Random thoughts on banking

I was drawn to this subject by someone asking if we needed to get rid of the Federal Reserve, and replace it with a 'Bank of the United States'. My first reaction was: The Federal Reserve IS the Bank of the United States'. But, I decided to look at the ill-fated bank, how it was set up, and some of what caused it to 'fail'.

If you look at history, there were two Banks: The first ran from 1791 – 1811, when it's charter ran out. The second was from 1816 until 1836, when the president of the Bank and the President of the United States (Andrew Jackson) decided to have a very public fight about whether or not the Bank's charter should be renewed. Jackson thought since, in his opinion, the bank served only the privileged rich, it was unconstitutional and should not be renewed. Of course the bank president, Nicholas Biddle, felt so strongly the charter should be renewed that he began to work for rechartering four years early. Jackson ended up winning the fight.

Both Banks were set up as private institutions, which happened to function as the bank for the federal government also. Tax revenue was deposited there, and government bonds were sold by the Bank as part of the federal debt. Looking at the Federal Reserve and it's functions today, it works much like the Bank of the United States did back then: a 'private' organization, functioning as the federal government's bank. Both set monetary policy for the country at the time, and the head of said organization answered to the government. In my mind, changing the name wouldn't change anything and it wouldn't help.

There are many others who can speak more eloquently and more in depth on how we got to where we are today economically. My simplistic (maybe overly so) take is this: banks and other financial institutions took unwise risk (some of it was probably forced by federal home loan regulations) and a turn in markets ruined a few, and left others in a weakened conditions. Now, we're in a period of time where growth is slowed and some people are going to get hurt. I don't like to see people get hurt, but I don't think the current strategy is going to help. In fact, it's going to hurt a whole lot more people over a longer time.

What are banks? Ultimately banks are a business. They are in the business of dealing with money, but they still need to turn a profit. Calvin Coolidge once famously said 'the business of America is business.' He meant that businesses are what have built this country up into the great power it is today, and the less the government interferes with business practices the better. However you could use that statement to mean government must be involved in business to the point of telling owners how to run their business. Government is involved in banking and they've been involving themselves in businesses, what's next?