Economic Error #18: Banking Should Be Run on a Non-Profit Basis.

Ellen Brown is not a conservative. She believes that investments should be made on a nonprofit basis. A bank should not be run to make a profit. The owners of the bank should not attempt to make a profit. Some other principle of making loans in collecting them should be established, in order to replace the profit system.

Whether loans are extended interest-free or interest is returned to the community, community-oriented models would work best if the banks were publicly-owned institutions that did not need to return a profit. . . .

New Zealand in the 1930s and 1940s also had a government-owned central bank that successfully funded public projects, keeping the economy robust at the time when the rest of the world was languishing in depression. In the United States during the same period, Franklin Roosevelt reshaped the U.S. Reconstruction Finance Corporation (RFC) into a source of cheap and abundant credit for developing the national infrastructure and putting the country back to work. Besides the RFC and colonial land banks, other ventures in U.S. government banking have included Lincoln's Greenback system, the U.S. Postal Savings System, Fannie Mae, Freddie Mac, and the Small Business Administration (SBA), which oversees loans to small businesses in an economic climate in which credit may be denied by private banks because there is not enough profit in the loans to warrant the risks. [Web of Debt, pp. 414, 415]

First, New Zealand suffered in the 1930s and 40s along with all the other nations of the world. New Zealand was primarily an agricultural country, and agricultural prices collapsed during the Great Depression.

Second, as for the United States, the country did not get out of the depression until it entered into World War II, at which time it took over 15 million men out of the labor force, taxed the rest of them, and inflated. Then it declared price and wage controls, rationed labor and goods, and extended controls over every aspect of the economy. Read the story here:

She gives the example of the Reconstruction Finance Corporation. The organization did make loans, and it did not make a profit. Why should anyone imagine that government bureaucrats, who have no ownership of the money they lend, should make better decisions about where the money should be lent than bankers whose survival depends upon their ability to make loans that will be repaid with interest, thereby producing a profit for the bank?

That she should praise Fannie Mae and Freddie Mac is one of those delightful ironies. Those two organizations, guaranteed by the United States government, went bankrupt in September 2008. The government nationalized them without discussion. Under Fannie Mae and Freddie Mac, the entire system of subprime loans was created. The disaster that she describes elsewhere in her book was intimately related to the policies of Freddie Mac and Fannie Mae.

She makes it clear that she wants a government-run bank, using government money, and deposits from private citizens, that will lend money to ventures that are high risk. She says specifically that these loans should be made even though "there is not enough profit in the loans to warrant the risks."

Ellen Brown is a statist. She does not like the profit system; she does not like profit-seeking banks. She likes government-funded operations. She wants the government to run the economy, in the same way that Franklin Roosevelt ran the economy and Adolf Hitler ran the economy. She wants what conservatives call the corporate state. She wants an alliance between government and business. She does not like competition that is based on the profit motive.

There is nothing conservative about her outlook, and there is surely nothing conservative about her proposals.

For a detailed critique of Ellen Brown's economics, go here:

http://www.garynorth.com/public/department141.cfm