A Third Bank of the United States?

New Item: In an attempt to restore public confidence in the financial markets the Treasury Department announced that is considering taking ownership stakes in many United States banks, including banks that are not at risk of a shortage of capital. The Treasury claims that the recent $700 billion Emergency Economic Stabilization Act gives it the authority to inject cash in to any bank that requests it in exchange for an ownership stake in the form of common or preferred stock (adapted from the New York Times. "U.S. May Take Ownership Stake in Banks." October 9, 200).

... Centralization of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly... (Karl Marx, Chapter 2, The Communist Manifesto).

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Ever since this whole financial mess exploded onto the scene, the federal government has been acting like a predatory animal that has tasted blood for the first time: it's hungry and it wants more blood. Allow me a moment to support this argument.

The above news item sounds very much like an attempt to create a de facto Bank of the United States. Actually, I should say the Third Bank of the United States, since the first two incarnations of this vile creature collapsed under partisan political infighting almost 200 years ago.

At the end of the Revolutionary War, there were only three chartered banks in the United States and over fifty forms of currency in circulation. The money issued by the Continental Congress to pay the expenses of the Revolution was worthless, speculators were running rampart, and shady land deals were the order of the day. To remedy the situation, Treasury Secretary Alexander Hamilton called for the establishment of a central bank to be created by an act of Congress. Hamilton's proposal did not sit well with those states whose economies were agriculturally-based and thus feared a concentration of financial power in the hands of the industrialists.

A compromise was struck and the bank was chartered in 1791 with the provision that the United States government would buy $2 million of the $10 million in the authorized stock of the bank. The only problem was that the United States Government didn't have $2 million on hand and had no reasonable chance of raising that amount of money. Again, Hamilton had the answer.

The Bank of the United States loaned the new federal government the necessary $2 million; which the government paid back, with interest, in equal installments. The bank, however, remained a sore spot with the southern states and its charter was allowed to expire in 1811. Then all Hell broke loose.

First, the War of 1812 began and with it the demands that it placed on the government to pay the costs of the war, with money that it didn't have. Then, predictably, came more financial speculation, shady land and trading deals, and eventually a financial crisis. Would you care to guess the government's response to that crisis? Correct! A new Bank of the United States!

Bank II ran afoul of the same anti-industrialist sentiments from the southern states, although it did make a significant contribution to reigning in the speculators and profiteers. Predictably, the bank became the political issue of the day and figured prominently in the election of paleo-populist Andrew Jackson, who sealed the bank's demise when he ordered that no government money be deposited in it. (As an aside, Jackson had to fire two Secretaries of the Treasury before he found one that would carry out his order. (That secretary, Roger B. Taney, would go on to become Chief Justice of the Supreme Court and an opponent of Lincoln's abuse of power during the Civil War).

The nation managed to muddle through a few more wars, a few dozen recessions and a Great Depression before Franklin Roosevelt and the New Dealers created the Securities and Exchange Commission and strengthened the Federal Reserve's role in regulating banking in the nation. (See my previous posting, A Plot to Overthrow FDR?, for a quick review of how well FDR's plans went over in some sectors of the economy.)

And here we are in the here and now. I don't know about you, but I get really nervous thinking about a banking system where the federal government is a major shareholder in what were "private" banks. Will the feds require that you have to meet some politically correct litmus test before you, or your business, can get a loan? Will credit be available to only those companies that are in the good graces of Congress?

It looks like the social engineering crowd is moving in for the kill. Karl Marx is getting the last laugh.