You might think that financial institutions feel indebted to the public for rescuing them. But the opposite is true: We're indebted to them. According to the latest report from the New York Federal Reserve, auto loan balances increased by $20 billion over the previous quarter while credit card balances and student loan debt increased by $8 billion each.
The falling rates of mortgage debt, driven by range of factors which included falling housing values and foreclosures, resulted in an overall decline in total indebtedness. But these figures show that our household debt in many key areas continues to rise.
As wages and salaries decline, people are struggling to keep up with the way of life they once know. So they fall deeper in debt -- a debt which allows them, and the banks, to delay the day of reckoning once again.
Fixing a Hole
These figures paint the picture of an economy that has become seriously unbalanced in favor of the banks -- "financialized," as observers increasingly describe it. How can the economy be rebalanced?
Many solutions are well-known to bank reformers and well-informed voters: Reinstate Glass-Steagall, or something very much like it. Insist on strong regulatory oversight of the banking sector, and give regulators the authority to do their jobs. End "too big to fail" banks, instead of encouraging their consolidation (as the government has done in recent years). Prosecute criminal bankers.
Other solutions are equally important. The interbank database and shell company called MERS must be ended, so that financial institutions can't collude against consumers and the states. The Federal Reserve must demand that banks perform their central economic function -- responsible lending to consumers and job-creating businesses -- rather than reward them for speculation and other forms of non-productive profiteering.
(That's why the choice of Federal Reserve head is so important.)
Genuine shareholder reform is also needed, so bankers don't overpay themselves at shareholder expense or use the bank's coffers as a "get out of jail" card for massive settlements caused by their own misdeeds.
Lastly, no comprehensive solution can be found until banks and other corporations are once again taxed at reasonable levels and the revenues are used to create well-paying jobs for the American middle class.
A healthy economy needs banks that lend, and consumers with the money to buy. Until that happens we'll be living in a highly-financialized "Bankistan" that excludes most of its citizens from sharing in the American dream.