The government buys a bank

...The banks' success at freeing the financial system has had its benefits...

...But several more shots are added to underline this quasi-surreai moment...

...The Continental Illinois debacle serves as a textbook example of the perils of free- market banking...

...CONTINENTAL FOLLIES ! The government buys a bank DAVID BENSMAN "'Banking continues to be the home of the brainless American theory of political economy which demands lots and lots of competition in which nobody ever gets hurt...

...Father Alexander Pivarov, an out- standing priest who had chosen to work in a remote part-of Siberia, has been sentenced to three-and-a-half years for the crime of distributing privately-produced religious literature to his flock...

...Small savers received low inter- est rates...

...There's no longer easy money in the float...

...one of the authors of the landmark legislation of 1980, is conducting committee hear- ings to determine whether deregulation has gone too far...

...A commercial paper market competes with banks for corporate customers...

...It is an elegantly disheveled film...

...The precision of the photography oddly counterpoints the casually offhand scenes and dismembered sound...

...How he would agree with Rusak's concluding words: "I believe in the Lord...

...Technology lagged...

...We can't afford short memories...

...But even before the Continental disaster, problems had emerged...

...Screen LIGHT & FOREBODING TANNER SI, GODARD NO rg~laN-LUC GODARD'S First Name: Carmen, an updating of osper M~rimte's Carmen, is Godard seen through a ss lightly--mellow, tired Godard...

...They can't make easy money by paying depositors lower interest rates...

...But then Continental caught the fever that was inflaming America's money-center banks, and the regional giant developed world-wide ambitions...

...Commonweal: 464...

...At first glance, this argument seems hard to refute...

...But...

...and that concern about Manufacturers Hanover shook financial markets just three months ago...

...But more often Godard's touch is not so light...

...But the banks deserve their share as well...

...They en- larged their deposit base by offering interest-beating checking accounts...

...Continental's shipwreck has shaken the confidence of borrow- ers and lenders throughout the world...

...The familiar traits of this consistently personal moviemaker remain: the improv- isatory, even random, form...

...that just last year Chase Manhattan was reported to be insolvent...

...I love my church, feel concern for its future, and wish to serve it --but not by a compromise of conscience, that price which is exacted from our church lead- ership and which I am being urged to pay...

...Which brings us to Continental...

...Bank services were poor...

...And slowly but surely, bank technology is moving into the computer age...

...Volcker and Isaac are proven wrong, and Continental is followed by another bank that misjudges the Competitive tides, the massive wealth- generating capitalist system will lose its moorings...

...One generation learned that lesson fifty years ago...

...Regulation succeeded: for nearly fifty years, few banks failed, savers and borrowers were secure, and corporations could transact business without wor- rying about their media of exchange, their dollars and their checks...

...And, left unintegrated, his innovations become repetitive and selfindulgent...

...that only five years ago Continental's chief regional rival, First National of Chicago, was in dire straits...

...Cus- tomers seeking loans found lending officers passive and ex- ceedingly conservative...

...Few laymen remember the "liquidity crunch" that re- sulted, but it was only a decade ago that the banks' speculative losses in real estate caused jitters on Wall Street and restricted the availability of credit for those who had productive invest- ments in mind...

...The embarrassing failure of the Franklin Na- tional Bank was a portent of things to come...

...But there is evidence to the contrary...

...But these traits are generally muted, not unlike the semi-catatonic character played by Godard himself (as a moviemaker...

...At the same time that the banks were pressing Congress to pass the deregulation bill in 1980, they were taking on billions of dollars of shaky loans based on the assumption that the government would bail them out...

...But when a bank runs aground, it's another matter...

...Somehow, in the relaxed regulatory envi- ronment, the bank was allowed to follow its ambition to the point where it was brought to shame...

...Forced to compete for deposits, banks had to lengthen their business hours, and improve their customer services...

...Entrepreneurs receive warmer welcomes in lending offices...

...what about the free marketeers' second line of defense, that Continental's collapse was a result of uniquely bad manage- ment...

...His pioneering experiments with technique, rather than being meshed smoothly into the narrative (as in small movies), are more self-consciously displayed (as here...

...And the Wall Street Journal editorialized that excessive regu- lation caused the bank to falter;, removing restrictions in the future will ensure that banks can weather their mistakes with- out Federal assistance...

...Bank failures in the past five years have exceeded those of the preceding forty-five, and the FDIC's losses have multiplied in dizzying fashion...

...and when one reads of Continental's top officers deciding to sell their credit'card subsidiary in order to increase the bank's dividend payout, it's hard to believe such behavior is widespread...

...Just as the enormity of Continental's plight did not emerge until it was f%rced to open its books to would-be purchasers, are we not entitled to ask what lies below the tip of the banking iceberg...

...Rural and old urban neighborhoods have seen their deposits drained to the money centers and overseas...

...This unprecedented action was, as his friend Shcheglov explained sadly to Western correspondents, merely a prop- aganda ploy...

...They created high-interest certificates of deposit, to attract more savings...

...Fernand St...

...But there were drawbacks...

...This reasoning begs a simple question: if Continental's deposit base was limited, why did it take on more than $40 billion worth of obligations...

...Wealthy people and institutions can choose among money market funds and government securities that compete with the instruments banks offer...

...A dramatic symbol: the "float," which used to cost bank depositors as much as twenty days interest, is now a thing of the past at many money-center banks...

...Just four years ago, the free marketeers who dominate Con/ gress passed a bill freeing banks of many of the restrictions put into place in the Progressive and New Deal eras...

...They sought out customers more aggressively...

...If the relaxed regulators did not inform us until they were forced to that Continental's problems included shaky loans to Nucorp, Wickes, and many of the other corpo- rate basket cases of the 1980s, should we not expect that the same holds true of the bank's competitors...

...The free marketeers deny the problem: as Federal Reserve Board Chairman Paul Volcker told Congress in late July, Continental's errors were unique, and would not be repeated...

...Depositors and'investors are supposed to place their funds with well-run banks, and shun the reckless or incompetent...

...his experimental fragmentation of sound and narrative (evident here in three leitmotifs: a quartet playing Beethoven, nocturnai city scenes, the low beating of waves on a beach...

...The bottom line is that deregulation has produced a competi- tive and unstable banking industry...

...And for the bankers themselves, there was a crucial concern: bank profits lagged behind the earnings of other businesses...

...Martin Mayer The Bankers T HE Federal Deposit Insurance Corporation's red-faced bailout of the Continental Illinois National Bank and Trust Co., the largest corporate rescue in U.S...

...They branched out in ever-widening geographical areas...

...Its size was limited by Illinois banking law, which l~rohibited branch- banking in order to make sure that depositors' savings would be reinvested locally...

...Thus, when international pur- chasers of multi-million dollar certificates of deposit panicked at rumors of trouble, the unhappy giant had nothing to fall hack on...

...Nothing that has emerged from the collapse of Continental is quite so clear as that neither bankers nor federal regulators can be counted on to divulge bad news: both fear provoking a run on deposits...

...history, raises serious questions about the future of bank deregulation...

...This is standard operating procedure for capitalist economies with one important differ- ence: if a manufacturing business, for example, fails to survive the competitive wars, it can cease operations, or be taken over by another corporation without much pain for society as a whole...

...his misogynous tendencies...

...W HEN THAT liquidity crunch was washed away by the infla- tionary tide of the late 1970s, free marketeers crowed that the centers had held, and the banks had learned their lessons...

...Father Gleb's close friend Alexander Men, who had helped Gleb after his own period of teenage rebellion to return to the church, is also threatened with arrest...

...And that's all short-term...

...If Messrs...

...The debt burden borne by Argentina, Brazil, and other hard-pressed nations has increased correspondingly...

...Banks now must pay high interest rates to attract deposits, and they have to take greater risks to generate high interest loans...

...Congress created the Federal Reserve System in 1913 and the Federal Deposit Insurance Corporation in 1933 to accom- plish one paramount task: to insure the stability of our nation's currency and financial system...

...Until the mid-1960s, Continental was a re- gional bank, serving Chicago-area businesses...

...There are so few of them around with the character, intel- lectuai grasp, and holiness to cope with the new influx of converts that their flocks entreat them to keep a low profile so as to avoid arrest...

...American banks have had to raise their interest rates to attract deposits from the newly wary...

...A ND ONLY the naive will believe that the "market" exerts adequate discipline on the banking system...

...It's as if they possess an identity apart from the movie in which they happen to find themselves...

...Their reason- ing was correct, even if their economic projections weren't...

...Overlapping time in two shots from different angles, in a gracefully operatic styli- zation, he shows the development of Carmen and Joseph from combatants (grappling for a gun in the fast shot) to lovers (exhausted, they roll into embrace in the second...

...They created holding companies to buy other banks and Commonweal: 462 businesses...

...regard- less of what happened to the economies of Poland, Argentina, or Brazil, the federal government would have to ball them out or precipitate a worldwide economic collapse...

...in the past three years, dozens of banks have closed down, which in less rigorous days would have been given federal loans until they repaired their balance sheets...

...Now Rep...

...Bankers and investors that fall to heed the market's signals are to be allowed to fall...

...They expanded their business overseas, where they could operate more freely...

...the pretensions to deep philosophical truths, the "in" references to other movies...

...that its heedless plunge into international lending was exceeded by Manufacturers Hanover and many others...

...Under the Reagan administration, this has meant substitut- ing the "discipline of the market" for government regulations...

...In the midst of a hotel shoot-out, a man reading a newspaper is blithely unaware both of the police and the terrorists (led by Carmen...

...Nevertheless, there is always the need for one man to stand up and say out loud what ne/lfly everyone thinks...

...Spurred by competition from rival banks, insurance companies, brokerage houses, and other financial institutions, banks can no longer afford to play it safe...

...And they began to push Congress and the Federal Reserve to relax the regulatory web...

...Why did the bank think it could use' 'hot money" (short-term deposits at high-interest rates) to fund long-term loans...

...Continental had large ambitions without resources to match...

...Amidst all the Conflicting claims, com- peting ideologies, and complex changes in international fi- nance, what lessons should be drawn from the costly fiasco...

...Apparently they believed that they couldn't lose...

...Only the willfully naive can believe that Continental was alone in its reckless- ness...

...The free marketeers' argument that Continental's problems were caused in part by excessive regulation goes like this: Continental was vulnerable to a "run" on its deposits in May of 1984 because an Illinois law against branch banking pre- vented the bank from building a large local deposit base in the Chicago metropolitan area...

...A chorus of critics well endowed with hindsight is urging reme- dial action...

...when one reads of the head of Continental's midcontinent oil and gas division accepting hundreds of thousands of dollars of personal loans from Penn Square and then buying more than $1 billion of that bank's poorly collateralized oil loans...

...or when one reads of a Continental executive taking a job with Nucorp and then selling his former employer hundreds of millions of dollars of loans in a falling company...

...And if the market doesn't know what's happening, how can it punish poor performance before it's too late...

...Most striking of all is the utter insouciance with which America's leading banks lent to uncreditworthy borrowers overseas...

...Priests are normally never allowed access to prisoners...

...Banks are not the only institutions deserving credit for the international debt crisis, for many people in high places cheered the banks on as they made loans for harebrained projects, as they financed impossible development plans, as they abetted borrowers who should have known they could never repay their debt...

...In Deacon Vladimir Rusak, who sent an appeal to the WCC in Van- couver, Father Gleb seems at last to have found a successor...

...DAVID BENSMAN is associate professor of labor studies at Rutgers University...

...But what a shameless performance...

...F EW PRIESTS could afford to do what Father Gleb has done...

...Beginning in the 1950s, bankers explored routes of escape from their regulated haven...

...It's a paradox that Godard, entranced by the "small" qualities of American movies and peppering his own movies with homages to them, makes movies that, even with small budgets, are inflated and ponderous...

...the pleasantly thrown-away joke becomes an aggressively belabored one...

...Well before the Continental problems surfaced, American banks got caught with their pants down when they plunged into real estate in the 1970s, lured by fantasies of unending infla- tion...

...At his best Godard, by force of style, can sketch a key moment expressively...

...First Name: Carmen ends with a title: In memoriam small movies...

...High American interest rates drained capital from third-world and even Euro- pean countries, disrupting development plans and internal currency alignments...

...The banks' competition for deposits was driving up short-term interest rates, discouraging long-term investment...

...Now small savers can earn much higher interest rates than they earned in the past...

...then one remembers that Continental's bad judg- ment on Penn Square was shared by Seafn'st, Michigan Na- tional, and Chase Manhattan...

...In short, whatever the merits of a free market for most business sectors, it makes no sense in banking...

...It would seem, at this point, that the burden of proof must lie with those, like William J. Isaac of the FDIC, and Paul Volcker of the Federal Reserve, who hold that our problems are now behind us...

...Recent signs, however, show that even such priests are not immune...

...I am in total agreement with the writer Anatoli Levitin, (a leading lay dissident of the sixties, and Father Gleb's uncle) that it is unnecessary for the church to board any ship when it can walk upon the waters...

...His book, The Practice of Solidarity: American Hat Finishers in the Nineteenth Century, has just been published by the University of lllinois Press...

...Germain (D-R.I...

...But worst of all, deregulation brought a new instability into the American financial system...

...when one reads of t_7 ~ .I ;~ I ' I , 7 September 1984:463 Continental executives repeatedly ignoring explicit warnings about their Penn Square holdings until much too late...