Thursday, May 4, 2023

#124 / The "Golden Share"


What might prevent another banking crisis? We did, just recently, experience such a crisis, related to the failure of the Silicon Valley Bank. Knowledgeable people are afraid that there are more such bank failures soon to come, and if that turns out to be true, a huge financial meltdown, throwing our economy into chaos, is not impossible. Of course, it may be even more likely that the Republicans in the House of Representatives will precipitate a much worse economic crisis - a worldwide economic crisis - by repudiating the nation's promise to pay its debts - to take the position, on behalf of the government, that our government will not repay the money that the United States has already borrowed and already spent.
Keeping that worry alive - because it's real - let's focus here on the potential for another "bank failure" crisis. According to Saule Omarova, there is something we can do that will help avoid future bank failure incidents. She is recommending a "Golden Share" program, which she explains in an opinion column in The New York Times. "A 'Golden Share' Could Prevent Banking Crises," as Omarova puts it.

Omarova is a professor of law at Cornell University and a senior fellow at the Roosevelt Institute, a nonprofit think tank that "champions new ideas and new leaders to make our economy and democracy work for the many, not the few." Omarova was also nominated by President Biden, in 2021, to head the Office of the Comptroller of the Currency, the top regulator of federally chartered banks. Had Omarova been confirmed, she "would have been the first minority woman - an immigrant - to lead the 160-year-old agency."
Omarova, however, was not confirmed. She tells us that "the banking industry and its political allies waged a highly public campaign to block [her] candidacy and called her academic work, which ... called for stronger public oversight, un-American."  

Omarova's "Golden Share" idea is the idea that the government could pass a law to require certain systemically significant banks to transfer to the government a so-called "Golden Share," which would be, essentially, a limited ownership interest in what would otherwise be a wholly "private" institution. "Unlike regular corporate stock," Omarova says, "this type of share would carry only very limited, mainly representational rights. It would be structured to serve a single purpose: to give the American public a seat at the table where banks make decisions on how to manage - or perhaps not manage - the risks we ultimately may have to bear."
Unfortunately, it seems to me, there is a basic problem with Omarova's idea. When she says that the "American public" should have a seat at the table when private banks make decisions, that means, practically speaking, that the federal government should have a seat at the table. And there is the rub. Under current conditions, anyway, the United States government, at every level, is almost certainly going to accommodate its conduct to "the banking industry and its political allies." Just as the Congress wouldn't confirm Omarova, because the banking industry and its allies didn't like her, so it is almost certain that these same economic interests, when invited into the banking boardrooms (officially as government representatives), will also tend to conform their actions to what the industry wants. As things currently stand, economic interests have captured the federal government at every level. It seems odd to me, as a matter of fact, that Omarova doesn't seem to get this, given her personal experience.
What will really count is not not such "soft supervision" as the "Golden Share" plan would provide. What is needed is full-on public supervision and regulation of the banking industry. But... that will only give us the kind of regulation we need when our government actually represents the "American public," not the economic interests that speak in its name. 

When will the "American public" get back in charge of its own government? When we all get organized, and make it a major priority in our lives to take control. That's when - and not until then! It's a political problem. Shifting around regulatory techniques (from direct regulation to the "Golden Share") won't make any significant difference, I think, unless ordinary Americans reassert their dominion over their own government. 

What do you think? Don't you think I have a point?

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