I talked Sunday about Move Your Money with Guy Raz of NPR’s Weekend All Things Considered (summary; audio from about 3:45). We covered a lot of ground, from what’s in it for individuals to shift towards community banks and credit unions (better service and lower costs, in many cases) to how this could begin to reign in Too Big To Fail financial institutions (slowly, but surely).
Unfortunately, there wasn’t enough time to discuss what comes next – i.e., what happens when the location of political candidates’ own money starts to matter. As early as this fall’s primaries, expect to hear people ask politicians in debates and through various kinds of interactions: (1) where do you, personally, keep and borrow money, and (2), in all relevant cases, where did you put public money when it was up to you?
These questions strike to the heart of democratic responses against overly concentrated financial power throughout US history – a topic we take up in Chapter 1 of 13 Bankers.
In the 1830s showdown between elected officials and big banks, President Andrew Jackson went toe-to-toe with Nicolas Biddle of the Second Bank of the United States. Both sides won several rounds and finally it came down to this – could Jackson really move the money of the US government away from the Second Bank? He could and did. And despite being threatened – by bankers, naturally – with dire consequences, the US had a very good 19th century.
The essence of the second confrontation was neatly captured by the title of Louis Brandeis’s 1914 book, Other People’s Money – and How the Bankers Use It. Brandeis, a future Supreme Court Justice, saw clearly through the nature of the “Money Trust” – recognizing that its power was based, essentially, on its access to and control over funds deposited by regular people.
In effect, the industrial revolution had spread wealth and disposable income, but – through the rise of powerful investment banks – actually concentrated economic and political power.
Reformers struggled for several decades with how to constrain the biggest banks, without choking economic growth and while protecting individual depositors, in this new economy. The solution, reached after much difficulty and finally in response to popular demand, was the regulations of the 1930s.
From that time, until the early 1980s, financial empires based on retail deposits were greatly constrained in terms of the risks they could take – and without retail deposits, it was hard to become big enough to do serious damage to the economy.
After 30 years of deregulation and financial “innovation”, our problem today is rather different. The idea of banks being so big they can extract enormous resources from the state would have been incomprehensible to Jackson and ludicrous even to FDR – in their day the federal government did not have anywhere near enough resources to “save” massive failing banks as we have done in the past few years.
The essence of our current difficulties is that so many people – both in power and from all walks of life – still actually think our biggest banks are good for their customers and for society as a whole, so we must hold our noses and live with them. This view must be challenged, directly and repeatedly.
In this context, moving your own money is more than an important gesture, and if enough people get on board, it will make a difference. More likely, thinking hard –and talking with others – about your various monetary transactions also beings to change the rules of the political game. How can politicians claim to be against Too Big To Fail banks when they actually have an account or a credit card or a mortgage at one such offender? Shouldn’t state officials be held accountable for where they park the taxpayers’ funds? Which governor wants to risk reelection while heavily dependent on big banks? Who got what kind of commission last time a government body issued bonds?
This set of litmus tests can be seized on by left or right – both, in fact, can reasonably claim some inheritance from Jackson and Brandeis. Expect competition from all sides to prove their candidates are less beholden to the dangerous and debunked ideology of Reckless Finance.
Move your politicians.
By Simon Johnson