Public and Private Banking
– K.C. Adams –
A clear distinction must be made between public and private banking. Banking is an essential public service that all use yet private banks have taken control of this role for the benefit of those who own and control them. The essential public service of banking is controlled by powerful private interests expropriating huge profits.
The big chartered banks have become public/private corporations containing a contradiction between their essential social nature and private ownership and control. The public/private banking enterprises have been given government monopoly charters to function essentially as public enterprises yet expropriating private profit with a handful of oligarchs exercising control over the sector.
The publicly chartered private banks lend out more money than they hold in accounts. In effect this means they are creators of money — something that should be a public social responsibility benefitting the commons and not a select few oligarchs. The money the private banks lend, which they do not possess, becomes real and theirs when repaid and realized with an extra amount thrown in as interest.
Another aspect of their public/private character is that they lend money as mortgages. Many of these mortgages are guaranteed by the public Canada Mortgage and Housing Corporation (CMHC). If the mortgage fails, the private banks seize the principal/collateral and CMHC makes up any shortfall. The public CMHC effectively subsidizes private mortgages, taking out much of the risk for the big banks. If, that is to say, lending money one does not possess can even be called a risk.
Hilliard MacBeth, long-time Edmonton-based financial advisor and author remarks bluntly, “In Canada, the CMHC is the primary risk taker and the bank just gets to keep all the profits.”
Banking is an essential public service that does not create new value directly but rather facilitates productive economic activity. Private interests profiting from such an essential public service under government monopoly charters, to the tune of billions of dollars each quarter, is a corrupt pay-the-rich practice destructive to the public interest, economy and common good.
This corrupt practice extends to public enterprises and governments borrowing money from global mostly private moneylenders, instead of from domestic public financial institutions. The private moneylenders buy government bonds and other instruments to park their money without risk and are paid with interest profit that comes out of the Canadian economy. When repaid, the global oligarchs use the money as they wish. This stands opposed to the modern practice of public financial institutions lending money to themselves and receiving back the fruits of productive investments for reinvestment back into the economy. This way of doing things facilitates extended reproduction, economic stability and opens the possibility to weaken the control of the global oligarchs over the economy in favour of the people, such as by increasing funding for social programs.
Government Indebtedness to Global Private Moneylenders
During the pandemic governments have indebted themselves enormously to global private moneylenders. These moneylenders will be banging on the door of public finances for years to come for their principal and interest, their pound of flesh from the body politic. Along with the monopoly of the big public/private banks, this practice is another corrupt feature of the pay-the-rich economy that must be stopped.
Human-centred public banks should be created that operate in the public interest to stabilize the economy and encourage the participation of the people in that economy and its constant extended reproduction for the common good. Public banks would only charge enough fees to cover the price of their operations and not expropriate interest profit.
Private banks should not have the public mandate and sanction to lend money that they do not possess or be awarded public insurance for free to issue loans for which they do not even possess the money to be loaned. The private chartered banks should lose their public privileges and monopoly charters and operate as true private banks in competition with public banks acting as an essential service for all and serving the common good.
The Marxist-Leninist Party program demands a new direction for the economy: