The Third Bank of the United States

In all the talk over bank bailouts an obvious and very American solution is being ignored.

A Bank of the United States. 

The original Bank was proposed in 1791 by Alexander (10-spot) Hamilton. It fulfilled many roles the Federal Reserve now fills. A second bank, chartered in 1816, was closed by Andrew Jackson to much political rejoicing – and the country promptly fell into a deep Depression.

The purpose of the Third Bank of the United States would be to re-start the banking system. We could capitalize it with the current TARP funds and then start making loans. All kinds of loans, the kinds of credit facilities good businesses need to keep operating, to make payroll, buy inventory, all that. And the bank would charge a market rate – maybe just .01% less to bring business in the door.

To make clear that this bank stands mid-way between government control and Wall Street greed, I suggest we put it where the first two banks were -- Philadelphia.

Once the new bank was operating you could let the existing banks fail. Instead of buying their worst assets you could buy their best, and add these to the bank, increasing its value. Later, as normal business began returning, you could spin out these assets at a substantial profit.

As with the other U.S. Banks, the new bank would exist for a limited period of time, 20 years, to allow for an orderly and profitable liquidation. It would not hold tax receipts – the Federal Reserve would continue to manage the system as a whole – and the new bank would be regulated by the Fed as well.

As a U.S. Government entity the new bank could be exceedingly transparent, so citizens could learn how banking works. It could keep a lid on salaries and still get the best people, because the best bankers are actually unemployed right now. (It's the sharpies, shysters, and crooks who are still running the private businesses.)

As existing big banks go bust the new bank could take on their assets – the loans – at whatever price the bank chooses to pay for them. Insured deposits would remain in the private banking system, so there would be no takeover of that system by the government.

Politically you could not call the new bank “socialist.” The U.S. Bank closed before the term was even coined. The U.S. Bank would do a much better job protecting the TARP money than any bail-out could – it would practically be a guaranteed money-spinner.

Now tell me why I'm crazy.