Busting the Bankers' Club: Power, Deregulation, and the Case for Public Finance

This podcast episode features Gerald Epstein, author of "Busting the Bankers' Club: Finance for the Rest of Us," who argues that the financial system, dominated by a powerful "bankers' club," consistently prioritizes its own profits over societal needs. The club, comprising banks, politicians, the Federal Reserve, lawyers, and even some economists and financialized CEOs, actively works to deregulate finance and protect its interests. This leads to a system characterized by speculation, recurrent crises, and a misallocation of resources away from productive activities like mortgages, small business investment, and green energy.

Epstein distinguishes between the "Jekyll" and "Hyde" aspects of finance. The Jekyll side represents socially productive finance, essential for economic growth and community development. The Hyde side, which he calls "roaring banking," is characterized by creating money out of thin air for speculative activities, leading to financial crises every 10-12 years and requiring government bailouts. The complexity and obscurity deliberately fostered by the financial industry serve multiple purposes: allowing them to charge exorbitant prices, making regulation difficult, and convincing the public that finance is too technical for external oversight.

To counter the bankers' club, Epstein advocates for a robust ecology of public financial institutions, which he terms "Banks without Bankers." These institutions, whether wholly government-owned or public-private partnerships with social missions, would provide essential services that private banks neglect. He emphasizes that these public banks need the same level of government and Federal Reserve support—such as access to the discount window and liquidity—that mega-banks currently receive. This would create a safety net and provide an alternative to the private sector's threat of a "capital strike."

The broader implications of Epstein's analysis touch upon the fundamental structure of economic power and democratic governance. He highlights the "money spigot"—the flow of funds from bank profits and government subsidies into lobbying and political influence—as a key mechanism sustaining the bankers' club. By shifting support to public financial institutions and re-regulating the financial sector, society can reclaim control over finance, ensuring it serves the public good rather than solely enriching a powerful elite, thereby fostering greater economic stability and equitable development.

the bankers have a big club that they hold over the heads of the rest of us the club is well if you don't give us what we want we're going to have a capital strike we're not going to finance you or we're going to move our headquarters or abroad or we're going to do something else

we know the main requirements for a socially productive Financial system it's a regulation of all financial institutions it's leverage requirements and policies to ensure that banks finance productive activities

the bankers club sustains the power of Finance through a variety of mechanisms one is by passing legislation that protects the bankers this is legislation that deregulates Finance such as the ending of the glass deagle act in 1998

I call the Federal Reserve the chair the chairman of the club the Federal Reserve really protects the banks it orchestrates subsidies for the banks

some research that I and my former graduate student Jessica Carrick hagenbarth looked at we looked at economists and top economists who were kind of on the take from the bankers

I think the main reason is what I call the financialization of the CEOs that is the CEOs and top management of these corporations are fabulously wealthy and they need Finance to manage their funds

at times Financial system becomes What I Call Roaring banking that is it creates Financial crises every 10 or 12 years needs to get bailed out it allocates most of its resources to speculation

Finance essentially can create money out of thin air and it can create money out of thin air and make enormous profits by engaging in all of these kinds of speculative activities

Finance does very well in the dark that is when there's a lot of complexity first of all the people on the other side of the trade... they don't really understand completely what's involved

what I found is that no in fact there's this whole group of what I call Club Busters out there economists lawyers some government people politicians and others who are really fighting and have been fighting for a long time to reform the financial system

Banks without Bankers means publicly oriented financial institutions they may be wholly owned by the government or by a municipality or by a state

one of the things that keeps the bankers Club going is what I call the money spigot the money spigot is the funds that go into paying lobbyists paying economists paying lawyers and buying legislation