Too Big to Fail? Take it Over.

Billionaire fraudster Bernie Madoff may be behind bars, but his business model is alive and well. How can we keep high-flying bankers from pulling the same kind of bait-and-switch with taxpayers?

Experts -- from Nobel Prize-winning economists to Alan Greenspan, the libertarian former Federal Reserve chairman -- admit that some kind of nationalization for failing banks is the best way out of this mess.

But nationalization can mean many things. If the government takes over, whose interests are protected? Who pays for the losses? As the AFL-CIO executive council concluded, "Government intervention must be structured to protect the public interest, and not merely rescue executives or wealthy investors."

The best way to protect the vast majority of Americans who don't live the Wall Street high life is to create a federally run bank out of today's insolvent institutions.

It would be cheaper, safer, more democratic, and more transparent.

And it should be permanent. We can't leave what Warren Buffett called "financial weapons of mass destruction" in private hands any more.

Bankers are working hard to protect their gravy train. "Nationalization would be a disaster," said Bank of America CEO Kenneth Lewis, who's pulled down $223 million since 2001, and whose company got $45 billion of bailout money with no strings attached.

Lewis hopes scare tactics will keep us from asking the simple question: How can we force the people who got us into this mess to eat the losses -- and to ensure that it doesn't happen again?

What's a Bank For?

If banks didn't exist to make big money for the already-rich, what would they do? They would be a place for people to keep their money safe, even see it grow. They would lend money to other enterprises, both public and private, to keep people working and start useful businesses.

Inventing lighter-than-air financial instruments -- that today look more and more like get-rich-quick schemes -- doesn't have to be part of the picture.

In other words, we need a bank whose purpose is to serve the public rather than to create megamillionaires. And that bank has to become a permanent institution, like Social Security or Medicare.

Many bank nationalization schemes being floated assume the government will take over the lemons, fix them up with taxpayer money, and then sell them back ASAP to rich investors. As the New York Times approvingly quoted one D.C. economist: "Nobody in their right mind wants the government to be in the banking business any longer than it needs to be."

That scenario puts the same people, with the same motivation to fly high and wide, back in charge. We'd end up in the same position again later on, because the lure of billions to be made wheeling and dealing is just too great.

Other models don't put the whole economy at risk. For example, the nation's credit unions, which operate as not-for-profit banks, emerged from the financial meltdown largely unscathed.

They pay higher interest rates for deposits and charge lower interest rates on credit cards and mortgages. Some even set aside funds for socially valuable investments which may never be money-makers. Why not scale up these principles?

Why would a government bank be any better than one run by millionaires? It's understandable to fear that such a bank would become a personal checking account for politicians and their friends, and that its investment decisions would be subject to political pressures. While it's hard to imagine more shady self-dealing than we've seen with banks in private hands, public ownership means setting a higher standard.

Ultimately, the only way to keep a public bank honest is public pressure, coupled with strong mechanisms of accountability and transparency. Just like with everything else the government does, politicians are only as honest, and responsive, as we make them.