Some History on Too Big to Fail

by Gary Berg-Cross

Both Andrew Jackson, he of the $20 bill, and banks being too big to fail are in the news.  There is an interesting historical connection here in that Jackson’s fight with the 2nd Bank of the United States illustrates some of the issues about moneyed interest and breaking up that influence and banks.

As most of us know Founder Alexander Hamilton set the stage for a big national bank, replacing state banks as part of a centralizing, mercantilist approach consistent with his “English” policies. Within early America’s growingly competitive capitalistic system the first national bank provided a large sources of credit for commerce.

In 1816, Congress provided money to establish the 2nd Bank of the US with considerable power & influence to print money, provide loans, pay bills and yes, collect taxes as well as circulating dollars around the country to spark growth.

This Bank was a hybrid affair with most of the money coming from private  investors but the government provided 1/5th of the bank and thus “owned” a 1/5 share.. something that became quite important in later battles.

By 1820 or so the Bank of the US had $35 million in capital which meant it had lots of influence. It could make money easy or hard to access and since it had investor stockholders its decisions could and did give "exclusive money-making opportunities to its stockholders.”

As historian Daniel Feller explains:

 "the Bank of the United States helped the government to do its business 

effectively and efficiently. But it also helped the people who owned stock in the bank. "

According to historian Michael Beschlos in “Presidential Courage: Brave Leaders and How They Changed America, 1789-1989.” The Bank had considerable power over average citizens and politicians as well.  The well known Pol Henry Clay, for example, had a hidden “loan” from the Bank. Indeed “many of his political enemies had loans from the bank or were on its payroll. http://www.britannica.com/event/Bank-War

Andrew Jackson, a man of the 99% here, had his reasons to  oppose the Bank:

• It was a dangerously centralized financial power
• It held an unconstitutional monopoly on finance that only helped the rich get richer
• It made the economy vulnerable to foreign and special interests
• It held too much influence over federal politicians
• It favored the North (where most financial centers were located) over the South and West

 And, of course Bank President Nicholas Biddle, his agents and political allies opposed Jackson and made him look like a tyrant. 

“ With an ability to spread vast sums of money among newspaper editors, Senators and Congressmen, Biddle seemed unassailable.” http://americastrust.us/presidentialcourage.html

Despite this and the threat to destroy the economy as Jackson campaigned for re-election (shades of today), Jackson prevailed. 

When Congress, at Biddle’s behest, voted to renew the Bank’s charter Jackson vetoed the measure and gradually moved to cripple the Bank by withdrawing government money. Here's how he did it:

“On October 1, 1833, Jackson decreed that no more government money could be deposited into the (Bank) B.U.S. Instead, Jackson thought the states should have more control, so he made it easy for all kinds of individuals to charter their own institutions, many of which were classic fly-by-night operations. The banks then would often issue their own notes and a bit of trivia is the fact that the term "wildcat" originated long before it was used in the oil industry.” https://www.buyandhold.com/bh/en/education/history/2002/a_jackson_pt_4.html

Sort of a break up strategy in effect which ultimately succeeded in crippling the Bank.  And enough of the 99% understood and supported this type of breakup.  The Senate couldn't come up with a two-thirds majority to override the election year veto and Jackson's defeat of Clay in the election meant that the Bank was not renewed.  What followed was not great economic times, but perhaps we can learn from that lesson too along with the influence of too-big-to- fail capital and its influence on politics and income disparity. 

More at https://en.wikipedia.org/wiki/Bank_War

Outrageous solutions to Intractable problems: Part 1

By Gary Berg-Cross

We are gridlocked by what seems protracted, destructive problems that are deep rooted and elude solution. The problems escalate and become irreducible, high-stakes situation which have an I, win, you lose character.  Brad Spangler, drawing from bargaining situations discusses finding "zone of possible agreement" (ZOPA). Often one needs time to explore unpleasant alternatives to find this solution zone.  But of course if people don’t want compromise they make the problem dynamic and create barriers  or limit progress towards a solution zone. How can we find solutions when normal paths seem closed and routinized processes keep us out of the agreement area? 

Well perhaps we can take unusual paths and bypass some roadblocks.  Of course these may be unreasonable and outrageous, but perhaps they make a point. Let’s consider outrageous “solutions’ to 3 outsized, intractable problems starting with Climate Change.  This is part 1. Climate change.

What should we do about climate change?  In his book Climate Matters; Ethics in a warming world. John Broome (2012), discussed the seemingly intractable problem.  As you can tell from the book title it is a moral mess but it also comes with deep rooted eco-political problems. It is scientifically and psychologically challenged.  Many things are tangled up. Broome helps us think through the tangle but dynamic opposition with a  "I- win–you-lose psychology makes some thoughtful, theoretical-ethical approaches difficult. I’m going to suggest something simper.  Something with bottom line appeal.

The projected impacts of climate change are probabilistic.  Bad things may happen. It’s a gamble with people having implicit bets on either side.  OK, let’s go with that, but make it explicit. Let’s make it a bet or bets that matter.  Let get beyond the us-them argument and have a put up or shut up bet.

The idea is simple to start.  On the pro side scientists argue that damaging change is coming. The IPCC lays out some of this which Broome also covers:

hundreds of thousands of indigenous inhabitants of the Arctic are already finding their way of life threatened. Soon “innocent people all over the world” will be struggling (as Broome points out, in a cruel misalignment of responsibility and vulnerability the world’s poor – who have contributed far less to climate change are set to suffer much more harm than the rich). Hundreds of millions of people will be affected by floods and displacement, crop failures and famines, droughts and water scarcity, and mortality through heat waves and an increase in disease. (Review of Broome).

On the other side are more conservative, sci-skeptic voices funded by groups & one percenter-establishment-folks like the Kochs.  Their argument is that it is a waste of time and (their) money to do something about a natural process.  Or perhaps they are climate skeptics.

OK, if each side believes in its position let’s get together and make predictions of likely damage about the next 10 or 20 years. And then lets sets some bets.

 What phenomena to use? The situation is a bit like the Simon–Ehrlich population bomb wager decades earlier, but we can learn from those problems of having definable outcomes.

More ice melting on Greenland or the West Antarctic Ice sheet? Heading for a big freeze, number or record highs, water level, droughts? Higher ocean levels, more acidic oceans, die offs?  We'd need to agree on the measures and they have to be in time to help one side or the other.

How much to bet?  We need enough to make a difference.  Maybe a trillion or so.  Let’s start there and see who is interested. 

Who would get involved? The Koch brothers and their institutions. Bankers and conservative economists…The 1% might be well represented.  The 99% and people who may be damaged by floods along with climate scientists might be on the other side.  Sheer gamblers could take either side.  Las Vegas will be excited but the wager could be a form of climate insurance. The winning side, in say 10 years, gets some capital to work with.  Honestly I expect the climate side to win so we should spend some time thinking of which institutions will use the money to things like fund solar power.

Maybe the UN can hold the bets and use the interest to good effect.  We might even find that groups that talk the talk are not willing to put real money up against the issue. In that case we can get serious even before the bet comes due.