At the close of 2015, my colleague Ellen Brown's work took on a new, international-oriented urgency, an appropriate wrap-up to a year that had seen her publishing pieces on Greece's struggle against the European Central Bank.
In the provocatively titled "A Crisis Worse than Isis," we learn that we are on the cusp of a widespread new practice of "bail-ins," replacing the old system of bank bailouts. Those bailouts by both the U.S. and the EU in 2008 were "hugely unpopular," because they involved giving taxpayer money to the big banks. But the public should be careful what it wishes for in calling for those bailouts to end, because they're being replaced with bail-ins. The depositors pay for insolvent banks in a bail-in. This makes banking an activity with a newly drastic level of risk. This is the human cost of a bail-in, according to Brown:
At the end of November, an Italian pensioner hanged himself after his entire €100,000 savings were confiscated in a bank “rescue” scheme. He left a suicide note blaming the bank, where he had been a customer for 50 years and had invested in bank-issued bonds. But he might better have blamed the EU and the G20’s Financial Stability Board, which have imposed an “Orderly Resolution” regime that keeps insolvent banks afloat by confiscating the savings of investors and depositors. Some 130,000 shareholders and junior bond holders suffered losses in the “rescue.”
If your too-big-to-fail (TBTF) bank is failing because they can’t pay off derivative bets they made, and the government refuses to bail them out, under a mandate titled “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution,” approved on Nov. 16, 2014, by the G20’s Financial Stability Board, they can take your deposited money and turn it into shares of equity capital to try and keep your TBTF bank from failing.
Once your money is deposited in the bank, it legally becomes the property of the bank.
This occurs against a backdrop of increasing internal and external stability among various global and national financial systems. In April 2015,
The International Monetary Fund . . . published its latest review of the top threats to global financial stability, saying risks to the system had increased since last year. The fund cited a long list of potential trouble spots around the world, from currencies to monetary policy.
These trouble spots include rising bond market volatility, possible shocks from the Federal Reserve's increase in interest rates (which hadn't happened as of April but was easy to predict--and happened just before the end of the year), plummeting oil prices, and deflation. These are macro-forces, and therein lies the morally troubling nature of the bail-ins: Consider they are mechanisms of making individual subjects responsible for the failures of systems--and not even the individual subjects who are engineers and architects of the system, but those who buy into it as a more-or-less forced consumer choice. This is the logic of absolute individualized financial scapegoating, taking the form of regressively "socializing" the negative externalities of private banking.
But where there are problems, there are also solutions, and Ellen Brown's work often separates itself from the work of other finance critics in actually offering alternatives to the gloom-and-doom cycles periodically brought about by finance-crony capitalism. In her piece on global solutions, she outlines:
* In Russia, vulnerability to Western sanctions has led to proposals for a banking system that is not only independent of the West but is based on different design principles.
* In Iceland, the booms and busts culminating in the banking crisis of 2008-09 have prompted lawmakers to consider a plan to remove the power to create money from private banks.
* In Ireland, Iceland and the UK, a recession-induced shortage of local credit has prompted proposals for a system of public interest banks on the model of the Sparkassen of Germany.
* In Ecuador, the central bank is responding to a shortage of US dollars (the official Ecuadorian currency) by issuing digital dollars through accounts to which everyone has access, effectively making it a bank of the people.
In Russia, the incentive to avoid the destructive impacts of western sanctions is behind the innovation, but the eventual result could be a nationally-sustainable banking system, as recently reported by Sputnik News:
. . . creating a socially-oriented 'knowledge economy' via the transfer of substantial economic resources to education, health care and the social sphere, the creation of instruments aimed at increasing savings as a percent of GDP, and a number of other initiatives, including a program aimed at transitioning to a sovereign monetary policy.
Controversially, the program proposes to use Central Bank resources to provide targeted lending for businesses and industries by providing them with low interest rates between 1-4 percent, made possible by quantitative easing to the tune of 20 trillion rubles over a five year period. The program also suggests that the state support private business through the creation of "reciprocal obligations" for the purchase of products and services at agreed-upon prices.
I visited Russia--Lipetsk, Moscow, and St. Petersburg--last summer, and I can report what people told me: Wages are awful, social services lack needed resources, and there is little sense of shared economic security. Ellen points out that the Russian plan resembles that of Jeremy Corbyn: Using quantitative easing for economic development mirrors the proposal of UK Labour Leader Jeremy Corbin for “quantitative easing for people.” Russians need it. They need something.
Iceland, as we've long known, refuses to bow to the demands of private bankers. But now, instead of merely jailing the bad apples, Iceland wants to plant a new orchard. As Brown writes, referring to news received in March 2015:
Iceland’s government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled “A better monetary system for Iceland”.
And public bank proposals are popping up everywhere:
three political parties – Sinn Fein, the Green Party and Renua Ireland (a new party) — are now supporting initiatives for a network of local publicly-owned banks on the Sparkassen model. In the UK, the New Economy Foundation (NEF) is proposing that the failed Royal Bank of Scotland be transformed into a network of public interest banks on that model. And in Iceland, public banking is part of the platform of a new political party called the Dawn Party.
But Ecuador wins the "getting it done" medal. The nation has actually created a digital currency backed by the government (unlike crypto-digital currencies). News BTC reported in August:
This currency is being used by its citizens easily to do daily jobs like buying gas or other daily essentials. Therefore, to say that it is now part and parcel of the lives of common folks is actually quite an apt description.
Such is the ease with this digital currency that today it trades alongside US dollar. The people are finding it quite convenient to use and anyone with a simple mobile phone can do transactions without having to even move. The process is simple; open an account with a simple cellphone and you are free to move ahead with transactions. Later money can be added at any registered outlet or any bank.
In contrast, western banks don't issue digital currency to ordinary residents--only to commercial banks.
The IMF predicts economic growth in 2016 will be uneven and disappointingly low. We already know that neither strong regulation nor structural reform will restrain big banks from rewarding a few big players, manipulating the game, and dodging externalities by thrusting them on governments and the most vulnerable members of society. But the pushback and the search for alternatives needs to be our focal point--for still another year.