Part 1
Changing face of America: more wealth in fewer hands
By Mike Krauss
Bucks County Courier Times
I just spent two weeks traveling the country for the first time in two years. Warnings of America's demise notwithstanding, I was struck as always by the vitality and diversity of America. Some things never change - and some things do.
For more than 30 years, wages in the United States have remained flat as costs of living rose. The vast wealth of America is now concentrated in fewer hands as at no time since the days of the "robber barons." Wall Street was allowed to crash the American economy, and catastrophic unemployment and a tidal wave of home foreclosures are taking a terrible toll.
There is all sorts of statistical evidence to support that observation, but as I traveled about I had the far more powerful evidence of my eyes.
I long ago became accustomed to the sight of the homeless in our cities, but now they can be found as you go about the day in suburbia - along with a lot of vacant homes.
Over lunch, a college friend described the work he and his wife have done for many years to get people off the streets, especially the past winter. The demographic of the homeless has changed.
"Mike," he said with sad wonder, "they look like you and me."
The homeless no longer are the mentally ill pushed out of institutions or the chronically unemployed. They are former middle class Americans, educated and once prosperous, Little League, church and PTA meetings - all gone.
I met two who had managed to escape the catastrophe, sort of. One was a well-dressed, well-spoken middle-aged woman now working the cash register at a large store in New York. College educated, she had lost her job and home; the job at the register was all she could find.
Another was a Transportation Safety Administration security person at the airport in Philadelphia. He holds a degree in physics from Penn State. Despite promises of the high-tech future, which you'd think would hold a place for that young man; it was the only work he could find.
And from speaking with the young adults in my family and their friends, I know that many are not finding any work.
But they may be more fortunate than those students I met on the campus of one of the state universities that will see its funding cut by 50 percent, if the new governor of Pennsylvania has his way. At least those already graduated were able to afford their education (With a lot of debt, of course).
I took the train from New York to Washington, past the abandoned wreckage of the former manufacturing might of America, lost overseas to the ruthless devotion of corporate America and the profits needed for a bump in stock prices when the quarterly reports come out.
Some of the neighborhoods along the tracks as you come into Philly, Baltimore and Washington look like London after the blitz. Row homes, some boarded up, some occupied, some with the walls fallen away.
Nice place to raise kids.
Passing through, I thought of Camden across the river in New Jersey, where parents must raise kids in neighborhoods that will see few police officers. They've been laid off.
Then I traveled about the Washington, DC inhabited by the army of well-fed, well-clothed, well-housed, well-educated and well-cared for people who govern America, and had to ask myself, "What's wrong with this picture?"
They really need to go. But they are too well dug in. So what's the remedy? How do ordinary Americans take their country back and rebuild what was once the greatest and most broadly shared prosperity the world has even seen?
Some senators have revived the idea of an infrastructure bank as a place to start. But that takes tax money, requires a buy in from Wall Street and an agreement from Congress to give up control of what projects get built and where. So the future of the idea is uncertain.
But there is an alternative with the potential for a far greater and more wide ranging impact.
Public banking leverages existing funds at the state, county and even municipal level for low-cost credit for not only infrastructure, but student loans, mortgages, business and a wide range of jobs creating economic development.
And instead of bureaucrats in another federal financial scheme deciding what gets done in America, local officials and local bankers and their customers make the call. It is a very efficient way to distribute credit.
And instead of insuring more profit for Wall Street, all profits from public banks flow back to the state, county or municipality that created them: revenue from normal banking activities, and not new taxes.
Public banks in American states, cities, counties and municipalities hold the key to unlock once again the productive capacity of the American people, in a way that federal bureaucrats and members of Congress never can.
Part 2
Affordable credit and the second American revolution
By Ellen Brown and Mike Krauss
Bucks County Courier Times
The current economic crisis, including cutbacks at federal, state, and municipal levels, is directly related to the lack of liquidity and available credit in the local economy, which has contributed to collapsing state revenues.
This is the moment for Americans to work together in their communities and states, to do what Wall Street, Washington and the Federal Reserve no longer can or will do – create a sustainable supply of affordable public credit, locally generated and locally directed for education, mortgages, jobs creating economic development, infrastructure and other public purposes.
When banks are lending, the economy can expand as needed to keep the trading medium (credit) circulating. When banks are not lending, the economy contracts as debt is retired.
Defaults are inevitable, because there is not enough money in circulation to pay back the loans that created the money, along with the interest that was not created in the original loan.
For our economy to recover and truly grow, lending needs to increase. The Federal Reserve-led private banking system has failed to perform this critical function.
The Fed extended its easy credit terms to bail out the Too Big To Fail (TBTF) banks that failed and caused the crisis. But the vast amounts of credit injected into the system were used to shore up the balance sheets of the banks and for investment in short-term, high-yield instruments rather than to expand credit on Main Street – your street.
Local governments and local economies have been left to fend for themselves. Across the nation, governors are forced to slash spending to balance present budgets, but at a terrible cost to the future. Tens of millions of ill fed, ill housed, just plain ill and poorly educated Americans are a recipe for disaster.
Federal Reserve Chairman Ben Bernanke says the Fed can’t grant local governments access to those same easy credit terms that saved the TBTF banks -- not because the Fed can’t find the money (it found $12.3 trillion for Wall Street and favored corporations) but, says Bernanke, because it is not in the Fed’s legislative mandate.
In other words, Wall Street owns the Fed. The people just pay the bills.
Meanwhile, the contraction of the real estate market that resulted from Wall Street derivatives speculation and reckless “securitization” has severely reduced not only the tax base of local governments, but the assets of the mid-sized and smaller banks, limiting their ability to re-infuse local economies with the liquidity required to create jobs and return public revenues to a level at which states and municipalities can maintain vital services.
States are borrowing at about 5% interest while banks are borrowing at the extremely low Fed funds rate of 0.2%. In addition, states have to worry about such things as credit ratings, late fees and interest rate swaps, which have proven to be very good investments for Wall Street and very bad investments for local governments.
How can states or large municipalities tap into the cheap and ready credit lines accessible to banks? By owning a bank themselves.
Banks literally create money when they issue loans. They do not lend their own money or their depositors’ money, but simply extend credit created on their books, which is extinguished when the loan is repaid. This is the source of over 90% of the money in the U.S. economy.
Banks require capital (equity plus earned income) to satisfy bank capital requirements, and they require deposits to create a pool of liquidity from which they can borrow to clear outgoing checks; but neither the capital nor the deposits are actually lent to customers in the process of extending bank credit.
State and local governments across the United States have huge amounts of capital that could be leveraged into loans. They collectively own trillions of dollars’ worth of assets accruing by virtue of their citizens’ tax dollars, as well as real estate and “rainy day,” pension and other special purpose funds.
Instead of investing this money at very modest interest rates in Wall Street financial institutions, the money can be turned into many times that sum in loans – if the state or municipality owns a bank.
At an 8% capital requirement, a bank can leverage capital by a factor of 12.5, so long as it can attract sufficient deposits (collected or borrowed) to clear the outgoing checks. By consolidating their assets into their own banks, state and local governments can leverage their own funds to finance their own operations; and they can do this essentially interest-free, since they will own the bank and will get back any interest they charge to themselves.
These are the possibilities offered by public banking.
In a growing movement, eight states have legislation pending to either set up or study the best practices of state wide public banks, modeled on the very successful Bank of North Dakota. More states are lining up.
State treasurers, governors, mayors and local elected officials across the U.S. are looking at both the affordable credit and millions of non tax revenue dollars generated annually by the BND, and they are considering how that model can be adapted to their needs.
A Second American Revolution is taking form. It begins with a decentralized alternative to a failed banking system dominated by the “money center” banks and a Federal Reserve and federal government they own: public banking -- banking in the public interest.
Ellen Brown is the author of Web of Debt and Chairman of the Public Banking Institute (PBI).
Part 3
Put public assets to work for taxpayers
By Mike Krauss and Tom Sgouros
Bucks County Courier Times
Across the nation, states, counties and municipalities are faced with plummeting revenues, huge deficits and the necessity of higher taxes or deep cuts in vital services. A lack of affordable credit cripples economic expansion that would generate increased revenue over the long term.
But not in North Dakota. Partnering with local banks for almost 100 years, the public Bank of North Dakota has provided a steady flow of affordable credit to farmers, students, homebuyers and businesses. The bank has cut municipal borrowing costs and debt service and kept the taxpayers money in the state, working for them, and not going out of state to benefit the private banks.
The bank's profits are put to two uses: reinvested in more credit, or returned to the only shareholder, the people. In past 10 years, the bank has contributed more than a third of a billion dollars to the general fund, without new taxes.
No wonder then, that as other states consider public banking, they look to North Dakota. But, there are other public banking options.
Cities or counties with substantial financial resources could establish their own bank, and smaller municipal governments could obtain similar benefits by pooling resources into what would in effect be a municipal mutual bank.
Municipal governments are heavy users of financial services, both as depositors and borrowers. The banks that provide these services are all for-profit corporations. It is possible to secure these same services for far less cost, and to use debt service payments to build - instead of drain - municipal fund balances, through a mutual bank, run by and for its municipal depositors/owners.
As with any public bank, the profits of a municipal mutual bank can be retained by the bank to increase its capabilities, or shared among the participating municipalities as non tax revenue.
A bank founded by a partnership of municipalities would be able to assume a proportion of any outstanding or proposed debt of the members and their authorities, allowing that debt to be serviced at a substantially lower interest rate that could save taxpayers millions of dollars annually.
Because the bank would be able to offer credit at low interest rates, municipalities would have no need for "rainy day" funds that generate little income while tying up resources.
With only a small number of customers, demanding as they may be, a bank such as the one proposed here could be effectively run by a relative handful of people, with a minimum of staffing overhead or real estate expense. Important functions like check processing and account record keeping can be accomplished using financial industry vendors.
On the depositor side, the bank would not need to earn a profit from each of its routine functions, so services like checking and account management could be provided at cost to the member municipalities.
Though the main purpose of the bank would be to service municipal financial needs, it will also be possible to serve the needs of the community, as would a county or state public bank, by for example extending low-cost credit - albeit on a smaller scale.
A bank with a lending capacity measured in the hundreds of millions of dollars could be formed by a handful of the municipalities in which this newspaper is circulated.
Without stock to sell or to speculate with, and with the depositors setting policy on lending and fees, no one will get rich running a mutual bank, though it can be a perfectly viable enterprise, paying dividends to its depositors in money and better services.
But sitting as we are in the middle of a catastrophe created by out-of-control financial flimflams passed off as "innovation," it must be emphasized that such a bank as proposed here is a return to the roots of finance - old fashioned, prudent and risk averse. A mutual bank is an old form of banking, and the first savings banks in the United States were mutual banks.
Lower cost banking services, lower cost borrowing, control over these costs, control over borrowing costs, stronger municipal bottom lines (through partial ownership of an appreciating asset and interest payments that accrue to their own bottom lines), consolidation of accounts, joint financial services offering economies of scale, increased credit and lower cost, long term financing for large projects - all are potential benefits of a municipal mutual bank.
Efforts are underway in Pennsylvania and many other states to create statewide public banks.
But action in the state Legislatures requires overcoming the strenuous lobbing of the commercial banking industry. Despite the many benefits for the people, it may be a protracted struggle.
But cities, counties and municipalities closer to the people can move more quickly. We urge elected municipal officials and finance managers to explore the best practices of public banking and learn how its benefits may be secured for the taxpayers they serve.
Tom Sgouros is a Rhode Island budget analyst, government finance specialist and an advisor to the PBI. For information: www.publicbankinginstitute.org.
Friday, March 25, 2011
Monday, March 21, 2011
WISCONSIN: Broke Unless You Count The $67 Billion
From Business Insider
Courtesy of Guest Author Ellen Brown
As states struggle to meet their budgets, public pensions are on the chopping block, but they needn’t be. States can keep their pension funds intact while leveraging them into many times their worth in loans, just as Wall Street banks do. They can do this by forming their own public banks, following the lead of North Dakota—a state that currently has a budget surplus.
Wisconsin Governor Scott Walker, whose recently proposed bill to gut benefits, wages, and bargaining rights for unionized public workers inspired weeks of protests in Madison, has justified the move as necessary for balancing the state’s budget. But is it?
After three weeks of demonstrations in Wisconsin, protesters report no plans to back down. Fourteen Wisconsin Democratic lawmakers—who left the state so that a quorum to vote on the bill could not be reached—said Friday that they are not deterred by threats of possible arrest and of 1,500 layoffs if they don’t return to work. President Obama has charged Wisconsin’s Governor Scott Walker with attempting to bust the unions. But Walker’s defense is:
“We’re broke. Like nearly every state across the country, we don’t have any more money.”
Among other concessions, Governor Walker wants to require public employees to pay a portion of the cost of their own pensions. Bemoaning a budget deficit of $3.6 billion, he says the state is too broke to afford all these benefits.
Broke Unless You Count the $67 Billion Pension Fund . . .
That’s what he says, but according to Wisconsin’s 2010 CAFR (Comprehensive Annual Financial Report), the state has $67 billion in pension and other employee benefit trust funds, invested mainly in stocks and debt securities drawing a modest return.
A recent study by the PEW Center for the States showed that Wisconsin’s pension fund is almost fully funded, meaning it can meet its commitments for years to come without drawing on outside sources. It requires a contribution of only $645 million annually to meet pension payouts. Zach Carter, writing in the Huffington Post, notes that the pension program could save another $195 million annually just by cutting out its Wall Street investment managers and managing the funds in-house.
The governor is evidently eying the state’s lucrative pension fund, not because the state cannot afford the pension program, but as a source of revenue for programs that are not fully funded. This tactic, however, is not going down well with state employees.
Fortunately, there is another alternative. Wisconsin could draw down the fund by the small amount needed to meet pension obligations, and put the bulk of the money to work creating jobs, helping local businesses, and increasing tax revenues for the state. It could do this by forming its own bank, following the lead of North Dakota, the only state to have its own bank — and the only state to escape the credit crisis.
This could be done without spending the pension fund money or lending it. The funds would just be shifted from one form of investment to another (equity in a bank). When a bank makes a loan, neither the bank’s own capital nor its customers’ demand deposits are actually lent to borrowers. As observed on the Dallas Federal Reserve’s website, “Banks actually create money when they lend it.” They simply extend accounting-entry bank credit, which is extinguished when the loan is repaid. Creating this sort of credit-money is a privilege available only to banks, but states can tap into that privilege by owning a bank.
How North Dakota Escaped the Credit Crunch
Ironically, the only state to have one of these socialist-sounding credit machines is a conservative Republican state. The state-owned Bank of North Dakota (BND) has allowed North Dakota to maintain its economic sovereignty, a conservative states-rights sort of ideal. The BND was established in 1919 in response to a wave of farm foreclosures at the hands of out-of-state Wall Street banks. Today the state not only has no debt, but it recently boasted its largest-ever budget surplus. The BND helps to fund not only local government but local businesses and local banks, by partnering with the banks to provide the funds to support small business lending.
The BND is also a boon to the state treasury. It has a return on equity of 25-26%, and it has contributed over $300 million to the state (its only shareholder) in the past decade — a notable achievement for a state with a population less than one-tenth the size of Los Angeles County. In comparison, California’s public pension funds are down more than $100 billion—that’s billion with a “b”—or close to half the funds’ holdings, following the Wall Street debacle of 2008. It was, in fact, the 2008 bank collapse rather than overpaid public employees that caused the crisis that shrank state revenues and prompted the budget cuts in the first place.
Seven States Are Now Considering Setting Up Public Banks
Faced with federal inaction and growing local budget crises, an increasing number of states are exploring the possibility of setting up their own state-owned banks, following the North Dakota model. On January 11, 2011, a bill to establish a state-owned bank was introduced in the Oregon State legislature; on January 13, a similar bill was introduced in Washington State; on January 20, a bill for a state bank was filed in Massachusetts (following a 2010 bill that had lapsed); and on February 4, a bill was introduced in the Maryland legislature for a feasibility study looking into the possibilities. They join Illinois, Virginia, and Hawaii, which introduced similar bills in 2010, bringing the total number of states with such bills to seven.
If Governor Walker wanted to explore this possibility for his state, he could drop in on the Center for State Innovation (CSI), which is located down the street in his capitol city of Madison, Wisconsin. The CSI has done detailed cost/benefit analyses of the Oregon and Washington state bank initiatives, which show substantial projected benefits based on the BND precedent. See reports here and here.
For Washington State, with an economy not much larger than Wisconsin’s, the CSI report estimates that after an initial startup period, establishing a state-owned bank would create new or retained jobs of between 7,400 and 10,700 a year at small businesses alone, while at the same time returning a profit to the state.
A Bank of Wisconsin Could Generate “Bank Credit” Many Times the Size of the Budget Deficit
Economists looking at the CSI reports have called their conclusions conservative. The CSI made its projections without relying on state pension funds for bank capital, although it acknowledged that this could be a potential source of capitalization.
If the Bank of Wisconsin were to use state pension funds, it could have a capitalization of more than $57 billion – nearly as large as that of Goldman Sachs. At an 8% capital requirement, $8 in capital can support $100 in loans, or a potential lending capacity of over $500 billion. The bank would need deposits to clear the checks, but the credit-generating potential could still be huge.
Banks can create all the bank credit they want, limited only by (a) the availability of creditworthy borrowers, (b) the lending limits imposed by bank capital requirements, and (c) the availability of “liquidity” to clear outgoing checks. Liquidity can be acquired either from the deposits of the bank’s own customers or by borrowing from other banks or the money market. If borrowed, the cost of funds is a factor; but at today’s very low Fed funds rate of 0.2%, that cost is minimal. Again, however, only banks can tap into these very low rates. States are reduced to borrowing at about 5% — unless they own their own banks; or, better yet, unless they are banks. The BND is set up as “North Dakota doing business as the Bank of North Dakota.”
That means that technically, all of North Dakota’s assets are the assets of the bank. The BND also has its deposit needs covered. It has a massive, captive deposit base, since all of the state’s revenues are deposited in the bank by law. The bank also takes other deposits, but the bulk of its deposits are government funds. The BND is careful not to compete with local banks for consumer deposits, which account for less than 2% of the total. The BND reports that it has deposits of $2.7 billion and outstanding loans of $2.6 billion. With a population of 647,000, that works out to about $4,000 per capita in deposits, backing roughly the same amount in loans.
Wisconsin has a population that is nine times the size of North Dakota’s. Other factors being equal, Wisconsin might be able to amass over $24 billion in deposits and generate an equivalent sum in loans – over six times the deficit complained of by the state’s governor. That lending capacity could be used for many purposes, depending on the will of the legislature and state law. Possibilities include (a) partnering with local banks, on the North Dakota model, strengthening their capital bases to allow credit to flow to small businesses and homeowners, where it is sorely needed today; (b) funding infrastructure virtually interest-free (since the state would own the bank and would get back any interest paid out); and (c) refinancing state deficits nearly interest-free.
Why Give Wisconsin’s Enormous Credit-generating Power Away?
The budget woes of Wisconsin and other states were caused, not by overspending on employee benefits, but by a credit crisis on Wall Street. The “cure” is to get credit flowing again in the local economy, and this can be done by using state assets to capitalize state-owned banks.
Against the modest cost of establishing a publicly-owned bank, state legislators need to weigh the much greater costs of the alternatives – slashing essential public services, laying off workers, raising taxes on constituents who are already over-taxed, and selling off public assets. Given the cost of continuing business as usual, states can hardly afford not to consider the public bank option. When state and local governments invest their capital in out-of-state money center banks and deposit their revenues there, they are giving their enormous credit-generating power away to Wall Street.
——————————————
Ellen Brown wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Ellen is an attorney and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are webofdebt.com and ellenbrown.com
Courtesy of Guest Author Ellen Brown
As states struggle to meet their budgets, public pensions are on the chopping block, but they needn’t be. States can keep their pension funds intact while leveraging them into many times their worth in loans, just as Wall Street banks do. They can do this by forming their own public banks, following the lead of North Dakota—a state that currently has a budget surplus.
Wisconsin Governor Scott Walker, whose recently proposed bill to gut benefits, wages, and bargaining rights for unionized public workers inspired weeks of protests in Madison, has justified the move as necessary for balancing the state’s budget. But is it?
After three weeks of demonstrations in Wisconsin, protesters report no plans to back down. Fourteen Wisconsin Democratic lawmakers—who left the state so that a quorum to vote on the bill could not be reached—said Friday that they are not deterred by threats of possible arrest and of 1,500 layoffs if they don’t return to work. President Obama has charged Wisconsin’s Governor Scott Walker with attempting to bust the unions. But Walker’s defense is:
“We’re broke. Like nearly every state across the country, we don’t have any more money.”
Among other concessions, Governor Walker wants to require public employees to pay a portion of the cost of their own pensions. Bemoaning a budget deficit of $3.6 billion, he says the state is too broke to afford all these benefits.
Broke Unless You Count the $67 Billion Pension Fund . . .
That’s what he says, but according to Wisconsin’s 2010 CAFR (Comprehensive Annual Financial Report), the state has $67 billion in pension and other employee benefit trust funds, invested mainly in stocks and debt securities drawing a modest return.
A recent study by the PEW Center for the States showed that Wisconsin’s pension fund is almost fully funded, meaning it can meet its commitments for years to come without drawing on outside sources. It requires a contribution of only $645 million annually to meet pension payouts. Zach Carter, writing in the Huffington Post, notes that the pension program could save another $195 million annually just by cutting out its Wall Street investment managers and managing the funds in-house.
The governor is evidently eying the state’s lucrative pension fund, not because the state cannot afford the pension program, but as a source of revenue for programs that are not fully funded. This tactic, however, is not going down well with state employees.
Fortunately, there is another alternative. Wisconsin could draw down the fund by the small amount needed to meet pension obligations, and put the bulk of the money to work creating jobs, helping local businesses, and increasing tax revenues for the state. It could do this by forming its own bank, following the lead of North Dakota, the only state to have its own bank — and the only state to escape the credit crisis.
This could be done without spending the pension fund money or lending it. The funds would just be shifted from one form of investment to another (equity in a bank). When a bank makes a loan, neither the bank’s own capital nor its customers’ demand deposits are actually lent to borrowers. As observed on the Dallas Federal Reserve’s website, “Banks actually create money when they lend it.” They simply extend accounting-entry bank credit, which is extinguished when the loan is repaid. Creating this sort of credit-money is a privilege available only to banks, but states can tap into that privilege by owning a bank.
How North Dakota Escaped the Credit Crunch
Ironically, the only state to have one of these socialist-sounding credit machines is a conservative Republican state. The state-owned Bank of North Dakota (BND) has allowed North Dakota to maintain its economic sovereignty, a conservative states-rights sort of ideal. The BND was established in 1919 in response to a wave of farm foreclosures at the hands of out-of-state Wall Street banks. Today the state not only has no debt, but it recently boasted its largest-ever budget surplus. The BND helps to fund not only local government but local businesses and local banks, by partnering with the banks to provide the funds to support small business lending.
The BND is also a boon to the state treasury. It has a return on equity of 25-26%, and it has contributed over $300 million to the state (its only shareholder) in the past decade — a notable achievement for a state with a population less than one-tenth the size of Los Angeles County. In comparison, California’s public pension funds are down more than $100 billion—that’s billion with a “b”—or close to half the funds’ holdings, following the Wall Street debacle of 2008. It was, in fact, the 2008 bank collapse rather than overpaid public employees that caused the crisis that shrank state revenues and prompted the budget cuts in the first place.
Seven States Are Now Considering Setting Up Public Banks
Faced with federal inaction and growing local budget crises, an increasing number of states are exploring the possibility of setting up their own state-owned banks, following the North Dakota model. On January 11, 2011, a bill to establish a state-owned bank was introduced in the Oregon State legislature; on January 13, a similar bill was introduced in Washington State; on January 20, a bill for a state bank was filed in Massachusetts (following a 2010 bill that had lapsed); and on February 4, a bill was introduced in the Maryland legislature for a feasibility study looking into the possibilities. They join Illinois, Virginia, and Hawaii, which introduced similar bills in 2010, bringing the total number of states with such bills to seven.
If Governor Walker wanted to explore this possibility for his state, he could drop in on the Center for State Innovation (CSI), which is located down the street in his capitol city of Madison, Wisconsin. The CSI has done detailed cost/benefit analyses of the Oregon and Washington state bank initiatives, which show substantial projected benefits based on the BND precedent. See reports here and here.
For Washington State, with an economy not much larger than Wisconsin’s, the CSI report estimates that after an initial startup period, establishing a state-owned bank would create new or retained jobs of between 7,400 and 10,700 a year at small businesses alone, while at the same time returning a profit to the state.
A Bank of Wisconsin Could Generate “Bank Credit” Many Times the Size of the Budget Deficit
Economists looking at the CSI reports have called their conclusions conservative. The CSI made its projections without relying on state pension funds for bank capital, although it acknowledged that this could be a potential source of capitalization.
If the Bank of Wisconsin were to use state pension funds, it could have a capitalization of more than $57 billion – nearly as large as that of Goldman Sachs. At an 8% capital requirement, $8 in capital can support $100 in loans, or a potential lending capacity of over $500 billion. The bank would need deposits to clear the checks, but the credit-generating potential could still be huge.
Banks can create all the bank credit they want, limited only by (a) the availability of creditworthy borrowers, (b) the lending limits imposed by bank capital requirements, and (c) the availability of “liquidity” to clear outgoing checks. Liquidity can be acquired either from the deposits of the bank’s own customers or by borrowing from other banks or the money market. If borrowed, the cost of funds is a factor; but at today’s very low Fed funds rate of 0.2%, that cost is minimal. Again, however, only banks can tap into these very low rates. States are reduced to borrowing at about 5% — unless they own their own banks; or, better yet, unless they are banks. The BND is set up as “North Dakota doing business as the Bank of North Dakota.”
That means that technically, all of North Dakota’s assets are the assets of the bank. The BND also has its deposit needs covered. It has a massive, captive deposit base, since all of the state’s revenues are deposited in the bank by law. The bank also takes other deposits, but the bulk of its deposits are government funds. The BND is careful not to compete with local banks for consumer deposits, which account for less than 2% of the total. The BND reports that it has deposits of $2.7 billion and outstanding loans of $2.6 billion. With a population of 647,000, that works out to about $4,000 per capita in deposits, backing roughly the same amount in loans.
Wisconsin has a population that is nine times the size of North Dakota’s. Other factors being equal, Wisconsin might be able to amass over $24 billion in deposits and generate an equivalent sum in loans – over six times the deficit complained of by the state’s governor. That lending capacity could be used for many purposes, depending on the will of the legislature and state law. Possibilities include (a) partnering with local banks, on the North Dakota model, strengthening their capital bases to allow credit to flow to small businesses and homeowners, where it is sorely needed today; (b) funding infrastructure virtually interest-free (since the state would own the bank and would get back any interest paid out); and (c) refinancing state deficits nearly interest-free.
Why Give Wisconsin’s Enormous Credit-generating Power Away?
The budget woes of Wisconsin and other states were caused, not by overspending on employee benefits, but by a credit crisis on Wall Street. The “cure” is to get credit flowing again in the local economy, and this can be done by using state assets to capitalize state-owned banks.
Against the modest cost of establishing a publicly-owned bank, state legislators need to weigh the much greater costs of the alternatives – slashing essential public services, laying off workers, raising taxes on constituents who are already over-taxed, and selling off public assets. Given the cost of continuing business as usual, states can hardly afford not to consider the public bank option. When state and local governments invest their capital in out-of-state money center banks and deposit their revenues there, they are giving their enormous credit-generating power away to Wall Street.
——————————————
Ellen Brown wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Ellen is an attorney and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are webofdebt.com and ellenbrown.com
Thursday, February 24, 2011
Fear mongers stampede Americans
Bucks County Courier Times
February 24, 2011
I smell a rat. It's the same rat that panicked the American people and Congress into the Wall Street bailout.
You will remember, way back in 2008, night after night, day after day, really worried talking heads in the national media explained that, without the bailout, credit would dry up and the world would come to an end.
So Congress and the Federal Reserve bailed out the barons, saved their failed banks and personal fortunes - and credit dried up. Millions of Americans have been plunged into a slow-motion, long-term catastrophe, while the rich few get richer and everybody else gets poorer.
Now the rat is spreading a new alarm, the total collapse of state finances. But the rat's solution, like the bailout, is unrelated to the real problem.
Across the United States, state and municipal governments are struggling with large budget shortfalls and even larger pension liabilities.
The budget shortfalls were created by collapsing revenue, which in turn was created when the money center banks of the Federal Reserve failed under the weight of fraud, mismanagement, a lack of accountability and reckless risk taking, which the bailout sidestepped.
State budget shortfalls are short term and will be resolved through a combination of cuts in spending, increased taxes and increased revenue from an improving economy.
But the rat is screaming that's not enough and long-term pension obligations are plunging the states into bankruptcy. A figure of $3 trillion is thrown around.
But the more sober analysis of the non-partisan Center for Budget and Policy Priorities points out that the $3 trillion number is created by an accounting rule that states do not normally employ and puts the number at $700 billion.
This is still a big number. But as the center observes, whatever the estimate of unfunded liabilities, it does not mean that states and localities have to contribute that amount to their pension funds, "since the funds very likely will earn higher rates of return over time than the Treasury bond rate, which will result in pension fund balances adequate to meet future obligations without adding the full $3 trillion to the funds."
But the rat continues to spread fear, conflating the short-term and long-term problems, which are quite different. Once again, the rat says the sky is falling.
What's the rat's game? For the answer, you must take a close look at the legislation in the current battleground, Wisconsin.
Not only does the legislation call for wage and benefit concessions from state workers - which under the short- term circumstances may be fair - but it also takes away from those workers the right to negotiate for their future, which has nothing to do with the actual problem.
This is an assault on labor - union busting - the cherished dream of predatory Darwinian fat cats since the New Deal.
But the rat wants more than that.
An article in the London-based Financial Times explains what the rat is up to. The Times quotes Orin Kramer, a member of the council that oversees New Jersey pension funds: "One consequence (of the crisis) is that asset sales and privatization will pick up."
In other words, the cash wealth of America having been concentrated in the hands of the few, now they will go after what's left: public assets.
The Huffington Post and others now report that the legislation in Wisconsin to "save the state" contains a provision to allow the sell-off of state energy assets, such as power plants, to private corporations, "with or without solicitation of bids, for any amount (state officials) determine to be in the best interest of the state."
As the Post reports, "One of the companies that could stand to benefit significantly is Koch Industries. Koch already has several companies in the state, including a coal subsidiary, timber plants and a large network of pipelines. The Koch-funded group Americans for Prosperity has been standing with (Wisconsin Gov.) Walker throughout his budget battles, busing in tea party activists and launching the site, Stand With Walker."
Now can you smell the rat?
Building infrastructure like power plants is expensive. Let the people pay for that. The profits are in the operation. Especially if, like Koch Industries, you can supply your new coal power plant from your own coal mines. But you want to get those assets at fire sale, no bid prices, after driving down the wages of the workers whose contracts you will pick up.
Panic helps.
From Wall Street to Washington to Wisconsin, fear mongering fats cats are once again stampeding the American people, and cashing in.
February 24, 2011
I smell a rat. It's the same rat that panicked the American people and Congress into the Wall Street bailout.
You will remember, way back in 2008, night after night, day after day, really worried talking heads in the national media explained that, without the bailout, credit would dry up and the world would come to an end.
So Congress and the Federal Reserve bailed out the barons, saved their failed banks and personal fortunes - and credit dried up. Millions of Americans have been plunged into a slow-motion, long-term catastrophe, while the rich few get richer and everybody else gets poorer.
Now the rat is spreading a new alarm, the total collapse of state finances. But the rat's solution, like the bailout, is unrelated to the real problem.
Across the United States, state and municipal governments are struggling with large budget shortfalls and even larger pension liabilities.
The budget shortfalls were created by collapsing revenue, which in turn was created when the money center banks of the Federal Reserve failed under the weight of fraud, mismanagement, a lack of accountability and reckless risk taking, which the bailout sidestepped.
State budget shortfalls are short term and will be resolved through a combination of cuts in spending, increased taxes and increased revenue from an improving economy.
But the rat is screaming that's not enough and long-term pension obligations are plunging the states into bankruptcy. A figure of $3 trillion is thrown around.
But the more sober analysis of the non-partisan Center for Budget and Policy Priorities points out that the $3 trillion number is created by an accounting rule that states do not normally employ and puts the number at $700 billion.
This is still a big number. But as the center observes, whatever the estimate of unfunded liabilities, it does not mean that states and localities have to contribute that amount to their pension funds, "since the funds very likely will earn higher rates of return over time than the Treasury bond rate, which will result in pension fund balances adequate to meet future obligations without adding the full $3 trillion to the funds."
But the rat continues to spread fear, conflating the short-term and long-term problems, which are quite different. Once again, the rat says the sky is falling.
What's the rat's game? For the answer, you must take a close look at the legislation in the current battleground, Wisconsin.
Not only does the legislation call for wage and benefit concessions from state workers - which under the short- term circumstances may be fair - but it also takes away from those workers the right to negotiate for their future, which has nothing to do with the actual problem.
This is an assault on labor - union busting - the cherished dream of predatory Darwinian fat cats since the New Deal.
But the rat wants more than that.
An article in the London-based Financial Times explains what the rat is up to. The Times quotes Orin Kramer, a member of the council that oversees New Jersey pension funds: "One consequence (of the crisis) is that asset sales and privatization will pick up."
In other words, the cash wealth of America having been concentrated in the hands of the few, now they will go after what's left: public assets.
The Huffington Post and others now report that the legislation in Wisconsin to "save the state" contains a provision to allow the sell-off of state energy assets, such as power plants, to private corporations, "with or without solicitation of bids, for any amount (state officials) determine to be in the best interest of the state."
As the Post reports, "One of the companies that could stand to benefit significantly is Koch Industries. Koch already has several companies in the state, including a coal subsidiary, timber plants and a large network of pipelines. The Koch-funded group Americans for Prosperity has been standing with (Wisconsin Gov.) Walker throughout his budget battles, busing in tea party activists and launching the site, Stand With Walker."
Now can you smell the rat?
Building infrastructure like power plants is expensive. Let the people pay for that. The profits are in the operation. Especially if, like Koch Industries, you can supply your new coal power plant from your own coal mines. But you want to get those assets at fire sale, no bid prices, after driving down the wages of the workers whose contracts you will pick up.
Panic helps.
From Wall Street to Washington to Wisconsin, fear mongering fats cats are once again stampeding the American people, and cashing in.
Public Banking and A Strong Banking Industry
By: Ellen H Brown and Mike Krauss
Ellen H Brown is chairman of the Public Banking Institute, author of Web of Debt and a California corporate lawyer. Mike Krauss is a PBI board member, international logistics expert and former officer of PA county and state government.
It may be two years away, or six months. It could happen tomorrow. The next failure of the Too Big To Fail banks is only a matter if time.
Twenty eight months after the collapse of the money center banks plunged the American people into a well of economic despair, neither the effects nor the causes of that collapse have been remedied. It's business as usual.
The meaningful changes in federal law that could have corrected the failure and abuse of the TBTF banks died in the last Congress, beaten back by an army of industry lobbyists and buried under a mountain of political IOUs.
The regulatory agencies charged to safeguard the market and investors are staffed by too many finance industry allies and face severe budget cuts that will cripple the efforts of conscientious regulators.
This is a time bomb waiting to explode.
As courts reject the standing and claims of the money center banks in the foreclosure mill, and analysts question the integrity of their balance sheets, citing accounting devices used to understate, or not state at all their liabilities and exposure, the fuse may already be lighted.
Then what? Another rescue? America needs banks and banking.
America has banks, more than 7,000 local banks and an even larger number of credit unions, the vast majority of which are sound and productive. Action must be taken now to decouple American banking from the endemic failures of the money center banks of the Federal Reserve and support what works.
Public banking – banking in the public interest – can help provide a viable, sustainable banking industry that remedies the reckless risk taking, inside dealing, and lack of transparency, accountability and sound corporate governance that are at the heart of the failure of the TBTF banks.
Efforts are underway to establish such banks. Six states currently have bills pending, three to establish a state-wide publicly owned bank (Washington State, Oregon, Illinois) and three for feasibility studies to explore the possibilities (Virginia, Massachusetts, Hawaii).
Public banking can provide a new supply of the affordable credit urgently needed to underwrite sustained economic activity and job creation. And public banking can generate a sustained and significant revenue source for cash strapped states, municipalities and battered taxpayers.
A public bank is capitalized by public money, for example state tax revenue and fees, and is managed by salaried civil service professionals who have no incentive for risk taking. The managers report to elected officials directly accountable to the people.
A public bank returns a portion of its profits to the chartering governing authority and plows the rest back into increased lending activity – to homebuyers, students, farmers, small businesses, start-ups, economic development and jobs creation.
Public banks partner with and support local banks and credit unions in a variety of ways. One is “participatory lending,” in which the public bank increases total loan size, provides guarantees or “buys down” the interest rates of the loans the private banks originate.
Public banks provide wholesale, “banker’s bank” services such as check clearing, bond account safekeeping, and Fed Funds lines to capitalize on excess liquidity within the banking system at very low interest. Public banks further strengthen the local banking industry by providing capital to local banks via direct bank stock lending or buying portions of a local bank’s loan portfolio.
Public banks offer a secondary market for mortgages and make a market at lower interest for municipal bonds, with huge savings to taxpayers in debt service.
Finally, a public bank has only one shareholder to whom it pays dividends – the people of the state or municipality that created it.
The public Bank of North Dakota (BND) has been doing all these things and more for the people of that state for almost a century, and helping to sustain a strong and healthy banking industry.
In 2009, while the U.S. economy was melting down, the BND backed $68 million in FHA and VA mortgages originated by local banks, funded or renewed $472 million in commercial loans of partner banks and institutions in a more than $1 billion commercial loan portfolio, and financed 268 business and industrial projects.
In the devastating 1997 Grand Forks flood and fire, the BND provided the state with immediate cash for relief until federal disaster funds arrived, underwrote the suspension of mortgage loan payments of those wiped out, and provided more than $100 million in loans to help businesses rebuild.
Over the last ten years the BND has returned more than a third of a billion dollars to the state’s general fund.
The people of the state are getting solid returns on their money. North Dakota has a population of only about 620,000. States with larger populations and tax revenues can anticipate larger returns.
As important, North Dakota has a thriving and healthy banking industry. A recent study by the Center for State Innovation (University of Wisconsin, Madison) analyses the role of the BND and concludes that this public bank “has been effective in strengthening the banking market, leading to robust competition.”
But state legislators and municipal leaders need to move quickly, before the next failure sends the TBTF banks running back to Congress and the Fed for another rescue that further cripples an already limping U.S. economy.
Ellen H Brown is chairman of the Public Banking Institute, author of Web of Debt and a California corporate lawyer. Mike Krauss is a PBI board member, international logistics expert and former officer of PA county and state government.
It may be two years away, or six months. It could happen tomorrow. The next failure of the Too Big To Fail banks is only a matter if time.
Twenty eight months after the collapse of the money center banks plunged the American people into a well of economic despair, neither the effects nor the causes of that collapse have been remedied. It's business as usual.
The meaningful changes in federal law that could have corrected the failure and abuse of the TBTF banks died in the last Congress, beaten back by an army of industry lobbyists and buried under a mountain of political IOUs.
The regulatory agencies charged to safeguard the market and investors are staffed by too many finance industry allies and face severe budget cuts that will cripple the efforts of conscientious regulators.
This is a time bomb waiting to explode.
As courts reject the standing and claims of the money center banks in the foreclosure mill, and analysts question the integrity of their balance sheets, citing accounting devices used to understate, or not state at all their liabilities and exposure, the fuse may already be lighted.
Then what? Another rescue? America needs banks and banking.
America has banks, more than 7,000 local banks and an even larger number of credit unions, the vast majority of which are sound and productive. Action must be taken now to decouple American banking from the endemic failures of the money center banks of the Federal Reserve and support what works.
Public banking – banking in the public interest – can help provide a viable, sustainable banking industry that remedies the reckless risk taking, inside dealing, and lack of transparency, accountability and sound corporate governance that are at the heart of the failure of the TBTF banks.
Efforts are underway to establish such banks. Six states currently have bills pending, three to establish a state-wide publicly owned bank (Washington State, Oregon, Illinois) and three for feasibility studies to explore the possibilities (Virginia, Massachusetts, Hawaii).
Public banking can provide a new supply of the affordable credit urgently needed to underwrite sustained economic activity and job creation. And public banking can generate a sustained and significant revenue source for cash strapped states, municipalities and battered taxpayers.
A public bank is capitalized by public money, for example state tax revenue and fees, and is managed by salaried civil service professionals who have no incentive for risk taking. The managers report to elected officials directly accountable to the people.
A public bank returns a portion of its profits to the chartering governing authority and plows the rest back into increased lending activity – to homebuyers, students, farmers, small businesses, start-ups, economic development and jobs creation.
Public banks partner with and support local banks and credit unions in a variety of ways. One is “participatory lending,” in which the public bank increases total loan size, provides guarantees or “buys down” the interest rates of the loans the private banks originate.
Public banks provide wholesale, “banker’s bank” services such as check clearing, bond account safekeeping, and Fed Funds lines to capitalize on excess liquidity within the banking system at very low interest. Public banks further strengthen the local banking industry by providing capital to local banks via direct bank stock lending or buying portions of a local bank’s loan portfolio.
Public banks offer a secondary market for mortgages and make a market at lower interest for municipal bonds, with huge savings to taxpayers in debt service.
Finally, a public bank has only one shareholder to whom it pays dividends – the people of the state or municipality that created it.
The public Bank of North Dakota (BND) has been doing all these things and more for the people of that state for almost a century, and helping to sustain a strong and healthy banking industry.
In 2009, while the U.S. economy was melting down, the BND backed $68 million in FHA and VA mortgages originated by local banks, funded or renewed $472 million in commercial loans of partner banks and institutions in a more than $1 billion commercial loan portfolio, and financed 268 business and industrial projects.
In the devastating 1997 Grand Forks flood and fire, the BND provided the state with immediate cash for relief until federal disaster funds arrived, underwrote the suspension of mortgage loan payments of those wiped out, and provided more than $100 million in loans to help businesses rebuild.
Over the last ten years the BND has returned more than a third of a billion dollars to the state’s general fund.
The people of the state are getting solid returns on their money. North Dakota has a population of only about 620,000. States with larger populations and tax revenues can anticipate larger returns.
As important, North Dakota has a thriving and healthy banking industry. A recent study by the Center for State Innovation (University of Wisconsin, Madison) analyses the role of the BND and concludes that this public bank “has been effective in strengthening the banking market, leading to robust competition.”
But state legislators and municipal leaders need to move quickly, before the next failure sends the TBTF banks running back to Congress and the Fed for another rescue that further cripples an already limping U.S. economy.
Sunday, February 20, 2011
The federal center can't hold
States must bypass rotten Washington
The republic bequeathed to the American people by the Founders and Framers in the Constitution is being tested. The federal center is rotten and it cannot hold. If the American democracy is to endure, it must be rescued by the states and the people.
The Wall Street barons ran their banks into the ground in an orgy of profit mad excess and fraud. They lied to everybody - investors, regulators, the public and each other. When it all came undone and they had destroyed their banks' balance sheets and their personal fortunes, they siphoned trillions of dollars from the American people, with the help of a compliant national media and equally pliable presidents, Congresses and Federal Reserve.
It was a close call for the barons, some of whom might have been down to their last $20 million, squirreled away in some Swiss bank account or other off-shore, non dollar denominated piggy bank.
And no one has gone to jail. No one has been indicted, while the American people bleed the prosperity built up over decades of toil and sacrifice.
A few fines have been imposed. To ordinary Americas, fines of $500,000 or even $1 million sound like a lot. But it is not to someone whose annual income is more than a hundred million dollars.
And they have gone right back to the same rapacious behavior, while the American people are told it is their patriotic duty to tighten their belts and embrace the "shared sacrifice" that Wall Street and Washington will not be asked to share.
Oh, government employees will take a hit. One of the triumphs of the fat cats is to turn attention away from their failure and, in too many cases crimes, and set Americans one against the other.
What fun it must be, to watch from their mansions, penthouses and yachts as all the little people they bilked, now frightened to lose what little they have left, turn on each other.
Led on by politicians who are at best unimaginative; at worst, bought.
"There's just no money," is their battle cry, made to seem heroic by the corporate media that conceals the truth: there is plenty of money. It's just a matter of putting it to good use.
How might that happen? Let's start with how it won't happen.
The Congress will not impose a one time, $1 trillion "ill gotten gains" tax on Wall Street. Nor will the Congress shut down the war which Americans are asked to forget. Nor will the corporations that buy elections and surround the Congress with an army of lobbyists be asked to settle for lower profits.
Washington is going the other way. Seems we Americans have been mean to our corporations. Record profits and mountains of cash are just not what they need.
They want more.
And as a sign of contrition (and a conduit for 2012 campaign contributions), the president is "making nice" to suffering American corporations, and has brought in a Wall Street minder as his new chief of staff, and another as chief economic advisor.
While the children of the president will one day dine on oysters, with the children of members of Congress, the Wall Street barons, governors of the Fed and the entire national establishment, the one-third of American children who do not graduate high school, and the other third who graduate with no useful skills, will be lucky to get a job shucking oysters in the swell restaurants of the fortunate few.
The fortunate few of the new America will not be made to fess up, pay up or share the wealth they have accumulated. They don't want to, and no one in Washington has the courage to make them.
But there is an alternative course to restore - if not justice - at least some measure of prosperity to the American people.
Most Americans have little accumulated wealth. If they are to have any hope of wealth, build prosperity for their families, they must have access to affordable credit.
"Public banking" takes the public resources of a state or municipality - tax revenue, for example - and uses them to capitalize a bank. Then, like any bank, it leverages this capital to create credit for the community.
Affordable credit, low-cost credit for student loans, business expansion, start-ups, mortgages, economic development and a wide range of jobs creating economic activity.
Public banks do this not in competition with community banks, but in partnership, providing not retail banking, but what are called "banker's bank" services.
Such a bank has been in operation in North Dakota for almost 100 years. It has provided a river of credit to the people of that state, and a river of state revenue that does not come from taxes. The bank splits its profits between re-investment in creating more credit, and payments to the state's general fund.
It is time for the people of the states and municipalities to decouple from the failure of Washington and Wall Street, create public banks and take the future.
The republic bequeathed to the American people by the Founders and Framers in the Constitution is being tested. The federal center is rotten and it cannot hold. If the American democracy is to endure, it must be rescued by the states and the people.
The Wall Street barons ran their banks into the ground in an orgy of profit mad excess and fraud. They lied to everybody - investors, regulators, the public and each other. When it all came undone and they had destroyed their banks' balance sheets and their personal fortunes, they siphoned trillions of dollars from the American people, with the help of a compliant national media and equally pliable presidents, Congresses and Federal Reserve.
It was a close call for the barons, some of whom might have been down to their last $20 million, squirreled away in some Swiss bank account or other off-shore, non dollar denominated piggy bank.
And no one has gone to jail. No one has been indicted, while the American people bleed the prosperity built up over decades of toil and sacrifice.
A few fines have been imposed. To ordinary Americas, fines of $500,000 or even $1 million sound like a lot. But it is not to someone whose annual income is more than a hundred million dollars.
And they have gone right back to the same rapacious behavior, while the American people are told it is their patriotic duty to tighten their belts and embrace the "shared sacrifice" that Wall Street and Washington will not be asked to share.
Oh, government employees will take a hit. One of the triumphs of the fat cats is to turn attention away from their failure and, in too many cases crimes, and set Americans one against the other.
What fun it must be, to watch from their mansions, penthouses and yachts as all the little people they bilked, now frightened to lose what little they have left, turn on each other.
Led on by politicians who are at best unimaginative; at worst, bought.
"There's just no money," is their battle cry, made to seem heroic by the corporate media that conceals the truth: there is plenty of money. It's just a matter of putting it to good use.
How might that happen? Let's start with how it won't happen.
The Congress will not impose a one time, $1 trillion "ill gotten gains" tax on Wall Street. Nor will the Congress shut down the war which Americans are asked to forget. Nor will the corporations that buy elections and surround the Congress with an army of lobbyists be asked to settle for lower profits.
Washington is going the other way. Seems we Americans have been mean to our corporations. Record profits and mountains of cash are just not what they need.
They want more.
And as a sign of contrition (and a conduit for 2012 campaign contributions), the president is "making nice" to suffering American corporations, and has brought in a Wall Street minder as his new chief of staff, and another as chief economic advisor.
While the children of the president will one day dine on oysters, with the children of members of Congress, the Wall Street barons, governors of the Fed and the entire national establishment, the one-third of American children who do not graduate high school, and the other third who graduate with no useful skills, will be lucky to get a job shucking oysters in the swell restaurants of the fortunate few.
The fortunate few of the new America will not be made to fess up, pay up or share the wealth they have accumulated. They don't want to, and no one in Washington has the courage to make them.
But there is an alternative course to restore - if not justice - at least some measure of prosperity to the American people.
Most Americans have little accumulated wealth. If they are to have any hope of wealth, build prosperity for their families, they must have access to affordable credit.
"Public banking" takes the public resources of a state or municipality - tax revenue, for example - and uses them to capitalize a bank. Then, like any bank, it leverages this capital to create credit for the community.
Affordable credit, low-cost credit for student loans, business expansion, start-ups, mortgages, economic development and a wide range of jobs creating economic activity.
Public banks do this not in competition with community banks, but in partnership, providing not retail banking, but what are called "banker's bank" services.
Such a bank has been in operation in North Dakota for almost 100 years. It has provided a river of credit to the people of that state, and a river of state revenue that does not come from taxes. The bank splits its profits between re-investment in creating more credit, and payments to the state's general fund.
It is time for the people of the states and municipalities to decouple from the failure of Washington and Wall Street, create public banks and take the future.
Monday, January 24, 2011
Washington State Moves For Public Banking
Ellen Brown
January 24, 2011
www.webofdebt.com/articles
Bills were introduced on January 18 in both the House and Senate of the Washington State Legislature that add Washington to the growing number of states now actively moving to create public banking facilities.
The bills, House Bill 1320 and Senate Bill 5238, propose creation of a Washington Investment Trust (WIT) to “promote agriculture, education, community development, economic development, housing, and industry” by using “the resources of the people of Washington State within the state.”
Currently, all the state’s funds are deposited with Bank of America. HB 1320 proposes that in the future, “all state funds be deposited in the Washington Investment Trust and be guaranteed by the state and used to promote the common good and public benefit of all the people and their businesses within [the] state.”
The legislation is similar to that now being studied or proposed in states including Illinois, Virginia, Hawaii, Massachusetts, Maryland, Florida, Michigan, Oregon, California and others.
The effort in Washington State draws heavily on the success of the 92-year-old Bank of North Dakota (BND), currently the only state-wide publicly-owned U.S. bank. The BND has helped North Dakota escape the looming budgetary disaster facing other states. In 2009, North Dakota sported the largest budget surplus it had ever had.
The Wall Street Credit Crisis Is Crippling State and Municipal Governments
That state budget deficits are reaching crisis proportions was underscored in the January 19 New York Times:
[A]lmost everywhere the fiscal crisis of states has grown more acute. Rainy day funds are drained, cities and towns have laid off more than 200,000 people, and Arizona even has leased out its state office building. . . .
“It’s the time of the once unthinkable . . . ,” noted Lori Grange, deputy director of the Pew Center on the States. “Whether there are tax increases or dramatic cuts to education and vital services, the crisis is bad . . . .”
The “once unthinkable” includes not only draconian cuts in services, increases in taxes, and sale of public assets, but now filing for bankruptcy. States are not currently allowed to go bankrupt, but a move is afoot in Congress to change all that. Bankruptcy proceedings would allow states to escape pension and other contractual obligations, following the dubious lead of such megacorporations as General Motors and Continental Airlines.
Meanwhile, fears of state bankruptcy have caused state and municipal bond values to plummet and borrowing costs to soar. As with Greece and Ireland, rumors of bankruptcy become a self-fulfilling prophecy, bringing out the hedge funds and short sellers that turn prophecy into reality.
Addressing the Problem at Its Source: The North Dakota Model
While drastic spending cuts are being proposed and implemented, the states’ woes are not the result of over-spending. Rather, they were caused by loss of revenues and increased borrowing costs resulting from the Wall Street banking crisis. Jammed with toxic assets, derivatives, and the subprime mortgage debacle, the Wall Street credit machine ground to a halt in the fall of 2008 and has still not recovered.
And it is here, in generating credit for the state, that the Bank of North Dakota has been spectacularly successful. By providing affordable, low interest credit for business expansion, new businesses and students, the BND has helped North Dakota sidestep the credit crisis altogether.
The BND partners with private banks, providing a secondary market for mortgages; offers “wholesale” banking services such as check clearing and liquidity support to private banks; and invests in North Dakota municipal bonds to support economic development. In the last ten years, the BND has returned more than a third of a billion dollars to the state’s general fund. North Dakota is one of the few states to consistently post a budget surplus.
Unlike private banks, public banks don’t speculate or gamble on high risk “financial products.” They don’t pay outrageous salaries and bonuses to their management, who are salaried civil servants. The profits of the bank are all returned to the only shareholder - the people.
Washington State Representative Bob Hasegawa, a prime sponsor of the Washington legislation, called the proposal for a publicly-owned bank “a simple concept that will reap huge benefits for Washington.” In a letter to constituents, he explained, “The concept (is) to keep taxpayers’ money working here in Washington to build our economy. Currently, all tax revenues go into a ‘Concentration Account’ held by the Bank of America. BoA makes money off our money and we never see those profits again. Instead, we can create our own institution and keep taxpayers’ dollars here in Washington, working for Washington.”
Hasegawa said a key feature of the Washington banking institution is that it will work in partnership with financial institutions, community-based organizations, economic development groups, guaranty agencies, and others. He said the Washington Investment Trust will offer “transparency, accountability, and accuracy of financial reporting,” a welcome change from the accounting tricks common among the large Wall Street money center banks today.
A public hearing on HB 1320 is scheduled for Tuesday, January 25th, at 1:30pm. The bill is assigned to the Business and Financial Services Committee in the House and the Financial Institutions, Housing & Insurance Committee in the Senate.
For more information on the movement for publicly-owned banks, see http://PublicBankingInstitute.org.
January 24, 2011
www.webofdebt.com/articles
Bills were introduced on January 18 in both the House and Senate of the Washington State Legislature that add Washington to the growing number of states now actively moving to create public banking facilities.
The bills, House Bill 1320 and Senate Bill 5238, propose creation of a Washington Investment Trust (WIT) to “promote agriculture, education, community development, economic development, housing, and industry” by using “the resources of the people of Washington State within the state.”
Currently, all the state’s funds are deposited with Bank of America. HB 1320 proposes that in the future, “all state funds be deposited in the Washington Investment Trust and be guaranteed by the state and used to promote the common good and public benefit of all the people and their businesses within [the] state.”
The legislation is similar to that now being studied or proposed in states including Illinois, Virginia, Hawaii, Massachusetts, Maryland, Florida, Michigan, Oregon, California and others.
The effort in Washington State draws heavily on the success of the 92-year-old Bank of North Dakota (BND), currently the only state-wide publicly-owned U.S. bank. The BND has helped North Dakota escape the looming budgetary disaster facing other states. In 2009, North Dakota sported the largest budget surplus it had ever had.
The Wall Street Credit Crisis Is Crippling State and Municipal Governments
That state budget deficits are reaching crisis proportions was underscored in the January 19 New York Times:
[A]lmost everywhere the fiscal crisis of states has grown more acute. Rainy day funds are drained, cities and towns have laid off more than 200,000 people, and Arizona even has leased out its state office building. . . .
“It’s the time of the once unthinkable . . . ,” noted Lori Grange, deputy director of the Pew Center on the States. “Whether there are tax increases or dramatic cuts to education and vital services, the crisis is bad . . . .”
The “once unthinkable” includes not only draconian cuts in services, increases in taxes, and sale of public assets, but now filing for bankruptcy. States are not currently allowed to go bankrupt, but a move is afoot in Congress to change all that. Bankruptcy proceedings would allow states to escape pension and other contractual obligations, following the dubious lead of such megacorporations as General Motors and Continental Airlines.
Meanwhile, fears of state bankruptcy have caused state and municipal bond values to plummet and borrowing costs to soar. As with Greece and Ireland, rumors of bankruptcy become a self-fulfilling prophecy, bringing out the hedge funds and short sellers that turn prophecy into reality.
Addressing the Problem at Its Source: The North Dakota Model
While drastic spending cuts are being proposed and implemented, the states’ woes are not the result of over-spending. Rather, they were caused by loss of revenues and increased borrowing costs resulting from the Wall Street banking crisis. Jammed with toxic assets, derivatives, and the subprime mortgage debacle, the Wall Street credit machine ground to a halt in the fall of 2008 and has still not recovered.
And it is here, in generating credit for the state, that the Bank of North Dakota has been spectacularly successful. By providing affordable, low interest credit for business expansion, new businesses and students, the BND has helped North Dakota sidestep the credit crisis altogether.
The BND partners with private banks, providing a secondary market for mortgages; offers “wholesale” banking services such as check clearing and liquidity support to private banks; and invests in North Dakota municipal bonds to support economic development. In the last ten years, the BND has returned more than a third of a billion dollars to the state’s general fund. North Dakota is one of the few states to consistently post a budget surplus.
Unlike private banks, public banks don’t speculate or gamble on high risk “financial products.” They don’t pay outrageous salaries and bonuses to their management, who are salaried civil servants. The profits of the bank are all returned to the only shareholder - the people.
Washington State Representative Bob Hasegawa, a prime sponsor of the Washington legislation, called the proposal for a publicly-owned bank “a simple concept that will reap huge benefits for Washington.” In a letter to constituents, he explained, “The concept (is) to keep taxpayers’ money working here in Washington to build our economy. Currently, all tax revenues go into a ‘Concentration Account’ held by the Bank of America. BoA makes money off our money and we never see those profits again. Instead, we can create our own institution and keep taxpayers’ dollars here in Washington, working for Washington.”
Hasegawa said a key feature of the Washington banking institution is that it will work in partnership with financial institutions, community-based organizations, economic development groups, guaranty agencies, and others. He said the Washington Investment Trust will offer “transparency, accountability, and accuracy of financial reporting,” a welcome change from the accounting tricks common among the large Wall Street money center banks today.
A public hearing on HB 1320 is scheduled for Tuesday, January 25th, at 1:30pm. The bill is assigned to the Business and Financial Services Committee in the House and the Financial Institutions, Housing & Insurance Committee in the Senate.
For more information on the movement for publicly-owned banks, see http://PublicBankingInstitute.org.
Thursday, January 13, 2011
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.
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.
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