Surely in the intervening half a decade we’ve made the necessary changes to create safer financial markets that aren’t as susceptible to damaging excess and are insulated enough that they can’t crush the overall economy?
In a word, no. Indeed, there have been practically no structural changes in our financial system at all. The systemic risks of another bubble booming and busting remain as acute as they were five years ago. All that’s different, for now, are the surrounding economic conditions.
The real problem, however, is that we haven’t responded to the lessons of five years ago by making substantive changes. Banks that were deemed “too big to fail” by the federal government during the crisis — Bank of America, Citigroup and JPMorgan Chase — remain, well, too big to fail. Wall Street is back to creating synthetic collateralized debt obligations, one of the more pernicious varieties of securities that blew up during the crash. And some consumers can still get a federally guaranteed mortgage with just 3.5% down.
The point is that although the economic conditions for a bubble haven’t yet materialized, the seeds of our destruction are still there, lying dormant. And with the same financial system in place, another crisis essentially is waiting to happen.
There are no simple answers. It will take a complex plan to seriously regulate a system that affects the broader economy in ways that it never has before and is dominated by banks the size of sovereign nations.
These challenges are going to require creative measures and fresh approaches. The organization I work for is funding economic research on ideas and theories that counter the so-called neoclassical views that have long provided the intellectual backbone for our expansionary financial system. I could tick off the names of researchers around the world who are doing important work on financial stability and the way economies behave that could help foster this transformation. But I think even they would admit that it’s not enough.
Lasting change will only come with a new economic mind-set. It will take a monumental shift in the way political leaders, central bankers, business executives and regulators view policy and the world around them.
While Eric Weiner states that “no such movement appears on the immediate horizon,” there is a movement––The Just Third Way––which seeks to reform the system and put us on a corrective course to prosperity, opportunity, and economic justice. The Agenda of The Just Third Way Movement is described at http://foreconomicjustice.org/?p=5797.
Mr. Weiner, as Senior Editor and Director of Communications at the Institute for New Economic Thinking is an academic that should be aware of The Just Third Way movement and the proposed Capital Homestead Act.
As with 99.99 percent of national media, this op-ed outlines the problems and the persistent continuance of structural problems that are the cause of economic turmoil and poverty in the United States but fails to address the REAL reason the middle and working class is getting poorer and the unemployed underclass is facing hopelessness and dwindling resources to cope with basic existence needs: they are propertyless with ONLY their diminishing labor worth to sell in an era in which tectonic shifts in the technologies of production are destroying jobs and devaluing the worth of labor.
This deplorable situation will worsen as long as we as a nation fail to address the REAL problem at the root of income inequality and poverty––CONCENTRATED OWNERSHIP of wealth-creating, income-generating productive capital. And to advocate for solutions that systematically broaden private sector individual ownership of the formation of FUTURE productive capital investment to empower EVERY American to accumulate over time a viable capital trust (super-IRA) portfolio of stock in diversified companies and reap the full earnings payout of corporate earnings as dividend income to support their livelihood and retirement. Such economic policy will build REAL financial security and wealth assets that generate annual incomes.
What we need now is a “New Deal” that implements the Capital Homestead Act (http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm).
Under Capital Homesteading, basic economic laws and policies would be established to encourage national and regional central banks, corporate and individual income tax authorities, commercial and investment bankers, capital credit insurance and reinsurance companies, industrial and community development planners, legal and enterprise financial advisors, and unions to determine the nation’s annual needs for the quantity of money needed for accelerated rates of sustainable private sector capital growth and asset transfers to provide every citizen personal access to capital credit repayable with the projected future pretax earnings of the acquired capital. As a substitute for collateral required in today’s financial world to cover potential risk of default of borrowing for investment, the new system would cover risk through capital credit insurance financed by the pooling of risk premiums on all borrowed money. Today, only those who have already accumulated large accumulations of past savings have been able provide such collateral. This explains why the rich will continue to automatically accumulate most of the growth capital in the world, unless Capital Homesteading reforms are adopted.
Every man, woman and child from birth to death could be granted periodically (at least annually) an equal allotment of asset-backed and privately insured capital credit repayable with future savings. Such credit would flow through a personal tax-sheltered (super-IRA) capital asset accumulation trust or “Capital Homestead Account” (CHA) established at a local bank. Citizens, supported by licensed advisors, would have informed choices of investing their allotment of capital credit in shares in an enterprise for which a member of the family works, or public utilities, for-profit Citizens Land Banks or Community Land Cooperatives, and other approved categories of commercial, industrial or agricultural enterprises willing to issue full dividend payout shares.
Once the citizen’s offer (in the form of a bill of exchange) to purchase new shares on insured capital credit is scrutinized and the offer accepted by the commercial bank lender, the bank would create asset-backed money for the purchase of the shares. The bank,would create the new asset-backed money by approving a promissory note or establishing a deposit account for the borrower. The bank’s discount rate would cover all bank service charges and the risk premium. Commercial banks would immediately rediscount all Capital Homesteading loans for new currency supplied interest-free (since no past savings would be involved) by the Federal Reserve central bank, thereby ensuring an elastic, stable, uniform and private sector asset-backed currency to replace the currencies that in most of the world are backed almost entirely by non-productive government debt.
Growth of the economy would no longer be subject to the slavery of past savings, reflected in the subtitle of the second book by binary economist Louis Kelso and philosopher Mortimer Adler. (The New Capitalists: A Proposal To Free Economic Growth From The Slavery Of [Past] Savings.) Kelso based his revolutionary “pure credit” approach to financing broad-based capital ownership on the 1935 book by Harold Moulton, then president of Brookings Institution, entitled The Formation of Capital. (CESJ republished Moulton’s book, the Foreword of which is athttp://www.cesj.org/homestead/reforms/moneycredit/formationofcapital_cesj.pdf. Both Kelso-Adler books can be downloaded free athttp://www.cesj.org/publications/freedownloads.html)
Wealthy citizens with large accumulations (who would have the same privilege as non-rich citizens to an equal annual Capital Homestead allotment of capital credit) would be encouraged to spend their savings, which would enable the economy to grow even faster or to enable the rich to invest in high risk ventures not eligible for Capital Homestead credit, or to engage in charity and spending for improving the nation’s education and health systems and other investments for the common good.
Dividends on shares financed through Capital Homesteading would be tax deductible at the enterprise level, deferred from personal taxation when used to repay shares held in the purchaser’s tax-sheltered Capital Homestead Account, but taxable when available as consumption income when distributed at the personal level. Thus, the poorest citizen, whether employed or disabled, could continue over their lives to accumulate assets on a tax-deferred basis and over time begin to receive rising capital incomes to supplement consumption incomes from other sources, free and independent from the need for charity or welfare.
