By Marilyn Barnewall

One
definition of insanity is continuing to do things the same way but expecting
a different result. Understanding that, one must ask the obvious question:
Why does the Obama Administration keep doing the things that got the U.S.
economy in trouble? It exemplifies one of three things: Insanity, duplicity,
or stupidity. I suppose incompetence could be added to the list.

Over-spending
and debt is what caused our current problems. More over-spending and debt
will cause more damage and offers no relief. It is insane. What is being
done will likely cause the commercial banking industry great stress if
not failure. It is impossible to breathe life into something that is already
dead on the premise that the old economy can be brought back to life.
Yet, advisors to Barack Obama seem fixated on doing just that. Consumer
credit no longer drives the economy – and will not for many years.
Americans no longer trust the system or the government that supports it.

Quite
simply, America is going through a process of bifurcation. The most easily
understood explanation of “bifurcate” comes from an old saying:
“All things live to maturity, level off, and die unless injected
with new life and new blood.” The “new life” and “new
blood” part is bifurcation. As a nation, we are not only bifurcating
economically, we are bifurcating socially and politically.

The
consumer credit economy lived to maturity, leveled off and died. Alan
Greenspan and Ben Bernanke have tried to keep it alive with bubbles, but
it’s dead. New blood and new life cannot be created and sustained
from a corpse… and that is a reality the current administration
has to face.

Here,
Mr. President, are recommendations from a banker, not an economist (like
your past and present Fed Chairmen) or those with a limited view of commercial
banking (like past and present Treasury Secretaries whose Wall Street
experience may present conflicts of interest). I urge you to remember
that when Wall Street becomes ill, the economy gets the flu. When commercial
banks become ill, the economy fails.

The problems that result from obvious conflicts of interest – like
the kind former Treasury Secretary Henry Paulson faced when he realized
his former employer, Goldman Sachs, had a $20 billion exposure to derivative
losses – are cleanly dealt with in the Glass Steagall Act, also
called the Banking Act of 1933. Conflicts of interest do phenomenal damage
and Treasury, Bank of America, Merrill Lynch, AIG, and Citigroup, are
filled with Goldman Sachs alumni.

The
Glass Steagall Act was enacted by Congress because gross conflicts of
interest – even fraud – were identified as precursors of the
great depression. Glass Steagall built a wall between commercial and investment
banks. Commercial banks could not sell investment or insurance products,
and investment banks could not take deposits. That changed when the Gramm-Leach-Bliley
Act of 1999 was passed during the Clinton Administration. It tore down
the wall.

The Federal Reserve System is not a legitimate central bank of the United
States but the government has designated it as such. Thus, it acts as
a financial vendor or clearinghouse for banks, the government, and We,
the People. Despite what they’ve been told, people are finally beginning
to doubt the FedRes System protects America’s currency and devises monetary
policies beneficial to our nation. Since the time of our founding fathers,
all central banks have been accused of draining the wealth of citizens
and manipulating economies for the benefit of a shadowy group of foreign
and domestic elites.

The
Federal Reserve Act of 1913 should have been repealed long ago. The Fed,
as it is called, is not part of the government as people seem to think.
As I said in my August 4th article:
“A real central bank is just that: a central bank owned and operated
by the government. It is not a private corporation.” The Federal
Reserve System needs to be absorbed into Treasury where oversight can
be closely monitored rather than left to the whims of an appointed Board
of Governors who may, or may not, represent America’s best interests.
At present, the Federal Reserve System is nothing more than a cartel like
OPEC. It is owned by bankers and foreign interests. OPEC sells oil; the
FedRes System sells money. Both are equally dangerous.

Treasury needs to absorb the Federal Reserve System and put responsibility
for currency creation back in the hands of the U.S. Congress. If Congress
does a lousy job, we can vote them out of office.

We need
to repeal the Community Reinvestment Act of 1977. It appears designed
to facilitate the UNs’ Habitat I human settlements planning scheme that
has since been incorporated into the UNs’ Agenda 21-Sustainable Development
Program. Perhaps intended to reduce poverty, it instead has served to
put Americans deeper in debt, particularly those with no jobs and no incomes.

Government
should not have control over how private sector businesses are run. Banks
should not be forced to make bad loans to people who cannot repay them.
Does something need to be done to help those at the bottom of the income
ladder buy a home? Of course! It is not only humane, it helps create stable
neighborhoods and increase property values. It should not, however, be
done by forcing private companies like banks to risk your and my deposit
dollars so loans can be made to poor people whose credit track record
does not qualify them as long-term borrowers.

We need
to re-establish a privately owned and controlled source of mortgage financing.

Freddie
Mac and Fannie Mae have become the primary source of mortgage financing
since the Garn-St. Germain Act was passed. Garn-St. Germain deregulated
the savings and loan industry and helped cause it to fail. It, too, needs
to be repealed and a new savings and loan industry needs to be created.
Commercial banks are expert at making short-term loans, not 30-year mortgage
loans.

We need
to re-institute Regulation Q which allowed savings and loans to pay 5%
on short-term savings and 5 1/2% on long-term deposits. It makes mortgage
loans available to average Americans for a 7% to 7.5% rate of interest
and makes it possible for those on fixed incomes to keep up with inflation
by providing a fair rate of return on savings. And, it does so without
corrupting the value of our currency.

Anytime
government gets involved in the ownership of private companies –
which Freddie and Fannie should be but are not – the policies at
these private companies become the toys of partisan politicians.

If our
economy is to be turned around and the financial services industry is
to successfully bifurcate, emphasis needs to be placed on independent
businesses and less attention paid to multi-national corporations, which
have little loyalty to a single nation anywhere. Independent business
is the heart of any capitalist economy. Capitalism is not accurately reflected
by shareholders who own a tiny percentage of a multi-national corporation’s
stock. It is reflected in shopkeepers and independent businesses, public
and private. Bank loan policies developed during the 1970s and 1980s designed
to effectively manage risk not eliminate it must be implemented. Such
policies help capitalists create wealth, not destroy or redistribute it.
Dominant bank loan policies today seek to eliminate loan risk. Capitalism
manages risk; socialism eliminates it.

Finally,
the “too big to fail” banks – both commercial and investment
– need to be “unwound.” Remember, they’re considered ‘too
big to fail’ because of their convoluted entanglements, not because of
their size. This sounds simple to the average person who says: “Just
make them get rid of some of their toxic assets and questionable liabilities.”
It is far more difficult than that. But it not only needs to be done,
it must be done so that history does not repeat itself.

No financial
institution should be big enough to threaten the failure of the largest
and strongest economy in the world. When that happens, something is very
wrong.

                       © 2009 Marilyn M. Barnewall — All Rights
Reserved