Should Bank Executives Apply for Unemployment Insurance?

BY: NORMAN MARKOWITZ

I recently signed a petition sponsored by MoveOn.org to fire Ken Lewis, the CEO of the Bank of America. The petition was obviously inspired by the Obama administration’s removal of the President of General Motors.

Of course, Lewis is an easy target. As an historian, I immediately began to compare Lewis with the founder of the Bank of America, Amadeo Giannini. The following story is well-known, even legendary in the history of the Bank of America. More than a century ago, Giannini headed a bank that catered primarily to immigrants and which lacked the resources and privileges of the bigger banks in San Francisco.

During the great San Francisco earthquake of 1906, fires devastated the city. Giannini’s bank did not have a fire proof vault, because it could not afford it. He and his associates brought the deposits out of the burning city by hand, whereas the bigger, established banks kept their money in their fire proof vaults. Giannini then cornered the market on Northwest lumber for rebuilding the city, gaining a huge advantage over his rivals.

The story is often cited as an example of capitalist “initiative,” but I see it in a different light. Giannini profited hugely from the disaster that befell San Francisco and used the profits made from that crisis to build the Bank of America. He profited by speculating on the value of the raw materials that helped rebuild San Francisco, but, of course, the earthquake was a natural disaster.

The profiteering and speculation by current Bank of America CEO Lewis and his fellow transnational bankers, either praised or winked at by the US government for decades, has largely brought on the disaster, and they are now seeking to profit yet again from it. They are not even suggesting any actions or policies on their part to foster any of the “three Rs” of the New Deal government during the Great Depression: relief, recovery, and reform (which again should be central to discussion today, because they concretely address the crisis).

The banks have said nothing about providing relief for the millions facing home foreclosures and bankruptcies, general economic recovery which will stem the rising tide of unemployment and declining real purchasing power, and reform of the entire banking system.

Assuming that the new CEOs will continue to act in a corporate culture with no real accountability to or respect for either the government or the public, is the firing of CEOs in itself a solution?

My suspicion is that new CEOs, if the same overall power structure and corporate culture remains in place, would most likely set up “Potemkin villages,” i.e., paper projects to convince the government and the people that they are doing something while they are really doing nothing. (Potemkin villages are named after the 18th century Russian general who set up building facades to convince the Czarist government that he was carrying out real construction projects.)

The MoveOn.org appeal goes on to catalogue Bank of America’s transgressions in helping to create the present global crisis. This seems generally accurate to me and can of course be applied to the leaders of other high managers of finance capital conglomerates – transnational banks, insurance companies and brokerage houses. We should remember that these “institutions” are continuing to put the squeeze on homeowners, small business owners, middle-sized and even in some instances large corporations along with tens of millions of working people with crippling credit card debt while they receive hundreds of billions from those very people as taxpayers.

Homeowners, small business owners and working people in credit card debt face a sort of economic “redlining.” Banks in working-class and minority neighborhoods in the post Word War II era of expansion and suburbanization took their depositors’ money and used it to provide capital for suburban development while refusing to fund businesses and projects in their own communities. This discriminatory policy contributed to a decline in employment, housing and general living standards in those communities – in effect defunding them with their own money.

Banks today are refusing to use the hundreds of billion that they are receiving from the public to address the needs of the people who are threatened by the economic crisis. If anything, they appear to be engaging in a new form of redlining: hoarding capital in the Keynesian meaning of that term, that is, seeking to protect their “institutions” and creditors by not investing in recovery. Instead of acting as middlemen in the funding of recovery, they are at this point funding themselves, looking to the federal government to absorb their bad debt (“toxic assets”) as they ride out the storm. It appears that the banks are trying go back to business as usual without serious reregulation, much less public control over the banking-insurance system and major protection for homeowners, small business owners, and working people caught in the credit trap.

Removing CEOs (or creating pressure on CEOs through the threat of removal) won’t go far enough, unless it is connected to restructuring the administrative boards of the banks in question and also providing clear relief, recovery and reform policies for the new administrative officers of the banks to advance.

For example, banks receiving stimulus aid should be required to channel investment into communities and businesses that will both foster recovery and provide relief for those working families and low-income communities most threatened by the crisis – in effect an overall industrial policy. Since the Bank of America was one of the pioneers of the dissemination of mass credit cards beginning in the 1960s, it might take the lead in restructuring that debt in the interest of the people, sharply reducing the crippling interest payments which would be considered usurious through most of history (payments at 15 percent and above).

A more comprehensive long-term solution could be nationalization, that is, making the Bank of America, or at least a number of its major divisions (mortgages, auto sales and credit cards) into a public corporation and providing working people with public credit cards that would keep goods flowing in the economy as against undermining purchasing power through outrageously high interest payments.

Many are speaking abstractly about “nationalizing the banks” without coming forward with specific policies for a nationalized banking system that the people could understand and identify with. Similarly, General Motors could become the first publicly owned and publicly managed industrial corporation, reorganizing its labor relations in the interest of its workers. Such a move could revive the US auto industry through policies that would both provide incentives to Americans to purchase American cars and produce American cars that would be environmentally friendly.

These are the kinds of policies that the broad left should be advancing now, policies that begin to reach out to and educate working people. We have to advance proactive solutions now, because this period is one in which “change” can go in a number of directions. We could see either far-reaching progressive reforms in the direction of socialism or repressive forms of state capitalism with possible fascist trappings that will revive and expand the worst aspects of the Reagan-Bush policies.

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