Thursday, November 12, 2015

Where are the GOP priorities with banking? Probably not with most of us.

I was so disappointed with the last GOP debate, that I really didn't bother with the second debate. But the news accounts of the most recent GOP debate were hard to miss. I found this little gem yesterday: On the topic of the financial sector meltdown of 2008, Cruz says he would let the banks fail. Kasich says he would not.

For once I actually agree with Cruz. I doubt that he's presidential material, but I agree that the big banks should have been allowed to fail. The simple reason is that in capitalism, when businesses fail, investors and entrepreneurs will come in to pick up the pieces and rebuild that business capacity or sell it off in pieces.

For example, if Bank of America had been allowed to fail, they would have to had to sell off all of their bad loans, let go of all the homes that they're keeping off the market and home prices would fall naturally. With low home prices, the people who saved their money would buy the homes and money would move in the economy. That's what drives growth.

Instead, we allowed the banks to get gigantic loans from the Fed at below market interest rates, to the tune of about $2 trillion, with zero drug testing. That left our country economically constipated, stopping the normal cycle of capitalism as described above. Sure, letting the big banks fail would have been painful, but we would have recovered much faster. Anyone following the story in Iceland can see the difference.

In Iceland, they prosecuted the bankers responsible for the bad loans, sold off the bank assets, and wrote a check for the people of the country to distribute their shares. Our economy would be humming along nicely had we done something like that.

Note also that there is a subtext to the debate. No one seems to want to talk about the fact that the meltdown was precipitated by stagnating wages for the last 40 years, and the wonderful bubble economy brought to us by the Reagan Revolution.

On the other hand, there is Governor Kasich, saying that the responsible thing to do was to save the banks, for we wouldn't want so many people to lose their life savings. Oh, really? What about the FDIC insurance on ordinary savings accounts? It was good for $250,000 in 2008.

Seriously, who has more than $250k in the bank? In 2004 a Federal Reserve survey found that of the top 10% of Americans in terms of wealth, the median amount held in accounts that could be FDIC insured was $58,000. So even in 2008, only a fraction of the top 10% had more than $58k.

How much of the population has more than $250k in savings, the FDIC limit? Today, that number is closer to 1%. Is it just the 1% that Kasich had in mind during the debate? Probably. I really don't think that either of them care much about the middle class. They're both in high levels of government and as we've seen, government tends to listen to the money rather than the people.

There is really only one candidate running for president that I can think of that is actually listening to the people. He's not Republican, he doesn't have a SuperPAC and his last name isn't Clinton. I'm looking forward to the day when he can debate anyone from the GOP on this issue. For now, I think we can rest assured that, like the rest of the GOP candidates running for president, neither Cruz nor Kasich have any empathy for the middle class.
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