The most recent financial crisis has shown, once again, that our economic system has placed too much faith in the private for-profit oligarchs, who failed us yet again. We cannot expect a small minority of unelected oligarchs to put aside their own personal interests in favor of the general interests of the American People. We must instead make the natural monopoly portions of the monetary, finance, insurance and real estate sectors into transparently operated bureaucracies answerable entirely to our most democratic institutions.

This article provides a quick overview of my proposals on reforming our monetary and financial systems, including the elimination of the Federal Reserve and the dispersal of its immense powers across various governmental branches and departments. However we need to go beyond merely eliminating the Federal Reserve cartel and reform all of our financial and monetary institutions. All of these reform proposals are covered in more depth in separate articles including: a proposal for Monetary Reform and a new electronic money system, a National Credit Union, a National Credit Bureau, and a new National Insurance Fund. All of these various reforms are also closely related to my views on inherent natural monopoly industries and the crucial need to operate such sectors of the economy as transparent bureaucracies with strict democratic oversight in order to ensure a fair and level field for all other businesses and consumers. There are only a handful of such natural monopolies, but if we continue to allow them to be run by private for-profit oligarchs, we will continue to watch our democracy fade away.

All of the reforms proposed here are intended to align our money economy more closely with what economists call the real economy: the production, distribution, and consumption of actual tangible products and services. While these reforms invariably involve the socialization or nationalization of many key components of our money, and financial sectors of the economy, these reforms are all focussed on maintaining the greatest decentralization of power possible. The key to accomplishing a focus on decentralization and community-based economics in the face of such sweeping nationalization is to clearly separate the functions and to involve the most democratic institutions of government in the oversight of operations. Therefore there are three main components to achieve this:

  1. Nationalize those industries that exhibit irreversible monopoly tendencies all the way up to the national level, but be sure to expose all of the genuine public policy issues to thorough democratic oversight.
  2. Vest those components of day-to-day practical operation of these monopolies in a fully transparent bureaucracy.
  3. If done correctly, these first two criteria guarantee that these monopoly services fade into the background and allow for decentralized and community-based decision-making to have its fullest expression.

So these three components all work together. However the key is to ensure the public monopoly component is operated in a minimal fashion that does not intrude into the lives of constituents. Instead the system will transparently serve the needs of the various constituencies who need these services. For example, the riders of a public rapid transit system have a democratic interest in the competing provision of funds to the system, in the scale of the system to handle peak load demands, in the features of the system such as seats, bicycle accommodations, escalators, and so forth. However once these salient features have been duly deliberated democratically, it is up to the bureaucracy to see that these directives are implemented and to meet the performance standards set through public and democratic deliberation. Finally, once all of this has been met, it is once again up to the constituents to decide how they use the rapid transit system once established. All of the decision making involved therefore occurs in a grassroots, decentralized, and community based manner.

As for the monetary and financial reforms outlined here, the same principles apply. I propose making Congress the designated body for democratic oversight of these monetary and financial monopoly systems. Therefore Congress should determine such things as how much money stock should be available for circulation in the monetary system. For the credit system, Congress should determine how to rate a newcomer to the credit system. Congress should determine what sorts of criteria should be used for actuarial calculations with feedback from not only actuarials but also community leaders and other constituencies.

For example, I would advocate for Congress to insist on driving time and driving distance as two key components of collision and liability automobile insurance. Once  these criteria are adopted, the actuarials should proceed to determine the role and influence these criteria play in determining the expected costs of insurance claims. If these criteria are found by experts to have no influence then that feedback should be reflected in the ongoing legislative process. However, those criteria likely have significant influence on the liability and collision risk since an undriven vehicle has no risk whatsoever of collision or liability claims. Yet we know that the private for-profit insurance companies have no interest in using these criteria either due to obliviousness or collusion or whatever.

Monetary Reform

First we need to separate our monetary system from our financial sector by requiring 100% reserves on all checking accounts. Secondly, we must break apart the various concentrated powers of the Federal Reserve. We also need to create an equal and level field for our electronic money system since electronic money is the most prevalent, the most efficient, and the most environmentally sound since the electronic networks needed to support such electronic money are already pervasive. The reforms I propose will create a monetary system that fades into the background with minimal transaction fees and easy and equal access for all consumers and businesses.

(see Monetary Reform for more details)

National Credit Union

A new National Credit Union will provide a safe and stable mechanism for credit intermediation. The National Credit Union is for all credit that does not involve project evaluation (except for home and other building appraisals and title guarantees for home and building mortgages). In other words the National Credit Union is not for stocks and other equities, or bonds and other loans issued directly between borrower and lender. Instead it is for the types of savings with no particular borrower in mind and for those borrowing funds without collateral on their own credit-worthiness or only secured by real estate collateral.

Types of savings instruments (credit pool shares) include:

  • Value insured savings instruments (withdraw at any time without penalty)
  • Other short-term savings instruments (30-60 days where early withdrawal could involve some penalty or other loss in value)
  • Medium-term instruments (180 days, 1 year, 2 year, … 7 year)
  • Long-term instruments (10 year, 15 year, 30 year)

Types of lending instruments (credit instruments drawn on the pool) include:

  • Revolving line of credit
  • Revolving line of credit with 28 day grace period
  • Business bridge loans
  • Medium-term mortgages
  • Long-term mortgages
  • Student loans

In addition to this pooled credit intermediation, the National Credit Union will also provide a site for auction of state and municipal public bonds with both tax exempt and non-exempt interest payments. Combined with the democratized credit scoring of states and municipalities, this will ensure that financial predators do not manipulate state and local governments and undermine grassroots democracy at those levels of government.

(see National Credit Union for more details)

National Credit Bureau

A new National Credit Bureau will establish fairness and decency for the first time in our national credit rating procedures. The National Credit Bureau will provide a central repository for debtor payment delinquency incidents and other historical incidents. The National Credit Bureau will grant everyone access to viewing their own personal credit history and the ability to receive electronic or paper notifications of all incident reporting on their own history. The National Credit Bureau will also give everyone complete control over who else can view their credit history. Anyone could deny all access to their credit history or, if they were seeking a loan, provide access to only the potential creditors pre-identified as making favorable loan offers. Moreover anyone could opt in to creditor searches where loan marketers look for potential borrowers meeting specific credit history criteria. Finally, everyone will also be empowered to dispute any credit incident reports to ensure the credit history information is kept in the most accurate condition possible.

(see National Credit Bureau for more details)

National Insurance Fund

A new national insurance fund will, once and for all, get the parasitic oligarchs out of our insurance funds. We will simultaneously provide greater choice to policy holders who will be able to select the best mix of deductibles and premiums to suit their own risk situation. Moreover, the National Insurance Fund will end the long-standing practice which essentially allows for-profit corporations to skim money off the top of insurance risk pools which basically institutionalizes insurance fraud.

(see National Insurance Fund for more details)

Other Financial Reforms

In addition to reclaiming our monetary and financial systems for the public, I also feel a few other key reforms are necessary for the remaining privately traded securities and other financial instruments.

  • An end to short sales: Short sales allow someone to sell a financial instrument which they themselves do not already own by borrowing the financial instrument from others. Such short sales serve no appreciable function in financial markets but that can be used by unscrupulous traders to undermine smooth functioning markets and even bring down entire economies. We need to simply ban these types of sales. If you own a financial instrument you are free to sell it to any informed buyer who enjoys full disclosure regarding the financial instrument. If someone does not own a financial instrument then they must not sell it.
  • Financial transactions tax: A modest financial transaction tax can raise hundreds of billions of dollars of revenue for the US public Treasury. Such a tax can also reduce the sorts of predatory trading that undermines the smooth functioning of financial markets. A tax of 1,000th or 100th of one percent will not harm anyone trading for legitimate purposes. However such a small tax will strongly discourage those who want to buy and sell the same instruments repeatedly on a minute-by-minute basis to reap financial gains from the panics and irrational exuberance which they can manipulate in the markets. Such a tax is therefore supported by responsible traders and only opposed by the financial predators.
  • My plan for monetary and financial reform removes most of the deficiencies of private oligarchical financial systems and therefore requires very little regulation of other sectors of the financial sector. We need only prevent fraudulent misrepresentations of securities, contracts, and other financial instruments. All other dangers of adverse incentive (moral hazard) and adverse selection which plague our current financial system are eliminated through the pervasive deployment of democratic oversight and transparent administration.

    The addition of a financial transactions tax and an end to short sales further ensures the financial system serves the needs of the people (rather than reducing people to serve the needs of finance). The plan outlined here creates a much simplified financial system which nevertheless better serves the needs of the public. It also allows any private parties to enter into other financial arrangements without the adverse incentive that government will blindly insure their losses. FDIC and other insurance is still available but it is administered through experience rating and community rating in a transparent manner and on behalf of the people.

    In Summary

    Together these reforms bring significant benefits to all Americans. We will enjoy greater economic and financial stability. The costs of these services will be reduced and the benefits will be increased. While all of these reforms call for nationally operated public monopolies, those transparently and democratically run monopolies will ensure greater empowerment to all of our communities.

    By operating these national monopoly industries as public national monopolies instead of private oligarchical corporatists, we will empower people to take complete control over their own monetary and financial affairs.

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