Perhaps our banking crisis can be solved in part by borrowing a technique from the Affordable Health Care Act. The AHCA requires that all insurance companies allocate at least 80 percent of their revenue to direct benefits for policy-holders. Their overhead and profits can only come from the remaining 20 percent.
Why couldn’t a similar system be used with America’s banks? There has been considerable criticism that the TARP bailout was nothing more than a method for banks to replace lost losses that occurred due to ill-advised and in some cases illegal investments prior to 2008. Where the goal of most politicians and economists, and certainly the public in general, was for the banks to put their assets back into circulation to individuals, families, and small businesses, this hoped-for outcome has not happened.
Neil Barofsky, the former inspector general for TARP, has recently published a book simply called Bailout. He writes:
I now realize, though, that Treasury’s dismissal of our warnings has produced a valuable byproduct, the widespread anger that may contain the only hope for meaningful reform of our system. I now realize that the American people should lose faith in their government. They should deplore the captured politicians and regulators who took their taxpayer dollars and distributed them to the banks without insisting that they be accountable for how the bailout money was spent. They should be revolted by a financial system that rewards failure and protects the fortunes of those who drove the system to the point of collapse and will undoubtedly do so again. They should be enraged by the broken promises to Main Street and the unending protection of Wall Street. Because only with this appropriate and justified rage can we sow the seeds for the types of reform that will one day break our system free from the corrupting grasp of the megabanks.
Barofsky, a lawyer by training, spent most of his time as inspector general looking for legal violations by large banks, as well as accounting malfeasance. He found plenty of both. His remedy is greater oversight, with the Treasury Department, Congress, and the President putting more energy into ensuring that the banks do not sacrifice the American people at the expense of their own ill-earned profits.
One idea might be to ensure that banks use 80 percent of their assets, or at least their income, to directly help the American people. Barofsky points out that this is difficult to do because money is fungible, meaning that it is hard to trace. Does a loan to a small business come from the bank’s regular earnings or from aid that came from TARP? Is it possible that regulation to this degree might be so cumbersome that it would be more than either the regulators or banks could do.
Another option has been suggested by Ohio Congressman Dennis Kucinich. In his bill, HR 2990, he suggests an idea embraced by the American Monetary Institute. The core of the plan is to essentially neutralize banks by having the Federal Reserve Bank directly make money available to the federal government, rather than banks, for distribution. Thus, if money is needed to rebuild our infrastructure (which it obviously is), no money would go to banks but all would go to fund programs that would address the goal of repairing infrastructure. Money could go to the Department of Transportation or the Department of Housing and Urban Development to design, implement, and evaluate these programs. This directly puts money in the economy for positive purposes and stops banks from preventing directing money to where it is needed most.
Whether it would be the 80 percent plan or the American Monetary Institute plan, there are options to prevent banks from hoarding money, as health insurance companies have for years. We can only hope that our elected and appointed officials consider these ideas.