Friday, September 16, 2011
- A "Fresh" Banking Idea
One idea that seems to be gaining momentum in political circles is the idea of a public bank. Obama wants an ‘infrastructure’ bank, California wants it’s own public bank. But if the Solyndra debacle should teach us one thing, it’s that government should really leave finance to experts.
Public banking is common in Latin America where it’s used as a more direct means to siphon taxpayer money into offshore accounts and foolhardy politically motivated projects. It’s a bank that focuses exclusively on bridges to nowhere, and projects like Solyndra. Since its public, it no longer has to be responsive to those evil shareholders, and the pressure to generate a profit is removed, allowing them to invest in projects that no free market enterprise would ever consider.
That seems like a great idea to politicians. Removing the burden of a profit unchains their hands and makes the political reality the only reality. But when the bill for that idealism is finally tallied, all it would mean is an institutionalized version of the stimulus plan. There is simply no way a government can run a bank any better than the private sector can.
From the moment it opens it’s doors, a public bank would be a bank that’s too big to fail, no matter what it’s size is.
I started my career at JPMorgan and the last bank I worked at was Chase. The fact that I list those as two separate items on my resume should give you an idea of how long ago it was. I am a Wall Street insider, but I haven’t been a banker in a long time. So I don't have any particular axe to grind there. I get that there are things about the big money center banks that are unpopular. "too Big To Fail' is unpopular at my house too.
But a public bank would take the things that many Americans hate about the big money center banks, and base their business around them. It would be like putting a union in charge of running a car company. All the decision making will be wrong, and it couldn’t possible be a long term viable entity. In the end it will cost taxpayers many times more than they expected, and the return they get for it, will be a hundred little Solyndra’s, financed by Freddie Mac and Fannie Mae.
Goldman is sometimes referred to as a giant squid. Well a public bank would be more like a thousand little squids. Eventually, it would be one for the face of every single American.