The word cloud that accompanies this article was created in an online course when the students were asked to enter three words that came to mind when they thought of money. Yes, money is power. The pursuit of money is necessary for most of us at least to provide ordinary living necessities. However, for some in our society the pursuit of money becomes an end in itself, fueled by greed for both money and power.
This MIT course, “Just Money,” that created the word cloud, described a number of community banks and credit unions in various countries that were established to partner with and help small communities where many of the small businesses had no “customer” relationship with larger banks. Many of the small banks, besides having a goal to help the communities, also had goals to direct their loans to those businesses that promoted eco-friendly practices while providing needed services to the community. And to its credit, MIT included in one segment of this course an explanation of how banks also have the power to create money. The object of the course was to illustrate how a bank can contribute in positive ways to put the needs of communities ahead of its profits.
Unfortunately, many community banks may not be much help to small businesses post-pandemic. We already know that the initial stimulus package passed by Congress contained measures that were allegedly for assistance to small businesses through loans that could be forgiven if they were used to pay the wages of their employees. We already know what happened to those loans. Most of them went through big banks to those who least needed the loans, leaving little for family owned smaller businesses. It is apparent that the government has no idea how to provide help to small businesses in this kind of crisis. This is no surprise when the government ignores the needs of most people, and enacts laws that favor the elite.
In 2018, Congress passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) that resulted in a comprehensive deregulation of community banks. The CARES Act provided a waiver of additional banking regulations affecting community banks. This will allow community banks to make somewhat riskier loans than before. Some experts think this deregulation of community banks is a very bad idea. As of the first week in May, more than 33 million Americans had filed for initial unemployment benefits. Predictions for the near future are waves of defaults on loans that will create conditions for a major depression in the economy. So, is this a proper climate for community banks to take on riskier loans? Probably not.
Looking back at bank failures after the crash of 2008 may give us some idea of what to expect. There were 489 bank failures from 2008 through 2013. All but 9 were community banks. A “bank failure” is the closing of a bank by federal or state regulators, with the Federal Deposit Insurance Corporation (FDIC) covering insured deposits. According to the FDIC, more than $47 billion in federal funds were spent in the process of resolving the 480 community banks that failed. Post-pandemic, we are probably looking at another significant wave of community bank failures.
Each time there is an economic crisis of some sort, there is a shift in wealth, creating greater wealth disparity. There is no reason to expect anything different resulting from the pandemic. In 2018 the Federal Reserve System identified 12 “too-big-to-fail” banks that could threaten the stability of the U.S. financial system. The big banks have continued to increase their wealth since the crash in 2008. We are seeing the start of another bailout of big banks and corporations. These financial institutions have as their main goal increasing their own wealth. Their disregard for people and the planet is apparent when they use their immense wealth to control the government by financially backing the legislators who will enact policies that protect their wealth creation.
The 99% cannot continue to bear the burden of financial loss under this current monetary system. The rate of poverty and homelessness cannot continue to climb while a small number of wealthy oligarchs continue to grow their excessive fortunes.
It is most important now to spread knowledge about the monetary system, and how it contributes significantly to the present wealth disparity. Capitalism is not the sole culprit. There is no reason why the government should allow banks to create money that is loaned back to the government with interest. Nor is there any good reason to allow banks to create money and loan it to favored corporations in order to increase the value of their own stock in the same corporations, while receiving interest payments on their loan. Banks should not be given this special privilege that has allowed them to accumulate unchecked wealth and power. And no bank should be too big to fail.
“The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.” – Abraham Lincoln, 1809-1865