your tread have related to income inequality as the biggest threat to our economy, society and our democracy. Climate change is a slow moving apocalypse, and humanity has lost that battle already. Income inequality is just a symptom caused by corporate consolidation and the reich buying our Congress to do their biding. What you have described is the very beginning, the very birth of how a nation fails. Many years ago I read a book " How Nations Fail". It is a pretty simple explanation. As societies through out history developed from farming communities to industrial societies there was a movement into banking and finance. As these societies moved away from their original production of wealth they imploded. History is full of countries that have failed. My greatest fear for my children and grandchildren is that is where America is heading if we cannot break the hold that the rich and the corporations have on our way of life. Matt, your article is easily the best description of the underlying problem we in America have that I have ever read.
At a basic level, there's a fundamental flaw with creating complex rules for regulators because as we see over and over, regulators will simply not follow those rules.
The only choice for regulation is to create clear, simple rules about what kinds of business banks can be in and break up the big banks into smaller, weaker chunks.
The Fed doesn't want to be in the business of saying no to their banker friends if there's some kind of discretion, so there simply can't be.
“The only choice for regulation is to create clear, simple rules about what kinds of business banks can be in and break up the big banks into smaller, weaker chunks. “
Great piece Matt! I like the idea of the macro-prudential function residing with the FDIC. The Fed has arrogated to itself absurd amounts of power that are not envisioned in its charter. Think QE, ZIRP and the onerous Fed put. The Federal Reserve Bank charter needs to be simplified and should be much more modest. The Fed should act as the lender of last resort against quality collateral at a penalty interest rate. Period!
"This means, at the very least, regular audits of monetary policy by third party authorities, and getting rid of bank representation on the reserve branches that regulate them."
That never even passed the smell test. Knowing nothing about banking even 20 years ago, I smelled a rat when I heard that. It's unconscionable.
One of my favorite outcomes of the GFC, was John Paulson endowing a chair in economics in the name of Alan Greenspan at NYU. [Greenspan was an NYU alumni.] After all, it was the policies of Greenspan, that allowed Paulson to strike it rich in the collapse. https://www.stern.nyu.edu/experience-stern/news-events/uat_024050
Moving most personal basic banking into a postal bank probably wouldn't hurt.
This goes hand in hand with trying to ensure that every person has access to basic banking -- start by just giving everyone an account that has the most basic functions of checking, which they can access at their local post office.
That _also_ opens up the possibility of doing monetary policy by way of helicopter drops. Just boost the balance in every single living citizen's postal bank account by $500.
See also UBI, and even the possibility of adding on a national retirement account, initially funded by way of something akin to Cory Booker's Baby Bonds concept, investing in target date tranches of a sovereign wealth fund.
We don't have a postal bank in Denmark but we do have a concept of a "basic bank account" which is then registered with the government exactly for purposes of payouts from the government. Seems like an easy and cheap system to implement (if one wanted cheapness and efficiency in payments)
I love how you find a way of taking something people want to see as mega complicated and make it a straight forward case of petty corruption as in the case of drinks with Mark Andreesen. Keep it up!
Also, the idea of moving from a set limit on all deposits to a variable limit based on how the account is used makes sense, given that we need to tell the bank how we'll use it for anti money laundering purposes anyways. It should be easy enough to come up with a formula for how much money in a bank account turns over in a given period and then just ensure that.
Maybe your best ever! It summarizes everything I've read over the past 15 years so directly and succinctly that I'm certain the MSM will never touch it.
Mr. Stoller I was wondering if I could get your opinion on a recent article I thought was interesting. It is by Michael Lind writing at The Compact. I feel it is rather relevant given the outrage across the political spectrum by those who have little political or financial power versus those who get whatever they want.
I think the last three paragraphs are just an excellent summary.
"Neoliberal globalism won’t be replaced by a new national developmentalism at one fell swoop after populists on the right or social democrats on the left first seize control of one party and then obtain a lasting “trifecta” (a party majority in Congress, the White House, and the Supreme Court). That isn’t how it works. Having been assembled piecemeal over time by Reagan Republicans and Clinton Democrats, neoliberal globalist policies must be dismantled piecemeal over time by cross-party coalitions of post-Trump Republicans and the Sanders wing of the Democratic party, who may disagree on everything except the need to jettison neoliberalism."
"Preventing the embattled neoliberal establishment from defining itself as “moderate” and its critics as “extremists” is essential. For example, Sanders and Trump, who call for defending Social Security and Medicare against cuts, are the real “centrists” and the actual “moderates” and “pragmatists.” The genuine fanatics are the neoliberals who want to force Americans with stagnant wages to work longer for lower retirement benefits so that taxes can be kept low on the rich or cut further."
"Transforming the right wing of the Republican party and the left wing of the Democratic party may be the first step in the process of building a new bipartisan consensus. But success will come only when a former horseshoe alliance of “extremes” becomes the new center, while “centrist neoliberalism” is recognized as what has been all along—destructive extremism."
It's true. Neoliberals are anything but the "moderates" they pretend to be. They also have an annoying authoritarian streak and throw fits whenever they do not get their way.
What an article, everyone should read it, and, if possible, become a paying subscriber. We need more people exposing what is wrong in our society and propose solutions. A huge thanks, Matt!
I'm sad. Could we call this classic neoliberalism? Fascism?
Recently I read some of the original writing of Adam Smith, Wall Street's Saint of Capitalism, I find warnings about "Do not let the merchants run the government."
"As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed." - Adam Smith The Wealth of Nations, Book I, Chapter VI
Friedman, chicago school, buchanan, etc.. cherry picked Smith's writings, highlighting only what served their privatization themes. and ignored his warnings, like all classical economists, warnings specifically calling out unearned vs earned income, i.e. rentier.
unearned income, is scraping off the top, skimming, excess productivity, passively. earned income is wages for actual work. bankers, like all of finance today, create and produce nothing. they skim off the top, through a miluea of extraction toll booths, the fruits of our labor. it is completely parasitical, and is literally, killing the host. (us)
Free Market:
To the classical economists, an economy free of land rent, usurious banking practices and monopolies in private hands. But as finance capitalism has superseded industrial capitalism, it has inverted “free market” rhetoric to mean a market free FOR rent extractors to obtain land rent, natural resource rent, monopoly rent and financial gains “free” of government taxation or regulation. This INVERTED re-definition depicts a free market as one free for the financial and propertied classes to subject the economy to a network of extractive tollbooth fees. Such a “free market” has become a doublethink term for the path to neo-feudalism, financialization and kindred rentier policies. (See Free Lunch, Kleptocrats and Road to Serfdom.)
Hudson, Michael. J IS FOR JUNK ECONOMICS: A Guide To Reality In An Age Of Deception
In 1970 in graduate school at UCONN I had a monetary course. Our visiting lecturer for the semester was Dr. Maxwell, who was an economic adviser to several presidents. An interesting course. I think he wrote the book we used. I find it amazing at what I did not learn in grad school based on what you have written. I now know I should have read Adam Smith’s book. I have learned more on my after school by my own research and reading.
I was on LinkedIn today and saw that SVB managing directors and the current CEO are trying to (re)fund the SVBB with the slogan ‘the FDIC is guaranteeing all and new deposits!’ and celebrating their client win of full FDIC guarantee. I cannot imagine what the next massive crisis holds.
25 years ago, I read Eustace Mullins “Secrets of the Federal Reserve”. Mullins was a librarian of Congress. It is well sourced. Not bs tin foil hat, but pieces together from public sources at the time.
Of course, the old tactic of accuse of <insert outlandish smear here> went in full affect. It remains relevant today.
The PTB did their best to outlaw it, silence it, then smear Mullins as anti semantic, ask sorts of complete BS
They privatized uS monetary policy, when they passed the federal reserve act. To self interested bankers. It remains completely corrupt, and entirely self interested, and at this point, a satellite of the BIS (Bank of International Settlements), the mother ship of all western private central banks, and employees enjoy international immunity.
The truth is stranger than fiction, but most do not dare even consider it, instead opting to believe propaganda.
I have a smart friend that has lost his mind in MMT circles, and now accuses me of being a libertarian, because i point out, the MMT crowd seems to blindly trust bankers. lol. I’m a Democratic socialist, but whatever. The hard core MMT acolytes are cultish at best.
Look, generational wealth , neoliberals, want to privatize Everything. Of course they would work to start with privatizing the money, or more importantly, credit issuance.
97% of all USD is created, commercially, i.e. privately. NOT the congress, not the treasury.
Unlimited access to unlimited source credit issuance, allows a few, to literally BUY THE WORLD. And they have
THIS is at the core of the extreme monopolization we witness across the globe.
A little more of the history of the Cubb-Citibank deal. I was in the room when the deal died in the office of AAG Thomas Kauper (antitrust). Chubb shared its vision of an insurance agent siting next to the Citibank bank's lending officer. The Citibank lawyer in the room looked like he wanted to be somewhere else because our theory of anticompetitive "tying effects" had just been vindicated. The Division, with the approval of the AG, notified Citibank that it would file suit the next morning. Well into that evening while we were finishing up motion papers, our leader got a call from Walt Wriston himself to tell us that he was calling off the merger. Our leader pointed out that that was a board action. My understanding is that Wriston said if the board did not do what he told them to do, he would be out of the job, but he was not going to allow that. Indeed, the next day Citibank announced that the merger was off and the board confirmed that a day or so later. Those were days when we actually enforced antitrust law.
Peter Carstensen
That is a neat anecdote.
Matt, as one of the reader's comments said "you really hit this one out off the ball park". Most of comments on your tread have related to income inequality as the biggest threat to our economy, society and our democracy. Climate change is a slow moving apocalypse, and humanity has lost that battle already. Income inequality is just a symptom caused by corporate consolidation and the reich buying our Congress to do their biding. What you have described is the very beginning, the very birth of how a nation fails. Many years ago I read a book " How Nations Fail". It is a pretty simple explanation. As societies through out history developed from farming communities to industrial societies there was a movement into banking and finance. As these societies moved away from their original production of wealth they imploded. History is full of countries that have failed. My greatest fear for my children and grandchildren is that is where America is heading if we cannot break the hold that the rich and the corporations have on our way of life. Matt, your article is easily the best description of the underlying problem we in America have that I have ever read.
At a basic level, there's a fundamental flaw with creating complex rules for regulators because as we see over and over, regulators will simply not follow those rules.
The only choice for regulation is to create clear, simple rules about what kinds of business banks can be in and break up the big banks into smaller, weaker chunks.
The Fed doesn't want to be in the business of saying no to their banker friends if there's some kind of discretion, so there simply can't be.
“The only choice for regulation is to create clear, simple rules about what kinds of business banks can be in and break up the big banks into smaller, weaker chunks. “
Yup.
Great piece Matt! I like the idea of the macro-prudential function residing with the FDIC. The Fed has arrogated to itself absurd amounts of power that are not envisioned in its charter. Think QE, ZIRP and the onerous Fed put. The Federal Reserve Bank charter needs to be simplified and should be much more modest. The Fed should act as the lender of last resort against quality collateral at a penalty interest rate. Period!
"This means, at the very least, regular audits of monetary policy by third party authorities, and getting rid of bank representation on the reserve branches that regulate them."
That never even passed the smell test. Knowing nothing about banking even 20 years ago, I smelled a rat when I heard that. It's unconscionable.
Agree.
One of my favorite outcomes of the GFC, was John Paulson endowing a chair in economics in the name of Alan Greenspan at NYU. [Greenspan was an NYU alumni.] After all, it was the policies of Greenspan, that allowed Paulson to strike it rich in the collapse. https://www.stern.nyu.edu/experience-stern/news-events/uat_024050
Moving most personal basic banking into a postal bank probably wouldn't hurt.
This goes hand in hand with trying to ensure that every person has access to basic banking -- start by just giving everyone an account that has the most basic functions of checking, which they can access at their local post office.
That _also_ opens up the possibility of doing monetary policy by way of helicopter drops. Just boost the balance in every single living citizen's postal bank account by $500.
See also UBI, and even the possibility of adding on a national retirement account, initially funded by way of something akin to Cory Booker's Baby Bonds concept, investing in target date tranches of a sovereign wealth fund.
Wall Street of course would _hate_ all of this.
We don't have a postal bank in Denmark but we do have a concept of a "basic bank account" which is then registered with the government exactly for purposes of payouts from the government. Seems like an easy and cheap system to implement (if one wanted cheapness and efficiency in payments)
I love how you find a way of taking something people want to see as mega complicated and make it a straight forward case of petty corruption as in the case of drinks with Mark Andreesen. Keep it up!
Also, the idea of moving from a set limit on all deposits to a variable limit based on how the account is used makes sense, given that we need to tell the bank how we'll use it for anti money laundering purposes anyways. It should be easy enough to come up with a formula for how much money in a bank account turns over in a given period and then just ensure that.
Maybe your best ever! It summarizes everything I've read over the past 15 years so directly and succinctly that I'm certain the MSM will never touch it.
Mr. Stoller I was wondering if I could get your opinion on a recent article I thought was interesting. It is by Michael Lind writing at The Compact. I feel it is rather relevant given the outrage across the political spectrum by those who have little political or financial power versus those who get whatever they want.
https://compactmag.com/article/how-to-transform-us-politics-and-how-not-to
I agree with Lind on this one.
great article, thanks for posting!
I think the last three paragraphs are just an excellent summary.
"Neoliberal globalism won’t be replaced by a new national developmentalism at one fell swoop after populists on the right or social democrats on the left first seize control of one party and then obtain a lasting “trifecta” (a party majority in Congress, the White House, and the Supreme Court). That isn’t how it works. Having been assembled piecemeal over time by Reagan Republicans and Clinton Democrats, neoliberal globalist policies must be dismantled piecemeal over time by cross-party coalitions of post-Trump Republicans and the Sanders wing of the Democratic party, who may disagree on everything except the need to jettison neoliberalism."
"Preventing the embattled neoliberal establishment from defining itself as “moderate” and its critics as “extremists” is essential. For example, Sanders and Trump, who call for defending Social Security and Medicare against cuts, are the real “centrists” and the actual “moderates” and “pragmatists.” The genuine fanatics are the neoliberals who want to force Americans with stagnant wages to work longer for lower retirement benefits so that taxes can be kept low on the rich or cut further."
"Transforming the right wing of the Republican party and the left wing of the Democratic party may be the first step in the process of building a new bipartisan consensus. But success will come only when a former horseshoe alliance of “extremes” becomes the new center, while “centrist neoliberalism” is recognized as what has been all along—destructive extremism."
It's true. Neoliberals are anything but the "moderates" they pretend to be. They also have an annoying authoritarian streak and throw fits whenever they do not get their way.
definitely potent!
What an article, everyone should read it, and, if possible, become a paying subscriber. We need more people exposing what is wrong in our society and propose solutions. A huge thanks, Matt!
Thanks for a well written and timely piece, Matt. It's about damn time for this system to change.
Did you mean "establishing the national banking system in the 1860s"? (not 1960s)
Yes, thanks! Ack. Corrected.
Matt,
I'm sad. Could we call this classic neoliberalism? Fascism?
Recently I read some of the original writing of Adam Smith, Wall Street's Saint of Capitalism, I find warnings about "Do not let the merchants run the government."
Thank you for what you do,
Jim Handshaw
"As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed." - Adam Smith The Wealth of Nations, Book I, Chapter VI
Friedman, chicago school, buchanan, etc.. cherry picked Smith's writings, highlighting only what served their privatization themes. and ignored his warnings, like all classical economists, warnings specifically calling out unearned vs earned income, i.e. rentier.
unearned income, is scraping off the top, skimming, excess productivity, passively. earned income is wages for actual work. bankers, like all of finance today, create and produce nothing. they skim off the top, through a miluea of extraction toll booths, the fruits of our labor. it is completely parasitical, and is literally, killing the host. (us)
Free Market:
To the classical economists, an economy free of land rent, usurious banking practices and monopolies in private hands. But as finance capitalism has superseded industrial capitalism, it has inverted “free market” rhetoric to mean a market free FOR rent extractors to obtain land rent, natural resource rent, monopoly rent and financial gains “free” of government taxation or regulation. This INVERTED re-definition depicts a free market as one free for the financial and propertied classes to subject the economy to a network of extractive tollbooth fees. Such a “free market” has become a doublethink term for the path to neo-feudalism, financialization and kindred rentier policies. (See Free Lunch, Kleptocrats and Road to Serfdom.)
Hudson, Michael. J IS FOR JUNK ECONOMICS: A Guide To Reality In An Age Of Deception
Don't forget Smith's lengthy chapters on why banks need to be strictly regulated.
In 1970 in graduate school at UCONN I had a monetary course. Our visiting lecturer for the semester was Dr. Maxwell, who was an economic adviser to several presidents. An interesting course. I think he wrote the book we used. I find it amazing at what I did not learn in grad school based on what you have written. I now know I should have read Adam Smith’s book. I have learned more on my after school by my own research and reading.
I was on LinkedIn today and saw that SVB managing directors and the current CEO are trying to (re)fund the SVBB with the slogan ‘the FDIC is guaranteeing all and new deposits!’ and celebrating their client win of full FDIC guarantee. I cannot imagine what the next massive crisis holds.
25 years ago, I read Eustace Mullins “Secrets of the Federal Reserve”. Mullins was a librarian of Congress. It is well sourced. Not bs tin foil hat, but pieces together from public sources at the time.
Of course, the old tactic of accuse of <insert outlandish smear here> went in full affect. It remains relevant today.
The PTB did their best to outlaw it, silence it, then smear Mullins as anti semantic, ask sorts of complete BS
They privatized uS monetary policy, when they passed the federal reserve act. To self interested bankers. It remains completely corrupt, and entirely self interested, and at this point, a satellite of the BIS (Bank of International Settlements), the mother ship of all western private central banks, and employees enjoy international immunity.
The truth is stranger than fiction, but most do not dare even consider it, instead opting to believe propaganda.
I have a smart friend that has lost his mind in MMT circles, and now accuses me of being a libertarian, because i point out, the MMT crowd seems to blindly trust bankers. lol. I’m a Democratic socialist, but whatever. The hard core MMT acolytes are cultish at best.
Look, generational wealth , neoliberals, want to privatize Everything. Of course they would work to start with privatizing the money, or more importantly, credit issuance.
97% of all USD is created, commercially, i.e. privately. NOT the congress, not the treasury.
Unlimited access to unlimited source credit issuance, allows a few, to literally BUY THE WORLD. And they have
THIS is at the core of the extreme monopolization we witness across the globe.