Category Archives: Economics

From Free Lunch to Public Banks, These Cities Are Giving Us Hope

Dispatches from the Urban Resistance: Alameda to Elyria and beyond. 


By Jimmy Tobias | SEPTEMBER 29, 2017 | The Nation


Former Goldman Sachs executive also called for a higher minimum wage, tax breaks for those with lower incomes, and efforts to encourage high-tech.

Democratic gubernatorial candidate Phil Murphy delivering a major policy speech on the campus of the New Jersey Institute of Technology in Newark.
Democratic gubernatorial candidate Phil Murphy delivering a major policy speech on the campus of the New Jersey Institute of Technology in Newark.

Democratic gubernatorial hopeful Phil Murphy called for a sweeping revision of state economic policies during a major speech in Newark yesterday, saying New Jersey’s economy is now saddled with inequality after more than six years under Republican Gov. Chris Christie’s direction.

To help restore fairness for everyone, Murphy said the state minimum wage must go up, student-loan programs revamped, and tax breaks for the working poor expanded. But his most noteworthy proposal was a call for the creation of a state-owned public bank that would allow college students and small businesses to access loans at more equitable rates than those charged by profit-driven commercial institutions. Only one other state currently operates such a bank in the United States.

Murphy, a former Wall Street executive and ambassador to Germany under President Obama, also criticized tax breaks for major corporations that have become a hallmark of Christie’s tenure, saying the governor’s approach represents “outdated” economic thinking. If he becomes governor, Murphy said the state would invest more in cities, infrastructure, and higher education, even if it means hiking taxes on the wealthy and forcing big corporations to pay more by closing loopholes to bring in new revenue.

“We can no longer tolerate a zero-sum economy where some are able to succeed only because others have been left by the wayside,” Murphy said. “There is too much inequality (and) our economy is in a place you don’t want to be, profoundly unfair and flat as a pancake.”

Murphy’s speech, delivered on the campus of the New Jersey Institute of Technology, drew praise from several fellow Democrats and proponents of public banking. They said his plan to create such a bank in New Jersey is worthy of national attention. But Murphy’s economic agenda was also loudly criticized by state Republicans, and they predicted his ideas would bring on higher unemployment and increased taxes.

Christie has held firm since taking office in early 2010 to an economic strategy that has emphasized streamlining regulations and reducing a tax burden that the state’s business community has long blamed for holding back growth and investment. His administration has enacted more than $2 billion inbusiness tax cuts while also authorizing more than $6 billion in corporate tax incentives through the state Economic Development Authority.

But New Jersey’s economy has remained stuck in a trend of largely slow growth since the end of the Great Recession, and the unemployment rate has trailed the national average in recent months as the state has struggled to string together consecutive months with net job creation. Some of the economic wounds have also been self-inflicted, as Christie and Democratic legislative leaders have been mired in an ongoing stalemate over renewing the state Transportation Trust Fund, leading to a lengthy shutdown of state-funded road, bridge, and rail projects.

Christie will reach the end of his second term in office in early 2018 and cannot run a third time. With the governor now struggling to overcome extremely low approval ratings, most Democrats believe New Jersey voters will be unlikely to give Republicans another try when they go to the polls next year.

Murphy right now is the only official candidate in New Jersey’s 2017 gubernatorial contest, though Senate President Stephen Sweeney (D-Gloucester), Sen. Ray Lesniak (D-Union), Assemblyman John Wisniewski (D-Middlesex), and Jersey City Mayor Steven Fulop are among the high-profile Democrats who are expected to eventually join the race for the Democratic nomination. The field on the Republican side could include Lt. Gov. Kim Guadagno, Senate Minority Leader Tom Kean Jr. (R-Union), Assembly Minority Leader Jon Bramnick (R-Union), and Assemblyman Jack Ciatterelli (R-Somerset).

Murphy, during the speech yesterday, suggested investing more in infrastructure and the state’s cities would provide far more incentive for companies to relocate to New Jersey than a tax credit. He also said state colleges and universities need better funding to prevent high-school seniors from being the state’s “leading export.”

The Middletown resident also called for the organizing of an “innovation cabinet” that would be focused on getting New Jersey back into the lead when it comes to fostering new technology, and he stressed the need for the state to improve technology within government itself to be more responsive to innovators and entrepreneurs. Murphy also called for an increased minimum wage, gender-pay equity, tax credits for childcare and family caregivers, and an expansion of the state’s Earned Income Tax Credit for low-wage workers.

But he pitched the creation of a public bank in New Jersey as the cornerstone of his economic vision, holding up North Dakota’s state-owned bank as a model. Established by the North Dakota Legislature in 1919 in response to the rising interest rates that commercial banks were charging for agricultural loans, the public bank was seeded with $2 million in capital. As of last year, the bank had over $270 million in capital and 168 employees and had returned hundreds of millions of dollars in profits to the state’s general fund.

Local governments could borrow money for infrastructure projects at cheaper rates than those offered by Wall Street if New Jersey created a similar state-owned bank, Murphy said. It would also allow college students and small businesses to access capital without having to pay the high fees that sustain shareholder profits and exorbitant bank-executive bonuses.

Right now, the state deposits more than $1 billion in commercial banks, some located overseas, he said.  “This money belongs to the people of New Jersey, it’s time to bring the money home,” he said.      Pressed by reporters after the speech about how he would keep the proposed public bank from being used for the wrong purposes in a state known for its political corruption, Murphy said that could be accomplished through the drafting of the bank’s charter and the selection of its board members.

Walt McRee, national chairman for the nonprofit Public Banking Institute, has previously pitched New Jersey as a prime candidate for the nation’s next state-owned public bank. He praised Murphy’s proposal yesterday, calling it “bold” and “timely.”       “Phil Murphy has distinguished himself not only in the race for New Jersey governor, but nationally as well, with a policy innovation actually capable of turning the state’s economy around,” McRee said.

But several of Murphy’s economic policies put him at odds with the state business lobbying groups like the New Jersey Business & Industry Association, including calling for a higher minimum wage, earned sick leave, and the adoption of combined-reporting corporate-accounting policies that would make it harder for multistate corporations to shift profits to states with lower tax rates.

Rick Rosenberg, a spokesman for the state Republican Party, also criticized Murphy’s economic agenda, comparing it to policies enacted by former Democratic Gov. Jon Corzine. Corzine served one term in office before being unseated by Christie in 2009 at the onset of the economic collapse. Corzine and Murphy are both former employees of Wall Street-powerhouse Goldman Sachs.

“Phil Murphy has made it abundantly clear that he is hell-bent on resurrecting the same kind of failed big-government policies of the Corzine era,” Rosenberg said. “His plans for bloated government and job-killing regulations would bring us back to the days when New Jersey had the highest unemployment in the region, a government teetering on bankruptcy, and families and seniors paying the highest tax burden in the nation.”


Fed’s Kashkari ‘shocked’ black unemployment isn’t better understood.

Chart unemploymentKashkari plans on pressing for more research by central-bank economists on racial disparity in the labor market.

Minneapolis Fed President Neel Kashkari said Wednesday he was “shocked” that the persistently higher national black unemployment rate relative to the rate for whites was not better understood.

“There is a really troubling statistic in the U.S. economy where black unemployment is almost always twice white unemployment,” Kashkari said in a conversation at the Amherst H. Wilder Foundation charity in St. Paul.

“If it is a booming economy, and white unemployment is 4[%], then black unemployment is 8[%]. If it is a recession and white unemployment is 8, black unemployment is 16,” Kashkari said.

“What’s shocking to me is we, as a country, still don’t know why that is. We have to know why that is if we hope to solve it,” he said.

Kashkari said he would press the “world class research capabilities at the Minneapolis Fed and Fed system” to understand why blacks are being left behind “and hopefully Congress…can get involved.”

The Fed president, who has been in office since the beginning of the year, said he was surprised by the racial disparity in his district.

“To be blunt, whites doing really well. But then there are huge gaps to people of color, in general, around Minnesota,” he said.

At Fed’s Jackson Hole retreat, demonstrators push for economic change


It’s the day central bankers and top global financial figures have been waiting for. U.S. Federal Reserve Chairwoman Janet Yellen delivers long-awaited remarks to cap off the Jackson Hole Symposium. Outside the meetings, some demonstrators say full employment in the U.S. should be a top priority.

CCTV America’s Hendrik Sybrandy reports.

 “We are here to do everything we can to remind Fed policymakers that we need an economy that works for all of us,” Shawn Sebastian, Fed Up Coalition Field Director said.

As Federal Reserve officials gathered here in Jackson Hole to plot the next steps for America’s economy, some members of the Fed-Up Coalition of community and labor groups spoke of their financial struggles.

“I’ve been looking for a job for like seven months and it just seems like I go on interviews and I just haven’t gotten a job yet,” said demonstrator Ramona Charles, who is still unemployed.

To help low-wage workers, this group wants the Fed to keep fueling the economy by keeping interest rates very low.

“[If] The Federal Reserve starts slowing the economy, it starts halting progress in reducing unemployment before the benefits of that reach the last people to be hired,” said Josh Bivens from Economic Policy Institute.

At a highly unusual meeting Thursday, ten central bankers heard that message in person.

“We’re going to keep this economy growing. We’re going to run it hot, and get unemployment down lower,” Federal Reserve Bank of San Francisco President, John Williams said.

Federal Reserve officials said full employment is one of their goals.

“My objective is absolutely not to slow down the economy. That would be irresponsible,” Federal Reserve Bank of Kansas City President Esther George said.

But they also worry raising interest rates too late could cause inflation to roar to life.

“One of the ways that you get maximum employment is to make sure that you don’t allow excesses to build up to the point that you have a recession which hurts everybody in the room,” Federal Reserve Bank of Boston President Eric Rosengren said.

Besides, they added, those who need to save, like the elderly, are also weighing in on this issue.

“You’re killing me. When are you gonna raise interest rates so that senior citizens have enough income that they can get by,” said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta.

It’s a tricky balance, these bankers said, making the economy work for everyone.

The debate over monetary policy and the Federal Reserve’s role in steering the economy is front and center like never before.

“And so honestly this meeting today is enormously helpful,” said Neel Kashkari, the president of Federal Reserve Bank of Minneapolis.

“This is not the first discussion. It’s one of many and they’re many more to come,” Neel Kashkari said.

Public Banks Could Break the Impasse Over Marijuana Money

A combination of city and state-owned public banks can establish best practices to resolve the pot money impasse.
A combination of city and state-owned public banks can establish best practices to resolve the pot money impasse.

With nearly a dozen state initiatives legalizing recreational marijuana on the November ballot, the market for legalized marijuana is certain to expand. But, because marijuana continues to be classified as a Schedule 1 drug by the Drug Enforcement Agency (DEA), private banks are effectively prohibited from fully participating in this market — the compliance burden is too high and individual employees face the threat of prosecution. A network of city, county and state-owned public banks, sharing best practices, may be an effective way to offload the compliance burden so that marijuana-related businesses can confidently accept payments and deposits can be placed into a network of public banks, which could develop the systems needed for legal compliance with the Department of Justice and federal regulatory agencies. Short of legalization of marijuana, this may be the best way to protect local businesses and banks from a market that is fraught with risk.

The Recreational Marijuana Market

The creation of the recreational marijuana market by the state governments of Washington, Oregon, Alaska and Colorado has directly led to the establishment of a variety of marijuana-related businesses — from growers to retail stores. These businesses are quickly growing revenues and profits. As one of the fastest-growing industries in the United States, national legal sales of all forms of cannabis were $4.6 billion in 2014, $5.7 billion in 2015, and are projected by ArcView Market Researchto be $7.1 billion in 2016. If all 50 states and the District of Columbia were to legalize recreational marijuana, GreenWave Advisors projects the total value to top $36 billion.

With licensing and tax revenue in Colorado alone expected to be $135 million in fiscal year 2015-16 (up from $70 million the previous year), elected officials in cash-strapped cities and states recognize the potential budgetary windfall of this market and are eager to bring the industry under their legal purview so they can reap the taxes.

States Promote While Feds Penalize

One would think that, with all that money in the industry, banks would be lining up to provide depository banking and other financial services to marijuana-related businesses. Not so, according to the recent article, “Banking is Not Yet Going to Pot,” published in the American Banker. Most banks are ignoring the market and, in doing so, leaving money on the table.

The problem is that, while the states legalize the possession of small amounts of marijuana and provide for the regulation of marijuana production, processing and sale, marijuana remains classified as a Schedule 1 substance under the federal Controlled Substance Act. The classification makes it illegal for any use — which, in turn, makes the revenues it generates an illegal source of investment, akin to old-fashioned “drug money.” The DEA’s announcement in August 2016 to allow more research into possible medical benefits does not change the illegal status of money generated from this market.

This is a business school case study in the making, where conflicting government positions on marijuana legalization offer a perfect example of an imperfect market. In a market economy, one of the most important roles of government is to define the playing field and to determine the rules so that competing businesses can provide reasonably priced products and services. What has happened with the recreational marijuana market is that state and federal governments have conflicting sets of rules that introduce unnecessary risk into the market for those businesses that choose to participate. Full market participation — and fully realized fee and tax revenues — can only happen if a government entity provides some sort of remedy to the conflicting set of rules.

It’s Still a Risky Business 

Banks are federally regulated and therefore, more vulnerable to facing federal charges, should they be found inadequately compliant. The federal Bank Secrecy Act requires banks to watch for Anti-Money Laundering (AML) law violations in customers’ deposit accounts and requires them to file a Suspicious Activity Report (SAR) to FinCEN, an agency of the US Treasury, regarding a customer’s suspicious or potentially suspicious activity. Failure to file a SAR can result in criminal and civil penalties, including incarceration for involved employees. Federal law technically says a bank is itself committing money laundering by accepting a deposit of money derived from the sale of marijuana.

The imperfections in the market create risk for both participating financial institutions and marijuana-related businesses. Naturally, credit card issuers and processors shun doing business with pot-related firms. As a result, the marijuana-related businesses, having to resort to a cash-based payment system, end up incurring enormous risk by carrying excessive cash-on-hand. Banks are loath to accept marijuana-related cash as deposits for fear of facing money-laundering charges. The trajectory is to have a sizeable market that is based entirely on cash transactions with mattresses used for safeguarding profits.

Incomplete DOJ Guidance

The US Department of Justice (DOJ) has provided a memo that serves as guidance to banks so that they can accept cash as deposits. But it is not a regulatory handbook, nor does it identify best practices. In other words, it gives guidance for banks on how to evade the law, a solution that is unsettling at best. As a half-remedy, it’s the equivalent of the DOJ saying to banks, “You go first and we’ll see if it works, and we’ll prosecute you if it doesn’t.” The excessive compliance costs for taking this approach led MBank, a $175 million-asset institution in Portland, Oregon, to shutter its marijuana-related businesses program within a year.

The result is either a lack of banking depository services (forcing marijuana-related businesses into risky cash transactions) or depository services that are provided (at a high price). Some credit unions have jumped into the marijuana market and arecharging upwards of $3,500 per month for a deposit account. This kind of pricing is certainly an indicator of an imperfect market.

The Solution: A Network of Public Banks

Of course, the DEA could legalize recreational marijuana and simply end this impasse. Or Congress could pass legislation that protects banks from the risk of handling legitimate money generated by marijuana-related businesses. The risk of participating in this market would be significantly diminished and a rapid expansion of the market to all 50 states and the District of Columbia would likely result. But this is something that neither President Obama, nor the Republican and Democrat presidential nominees, have given any indication of supporting.

Short of the federal government legalizing recreational marijuana, cities, counties or states can resolve the conflict between state and federal regulations by taking on the roles of both banker to the marijuana-related businesses and guarantor to the federal government. In California, a charter city or county can define its own rules for governance through the provisions outlined in its charter. A constitutional amendment in 1879, “home rule” power was obtained by California cities in order tothwart state meddling in municipal affairs. This means that charter cities and counties may provide credit and depository services to their residents, much like they can provide water, electricity, broadband and other utilities.

However, the bank would be more a legal entity than a traditional retail operation. It will have no retail presence, no ATMs, no consumer deposits/loans, and therefore no need for compliance with many requirements of the Dodd Frank Act. A vault is not needed, since any cash would be considered excess and deposited in the Federal Reserve, a standard procedure. As an independent corporate entity (owned by the city, county or state) it will likely consist of bank operations software and just a few cubicles in the treasurer’s office. The city financial officer or county treasurer will direct all city/county government deposits generated from taxed marijuana revenue into this public bank. Debt or equity capitalization and governance will need to be addressed — the Bank of North Dakota is a safe and proven public bank that can serve as an effective model.

In order to remedy the imperfect marijuana market, the public bank will also accept marijuana-related deposits. This “excess” cash can be picked up daily and placed in Federal Reserve vaults and credited to marijuana-related business accounts in the public bank. A web interface will allow account holders to transfer this money to their other deposit accounts with private banks or credit unions located in the same state as the public bank. This scenario can be replicated state-by-state with state-owned public banks.

A combination of city and state-owned public banks can establish best practices to resolve the pot money impasse.

In these scenarios, where a city, county or state public bank accepts marijuana-related business deposits (with the cash physically deposited at the Federal Reserve), the public banking network will need to ensure rigorous compliance with the DOJ’s guidance memo on accepting deposits from all the marijuana-related businesses its member public banks serve. Documentation of the origin of the cash will be required to be completed by the marijuana-related businesses before a cash pickup occurs. Enabling smartphone apps that report on specific transactions can help. Other stipulations and practices will be enforced by the public banks so that the rudimentary standards identified by the DOJ guidance memo can be enforced.

One can argue that a network of public banks that solely focus on pot money would do a superior job of setting the gold standard for implementation of the DOJ guidance memo and any subsequent guidance provided by the DOJ or other federal enforcement organizations. In fact, a network of public banks between states that have legalized recreational marijuana can establish best practices in partnership with the primary bank regulatory agencies (the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency) and the DOJ. This would be a significant development. If there is a failure in the system, it will be up to these government entities to work it out, with the public banking network protecting business entities from the risk of guessing what the existing DOJ guidance memo or future guidance may mean in terms of actual business practices.

In essence, state, city and county governments will better serve their constituents and create a “level playing field” by leveraging their bargaining power as a consortium of public banks that determine best practices. Agencies from the federal government will need to deal with the entire network/consortium, not individual private banks, providing a more balanced approach to federal law enforcement. And state, county and municipal law, based on community rights, can serve to further buttress the network of public banks.

Bank of North Dakota Sets Precedent

There is a precedent for having a public bank deal with compliance issues in a market economy. In 2011, the North Dakota Bankers Association worked with the state legislature to direct the Bank of North Dakota, the nation’s only state-owned bank, into the home mortgage origination business in order to offset the increased compliance burden that community banks were shouldering as a result of the Dodd Frank legislation (p.5). Dodd Frank was designed to constrain the large Wall Street banks, but inadvertently penalized community banks, and North Dakota has thehighest number of community banks per capita in the nation. Rural banks that only saw three to five mortgages a year could not shoulder the compliance burden, leading to business lost to out-of-state banks.

As a result, the Mortgage Origination Program for rural lenders was created by Bank of North Dakota to directly address the twin issues of compliance costs and lost business. The irony of an association of private banks using the public bank — in a red state, no less — as a way to ensure that they could better manage the risk of working in an increasingly federally-regulated market practically leaps off the page. It shows just how responsive a state government can be in meeting the needs of its people. Not to put too fine a point on it, but this is a demonstration of how a state government, acting in concert with its own depository bank, can blunt the (oftentimes) heavy hand of federal authority, a situation not all that dissimilar to the one faced by the recreational marijuana market.

The new marijuana market cannot realize its potential if participating banks bear the risk of being federally prosecuted and legitimate businesses bear the risk of using a cash-based payment system as a workaround. Until the federal government legalizes recreational marijuana, a network of public banks working together to implement the DOJ guidance memo can serve as an important way to improve market conditions so that unnecessary risk is not borne by private banks or credit unions, and a measure of safety is provided to cash-based marijuana-related businesses.

Marc Armstrong was the founding executive director of the Public Banking Institute and is one of the founders of Commonomics USA, a nonprofit committed to a Commons-based economy, and founding member of the Campaign for Postal Banking. More public banking information may be found at Public Banking Policy Project, an initiative of Commonomics USA.


Santa Fe Symposium Speakers Gwendolyn Hallsmith and Dr. Thomas Keidel on the Tim Danahey Show

Tim Danahey set up his portable studio in the Green Room of the Banking On New Mexico Symposium to interview several of the invited speakers at the Symposium. The Symposium, whose principal topic was public banking, was held at the Santa Fe Community Convention Center on Saturday, September 27, 2014. Videos of the full program of events can be found on this website at Symposium Videos.

Continue reading Santa Fe Symposium Speakers Gwendolyn Hallsmith and Dr. Thomas Keidel on the Tim Danahey Show

Public Banking — Funding Local, Sustainable Economies