Public Banking Institute Launched

Seeks to Rescue U.S. Public Finances

There is mounting evidence that the public finances of the United States are verging on collapse.

The national debt has burdened the American people with a debt service – the cost of interest – that threatens to swallow the entire federal budget in years ahead.

States from New Jersey to Illinois, Texas and California are grappling with immense budget deficits. At least fifteen major U.S. cities are reported on the verge of bankruptcy. In a desperate attempt to stave off calamity, state and municipal governments are taking measures that many view as a worse calamity.

Police, firefighters, health care providers and teachers are being laid off. City street lights are turned off at night, responses to 911 calls are provided on a “fee for service” basis, public parks are abandoned and infrastructure vital to commerce is left to decay to third world status. Unemployment is chronic and home foreclosures roll on.

Americans are wondering if there is a way out of what now appears to many as a decades long and accelerating decline of the fortunes of the once fabled American middle class.

A diverse group of American educators, entrepreneurs and businesspeople, local government officials and civic leaders, economists, writers, lawyers and others think they have identified the central problem.

They have banded together to form the Public Banking Institute (PBI), a not-for-profit educational organization that hopes to explain to the American people how a national network of publicly owned banks can revive the American economy.

Ellen Hodgson Brown, founder of the Public Banking Institute is the author of “Web of Debt,” a groundbreaking and frequently cited diagnostic and prescriptive analysis of the American money system. In her view, American banking and finance have been turned upside down.

“We are in an era where the public is being required to lend to private banks, even though banks were originally supposed to lend to the public. What we have now is a system where bank profits are privatized but bank losses are shared by the public.

“We’ve bailed out banks because we know credit is essential to society, like a public utility such as electricity and water – without it, our economic system fails. So, in essence, the supply of credit has more to do with public and governmental services and less to do with private enterprise.”

Brown notes that public banks were introduced by the Quakers in the original colony of Pennsylvania.

“The Quakers were known as the ‘Society of Friends.’ Their public banking concept was a fore-runner of the PSFS – the Philadelphia Savings Fund Society. The word ‘society’ is telling. We want to put the needs and economic aspirations of the whole of the American society back into the banking picture.

“The Public Banking Institute will explore how credit is created using public resources, how to price it competitively, and how to use it as a low-cost alternative that benefits the free market and the public.”

Marc Armstrong is a self described “Philly Boy” who thinks that Quaker legacy offers a lesson and a way forward for the nation.

A former IBM Finance account manager specializing in wholesale banking and a communications expert, Armstrong led the team that created the PBI website (www.publicbankinginstitute.org). He is now organizing a Public Banking Conference that will bring together the thinking, ideas and efforts underway in more than a dozen states to get public banking more widely established in the U.S.

The model that the PBI points to is the public Bank of North Dakota (BND), formed just after the creation of the Federal Reserve as an alternative to control of money and credit by the Fed and major Wall Street banks.

The web site Armstrong helped create makes repeated reference to the contributions the bank has made to the prosperity of North Dakota, one of the few states to run a budget surplus, where unemployment is low and wages and have been rising, bucking the national trend.

The BND makes low interest loans to students, start-ups and existing small and mid-sized businesses, provides a market for municipal bonds and a secondary market for mortgages, and in the past ten years has contributed over $400 million to the state’s general fund.

“And that is in a small state,” Armstrong is quick to observe. “Imagine what can be accomplished with public banking in larger states, with larger populations and greater volumes of economic activity.”

He explains that one of the first tasks of the PBI “is to help people understand what public banking is, and as important, what it is not.” Armstrong ticks off major points from the PBI web site.

“Public banks are owned and operated as public institutions in the governmental jurisdiction in which they are created. They are operated by professional bankers and not as boondoggles for bank executives. Rather, their employees are salaried public servants paid with a transparent pay structure and are not rewarded with bonuses, commissions or fees for generating loans and financial gimmicks. Pubic banks are not speculative ventures that risk failure to maximize profit. Public banks are able to offset tax increases with returned credit income to the community and are ready sources of credit for local governments, eliminating the need for large ‘rainy day’ funds. The costs of public projects financed by public banks are also greatly reduced, because public banks do not need to charge interest to themselves. Eliminating interest has been shown to reduce the cost of such projects, on average, by 50%.”

As quickly, Armstrong makes one other point, perhaps looking to head off critics that see competition for private banks.

“Public banks partner with and compliment the private banks and provide traditional wholesale banking services, like check clearing. There are more private banks per capita in North Dakota than any state in the nation.”

I asked Ellen Brown if it all didn’t sound just a little too good to be true?

“It’s amazing, isn’t it? I think the Bank of North Dakota is a better kept secret than the codes that follow the president to launch nuclear weapons. But the facts speak for themselves. The job of the PBI is to get those facts out, bring together all the best ideas around public banking, and equip people of states, or cities or counties to review the information and decide which way to go.”

It’s pretty clear which way the PBI hopes to take banking in the United States.

“Public banks are in our interest as a nation, so they must be in our future,” says Ellen Brown.