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> I'm interested to hear more about the problems with community owned banks. [...] So I would like to know specifically why they don't help and turned out so bad in Spain.

Spain is organized as a top-down centralist state where the central government lends power to the Comunidades Autónomas (Autonomous Communities). These are somewhat like USA's states but the other way around (the state is divided into Communities instead of Communities uniting as a federal state).

The central state lending power to communities is because of political instabilities during the transition out of Franco's dictatorship with peripheral territories (Catalonia, Basque Country, Galicia...)

To put things in perspective, I like to think of Spain as a social democracy. Our right-wing (Partido Popular, People's Party) would be considered left-wing in the USA (regarding economy, though it's very conservative in the social sense).

Communities regulate Cajas de Ahorros (literally: Savings Boxes, I guess Savings Banks is more appropriate), which are like banks but non-profit (although still businesses), and must spend part of their profits in social purposes in exchange for taxing benefits. Each community's government controls these cajas and elect their executives.

I'm sure you can see where this is going.

Of course these cajas were used for political purposes in both left and right-wing communities, with BIG loans to the communities government to build airports (deserted of flights), Formula 1 circuits (which only report losses), etc. The purpose of this was to lure voters into thinking the economy was buoyant. A famous case was Caja Mediterráneo, which (as we knew after the crisis started) had people like a ballet dancer in its board of directors (of course designated by politicians).

Fortunately the real estate was growing in Spain and these cajas could more or less make it to the end of the year... until the real estate bubble exploded. Our cajas' economy relied on it and collapsed like a house of cards. Suddenly lots of loans were being defaulted (especially loans to real estate agencies, construction companies and consumers) and a closer inspection on caja's economy revealed a lot of toxic assets (just like in the US) covering the losses from the loans to the communities.

To clean the toxic assets, cajas were taken over by private banks (in exchange for huge amounts money, which of course the State paid) or forced to merge and nationalized. Out of 45 cajas in 2007 only two were left untouched.

Of course the nationalized cajas had to be cleaned too and the central goverment pulled a (blatantly obvious) trick: a bad bank was created (SAREB) which bought (overpriced) toxic assets from the cajas. This bank assumes losses, while the not-entirely-public cajas continue having profits and distributing dividends. Many cajas managers were "retired" with millionaire severance payments and that's it.

Of course this was all paid with EU's 125$ billion loan which the citizens will have to pay (with interest of course).

> as well as a lack of social and physical science being incorporated into decision making.

I don't know your situation, but Spain's politicians are mainly attornies. Unfortunately politics is thought to be a law problem, not a scientific one.

Of course, throwing laws at bad laws didn't help at all.

> I actually think the key problems are over-centralization, which occurs both in capitalistic societies and socialist societies to a high degree.

I agree a lot with this and the rest of your post :)

Italy had banks controlled by politicians - and still does to some degree. What does not work is that loans are handed out on a political basis, rather than for economic reasons.

I'm pretty happy with the credit union I have in the US - that seems to be a pretty good solution to me. It's beholden to its members, not to local politicians.

The main problem with banks isn't their ownership, it's the extremely complicated regulations they have to comply with. This means that there are immense economies of scale which means that small, independent banks will typically be more expensive.

Most banks are already community owned by virtue of being largely owned by institutional investors, ie. pension funds.

The benefits of being community owned implies that the "community" takes an active part in the management of their bank. In Denmark, community owned just meant that banks gave benefits to customers that put their savings into the bank's shares, they did not generally take part in exercising diligence as owners, and the few that did, struggled to get heard while the going was good. For me, my bank is a simple service provider. To the extent I'm going to be a part owner of one, I'll delegate the responsibility to people who know better than me what they're doing, ie. my pension fund.

>There are a lot of people, especially in the US, that are really looking toward social democracy (socialism) as the light at the end of the tunnel. I think that its unfortunate that there isn't a better perspective for these people on the realities of social democracies in Europe or of the historical context of socialism. However, with such extreme inequality, its hard not to lean in that direction in one's thinking.

Just because social democracy has its own set of problems doesn't discredit the view that it's demonstrably better than American neoliberalism.