Jane D’Arista on a “public option” in the finance sector
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. We’re in Hadlyme, Connecticut, with Jane D’Arista. Thanks for joining us again, Jane.
JANE D’ARISTA, AUTHOR, THE EVOLUTION OF US FINANCE: Thank you for having me.
JAY: Let’s talk about other kinds of solutions to the crisis. Some people have made the proposal that there should be some kind of bank as a public utility, so that there’s a way to get credit without going through the private banking system. Some people have suggested if public option is good for the health-care industry, then why not for the finance industry? Why not different types of public institutions to facilitate liquidity in the economy? So what do you make of all that? And if you think there should be something like that, what would it look like?
D’ARISTA: I think that we have mutual institutions which are publicly owned. We’ve had a long tradition of this, and that was something that was always pushed by progressives. So we had mutual banks, mutual savings banks. We have now credit unions. I’m a member of a congressional credit union, which is owned by its members.
JAY: ‘Cause you used to be a congressional staffer.
D’ARISTA: Right. That is one way to go, the mutual system, where we own the institution. I think we need to do more of that in terms of pension funds as well, ’cause they’re a huge ripoff. And we need to have people coming together with their IRAs [individual retirement accounts] and having the decision as to what the policy should be, how much they’re going to pay, because the ripoff in terms of fees—it’s your money, and you’re trying to get, you know, to a place where you can actually retire, and so much is taken out and traded away in transactions that you may not come out too well. So one way to go public is ownership by the people whose money it is.
JAY: Credit unions, co-ops [inaudible]
D’ARISTA: Right. Exactly. Now, a governmental institution is something that has been if you will, eradicated from the language. I was in Buenos Aires at a conference which was in the industrial bank, held by the industrial bank, and they were saying, “We’re one of the few that has survived the whole Thatcher-Reagan push to get rid of these.” I mean, the pressure was on to privatize all of these institutions around the world, but they have a very important role to play. So industrial banks that lend to businesses, small business, we need lending to small business in this country. We need an institution that will do that. Our sort of template for this, if you will, is the Reconstruction Finance Corporation that was put in, interestingly enough, by Herbert Hoover in order to capitalize the banking system at the beginning of the 1930s, and then morphed into a much broader kind of institution under Roosevelt and Jesse Jones, who ran it and ended up in 1938 creating the Federal National Mortgage Association, which we call Fannie Mae, which was a purely public institution at that time, subsequently quasi-privatized, as we know.
JAY: And people point to that as the example of why you shouldn’t have public lending institutions.
D’ARISTA: Yes, because the pressure was on for them to then support the market for mortgage-backed securities. And they began doing this on a small scale at the beginning of the ’70s, and by the ’80s it was on a huge scale, because the mortgage market was collapsing. You know, I’m mean, I’m not sure you can blame the—there were a lot of problems with Fannie Mae and Freddie Mac, but at the same time, the structure of the market was shifting, they were pushed into the position of, if you will, sort of, being the safety net for a market that was falling apart.
JAY: So Fannie Mae doesn’t prove that these sort of things are inherently going to go awry.
D’ARISTA: No. No. And back in the ’70s, when I was working for the US Congress, we were proposing a Fannie Mae for the environment. And the idea there was to support alternative sources of energy, to provide funding for towns and states, etc., to clean up brownfields and make use of them. We had support from two members of the Federal Reserve board at that time for that legislation, and a lot of support around, and in the end the oil companies came in and said, “You don’t need it. We’re going to move in this direction. The market will take care of it.” And, of course, we see: did the market take care of it? No. So there’s always a role for government in areas where the market has failed or will not move. And we have seen that take place before, and we need to do it again.
JAY: So didn’t the Obama administration have other choices when they came to power? Instead of, you know, the billions of dollars going from the Treasury into the bank bailout, the couple of trillion dollars from the Fed, why not create these kind of public lending institutions and directly facilitate liquidity with some kind of public-interest agenda? And this is obviously a softball question to you.
D’ARISTA: Well, I think, you know, that they could certainly have done that, and that’s not a new idea. When Franklin National Bank failed in 1974, Henry Reuss, who was then my boss, proposed exactly doing that: take it over, make it a public institution, make it your TVA [Tennessee Valley Authority], if you will, for the banking sector, what we call the “public option”. You know, this is the model institution. We should try that. It would be a good thing to try. And certainly in terms of—we do own these institutions. I mean, my gosh, how much of Citigroup do we own? I think it’s somewhere around 36 percent. So why aren’t we therefore using our ownership for good public purposes?
JAY: So what’s the answer to that? Why aren’t we? Is the bottom line here the Obama administration? Is this too much an extension of Wall Street?
D’ARISTA: I think they’re kind of uncertain as to whether or not there is sufficient support to do that.
JAY: But Obama’s certainly appointed people who are not inclined to want to do that.
D’ARISTA: Well, that’s right.
JAY: I mean, [Timothy] Geithner was someone who’s very—Geithner is not a man of public lending institutions.
D’ARISTA: No, he’s not. No, that’s right. And so you don’t have the support within the administration. And the political people in the administration aren’t sure that he would have the support outside to do this. And so we have a vast timidity in dealing with the financial problems we face and just hope that things are going to turn out all right. But the creativity that we saw back in the 1930s, it ain’t there.
JAY: Well, I guess the problem is, if you’re a head of one of these investment banks, things usually do turn out alright.
D’ARISTA: Yes, for you, but not for the rest of us.
JAY: Thanks very much for joining us.
D’ARISTA: Thank you.
JAY: And thank you for joining us on The Real News Network. And speaking of financial crisis, don’t forget the donate button, which is either here or there, because if you want to see more of this, we need you to click there. Thanks again for joining us.
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