Some points I recommend people consider:
1. Euthanasia for insolvent banks. Transferring their losses to the public will not restore the trillions in capital the bankers helped destroy. It would merely relieve the banks, their creditors and shareholders of the pain. Government must take control of the system to supervise a just unwinding of the mess–whether we call it nationalization or something else. Handing out money and leaving bankers in control of how it’s spent is nutty and morally wrong. People everywhere understand this. Only Washington seems oblivious to the irrationality of what it is attempting.
2. The Federal Reserve must be democratized and effectively stripped of its peculiar antidemocratic status as an unaccountable island of power within the government. A new federal agency–accountable to Congress and the president–can be refashioned from the working parts of the Fed. Call it a central bank or something else, but its governing power must not rest with heavyweight bankers on the board of directors at the twelve regional banks. (To understand why, consider that the New York Federal Reserve Bank was headed until recently by Geithner.)
3. The reformed Fed would be confined to conducting monetary policy and stripped of its regulatory functions. A different section of the Treasury or a new free-standing regulatory agency can assume responsibility for regulation and be armed with strong antitrust laws and other rules to ensure that “too big to fail” institutions are redefined as “too big to save.”
4. The federal law against usury can be restored to halt predatory lending. Persistent violators would not be fined with trivial penalties, as they are now, but stripped of their government protections and subsidies–that is, doomed.
5. A new banking system–smaller and more diverse and responsible to the public interest–can fill the hole left by the demise of major banks like Citigroup. Vast public resources should be devoted to creating this system, not to saving the mastodons. Public banks (like the North Dakota State Bank) and nonprofit savings and lending cooperatives can also serve as an important cross-check on private commercial banking–a competitive model that offers credit on nonusurious terms and keeps the big boys honest.
6. Once the Federal Reserve is domesticated in a democratic fashion, then it can be reformed to assume broad supervision of the nonbank financial firms in the “shadow banking system”–hedge funds, private equity firms, pension funds, mutual funds, insurance companies. (For more on this, see my recent Nation article, “Fixing the Fed.”)
7. Our first political challenge is to disturb business as usual in Washington and prevent Congress from taking hasty action to adopt Wall Street’s “reform” agenda. Congress is rattled by the exploding popular anger and listening nervously. The people need to speak louder–loud enough for the president to hear.
Read the full article.