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Banks weren't allowed to merge into big chains, so they remained connected to their community, which means that they took in deposits from people who had savings and wanted to have the savings secure. Then they would act as an intermediary and they would loan that out to other people for buying homes or businesses and so forth so this is what I learned about when I studied economics as a student, that this is what banks are supposed to do; but the biggest banks now—we still have the community banks like the one you mentioned, that are doing that, but they're totally on the periphery….
Kall: By the way, the bank that I've mentioned, it's not a small bank. I'm sure it's billions of dollars that it handles. It's a regional bank that's decent sized. But their stock is going up; because they were cautious; they didn't take the kinds of risks.
Korten: Yeah, well, and fortunately we have those kinds of banks around; so, we should be taking these as the models and if we're having a credit crunch, because of the chaos in Wall Street, we should be looking not to bail out the speculators, but rather, if the banks like your local bank are having a liquidity problem, we need to address that; what's the problem there; and how do we get more funds flowing to those banks--
Kall: That's what I think, I think what we need to do is reward the banks who are responsible who are doing well and give them more money and just let these other ones just wither and die.
Korten: Yeah, absolutely.
Kall: And build the liquidity from the strong banks that did things right, with good judgment, with ethics, with competence and responsibility.
Korten: You're totally on it and this is the message we need to get out here into the debate; we need to make the distinction between the functional, healthy institutions that are performing a real service and they deserve support, and those that we would frankly be better off without, and why we should jump in to bail out hedge funds and private equity funds which are just simply sophisticated gambling institutions that create huge financial risk and instability, I mean there's no public purpose to be served there.
Kall: I kind of get the impression, I'm not sure if you said it actually, but that some of the stuff going on here are these "derivatives" and what have you they're money processed and transmuted and "algorithm-ized" in different ways. My impression is that you'd like to see that gotten rid of altogether; making money off of playing with money and what have you.
Korten: Absolutely. Yeah, there is no financial benefit to that. Here's where—
Kall: What do you mean, "There's no financial benefit?" Some people are making a lot of money.
Korten: Certainly there's financial benefit; I misspoke; there's—
Kall: You mean there's no social benefit?
Korten: No social benefit, no public benefit. Partly, we get caught up in illusions of our mythology we've been conditioned t believe that money is real wealth and that people who are making money, who are creating money, are creating wealth. that's a total fiction, an illusion breaking out of that starts with recognizing that natural capital, human capital, social capital, intellectual capital: these things are all real things of real value that contribute to production.
Money is simply an "accounting chit" that we use to generate a claim against real wealth. Which is very useful as a medium of exchange, but when we get confused and think if we are just pyramiding the creation of money that we're somehow creating wealth. No, that is in fact pyramiding claims against the real wealth of society against the wealth of people who engage in productive activity; it's best understood as a form of theft, not a form of real wealth creation.
If we get through that mythology and start to use real language, stop talking about money as wealth, but refer to it as money, the language-- I just go crazy when I listen to the Market Reports and they say "Investors did this and investors did that." That's nonsense; these are not investors for the most part; they are speculators. We should be talking about, you know, "Speculators today drove up the market or drove it down or did this or the other thing" and acknowledge it for what it is.
Real investment is investing in real enterprises that produce real goods and services. Real investment is long term. Any movement of money that's calculated in fractions of a second does not, (laughs) does not merit being called "investment."
