In the 1980-2007 era of cheap credit and deregulation, banks had every incentive to move from real-economy projects, yielding a profit, towards lending against rising asset prices, yielding a capital gain. In the 1990s and 2000s, loan volumes rose to unprecedented levels, supporting global assets booms in property, derivatives and the carry trade. The share of lending by US banks to the US financial sector – instead of to the real economy – went from 60 per cent of the outstanding loan stock in 1980 (up from 50 per cent in the 1950s) to more than 80 per cent in 2007.
This underscores the idea that if we want banks to make loans for productive, rather than destructive purposes, the public will have to assert greater authority over the industry; and, in doing so, compel them to serve social needs.
A democratic scenario would likely see significant lending to community enterprise, "green" infrastructure development, home mortgage refinancing -- all of which enjoy popular support in a way that our Rube Goldberg system of public debt-for-executive bonuses does not.
But insofar as these initiatives are merely "supported" while those of industry are imposed, we are in no more of a position to trace the outlines of New Deal regulation than we are to devise our own. The public must be organized to understand its interests, and to defend them in a manner at least becoming of citizens, if not free individuals altogether.
This presupposes a course of education that can only come from the now discredited practice of acting for oneself for the purpose of addressing shared concerns. Whatever is discredited exacts a cost -- and to this must be added the price of daily living. More than anything else, this is the disincentive which keeps enough of us from ever testing the limits of power, and puts off the project of confronting shared problems for which there are no commercial solutions.
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