Silver Lining - Banks and Credit

Banks are necessary to any economy and were carefully regulated until the Reagan years. De-regulation was touted as a move that would stimulate the economy by expanding the role of banks; instead it led to the Savings and Loan debacle of the '80s that wound up costing the taxpayers $500 billion. The Federal Reserve is the ne plus ultra of unregulated financial institutions, and we have seen the results of placing the nation's monetary policy in such hands. From this experience we should be able to redefine the role of banks and legislate such regulatory measures that would best serve all parties alike. The previously mentioned change in the accounting method employed by banks would be among the first items on the list. Banks must not be allowed to create money from thin air as they presently do.

The freed up dollars following the dissolution of the Federal Reserve System must be funneled into state banks to restore reserves of cash to 15%; this should marginally increase the value of the dollar and so help retard inflation. Banks will issue credit and mortgage instruments but will revert to the old tried-and-true VIVA (Verifiable income, Verifiable Assets) metric to ensure the issuance of well performing loans. The role of banks as safe havens for their depositors' money must be accompanied by responsible use of that money in lending. To this end we would propose the institution of State Banks.

A State Bank would be the central repository of all public funds derived from taxes, federal grants, and other sources. From these funds would the elected and appointed officers of the state be paid and from which funds for statewide capital improvements would be secured. This would go a long way toward eliminating waste as the economic condition of the state would be reflected in the financial condition of the bank. If the governor and legislators use this public money wisely then the state would prosper, the bank would be strong, and prosperity would reign. This would not be the case in the short run for many states as the complete revamping of a state's economic base would take time, but the State Bank would support the sovereignty and self-determination of each state. The bank's financial position would also be available to any citizen's review at all times. The bank would also accept deposits from individuals and operate much like a credit union where a share of the profits is added in the form of interest over and above the base, published rate.

This set of proposals is only a sketch, much to be filled in as organization and operation, but in essence it would amount to a co-operative banking system, the components of which would mutually support one another. The Federal Bank, operated by the Treasury Department would operate as a "market maker" in addition to regular operations. In this context it would issue and call for loans to/from state banks. State bank surpluses could be loaned to the Federal Bank which, in turn could lend funds to states in need of further funding. Interest rates would be held to a modest 5% for these transactions as progress will replace greed and unfair advantage in the market place. Done well this would be a self-regulating economic system with all participants, bankers and individuals alike having complete disclosure at every level.