The Public Bank Option

Building an Ark

By Mike Krauss

Bucks County Courier Times

Ellen H Brown is an attorney, researcher, author and daughter of U.S. diplomats. And observant.

In the aftermath of the Wall Street collapse and the catastrophe it let lose, she noticed that while forty-nine of the fifty states and thousands of municipal governments were drowning in red ink and deficits, one state was not: North Dakota.

She investigated and discovered that unlike the other states, the people of North Dakota owned their own central bank, a mini Federal Reserve, the Bank of North Dakota (BND), and as one North Dakota banker put it, “When the crash hit, the BND never blinked, and the credit kept flowing.”

Affordable credit is the life blood of modern economies, providing families and individuals who are not wealthy the essential tool to create some wealth and prosperity, and enabling businesses to grow and create jobs.

The BND is not a commercial bank. It partners with, and does not compete with local banks, credit unions and financial institution. allowing them to make larger loans than otherwise possible, or “buying down” interest rates, making loans more affordable so that local banks can approve more loans.

This is a no branches, no tellers, no ATM, no advertising, no mega salary or mega bonus bank. Low overhead and very profitable. Last year the bank returned $94 million in profits to the state – non tax revenue – for a budget surplus.

The BND has a current loan portfolio of $3.2 billion at work creating jobs in a state of 670,000 people, about the population of the county where this newspaper is published. Unemployment in North Dakota is 2.6%.

The story line out of Wall Street and Washington is that the BND has nothing to do with the prosperity of that state. It’s all about the shale gas boom.

Nice try.

The BND was putting in $30 million a year to the state before the shale gas boom. North Dakota’s neighbor states all have gas and oil, and went into budget shock when the crash came.

Pennsylvania is in a shale gas boom, but unemployment is at 5.7 percent,  not counting those who have given up looking for the jobs that are not there, and lawmakers had to close yet another budget deficit - $1.4 billion.

Small wonder twenty state legislatures now have some kind of public bank legislation pending. But getting a bill through a state legislature is a long slog, So municipalities, cities and counties, which are more agile, are taking the lead.

Last month, Santa Fe, NM became the first American city to move formally to consider how to establish its own bank. More will follow.

Why the urgency?

An unprosecuted and unrepentant Wall Street parties on.  The next crash is only a matter of time. It will take much of what is left of the prosperity of the American people with it, including municipal deposits banked on Wall Street.

But a public bank can hold those municipal deposits, securely and not leveraged to back the almost insane $200 trillion plus of derivative gambles that now sit on the balance sheets of the largest U.S. banks, just waiting for the piper to come calling.

Public banks can do something else of immediate benefit to taxpayers: drive down debt service.

Newly formed public banks can immediately grow their assets and balance sheets, and grow gradually into credit creation,  by buying up high cost municipal debt, replacing it with lower cost debt and driving down the debt service that is often a large part of municipal budgets.

The latest Consolidated Annual Financial Report (CAFR) available for county in which this newspaper is published shows total debt of $330.2 million, of which $79.5 million is interest. And as reported in this newspaper, the county’s debt service obligation will increase by 17 percent in 2014.

That has to be paid for by taxes.

Ellen Brown founded the American public banking movement. In a recent essay she explains that creation of public banks is more than tax relief and prudent management of public funds; it may be a vital necessity -  a way to build an Ark to safeguard public funds in the coming flood that Wall Street will let lose.