Additional Titles









The Difference Between Wealth and Profit











By Marilyn M. Barnewall
September 20, 2009

One definition of insanity is continuing to do things the same way but expecting a different result. Understanding that, one must ask the obvious question: Why does the Obama Administration keep doing the things that got the U.S. economy in trouble? It exemplifies one of three things: Insanity, duplicity, or stupidity. I suppose incompetence could be added to the list.

Over-spending and debt is what caused our current problems. More over-spending and debt will cause more damage and offers no relief. It is insane. What is being done will likely cause the commercial banking industry great stress if not failure. It is impossible to breathe life into something that is already dead on the premise that the old economy can be brought back to life. Yet, advisors to Barack Obama seem fixated on doing just that. Consumer credit no longer drives the economy – and will not for many years. Americans no longer trust the system or the government that supports it.

Quite simply, America is going through a process of bifurcation. The most easily understood explanation of “bifurcate” comes from an old saying: “All things live to maturity, level off, and die unless injected with new life and new blood.” The “new life” and “new blood” part is bifurcation. As a nation, we are not only bifurcating economically, we are bifurcating socially and politically.

The consumer credit economy lived to maturity, leveled off and died. Alan Greenspan and Ben Bernanke have tried to keep it alive with bubbles, but it’s dead. New blood and new life cannot be created and sustained from a corpse… and that is a reality the current administration has to face.

Here, Mr. President, are recommendations from a banker, not an economist (like your past and present Fed Chairmen) or those with a limited view of commercial banking (like past and present Treasury Secretaries whose Wall Street experience may present conflicts of interest). I urge you to remember that when Wall Street becomes ill, the economy gets the flu. When commercial banks become ill, the economy fails.

Commercial banks were created to earn profits by lending depositor dollars to established companies so they grow and employ more people. Other bank profits come from lending to start-up companies so they grow and employ more people. They make loans to consumers to buy cars and homes, too. All stimulate the economy. Local banks have traditionally loaned money so the wealth of the communities they serve can prosper, rather than bank corporate headquarters in Charlotte, New York City or San Francisco.

Investment banks sell stock in America’s publicly-traded companies. They put together private offerings… real estate, water, commodities – you name it. If it looks like a good investment, people put their money in it. Investment banks were not created to hold deposits. Again, the regulations put in place in the 1930s protected the public by making such conflicts of interest illegal. Those protections, however, have been removed.

The problems that result from obvious conflicts of interest – like the kind former Treasury Secretary Henry Paulson faced when he realized his former employer, Goldman Sachs, had a $20 billion exposure to derivative losses – are cleanly dealt with in the Glass Steagall Act, also called the Banking Act of 1933. Conflicts of interest do phenomenal damage and Treasury, Bank of America, Merrill Lynch, AIG, and Citigroup, are filled with Goldman Sachs alumni.

The Glass Steagall Act was enacted by Congress because gross conflicts of interest – even fraud – were identified as precursors of the great depression. Glass Steagall built a wall between commercial and investment banks. Commercial banks could not sell investment or insurance products, and investment banks could not take deposits. That changed when the Gramm-Leach-Bliley Act of 1999 was passed during the Clinton Administration. It tore down the wall.

We need to rescind Gramm-Bleach-Bliley and reinstate Glass Steagall. We need to re-build the wall.

The Federal Reserve System is not a legitimate central bank of the United States but the government has designated it as such. Thus, it acts as a financial vendor or clearinghouse for banks, the government, and We, the People. Despite what they've been told, people are finally beginning to doubt the FedRes System protects America's currency and devises monetary policies beneficial to our nation. Since the time of our founding fathers, all central banks have been accused of draining the wealth of citizens and manipulating economies for the benefit of a shadowy group of foreign and domestic elites.


The Federal Reserve Act of 1913 should have been repealed long ago. The Fed, as it is called, is not part of the government as people seem to think. As I said in my August 4th article: “A real central bank is just that: a central bank owned and operated by the government. It is not a private corporation.” The Federal Reserve System needs to be absorbed into Treasury where oversight can be closely monitored rather than left to the whims of an appointed Board of Governors who may, or may not, represent America’s best interests. At present, the Federal Reserve System is nothing more than a cartel like OPEC. It is owned by bankers and foreign interests. OPEC sells oil; the FedRes System sells money. Both are equally dangerous.

Treasury needs to absorb the Federal Reserve System and put responsibility for currency creation back in the hands of the U.S. Congress. If Congress does a lousy job, we can vote them out of office.

We need to repeal the Community Reinvestment Act of 1977. It appears designed to facilitate the UNs' Habitat I human settlements planning scheme that has since been incorporated into the UNs' Agenda 21-Sustainable Development Program. Perhaps intended to reduce poverty, it instead has served to put Americans deeper in debt, particularly those with no jobs and no incomes.

Government should not have control over how private sector businesses are run. Banks should not be forced to make bad loans to people who cannot repay them. Does something need to be done to help those at the bottom of the income ladder buy a home? Of course! It is not only humane, it helps create stable neighborhoods and increase property values. It should not, however, be done by forcing private companies like banks to risk your and my deposit dollars so loans can be made to poor people whose credit track record does not qualify them as long-term borrowers.

We need to re-establish a privately owned and controlled source of mortgage financing.

Freddie Mac and Fannie Mae have become the primary source of mortgage financing since the Garn-St. Germain Act was passed. Garn-St. Germain deregulated the savings and loan industry and helped cause it to fail. It, too, needs to be repealed and a new savings and loan industry needs to be created. Commercial banks are expert at making short-term loans, not 30-year mortgage loans.

We need to re-institute Regulation Q which allowed savings and loans to pay 5% on short-term savings and 5 1/2% on long-term deposits. It makes mortgage loans available to average Americans for a 7% to 7.5% rate of interest and makes it possible for those on fixed incomes to keep up with inflation by providing a fair rate of return on savings. And, it does so without corrupting the value of our currency.

Anytime government gets involved in the ownership of private companies – which Freddie and Fannie should be but are not – the policies at these private companies become the toys of partisan politicians.

If our economy is to be turned around and the financial services industry is to successfully bifurcate, emphasis needs to be placed on independent businesses and less attention paid to multi-national corporations, which have little loyalty to a single nation anywhere. Independent business is the heart of any capitalist economy. Capitalism is not accurately reflected by shareholders who own a tiny percentage of a multi-national corporation’s stock. It is reflected in shopkeepers and independent businesses, public and private. Bank loan policies developed during the 1970s and 1980s designed to effectively manage risk not eliminate it must be implemented. Such policies help capitalists create wealth, not destroy or redistribute it. Dominant bank loan policies today seek to eliminate loan risk. Capitalism manages risk; socialism eliminates it.

Finally, the "too big to fail" banks – both commercial and investment – need to be "unwound." Remember, they're considered 'too big to fail' because of their convoluted entanglements, not because of their size. This sounds simple to the average person who says: "Just make them get rid of some of their toxic assets and questionable liabilities." It is far more difficult than that. But it not only needs to be done, it must be done so that history does not repeat itself.

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No financial institution should be big enough to threaten the failure of the largest and strongest economy in the world. When that happens, something is very wrong.

� 2009 Marilyn M. Barnewall - All Rights Reserved

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Marilyn Barnewall received her graduate degree in Banking from the University of Colorado Graduate School of Business in 1978. She has authored seven non-fiction books about banking, two are listed at Oxford and Cambridge University libraries in Great Britain. Her current book, When the Swan’s Neck Breaks, details the banking problems she foresaw in 2006. Of the 24 predictions made in the book, 22 have happened. It is fiction but readers refer to it as docu-fiction.

Barnewall was named one of America's top 100 businesswomen in the book, What It Takes (Dolphin/Doubleday; Gardenswartz and Roe) and was one of the founders of the Committee of 200, the official organization of America's top 200 businesswomen. She can be found in Who's:Who in America (2005-08), Who's Who of American Women (2006-08), Who's Who in Finance and Business (2006-08), and Who's Who in the World (2008).

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Treasury needs to absorb the Federal Reserve System and put responsibility for currency creation back in the hands of the U.S. Congress. If Congress does a lousy job, we can vote them out of office.