Thanks to massive bailout funding from the Federal Reserve and U.S. Treasury, Wall Street survived the financial crash it created. This year, its titans are enjoying record share prices, corporate profits, and executive bonuses. The financial assets of America’s billionaires and the idle cash reserves of the most profitable corporations are at historic highs. Their biggest challenge is figuring out where to park all their cash.

Meanwhile, the Great Recession is still raging on Main Street. The unemployment rate is too high, new jobs aren’t appearing despite the supposed economic recovery, and the unprecedented crush of foreclosures isn’t letting up. Small businesses are starved for credit. Politicians tell us that the government is broke and debate whether we can afford health care, old age security benefits, and student loans.

America is awash in money. But the cash is in the wrong pockets and it’s being used for the wrong purposes.

During the Great Depression, the American people benefited greatly from new rules that created a powerful and accountable system of credit unions, mutual savings and loans, and community banks. This system financed the U.S. victory in WWII, built the nation’s middle class, and made the United States the world leader in manufacturing and technology. It served us well until Wall Street used its political clout to dismantle the rules that made it work.

Photograph by Christopher Chan.

Photograph by Christopher Chan.

A massive concentration of banking institutions followed. Wall Street institutions lost interest in funding productive, long-term investments that create American jobs. They now find it more profitable to collect excessive fees and usurious interest rates from consumers, fund speculators, lure the unwary into mortgages they can’t afford, bundle junk mortgages to sell as triple-A securities, bet against the clients to whom they sell the over-rated securities, extract subsidies from government, and move their profits offshore to avoid taxes. They use the profits from their financial games to buy back their own stock, acquire equity in other companies, invest in exporting even more American jobs, and pay generous dividends to shareholders and outsized bonuses to management.

In How to Liberate America from Wall Street Rule, a new report from the New Economy Working Group, we propose several commonsense steps to build a modern version of the financial system that once made America the envy of the world.

We recommend that the government break up the mega-banks and implement tax and regulatory policies that encourage strong community financial institutions. We support proposals to create state-owned partnership banks in each of the 50 states to support these local institutions. These partnership banks would be patterned after the Bank of North Dakota, which uses that state’s financial assets to partner with community financial institutions in lending to productive local farms and businesses.

We also recommend the creation of a Federal Recovery and Reconstruction Bank, which would fund projects that put Americans to work rebuilding America’s crumbling and out-of-date infrastructure. The Federal Reserve can be directed to introduce all newly created money into the economy by passing it to this bank rather than handing it over to Wall Street banks that have no interest in American jobs or productive investment.

It’s time for all Americans to step back and consider what purpose the nation’s money and banking system should serve. Let’s re-create a community-based system of financial institutions that puts money where it’s needed to finance a true economic recovery.

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