Beware economists bearing ideas, especially when they start talking about a “People’s Bank.”

A bank is a bank. To survive it has to make a profit, build capital, charge interest rates, pay rates competitive with others, foreclose on loans when holders fail to pay and generally act in a commercial fashion. Do otherwise and it won’t last; it will either be closed by regulators or closed by failure.

Today’s excitable Fairfax morning broadsheet story contains all the hallmarks of “loony left” ideas about money. In the process, the economists concerned have damaged their better idea: the need for an inquiry into the financial system to remove the rorts now increasingly apparent, especially in the investment sector, not in banking.

Federal Treasurer Wayne Swan did the country a disservice by knocking back the idea of an inquiry. The Australian financial system isn’t perfect and needs some significant repairs, especially in banking. An inquiry into the financial system is just as important as the Henry inquiry into tax.

But why did the economists drag the idea of a “basic bank” into the argument?

“The so-called people’s bank would be similar to New Zealand’s successful Kiwibank, which was set up to break the dominance of the Australian-owned majors.

“Since the financial crisis began the Big Four have increased their share of the mortgage market from 80 per cent to 92 per cent and taken over non-bank lenders such as RAMS and second-order banks including St George and BankWest.

“The open letter expresses concern at how the banks are using their privileged access to government guarantees, saying they are “rushing offshore” to expand even though Australians are “repeatedly told that our banks were lucky not to have had substantial overseas exposures”.”

The banks are not “rushing offshore to expand” The CBA is staying in Australia, Westpac ditto, and the NAB is paying nearly a billion for the local arm of Aviva. The ANZ is looking at buying banking and other financial assets in Asia, but that represents an expansion of existing operations.

But the most important factor not mentioned in the SMH article on the banks is who will pay for it. The capital would have to come from the federal government; the start up costs would have to come from the government, the wages, rents, and IT costs would have to come from the government.

So we would have the spectacle of taxpayers supporting the idea of a people’s bank and all the start up losses and other problems. When the guarantee for the banking system disappears, it would remain for the People’s Bank.

The bank will have to make a profit, levy fees and charges and be well capitalised, otherwise APRA won’t allow it to happen. That all takes money.

And, the final point is: if they like it or not most Australians are part-owners of the big four banks through their super and retirement funds. Now a bunch of economists are suggesting Australians should become venture/risk capitalists by investing in a new one, which would have a doubtful future.