It’s the Interest, Stupid! Why Bankers Rule the World
Continued from previous page
One of many cities crushed by this Wall Street “insurance” scheme is Philadelphia, which has lost $500 million on interest swaps alone. (How the swaps work and their link to the LIBOR scandal was explained in an earlier article here.) Last week, the Philadelphia City Council held hearings on what to do about these lost revenues. In an October 30 th article titled “ Can Public Banks End Wall Street Hegemony?”, Willie Osterweil discussed a solution presented at the hearings in a fiery speech by Mike Krauss, a director of the Public Banking Institute.
Krauss’ solution was to do as Iceland did: just walk away. He proposed “a strategic default until the bank negotiates at better terms.” Osterweil called it “radical,” since the city would lose it favorable credit rating and might have trouble borrowing. But Krauss had a solution to that problem: the city could form its own bank and use it to generate credit for the city from public revenues, just as Wall Street banks generate credit from those revenues now.
A Radical Solution Whose Time Has Come
Public banking may be a radical solution, but it is also an obvious one. This is not rocket science. By developing a public banking system, governments can keep the interest and reinvest it locally. According to Kennedy and Creutz, that means public savings of 35% to 40%. Costs can be reduced across the board; taxes can be cut or services can be increased; and market stability can be created for governments, borrowers and consumers. Banking and credit can become public utilities, feeding the economy rather than feeding off it.