“The People’s Bank of Scotland (formerly known as the Royal Bank of Scotland) will soon be 57 percent owned by the British state. A 40 percent ownership stake in Lloyds-TSB-HBOS following their merger is also anticipated. The British state already owned Northern Rock and Bradford & Bingley. The Dutch state owns the Dutch rump of ABN-AMRO and Fortis Nederland. The US government owns 79.9 percent of AIG. Nine major financial US institutions have agreed to participate in both the US Treasury’s ‘voluntary’ capital purchase program … These partial, majority or complete nationalisations were necessary to stop the complete collapse of the financial sectors in the countries concerned … But the state ownership and control phase should be as short as possible. The state is a dreadful owner and manager of banks and other financial institutions. It can just about manage a central bank - a much simpler job than managing a commercial bank, and one where there is a natural monopoly that makes comparisons of performance difficult. Even so, the job is often not done particularly well … Anything else the state touches that involves the production, distribution and sale of private … goods, becomes dreck very soon.”
- Willem Buiter, Professor,
London School of Economics and Political Science,
writing in his Maverecom Blog on Ft. com, October 14, 2008
The announcement that the US Government would take a stake in potentially thousands of banks and spend close to $250 Billion did nothing today to stem the losses on the Stock Market – with the Dow closing down 733 points and the S&P off by 9%.
Perhaps traders were thinking about the creation of the TSA and the US Government take-over of Airport Security. That has been an unqualified success born of a crisis – now hasn’t it!
History has proven time and time again that free-markets do not stay free unless policed – in fact, everyone is for free-markets right up until they no longer personally profit from them. The failure we are now living is as much a failure of appropriate regulation of those markets by the same people who have moved from providing liquidity to taking an ownership stake.
As Professor Buiter has pointed out, the government doesn't DO market services very well. In fact, unless it has something to do with transfering wealth from individuals and businesses to the state or armed conflict they just don't do it well. (And there is no proof they do either of those things very efficiently.)
Maybe it is time to think of a truly radical approach to banking in general. While I do not believe that the capitalist free-market should be demolished, nor do I believe that it is finished, but I do believe there is a better model already in place for the management of money and that is the cooperative, not-for-profit, not-for-charity, but for-service model of the Credit Union.
While it is quite true that poor management of a credit union can result in failure, it is also true that for the most part, failure has not been wide-spread in the Mid to Large-sized Credit Union.
Since a Credit Union is cooperatively owned by its members, Credit Unions may return their profits to their members in some combination of more personal services, lower fees or dividends.
The mid to large-sized Credit Union tends to be quite well capitalized and maintains decent liquidity. And compensation of senior staff is quite sensible, with reasonable gaps between the salaries and bonuses of front-line employees and CEOs.
Management of the modern Credit Union is as well educated and as capable as the modern bank manager. What’s more, Credit Union staff and management tend to know their customer – the member – quite well and deal with the person rather than simply the credit score or application. And as for security, all the services insured at a bank are also insured at a credit union.
Here is the best part. We don’t need to have the US Government decide that banks are illegal or should be abolished in order to make such a revolutionary shift. You don’t need to join the international press or the various governments that are kicking the banking dog while it is down.
All you have to do is join a credit union. It is a viable alternative. I think you will like what it means to be a member.
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