Banks should be public utilities, or at least so closely regulated that they must behave like public utilities. They shouldn’t be free to do whatever brings most profit to their bosses and shareholders.
If you’re a regular reader, you will know that’s Solidarity’s view. You may not be surprised to hear that in 2012 the TUC voted for public ownership and democratic control of the banks. You may be disappointed that the new Labour Party leadership of Jeremy Corbyn and John McDonnell has not yet taken that TUC demand into their economic policy, or that Bernie Sanders in the USA calls only for the big banks to be broken up, not for them to be made public utilities. But you will probably be surprised by the latest news from the USA.
Neel Kashkari, a US financier, a lifelong Republican, on his own description “a free market Republican”, has called for the banks to be made public utilities. He worked for Hank Paulson at the US Treasury on the $700 billion bank bailout programme (TARP) to stop the financial crash escalating in 2008. He has recently become the president of the Minneapolis Federal Reserve Bank.
He is as pro-capitalist, as economically conservative, as you can imagine anyone being. But in a speech in Washington on 16 February he proposed “turning large banks into public utilities by forcing them to hold so much capital that they virtually can’t fail (with regulation akin to that of a nuclear power plant)”.
His scary experience in 2008 has shaken him up. The nuclear reactor analogy holds, he said, because “the cost to society of letting a reactor melt down is astronomical. Given that cost, governments will do whatever they can to stabilize the reactor before they lose control”.
Big banks, he said, are the same. When they get into trouble, it’s not just the idealised picture of the wonderful free market firmly but fairly ensuring that all economic enterprise is trim and efficient. “Even with the 2008 bailouts, the costs to society from the financial crisis in terms of lost jobs, lost income and lost wealth were staggering — many trillions of dollars and devastation for millions of families... We had a choice in 2008: Spend taxpayer money to stabilize large banks, or don’t, and potentially trigger many trillions of additional costs to society”.
Kashkari also suggested the Sanders alternative — “breaking up large banks into smaller, less connected, less important entities” — though he did not explain how that would help decisively. (If hundreds or thousands of smaller banks go bust, as happened in the 1930s, that has knock-on effects as bad as a few bigger banks failing). He said that changes in regulation since 2008 have been insufficient. “The financial sector has lobbied hard to preserve its current structure and thrown up endless objections to fundamental change”.
Kashkari restates much of the basic socialist case for a whole economy which runs as “a public utility”, rather than as whatever the rival profit-greedy efforts of a small minority of business-owners make of it. On one level, he misses only two points. First, that his argument applies to other giant capitalist enterprises as well as banks. If the big US car corporations, for example, had gone bust in 2008-9, rather than being bailed out by the government, that would have brought huge knock-on damage too. And second, that these giant capitalist enterprises do great harm — exploiting and abusing workers, misdirecting investment, recklessly running up social and ecological costs — when they are doing well in their own terms, as well as when they are doing badly.