Korten: You know, that's over half a billion dollars. That's what Wall Street is currently about; it is managed almost exclusively to do that; if it provides any funding to real people or to real business, that's pretty much incidental. And at the same time, we've (you know, there's a very interesting book by Kevin Phillips called Bad Money) and he talks about the huge increases in private debt, and much of it, most stunningly, is in the institutions in the financial sector loaning money to each other.
The financial sector debt, these are just he corporations that played money games; the total debt was 14 trillion dollars in 2006, which was 32% of all U.S. debt and 107% of U.S. GDP (Gross Domestic Product) This is just mind boggling this is—we're creating an economy based on people trading pieces of paper back and forth and we're working under the illusion that somehow this is creating wealth. What we neglect is that the wealth creation function is in Main Street with real businesses; real people using real resources to produce goods and services that people need to have a decent life.
The only legitimate reason for the existence of Wall Street is to provide an orderly flow of money, which is simply a medium of exchange to support the exchanges in the real economy. So what we need to do is step back and say not what do we need to do to patch up the existing Wall Street so it can get back to business as usual; we need to step back and say what would a money system look like if we really designed the system to serve ordinary people, to serve main street?
I noted in your conversation with Bernie, you were talking about your local bank, that's basically the answer before the Wall Street folks started using all their political clout to get themselves out from any kind of public accountability or regulation, our financial system much it's centered on local community banks; we used to have a system of unitary banks.
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?
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