Do you remember when Joe Biden campaigned as a moderate alternative to Donald Trump? Well, he certainly doesn’t. As his latest gift to his party’s radical left-wing, he attempted to appoint an actual Communist to be US Comptroller of the Currency. When even some Democrats pushed back and it was apparent the Senate wouldn’t confirm her, Biden threw in the towel and her nomination was withdrawn.
Saule Omarova was raised in the Soviet Union and graduated from Moscow State University on a Lenin Academic Scholarship. Her citizenship may have changed but not her ideology, which fit nicely in the progressive culture of academia during her tenure as a Cornell University law professor. Although Omarova claimed those communist roots were in her distant past, The Wall street Journal noted that many of her more recent public statements showed otherwise. For example her expressed determination to “end banking as we know it” and remake it in the Communist vision, eliminating the very banks she’d have been appointed to regulate. She isn’t stupid but she’s driven by an ideology that reveres authoritarian government control, collectivism and the leftist notion of “social justice” at the expense of individual liberty, private enterprise and property rights.
At a less sophisticated, populist level, I was reminded of a letter to the editor in the Rocky Mountain News some years ago written by an emotion-driven progressive with little understanding of the fundamental workings of an economic system and the role of its financial intermediaries:
“Did you ever think what a bank earns on home loans over the life of a loan? What real value have they added to the economy by making the true cost of a house the cost of a lifetime for most of us? Isn’t that a subtle brand of servitude? We never ask questions like that because questioning the system would look capitalism straight in the eye and capitalism is not a fan of fundamental questions.”
In the spirit of the season, let me offer an object lesson. Think of the ever-lovable Jimmy Stewart as George Bailey, the good-natured banker in Frank Capra’s heartwarming, perennial Christmas classic, “It’s a Wonderful Life.” The Bailey Building and Loan Association was a financial intermediary, a middleman between savers and borrowers. Rather than keeping their hard-earned savings hidden under a mattress, depositors entrusted their cash to George. He kept it safe and also paid them rent for the use of their money in the form of an interest rate. George, in turn, would make that money available to borrowers in the form of a mortgage so they could buy a home. He’d charge the borrowers interest for the use of the capital provided by the depositors at a rate marginally above the interest rate he was paying those depositors.
That differential enabled George to recover his operating costs (payroll for Uncle Billy and others, utilities, rent, maintenance, taxes, etc.) and, he hoped, leave a little for profit. That was his business and livelihood. George’s value to the community and the service he provided to the good people of Bedford Falls enabled them to live the American Dream, to enjoy the benefits of owning their own home sooner rather than later. If they hadn’t been able to borrow money from George, they’d have to postpone the purchase and save for a lifetime to cover the full price of a home.
This is definitely not “a subtle brand of servitude,” as the letter-writer put it. The interest a borrower pays on a mortgage is compensation for the use of someone else’s money for as much as 30 years, recognizing that the lender could have earned a return on that money in some other investment. If you want to pay less interest over the life of the loan, pay it off faster.
What could be fairer and how could it be otherwise? Moreover, George’s loans enable developers to put people to work building those homes. The same type of transaction happens countless times every day when people borrow money from financial institutions to purchase cars, refrigerators, televisions or buy something on their credit card. The reason even kind-hearted George Bailey might sometimes have to foreclose on a delinquent mortgage is that he has an obligation to be a responsible steward of the money entrusted to him by his depositors and investors. The same obligation applies in real life to Wells Fargo, Chase or FirstBank.
Of course, not every capitalist is as honorable and compassionate as George Bailey. So, who will protect us from the likes of George’s avaricious competitor, Mr. Potter? Certainly, there’s a role for prudent and reasonable government regulation. But the most efficient and effective influence is competition in the marketplace and due diligence by depositors and borrowers. An economy can’t function without financial intermediaries. So, show your appreciation and hug your local banker.
Longtime KOA radio talk host and columnist for the Denver Post and Rocky Mountain News Mike Rosen now writes for CompleteColorado.com.
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