Wake up, Mr. President: It’s the Failure of a Whole Model of Banking!

Katrina Vanden Heuvel in The Nation offers a thoughtful critique of Obama’s Georgetown University speech on the economy in which he cites the Sermon on the Mount, appropriate for a politician whose oratory imitates that of an evangelical preacher.

Vanden Heuvel writes:

I think the speech is important for what it reveals about Obama's understanding of the task ahead--building a new economy out of the ashes of our failed one.

But real and grounded concerns about the administration's bank bailout plan remain. As Nobel prize-winning economist Joseph Stiglitz wrote recently in a New York Times op-ed the Obama administration's plan is "far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses...the kind of Rube Goldberg device that Wall Street loves -- clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets...." Other good thinkers share this view, including Paul Krugman, Simon Johnson, William Greider and Robert Reich.

Vanden Heuvel goes on to say:

While Obama's speech lays out some strong principles for a new foundation, the administration's financial team remains unwilling to understand that we're not just going through a financial crisis or a panic, but the failure of a whole model of banking. We are living amid the blowback of an overgrown financial sector that did more harm than good.

As The Nation's Greider has argued we need a new banking system--smaller and more diverse and responsible to the public interest. Creating this new system is where public resources should be committed, not to saving banks that are "too big to fail". We should create public banks and non-profit savings and lending cooperatives to serve as an important check on private commercial banks. We need to make banks the servants--not the masters--of our economy. Only when we do that will a new regulatory framework do what's needed; it would be a mistake to simply re-regulate the shadow banking system which got us into this mess.

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