• The bottom line argument seems to be that state-owned banks are bad because those who are politically connected get good deals. The corollary seems to be that, despite the corruption in privately owned banks, they are better because….

    I would posit that privately owned banks act as bad or worse than publicly owned banks. The only question is: who profits? With privately owned banks, the people at the top, i.e., capitalist owners and their cronies, profit at the expense of the public. With publicly owned banks, the people at the top, i.e., politicians and their cronies, profit at the expense of the public.

    The difference is that, in theory, we can change the politicians. We cannot change the owners.

    The author writes: “This is typical of government-owned banks, which tend to subsidize the powerful and connected.” It should be written “This is typical of government-owned banks, which tend to subsidize the powerful and connected”

    • The difference is that, in theory, we can change the politicians. We cannot change the owners.

      We sort of can, though, by switching banks. It’s much harder to switch governments. And every vote we have to cast based on the “bank” issue is one more we can’t cast based on some other issue.

      If it’s going to be corrupt no matter what we do, there’s no benefit to getting the government involved.

      And there’s nothing wrong with a private company making a profit.

  • Entities subject to political control are terrible at allocating capital. A bank has been described as a means of moving money from where it is not currently needed to where it is needed. By and large, private banks do this on the basis of credit worthiness, with their managers being accountable to shareholders. Public banks, on the other hand, would be far more likely to engage in politically-motivated lending, and their employees would join the legions of utterly unaccountable bureaucrats who are free to screw up routinely and with near total impunity.

    Of course no one is arguing that private banks are perfect, but many of their worst moments have been with the government as handmaiden. Purely public banks would give us the worst of all worlds. Hell, just look at Fannie and Freddie (which are not banks but have bank-like functions).

  • I don’t know, Dem. I think private banks without regulation would be the real pure hell. That sort of system leads to things like bank runs and depression.

    I am not 100% sure that private banks do things on the basis of credit worthiness. Certainly, that is the goal, just like public banks should make loans based on credit worthiness. But what if the major shareholders have friends… or the managers get kickbacks… Shockingly, that happens.

    Again, the difference is that we see public graft and corruption and can change the leadership. We do not necessarilly see the private graft and corruption, which surely exists.

    I am not arguing that public banks might lean toward making politically correct decisions. But they are no more (or less) likely to make decisions that are based on things other than good banking principles.

    I am pretty sure of thing: if I had a choice, I would more likely go to a publicly owned bank for a mortgage or a loan than a privately owned bank. I might even pay a little more for the privilege. I just don’t trust the big banks to deal with me fairly.

  • Allan, private banks are extensively regulated and always will be. I wasn’t arguing that they should be freed from all regulation, just that they are far more efficient allocators of capital than public banks could ever be.

    Maybe your experience is a lot different than mine, but I’ve been treated very fairly by at least one large bank (both as a borrower and depositor) for a long time.

  • Supporters of government owned banks frequently point to the Bank of North Dakota as their model. This bank has been around for almost 90 years and is very conservatively run as one might expect from a publicly owned bank formed by a predominantly rural state to give access to credit to farmers and small businessmen. Anyone who thinks that San Francisco or New York City could run a publicly owned bank in the same manner is delusional.

  • There is one example of a liberal, nonprofit organization that has run a bank for many years successfully. This is Amalagamated Bank in NYC which was founded by the garment union in NYC. One reason it was so self-disciplined was that as a bank owned by a Jewish union in the 1920s and 30s, they could not count on being helped out by the big Manhattan banks if they had a run. Those who like the idea of a publicly owned union would do well to study their history but I have a feeling that the politicians who are proposing these ideas are more into something for nothing rather than identifying unmet needs.

  • PaulB, banks like Amalgamated are more like credit unions than banks. Such organizations can do a lot. My grandfather wound up running a burial society in New York for people who came from his village in Lithuania; they lent money to their members and by the time he died, members got for their $10 annual fees not only a burial plot and modest but decent funeral, but a $100 annual distribution.

    Any organization of any description can work, but we can judge from history that an organization is liable to lose focus when they grow large and layered and management is insulated from owners. Mutual insurance societies are run for the benefit of management; so are publicly-traded corporations; government programs are used as pay-offs for politicians’ friends. It’s an inevitable result of success. Politicians aren’t owners and they aren’t management. They don’t even have to worry particularly what happens five years after they leave office. Their pensions come from other funds. They neither benefit from success nor suffer from failure