Pub. 3 2015 Issue 3

www.uba.org 4 T he B ottom L ine By Howard Headlee, President, Utah Bankers Association We are hearing a lot about crony capitalism these days from both the right and the left. Unfortunately, many who are turned off by the negative tone of today’s politics dismiss it as just over-politicized rhetoric. Market vs. Crony Capitalism, Who are the Winners and Losers B ut crony capitalism is more than just a political applause line; it is de- stroying our market economy. What some politicians won’t tell you is that the American banking system has served for many years as the structural opposition to crony capitalism and that is the reason banks are in the cross-hares of the ruling class. Crony capitalism is an economic policy where capital is allocated based upon influence. That could be the influence of relationships, money, ideology or basic self-interest. Either way, people in power will always attempt to arrogate to themselves the role of capitol allocation, because it is the safest way to perpetuate their power. Market capitalism on the other hand is an economic policy where capital is allocated based upon the best and highest returns. By allocating our limited capital in this manner we are assured that wealth grows as rapidly as possible along with our over- all standard of living. Banks, real FDIC insured banks, are the primary allocators of capital in a market economy. They evaluate each loan and determine which loan is the highest and best use of their limited capital. The loans made to businesses with the best combination of yield and repayment also typically yield the best, highest paying and most secure jobs. It will also generate the most tax revenue for essential government programs over time. Ideally, we should distribute this capital allocation role as broadly and as diversely, in as many banks in as many communi- ties as possible across our country. More than any other country we have made it easy for Americans to invest their wealth in banks in their local communities and maintain this role of capital allocation as close to the borrowers as possible. This American model of banking has made our economy the envy of the world. Over the past 7 years, proponents of crony capitalism have repeatedly insisted that the economic crisis occurred because the tradi- tional banks failed in their role as alloca- tors of the nations limited capital. They have tried to convince Americans that the elected class could do a better job, despite the fact that it was the failed housing pol- icies of these very same crony capitalists that caused the crisis. These politicians claim that if they are trusted to allocate our nation’s capital through higher taxes and more government programs, they will do it in a way that might not yield as much wealth, but the wealth that is produced will be distributed more equally. It’s a compassionate theory, but the data do not bear this out - not in America, not anywhere in the world. And therein lies the fundamental differ- ence between crony capitalism and market capitalism. Crony capitalists refuse to embrace facts or results that don’t support their world view; whereas, real and mea- sureable results are what drive the alloca- tion of capital in a market economy. Traditional banks are the market antag- onist to crony capitalism. Therefore it is not a coincidence that the sponsors of the law the has wiped out hundreds of traditional banks in the past 6 years were also two of the loudest advocates for the housing policies that created the financial crisis, Chris Dodd and Barney Frank. Most Americans are completely unaware that over the same period of time, the FDIC simply stopped issuing new bank charters. This was unprecedented. Even during our worst economic downturns, when existing banks were struggling to survive, entrepreneurs created hundreds of new banks each year with fresh balance sheets to meet lending demands and help pull the country out of crisis. The drought of new bank charters is breathtaking and may be the clearest indication of the war on the market economy. If Americans want their wealth to rise and their communities to prosper, if advocates of the low income and middle class want to achieve real gains and more income equality, if we want to get the budget deficits and the national debt back on the right track, we must wrestle the alloca- tion of our nations’ limited capital away from the crony capitalists and return to a market economy where capital is allocated based on its best and highest use. It is that simple. When politicians attack traditional banks, understand that they are doing it to enhance their control the nation’s capital. It is all part of the ongoing war between crony capitalism and market capitalism. It is imperative that Americans understand this battle and what is at stake as soon as possible, because the damage that is being done to the nations banks is not easily reversible. n