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What would happen if banks actually did things to help us as a society?  And by help us I don’t mean holding a celebrity golf tournament and donating the proceeds to a good cause, or making meager, tax deductible contributions to charities.  I mean really help our society, to the point where it was a systemic part of their overall loan and investment strategies.

Thursday afternoon, I had the pleasure of listening to some truly thought provoking questions being raised about our banking system.  While driving home from Philadelphia, I tuned in to hear Los Angeles based attorney and author Ellen Hodgson Brown appearing on the Marc Steiner Show on WEAA radio in Baltimore.  While you can catch the entire discussion in a podcast on Steiner’s website, what was most intriguing to me was Brown raising obvious points about our banking system and how little it does to help regular people, despite the fact that they provide a huge portion of the capital employed by financial institutions.  This could be, perhaps, one of the greatest ruses ever pulled on the American people, and people around the world for that matter, however it is a system that we take for granted every single day and feel helpless to change.

Consider this.  You keep your money, or at least the operating funds for your particular lifestyle, in a bank, which the bank then uses to invest and make loans.  You may also place safe investments with that bank in the form of Certificates of Deposit.  If you purchase a home, you then, if you’re a regular person, borrow money from a bank, which in turn makes money off of you in the form of the interest you pay every month.  Your bank, most likely charges you fees, where it makes more money off of you.  Your money and loan business provide a large amount of the cash that the bank is playing with, making money with, and then every few decades or so, losing when some ridiculous financial crisis arises.

Then your taxes go to bailing out your bank.

Let’s remember this current financial crisis we’re experiencing now is not the first to hit these shores.  It’s not even the first of our generation.  The 1980’s and early 1990’s brought what should have been, but wasn’t, a wake up call about the perils of deregulation of the financial, insurance and real estate (FIRE) sectors in the form of the Savings & Loan (S&L) Crisis.  This precursor to our current predicament involved a familiar pattern to the Mortgage Backed Securities (MBS) Crisis of today.  Some very powerful financiers lobbied their friends and beneficiaries in Congress to deregulate  banking institutions called Savings & Loans.  Then these S&Ls began enticing people to deposit money with the promise of high interest rates, all the while taking some very big risks with that money by buying risky investments known as junk bonds.  The results were predictable enough.  The S&L’s went bust and the federal government stepped in to clean the whole mess up to the tune of a $120+ Billion bailout.  Less than 20 years later, it seems we have learned little from our recent folly.

But worse than the fact that as taxpayers and bank customers we end up in a lose-lose situation, where profits are privatized and losses are socialized, is the fact that institutions as important as our banks have little to no social responsibility in either their loan or investment operations.  Profits are king, and the only measure that matters is increasing them, the effect on the society as a whole be damned.   Meanwhile, enormous - and growing - swaths of the country live in destitute poverty, from Detroit to New Orleans and back to sections of the District of Columbia itself.

What could banks do better you ask?  Steer money toward development projects in areas that need it.  Find better strategies to improve home and business ownership within poorer communities through smart loans.  Making people more of a priority than profits.  This idea is not new.  ShoreBank in Chicago was begun for these very reasons back in the early 1970’s and continues to this day.  But the idea has not caught on in the mainstream, where it needs to be in order to truly be successful.

You can takepart in checking out a good prototype of community oriented banking by checking out ShoreBank’s website.

LINKS:

Xinhua: Former U.S. presidential economic adviser: worst of financial crisis is over

Reuters: Fed first to blame for financial crisis: Kaufman

Barron’s: What if there were no Fed?