Tag Archives: California

San Francisco advances toward launching a public bank

By Joshua Sabatini | San Francisco Examiner | December 3, 2017

A report from The City’s Budget Analyst determined that if San Francisco were to establish a public bank, the financial benefits could create more funding for loans for affordable housing projects, small businesses and low-income households. (Jessica Christian/S.F. Examiner)

San Francisco could become the first city in the nation to launch a public bank.

Supervisors Malia Cohen and Sandra Fewer are advancing the idea of establishing a municipal bank, which would end The City’s use of profit-driven large national commercial banks for banking services.

Their efforts have led to a new city report on the idea, which was released last week. A task force to examine the idea further is expected to be assembled by late January, with a report due in six months.

The only public bank in the U.S. is the state-owned and operated Bank of North Dakota, which dates back to 1919 and remains profitable. But others may at last follow suit as Wall Street financial institutions are coming under increased criticism for banking practices and investments in fossil fuels.

Public banks are also gaining traction in the era of legalized recreational cannabis. Those in the cannabis business are unable to use banks since the drug remains illegal under federal law.

“This ongoing public banking discussion is coming at an important moment in our community,” Cohen said last week. “This month, the San Francisco Retirement Board is expected to finally discuss the vote on fossil fuel divestment. This week, in Washington, the Trump administration is working to diminish the power of the Consumer Financial Protection Bureau, thus limiting the oversight of big banks on Wall Street.”

Cohen continued, “In our long cannabis discussion, we have barely acknowledged that cannabis is currently an all-cash business — cash payroll, no banking, vaults of bills on the floors of retailers.”

Last month, California Treasurer John Chiang recommended studying opening a state bank for those in the cannabis industry to open bank accounts and pay taxes.

With the passage of Proposition 64 last year, recreational cannabis becomes legal on Jan. 1. The industry is expected to have more than $7 billion in sales and an estimated $1 billion in tax revenues.

“It is unfair and a public safety risk to require a legal industry to haul duffle bags of cash to pay taxes, employees and utility bills,” Chiang said in a Nov. 7 statement. “The reliance on cash paints a target on the back of cannabis operators and makes them and the general public vulnerable to violence and organized crime.”

Eleven other states or cities — including Santa Fe, Oakland, Philadelphia, Vermont and New Hampshire — have proposed or are studying public banks of their own.

The benefits for San Francisco were identified in a new Budget Analyst report requested by Fewer and released last week. Unlike private banks, a public bank is not motivated by profit, which means lower interest rates on loans. The return of profits would go back to The City, not shareholders, and it could mean lower costs for capital projects, which are usually funded by issuing debt through private banks.

The report said that a public bank could make more funds available for affordable housing loans and to support small business development, as well as loans to low-income households.

“Funds in the municipal bank could also be loaned and used as funding sources for city housing and infrastructure projects at lower financing costs than if such projects were to rely on debt issued through commercial banks,” the report found.

Fewer emphasized how a public bank would ensure more social responsibility with the investment of public funding, such as not having money invested with financial institutions financing the Dakota Access Pipeline for oil transport, a project opposed by Native American and environmental groups.

The report also confirmed that San Francisco has the legal authority to establish a public bank, according to the City Attorney’s Office, although it “would likely take a few years to have a city municipal bank fully up and running and able to serve as the primary financial institution for The City’s banking needs.”

The report suggested a municipal bank could launch with “its initial equity and making loans in its first year” and then “gradually build up its assets as loans are repaid with interest and new loans are originated.”

“Within a few years, the municipal bank should be able to generate sufficient revenue to be able to cover its costs and serve as the primary financial institution for The City,” the report said.

Fewer and Cohen requested a hearing last week on the report’s findings, which is expected to occur early next year in conjunction with the formation of a municipal bank city task force. The task force was called for in a resolution introduced by Cohen and approved by the Board of Supervisors in April.

While large commercial banks do offer loans to small businesses and support affordable housing, since it’s not their primary business, and San Francisco is a small part of their overall market, The City could do better to maximize use of city funds.

The application process to serve on the task force, which is under the jurisdiction the Office of Treasurer and Tax Collector Jose Cisneros, was expected to begin Dec. 1 with a Dec. 22 deadline to apply.

Even without a public bank, The City is trying to improve its banking practices.

The tax collector, which does all the banking and investment activities for The City, has also hired a new staff member who begins employment Monday to help study a public bank option and examine other investment strategies.

In October, Cisneros started a new program that could result in up to $80 million in city funds being invested in San Francisco-based banks, credit unions, and community development banks within a year, the report said. These financial services “are more consistent with serving underserved residents and community development initiatives.”

A public bank would allow the The City to increase its existing financial services provided for residents. Last fiscal year, The City spent $3.7 million on financial services for “underserved populations” — including $1.5 million for Kindergarten to College, a college savings program, and $832,000 for “smart money” coaching — and $756,000 in technical assistance services to small businesses, the report said.

The cannabis industry operates mostly in cash since financial institutions are obligated by the Bank Secrecy Act of 1970 to report suspicious activity, including marijuana financial activity. The drug remains illegal under federal law.

The report suggests the board “request an opinion from the City Attorney’s Office on legal issues regarding serving the marijuana industry” through a public bank.

The task force, which is expected to be established in late January, is charged with issuing a report within six months, including cost estimates of establishing a public bank, staffing needs and how to provide banking services for the cannabis industry.

 

 

California treasurer wants the state to study a public bank option for pot businesses

“A definitive, bulletproof solution will remain elusive” without federal deregulation, California Treasurer John Chiang said Tuesday. “That is not an excuse for inaction.” (Mel Melcon / Los Angeles Times)

California Treasurer John Chiang wants the state to consider creating a government-owned bank that could serve cannabis businesses, one of several recommendations aimed at helping bring those businesses into the financial mainstream.

The recommendations, the product of a year of meetings of a cannabis working group organized by Chiang’s office, suggest there may be ways for California to help cannabis businesses pay their taxes and open bank accounts. But they also illustrate that the relationship between banks and marijuana companies will remain tenuous unless federal laws are changed.

Indeed, along with looking into the creation of a public bank, another of the recommendations from Chiang’s group is to form a multistate group to lobby Congress to ease federal restrictions on cannabis.

“A definitive, bulletproof solution will remain elusive” without federal deregulation, Chiang said at a news conference Tuesday announcing the recommendations. “That is not an excuse for inaction.”

Last year, in the wake of the passage of Proposition 64, which legalizes marijuana for recreational use, Chiang created a working group of public officials, bankers and cannabis companies with the aim of addressing a vexing problem for the pot industry: Even in states where cannabis is legal, companies that grow or sell the plant are often unable to open bank accounts.

Despite guidelines that suggest banks can accept money from cannabis businesses, marijuana remains an illegal substance under federal law and banks answer to federal regulators, making the vast majority of financial institutions unwilling to work with marijuana companies.

Over the last year, Chiang’s group held public meetings around the state, hearing from cannabis companies about how the de facto banking ban affects them, from banks about their concerns and from public officials about the side effects of a bankless industry — notably having to accept tax payments made with duffel bags full of cash.

The group’s final report, released Tuesday, makes four recommendations aimed at addressing the issue, though the report acknowledges they are stopgap measures. Cannabis business owners called the recommendations useful but incremental at best.

One recommendation, which was promoted by many in the cannabis industry as well as social justice groups, is that the state look into the creation of a public bank. A bank owned by the state of California, the thinking goes, could provide banking services to cannabis companies and also offer an alternative to profit-driven Wall Street institutions.

There are numerous obstacles to creating such a bank, including the potential cost to the state and lingering questions about whether such an entity would be able to serve the cannabis industry. Tuesday’s report does not call for the creation of a public bank, but rather suggests the state should study the idea.

Chiang said he and the state attorney general’s office will start such a study soon.

To help local agencies collect marijuana tax payments, and to reduce the risk that cannabis business owners take by transporting tax payments in cash, the report recommends that the state hire armored car services to pick up tax payments from businesses.

That cash would be deposited at banks — on behalf of the state, not the cannabis businesses. Chiang, who is running for governor of California, called it “a simple and elegant strategy” that would help address a long-running concern for governments and business owners.

Dan Grace, chief executive of Oakland’s Dark Heart Nursery, which supplies commercial cannabis growers, said being able to pay taxes without hauling cash to government offices would be helpful — but only to a point.

“My payments to the government are at most one quarter of my monthly payments, so that still leaves everything else,” he said. “It still doesn’t solve the issue in a meaningful way.”

To help banks feel more comfortable working with marijuana businesses, the report recommends that state and local agencies that regulate those cannabis businesses should make information about the businesses available to financial institutions.

Under current federal guidelines, banks that accept deposits from cannabis businesses are required to certify that those businesses are not selling to minors, affiliated with organized crime or breaking a handful of other rules — a tricky task that has the effect of keeping most banks out of the industry.

Tuesday’s report suggests that if banks had access to state and local regulatory information about cannabis businesses, it would help banks feel more comfortable about working with those businesses.

Grace said such a system might be helpful and that state cannabis business licenses — which will be issued starting next year — should also make banks feel more comfortable working with cannabis companies.

“One thing we do frequently hear from bank compliance officers is that it’s hard to meet the regulatory standards because they have to ensure we’re conforming to state and legal regulations,” he said. “Right now, that’s a high bar to meet since we still don’t have state licensing.”

Finally, the report calls for the creation of a consortium of state and local governments in states where marijuana is legal, with the goal of making sure “cannabis-legal states speak with one voice” in lobbying for changes to federal law.

 

 

Oakland public bank organizers look to fund renewable energy

FILE – In this May 6, 2013, file photo, a wind turbine farm stands near Glenrock, Wyo. Renewable energy developers say they are hopeful about the future despite President-elect Donald Trump’s promise to bring coal mining jobs back. In recent years, huge solar and wind farms have sprouted up on public desert land in the Western United States buoyed by generous federal tax credits. (AP Photo/Matt Young, File)

By Ali Tadayon | East Bay Times | October 6, 2017

OAKLAND — Advocates for a public bank in Oakland are looking to Germany for inspiration, as that country’s public banks fund a large portion of the renewable energydevelopment.

During a community forum hosted Sept. 25 by Friends of the Public Bank of Oakland, German economist Wolfram Morales explained how public banking works in his country and how the banks offer low-interest rates to companies providing solar and wind resources, driving development.

The destruction caused by Hurricane Maria in Puerto Rico and the U.S. Virgin Islands is the most recent marker of the world’s need for renewable energy resources, said Oakland City Council member Rebecca Kaplan, who is pushing for the formation of a public bank in Oakland alongside Councilman Dan Kalb.

“Facing all these storms, droughts and åoods, we need to build a more sustainable world,” Kaplan said. “We need to be using energy that is positive for the environment and for the community, we need to do it in a way that creates and supports local jobs and we need banking institutions that fund projects that help people.”

The Oakland City Council on Sept. 19 approved spending $75,000 to study if creating a public bank is feasible. Berkeley is fronting $25,000 for the remainder of the funds needed for the study.

Though public banks are a fixture in Europe, the only one that exists in the United States is the Bank of North Dakota, Morales said. There are more than 600 in Germany, most of which are county-level, putting billions into renewable energy development. Those banks are able to offer interest rates as low as 1 percent on loans, which is much lower than what commercial banks offer.

Speakers at the forum talked about how a public bank can help give the community more control over its energy sources.

Last year, Oakland and other East Bay cities joined the East Bay Community Energy Authority, a community choice energy program.

The program allows cities to pool their money to purchase cleaner energy than what Paciäc Gas & Electric offers. The program is looking to make “big infrastructure investments” such as electric vehicle charging, solar plants and clean energy storage projects, and would beneät from the low-interest-rate loans that a public bank could offer, said East Bay Community Energy Authority CEO Nicolas Chaset.

Gregory Rosen, founder of clean energy advisory firm High Noon Advisors, said he has worked with both commercial and public banks, and commercial banks in most cases make investments based on return, not social or environmental good.

Public bankers would be able to make investments based on what will benefit the community, rather than what will make the most money, Rosen said.

“Instead of having the mission be to make money by lending or providing services, there’s really an opportunity to turn the equation on its head, and say the mission is to serve communities, so let’s go listen to what communities need and then structure products around these community needs,” Rosen said.

How a California Public Bank could fix the freeways, send kids to college and ambush Wall Street

The new Bay Bridge rises as the old one is dismantled in San Francisco Bay on September 24, 2014. The $6.4 billion bridge will ultimately cost taxpayers more than $13 billion after paying off the debt to private financial institutions. (Bob Chamberlin / Los Angeles Times)

Republicans are dead set on rolling back regulations passed to restrain Wall Street and big banks from repeating the kind of shenanigans that fueled the 2008 financial collapse. Rather than fight a losing battle at the federal level, advocates for a secure, accountable and transparent financial system should channel their energy in a different direction: chartering public banks in every state.

The Bank of North Dakota is the model. Chartered in 1919, it is the nation’s lone public bank. It was set up, as the Wall Street Journal described it, “under a socialist-oriented government that represented farmers frustrated with out-of-state commodity and railroad owners.” Today, the Bank of North Dakota is hardly a socialist endeavor: By statute, North Dakota’s governor, agriculture commissioner, and attorney general — currently all Republicans — make up the bank’s three-person executive body.

All of North Dakota’s state funds, its assets, are deposited in the bank. The bank then deploys the money in the form of loans often issued through smaller community banks. BND is primarily a “bankers bank,” not a retail bank. North Dakotans can open a checking account with BND but only by showing up at the bank’s single branch. There are no BND credit cards, ATMs or online bill paying services. The bank is specifically chartered to partner with, rather than compete with, commercial banks.

Mostly, BND’s money goes to businesses, farms, municipal projects, home mortgages and student loans. Because it isn’t charged with making money for private shareholders but with supporting North Dakota’s overall economy, it charges low interest rates — as low as 1% in some cases. Its modest profit is still substantial — about $1 billion over the past two decades. The profits are returned to the state’s general fund or to the bank’s assets, which is to say to the people of North Dakota. Because the Bank of North Dakota focuses on down-home projects, not credit default swaps or other high-risk financial schemes, it remained stable throughout the Great Recession.

“The need to rebuild the nation’s infrastructure might provide an opportunity to overcome big bank opposition to public banking.”

Setting up a state bank is relatively simple: State legislatures pass a bill creating a bank, and mandating that state funds — or at least some portion of them — will be deposited in the new entity rather than in private banks. (Municipalities and counties can also set up public banks.) Public bank campaigns are active in 10 states, including an effort spearheaded by Public Banking Institute, a think tank and advocacy group, in California.

Not surprisingly, state banks are bitterly opposed by major Wall Street institutions, which pour lobbying money into scuttling public banking legislation wherever it crops up. If states were to open public banks, the likes of Citibank, Wells Fargo and Bank of America would lose the billions of dollars those states now deposit with them. And if a city or a farmer borrows through a public bank rather than a Wells or a BofA, once again Big Finance loses.

The need to rebuild the nation’s infrastructure might provide an opportunity to overcome big bank opposition to public banking. The high cost of building and fixing roads, bridges, airports and the like is only increased by the fees and interest payments charged by private banks and by bond issuers. Public banks could mitigate those costs.

Consider the cost of the new Oakland-to-Yerba-Buena-Island span of the San Francisco Bay Bridge. It was completed in 2013 for a reported $6.4 billion. But the actual price tag will be more like $13 billion because of the interest payments on bonds privately capitalized through Wall Street institutions and their investors. For every dollar spent on the actual project, another dollar will ultimately go to paying off that debt. If a state bank had financed the project the interest and fees could have been lower to begin with, and they would have gone back into California’s coffers, not Wall Street’s.

As the White House and Congress consider legislation covering an estimated $1 trillion of infrastructure spending, they could include an incentive to jump-start the formation of more state banks with just those kinds of savings in mind. One simple approach would be to mandate that all federal building projects must be financed at no more than say, 2% interest. Big banks would be free to participate although given their appetite for higher profits and higher interest rates, they might not bite. That would give states a formidable push to form their own banks to fill the gap. Federal infrastructure dollars could also be earmarked for deposit only in public banks.

There would, of course, be a fierce battle against such a provision in a national infrastructure bill, but there ought to be a strong constituency for it as well. The interest savings alone should appeal to those members of Congress who regularly rail against unnecessary spending of public money. And encouraging the formation of public banks should appeal to other politicians who want to reduce the size of the “too big to fail” banks. State banks would inject a healthier, sustainable way of loaning money and collecting interest on it into the American financial system. They would make the lives of millions of people a whole lot better.

A Bank Even a Socialist Could Love

“Money is a utility that belongs to all of us,” says Walt McRee. McRee is a velvety-voiced former broadcaster now plotting an audacious challenge to the financial system. He’s leading a monthly conference call as chair of the Public Banking Institute (PBI), an educational and advocacy force formed seven years ago to break Wall Street’s stranglehold on state and municipal finance.

“This is one of the biggest eye-openers of my life,” says Rebecca Burke, a New Jersey activist on the call. “Once you see it, you can’t look back.”

This ragtag group—former teachers, small business owners, social workers— wants to charter state and local banks across the country. These banks would leverage tax revenue to make low-interest loans for local public works projects, small businesses, affordable housing and student loans, spurring economic growth while saving people—and the government—money.

At the heart of the public banking concept is a theory about the best way to put America’s abundance of wealth to use. Cities and states typically keep their cash reserves either in Wall Street banks or in low-risk investments. This money tends not to go very far. In California, for example, the Pooled Money Investment Account, an agglomeration of $69.5 billion in state and local revenues, has a modest monthly yield of around three-quarters of a percent.

When state or local governments fund large-scale projects not covered by taxes, they generally either borrow from the bond market at high interest rates or enter into a public-private partnership with investors, who often don’t have community needs at heart.

Wall Street banks have used shady financial instruments to extract billions from unsuspecting localities, helping devastate places like Jefferson County, Ala. Making the wrong bet with debt, like the Kentucky county that built a jail but couldn’t fill it with prisoners, can cripple communities.

Even under the best conditions, municipal bonds—an enormous, $3.8 trillion market—can cost taxpayers. According to Ellen Brown, the intellectual godmother of the public banking movement, debt-based financing often accounts for around half the total cost of an infrastructure project. For example, the eastern span of the San Francisco-Oakland Bay Bridge cost $6.3 billion to build, but paying off the bonds will bring the price tag closer to $13 billion, according to a 2014 report from the California legislature.

Public banks reduce costs in two ways. First, they can offer lower interest rates and fees because they’re not for-profit businesses trying to maximize returns. Second, because the banks are publicly owned, any profit flows back to the city or state, virtually eliminating financing costs and providing governments with extra revenue at no cost to taxpayers.

“It enables local resources to be applied locally, instead of exporting them to Wall Street,” says Mike Krauss, a PBI member in Philadelphia. “It democratizes our money.”

Legislators, Brown says, commonly object that governments “don’t have the money to lend.” But this misunderstands how banks operate. “We’re not lending the revenues, just putting them in a bank.” That is, the deposits themselves—in this case tax revenues—are not what banks loan out. Instead, banks create new money by extending credit. Deposits simply balance a bank’s books. Public banks, then, expand the local money supply available for economic development. And while PBI has yet to successfully charter a bank, there’s an existing model in the unlikeliest of places: North Dakota.

During the Progressive Era, a political organization of prairie populists known as the Nonpartisan League took control of the state government. In 1919, they established the Bank of North Dakota. It has no branches, no ATMs, and one main depositor: the state, its sole owner. From that deposit base, BND makes loans for economic development, including a student loan program.

BND also partners with local private banks across the state on loans that would normally be too big for them to handle. These loans support infrastructure, agriculture and small businesses. Community banks have thrived in North Dakota as a result; there are more per capita than in any other state, and with higher lending totals. During the financial crisis, not a single North Dakota bank failed.

BND loans are far more affordable than those from private investors. BND’s Infrastructure Loan Fund, for example, finances projects at just two percent interest; municipal bonds can have rates roughly four times as high. And according to its 2015 annual report, the most recent available, BND had earned record profits for 12 straight years (reaching $130 million in 2015), during both the Great Recession and the state’s more recent downturn from the collapse in oil prices. A 2014 Wall Street Journal story described BND as more profitable than Goldman Sachs. Over the last decade, hundreds of millions of dollars in BND earnings have been transferred to the state (although the overall social impact is somewhat complicated by the bank’s role in sustaining the Bakken oil boom).

The long march through the legislatures

Brown founded the Public Banking Institute in 2010, after years of evangelizing in articles and books such as The Web of Debt: The Shocking Truth About Our Monetary System and How We Can Break Free. Since then, by Walt McRee’s estimate, around 50 affiliated groups have sprouted up in states, counties and cities from Arizona to New Jersey.

“I’ve been working against the system all my life,” says Susan Harman of Friends of the Public Bank of Oakland. “I think public banking is the most radical thing I’ve ever heard.” Harman, a former teacher and a onetime aide to New York City Mayor John Lindsay, helped get the Oakland City Council to pass a resolution last November directing the city to determine the scope and cost of a feasibility study for a public bank—a tiny yet promising first step.

A feasibility study completed by Santa Fe, N.M., in January 2016 found that a public bank could have a $24 million economic impact on the city in its first seven years. A resolution introduced last October would create a task force to help the city prepare to petition the state for a charter. “It’s the smallest municipality investigating public banking,” says Elaine Sullivan of Banking on New Mexico, who hopes the task force could complete its business plan by the end of the year. “We’re interrupting the status quo.”

In February 2016, the Philadelphia City Council unanimously voted to hold hearings discussing a public bank. Advocates are now working with the city treasurer to find funds to capitalize the bank.

PBI has faced a rougher path in state legislatures. In Washington, state Sen. Bob Hasegawa (D) has introduced a public banking bill for eight straight years. Despite numerous co-sponsors, the bill can’t get out of committee. Efforts in Arizona and Illinois have also gone nowhere. California Gov. Jerry Brown (D) vetoed a feasibility study bill in 2011, arguing the state banking committees could conduct the study; they never did.

One overwhelming force opposes public banking: Wall Street, which warns that public banks put taxpayer dollars at risk. “The bankers have the public so frightened that [public banking] will destroy the economy,” says David Spring of the Washington Public Bank Coalition. “When I talk to legislators, some are opposed to it because ‘it’s for communists and socialists.’ Like there are a lot of socialists in North Dakota!”

In Vermont the financial industry fought a proposed study of public banking, says Gwen Hallsmith, an activist and former city employee of Montpelier. “We don’t have branches of Bank of America or Wells Fargo in Vermont, but they have lobbyists here.” So Hallsmith got the study done herself, through the Gund Institute at the University of Vermont. It found that a state bank would boost gross domestic product 0.64 percent and create 2,500 jobs.

The state eventually passed a “10 percent” program, using 10 percent of its cash reserves to fund local loans, mostly for energy investments like weatherizing homes. Meanwhile, Hallsmith helped push individual towns to pass resolutions in favor of a state bank— around 20 have now done so. Hallsmith says her advocacy came at the expense of her job; the mayor of Montpelier, in whose office she worked, is a bank lobbyist. Hallsmith now coordinates a citizen’s commission for a Bank of Vermont.

Because of state resistance, PBI has encouraged its supporters to go local. And several issues have emerged to assist. For instance, environmental and indigenous activists have demanded that cities move money from the 17 banks that finance the Dakota Access Pipeline. But therein lies another dilemma: Who else can take the money? Community banks and credit unions lack the capacity to manage a city’s entire funds, and larger banks are better equipped to deal with the legal hurdles involved in handling public money. So divesting from one Wall Street bank could just lead to investing in another.

A public bank could solve this problem, either by accepting cities’ deposits or by extending letters of credit to community banks to bolster their ability to take funds. Lawmakers in Seattle have floated a city- or state-owned bank as the best alternative for reinvestment, and Oakland council member Rebecca Kaplan has connected divestment and public banking as well.

Another opportunity arises with marijuana legalization initiatives. Because cannabis remains illegal at the federal level, most private banks are wary of working with licensed pot shops, fearing legal repercussions. This means many of these shops subsist as all-cash businesses. “It’s seriously dangerous; people arrive in armored cars to City Hall to pay taxes with huge bags of money,” says Susan Harman. In Oakland and Santa Rosa, Calif., public banking advocates are partnering with cannabis sellers to offer public banks as an alternative, which would make the businesses safer while giving the banks another source of capital.

While Donald Trump hasn’t formally introduced a long-discussed infrastructure bill, his emphasis on fixing the nation’s crippling public works has also bolstered the case for public banking. Ellen Brown maintains the country could save a trillion dollars on infrastructure costs through public-bank financing. That’s preferable to Trump’s idea of giving tax breaks to public-private partnerships that want big returns.

From the Great Plains to Trenton

“All it’ll take is the first domino to fall,” says Shelley Browning, an activist from Santa Rosa. “Towns and cities will turn in this direction because there’s no other way to turn.” And PBI members think they’ve found an avatar in Phil Murphy, a Democrat and former Goldman Sachs executive leading the polls in New Jersey’s gubernatorial primary this year.

Murphy has made public banking a key part of his platform. “This money belongs to the people of New Jersey,” he said in an economic address last September. “It’s time to bring that money home, so it can build our future, not somebody else’s.”

Derek Roseman, a spokesman for Murphy, tells In These Times that Bank of America holds more than $1 billion in New Jersey deposits, but only made three small business loans in the entire state in 2015. Troubled state pensions could help capitalize a state-owned bank, and would earn more while paying lower fees.

Murphy’s primary opponent, John Wisniewski, chaired the Bernie Sanders campaign in the state, while Murphy raised money for Hillary Clinton. Some believe Murphy is simply using public banking to cover his Wall Street background—and on many issues, Wisniewski’s policy slate is more progressive. But Brown thinks Murphy’s past primed him to recognize public banking’s power: “It’s always the bankers who get it.”

The first new state-owned bank in a century, chartered in the shadow of Wall Street, could shift the landscape. What’s more, blue-state New Jersey and red-state North Dakota agreeing on the same solution would highlight public banking’s biggest asset: transpartisan populist support. “We have Tea Partiers and Occupiers in the same room liking public banking. What does that tell you?” asks PBI’s Mike Krauss.

“Regardless of declared conservative or progressive affiliations,” says state Sen. Hasegawa, “regular folk … almost unanimously grasp the concept.” He is working with Washington’s Tea Partybacked treasurer, Duane Davidson, to advance public banking. “I go to eastern Washington, … they get the whole issue about independence from Wall Street and corporate control.”

In fact, Krauss is himself a Republican. “The biggest thing going on in America, people decided we don’t have any control anymore,” he says. “Whether it’s Bernie’s people or Trump’s people, they’re articulating the same thing but differently. … They want control of their money—and it is their money.”

 

The Savings And Stability Of Public Banking

As a society obsessed by money, we pay a gigantic price for not educating high school and college students about money and banking. The ways of the giant global banks – both commercial and investment operations – are as mysterious as they are damaging to the people. Big banks use the Federal Reserve to maximize their influence and profits. The federal Freedom of Information Act provides an exemption for matters that are “contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions.” This exemption allows financial institutions to wallow in secrecy. Financial institutions are so influential in Congress that Senator Durbin (D, IL) says “[The banks] frankly own this place.”

Although anti-union, giant financial institutions have significant influence over the investments of worker pension funds. Their certainty of being bailed out because they are seen as “too big to fail” harms the competitiveness of smaller, community banks and allows the big bankers to take bigger risks with “other people’s money,” as Justice Brandeis put it.

These big banks are so pervasive in their reach that even unions and progressive media, such as The Nation magazine and Democracy Now have their accounts with JP Morgan Chase.

The government allows banks to have concentrated power. Taxpayers and Consumers are charged excessive fees and paid paltry interest rates on savings. The bonds of municipalities are are also hit with staggering fees and public assets like highways and public drinking water systems are corporatized by Goldman Sachs and other privatizers with sweetheart multi-decade leases.

Then there are the immense taxpayer bailouts of Wall Street, such as those in 2008-2009 after the financial industry’s recklessness and crimes brought down the economy, cost workers 8 million jobs, and shredded the pension and mutual fund savings of the American people.

Standing like a beacon of stability, responsiveness and profitability is the 98 year-old, state-owned Bank of North Dakota (BND). As reported by Ellen Brown, prolific author and founder of the Public Banking Institute (Santa Clarita, California), “The BND has had record profits for the last 12 years” (avoiding the Wall Street crash) “each year outperforming the last. In 2015 it reported $130.7 million in earnings, total assets of $7.4 billion, capital of $749 million, and a return on investment of a whopping 18.1 percent. Its lending portfolio grew by $486 million, a 12.7 percent increase, with growth in all four of its areas of concentration: agriculture, business, residential and student loans…”

North Dakota’s economy is depressed because of the sharp drop in oil prices. So the BND moved to help. Again, Ellen Brown:

In 2015, it introduced new infrastructure programs to improve access to medical facilities, remodel or construct new schools, and build new road and water infrastructure. The Farm Financial Stability Loan was introduced to assist farmers affected by low commodity prices or below-average crop production. The BND also helped fund 300 new businesses.

All this is in a state with half the population of Phoenix or Philadelphia.

A California coalition is forming to establish a state-owned bank for California. Coalition organizers say a California State Bank will cut the state’s long-term financing costs in half, compared to what avaricious Wall Street is charging. The nation’s largest state (equivalent to the world’s sixth largest economy) can free itself from massive debt accumulation, bid-rigging, deceptive interest-rate swaps and capital appreciation bonds at 300% interest over time.

What assets does the state have to make this bank fully operational? California has surplus funds which total about $600 billion, including those in a Pooled Money Investment account managed by the State Treasurer that contains $54 billion earning less than 1 percent interest.

Money in these funds is earmarked for specific expenditure purposes, but they can be invested – in a new state bank. To escape from a Wall Street that is, in Brown’s words “sucking massive sums in interest, fees and interest rate swap payments out of California and into offshore tax havens,” a state bank can use its impressive credit power to develop infrastructure in California.

Huge state pension funds and other state funds can provide the deposits. Each one billion dollar capital investment can lend $10 billion for projects less expensively and under open stable banking control by California. Presently, California and other states routinely deposit hundreds of billions of dollars in Wall Street banks at minimal interest, turn around and borrow for infrastructure construction and repair from the Wall Street bond market at much higher interest and fees.

This is a ridiculous form of debt peonage, a lesson Governor Jerry Brown has yet to learn. He and other officials similarly uninformed about how the state of California can be its own banker should visit publicbankinginstitute.org and read Ellen Brown’s book, The Public Bank Solution.

Legislation for public banks is being pursued in the states of Washington, Michigan, Arizona and New Jersey, as well as the cities of Philadelphia and Santa Fe. Look for county commissioners and state treasurers to come on board when they see the enormous safeguards and savings that can be secured through “public banks” in contrast to the convoluted casino run by unaccountable Wall Street gamblers and speculators.

A longtime backer of public banking, retired entrepreneur Richard Mazess, hopes that national civic groups like Public Citizen, Common Cause, People for the American Way and Consumer Watchdog can get behind the proposal. “Public, not private, infrastructure is essential for an equitable economy,” he says.

California already has a public infrastructure bank called the IBank. Mr. Mazess and others believe that expanding the existing IBank into a depository institution would be more likely to pass through the California legislature. The deposits would come from public institutions, and NGOs (not from private persons). These pension funds and other public deposits would become reserves and serve as the basis for safely leveraged loans to public projects at a conservative tenfold multiplier. No derivatives or other shenanigans allowed.

Before that proposal can be enacted, however, there needs to be much more education of state legislators and the public at large.

Such enlightenment would illuminate the enormous savings, along with the restoration of state sovereignty from the absentee, exploitative grip of an unrepentant, speculating, profiteering Wall Street that believes it can always go to Washington, DC for its taxpayer bailouts.

 

Santa Cruz County Won’t Do Business With Big Banks That Act Like Crooks

Photo: Michael Fleshman
Photo: Michael Fleshman

MARK KARLIN, EDITOR OF BUZZFLASH AT TRUTHOUT

Santa Cruz County, California, recently figured out a way to hold big banks who engage in illegal and destructive behavior accountable: Don’t do business with them.

According to AllGov California, the Santa Cruz County Board of Supervisors, acting on a request from Supervisor Ryan Coonerty, voted to “not do new business for a period of five years with Citigroup, JP Morgan Chase, Barclays, Royal Bank of Scotland and UBS as specified, and further direct that the County unwind existing relationships with these five banks to the greatest extent feasible.”

That means the county won’t buy the banks’ commercial paper or investment services, and will withdraw whatever funds it can from them.

Coonerty, and others, are not happy with the way big banks savaged the global economy and paid a pittance for their misdeeds.

As BuzzFlash documented, the Department of Justice under Eric Holder chose to only go through the motions of appearing to punish egregiously errant “banks too big to fail” without legally mandating structural or executive changes. Holder and his top leadership used the revolving door of the Department of Justice to end up with enhanced salaries and “rainmaking” connections at posh DC corporate and financial services law firms such as Covington & Burling. The fines and charges that they imposed were generally nothing more than public relations stunts; they made no meaningful impact.

Not much has changed in the swaggering illicit behavior of large financial institutions, partially because neither the Department of Justice nor the regulatory Securities and Exchange Commission has legally compelled significant transformation.

The Santa Cruz County Board of Supervisors is hopefully setting a precedent by hitting banks who engage in risky and harmful activity right in the pocketbook.

On his blog, Robert Reich praised Santa Cruz County for an innovative act of leadership that other governmental bodies – as well as individuals, organizations and companies – can follow:

The county won’t use the banks’ investment services or buy their commercial paper, and will pull its money out of the banks to the extent it can.

“We have a sacred obligation to protect the public’s tax dollars and these banks can’t be trusted. Santa Cruz County should not be involved with those who rigged the world’s biggest financial markets,” says supervisor Ryan Coonerty.

The banks will hardly notice. Santa Cruz County’s portfolio is valued at about $650 million.

But what if every county, city, and state in America followed Santa Cruz County’s example, and held the big banks accountable for their felonies?

Large cities, counties, states and the federal government could force big banks to alter their greedy behavior by simply severing ties. The $650 million at stake in Santa Cruz County could grow into hundreds of billions of dollars lost in government banking relationships if the Santa Cruz action gains momentum.

There is nothing that catches the attention of Wall Street financial institutions like the loss of revenue and profit.

Of course, in the long term, the current banking system needs to be completely restructured. However, in the short term, if the Santa Cruz action were to go viral across the nation, Reich speculates that the resultant financial losses might cause the monstrously large banks “to clean up their acts.”

The creation of public banks across the US, based on the model in North Dakota, is a more desirable long-term goal – but for the moment, governmental entities severing their ties to Wall Street would be a salutary step.