Mar 08 2013
HARTMANN: Elizabeth Warren takes on Eric Holder when he came right out and said these banks become too big to jail. And she said that is proof that they’re also too big to fail and it’s time to get rid of them.
Today we have Austin Petersen, founder and publisher of libertarianrepublic.com and Director of Production at FreedomWorks with us.
So, Austin, here we have banks doing exactly what numerous economists from Adam Smith in his Theory of Moral Sentiments to Karl Marx in Das Kapital described that without the regulation of government within a sector large corporations will eat small corporations until there’s only one, two, or three of those corporations left and they function as a cartel. Government is necessary to enforce competition. Is it time to break up these too big to jail banks or are they going to bring down capitalism?
PETERSEN: Good question. I mean actually think we might be able to find an area of agreement here Thom. What you’re really talking about is the problem of corporatism. It’s the special favors afforded to banks that make them too big to fail. It’s the bailouts and things like that.
HARTMANN: I’m not talking about that. In fact, if you allow the banks to fail seriously and I’m not a fan of bailing out the banks, I think we should have done what Ronald Reagan did and nationalized the banks, but if you instead did nothing and you let the banks fail, which is what Herbert Hoover did in 1929, 1930, 1931, 1932, and the first three months of 1933, if you do what Herbert Hoover did and what Republicans and Libertarians are talking about now, what you would end up with and what we did end up with in the 30s as a consequence of that is that all these small banks when they failed got bought up for pennies on the dollar by big banks and you basically ended up with Andrew Mellon owning the country.
PETERSEN: Right. Well, what you want to do is to give institutions like banks the incentives to do right by their customers. What we have right now is that banks are not incentivized to do right by their customers. Take a look at interest rates. Interest rates are the lowest they’ve ever been in history and they’ve been low for the longest they’ve ever been in history. The problem with that is that it incentivizes banks to not take care of the little guy because they run up all of this debt from other major financial institutions and they ‘re not as incentivized to give out loans to lower income or minority . .
HARTMANN: So how would you have big government incentivize the banks?
PETERSEN: What I would do is break up the largest banking cartel that we have.
HARTMANN: So you want to use big government to break up the big banks?
PETERSEN: Well what I’d like to do is break up the banking cartel in the way of abolishing our central bank.
HARTMANN: But the central bank has nothing to do with the fact that Citicorp is the result of the acquisition of over a hundred other banks.
PETERSEN: Let me finish. So what we want to do as Libertarians, if we want banks to be forced to compete, we want banks to be able to set their own interest rates. So what we would do is abolish the central bank and allow regional banks to compete against one another. So that way if banks do fail it doesn’t take the entire economy with it. It could be a regionalized problem where maybe perhaps the banking system in Detroit gave out too many poor loans but the banking system in New York wouldn’t have done that and they won’t have to take that kind of risk. Right now what we’ve set ourselves up with is a too big to fail, a one size fits all.
HARTMANN: What you’re describing Austin, and I’m guessing you have to be a student of this history, is what happened after Andrew Jackson destroyed the second bank of the United States and what it led to was a period of time from that time until 1935 when we never went more than fifteen years without a major national bank panic, without a major national bank failure because these cycles of boom and bust because these banks were not regulated.
PETERSEN: But we did not have great recessions and depressions.
HARTMANN: We absolutely did. You had a depression from 1878 to 1898 that was far worse than the great depression in the 1930s.
PETERSEN: You’re complaining about capitalism and the features of capitalism but you have to understand that capitalism means profit and loss. So there do have to be institutions that sometimes take a loss because they made bad decisions. If someone makes bad decisions . . .
HARTMANN: Well, when it’s the banks, it’s screwing all of us. It’s our money.
PETERSEN: No it’s not your money. Your money is your money what’s other people’s money is other people’s money.
HARTMANN: No, the ‘our’ I’m talking about is us as a nation. It is our money as a nation. Money is the medium of exchange that we as a nation have decided to use but when you totally privatize it and locally privatize it what you do is you create these boom and bust cycles as banks try to compete with each other.
PETERSEN: Cash-wise what you get is the Soviet Empire.
HARTMANN: No, when you nationalize it what you get is what we had in the United States from 1935 until 1999 under Glass-Steagall — not one single banking collapse. Not one.
PETERSEN: Central bank is the creator of the business cycle. It is the problem . . .
HARTMANN: Business cycle was worse before we had a central bank, although I would argue that the central bank has very little to do with the business cycle.
PETERSEN: The central bank has a lot to do with the business cycle. They are the ones printing the money.
HARTMANN: How do you account for the business cycle being so severe that from the Washington Administration until the second Roosevelt Administration we never went more than 15 years without a major national banking crash?
PETERSEN: Because you never go anywhere without sometimes having a loss. You have to understand Thom that you cannot always have a permanent boom. There’s no such thing.
HARTMANN: We’re talking in circles here Austin. You’re saying that there’s an up side and a down side to capitalism. I’m agreeing with you and if we were talking about manufacturing socks. I’d have no problem with some sock manufacturers going out of business occasionally and we all have to wear the same socks for two years. But we’re talking about our money supply. We’re talking about banks. We’re talking about people’s savings. We’re talking about people on the edge of retirement being wiped out. We’re talking about young people going into life with nothing.
PETERSEN: Right, but that’s because of the central bank. It’s not because of the regional bank.
HARTMANN: No, this happened long before we had a central bank.
PETERSEN: We’ve had three central banks. So you can’t take . . .
HARTMANN: Well, it happened continuously during the intervening period from the Andrew Jackson Administration when the second central bank was killed off until 1913 when the most recent one was created.
PETERSEN: No. It’s a bunch of lies and propaganda.
HARTMANN: Austin, go back and look!
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