Newspaper logo  
 
 
Local News & Opinion

Ref. : Civic Events

Ref. : Arts & Education Events

Ref. : Public Service Notices

Travel
Books, Films, Arts & Education
Letters
Open Letters:

Ref. : Letters to the editor

Health Care & Environment

07.03 George Lakoff: Why Pope Francis Killed It on Addressing Climate Change

07.03 This dome in the Pacific houses tons of radioactive waste – and it's leaking

07.03 Jairam Ramesh: India can't remain on the path of further destruction

07.03 Greenpeace and utilities launch suit against Hinkley nuclear plant

07.03 New study warns of dangerous climate change risks to the Earth’s oceans [ginormous graphic]

07.03 BP set to pay largest environmental fine in US history for Gulf oil spill

07.02 Australia must cut carbon emissions by 30% by 2025, says Climate Change Authority

07.02 Germany to mothball largest coal power plants to meet climate targets

07.02 Supreme Court Decision Unlikely to Stall the Shift Away from Coal Plants

07.02 Hope for Alzheimer's treatment as researchers find licensed drugs halt brain degeneration

07.02 The Death Treatment

07.01 Rich countries' $100bn promise to fight climate change 'not delivered'

07.01 Climate change a security risk second only to terrorism, says defence report

07.01 China makes carbon pledge ahead of Paris climate change summit

07.01 Brazil announces massive reforestation and renewable energy plan with US

07.01 Are we on the brink of an electric car revolution?

07.01 Billions have no access to toilets, says World Health Organisation report

News Media

07.02 This despicable “O’Reilly Factor” segment exposes the fundamental ugliness of the right-wing worldview [5:24 video]

07.01 How Chris Christie trapped himself in a political quandary [A paper-of-record spreads an old Social Security lie]

Daily FAIR Blog
The Daily Howler

US Politics, Policy & 'Culture'

07.03 Elizabeth Warren Reams Private Accreditor Who Certified Corinthian College Up to Its End [6:17 video]

07.03 Economic exodus means two-thirds of Puerto Ricans may soon live in US

07.02 America’s worst governors want to be president: Jindal, Walker, Christie — can Sam Brownback be far behind

07.02 Bernie Sanders draws crowd of 10,000 at Wisconsin rally[2:59 video]

07.01 How Chris Christie trapped himself in a political quandary [A paper-of-record spreads an old Social Security lie]

07.01 KKK plans South Carolina rally as Confederate flag debate continues

07.01 How Seattle Is Reclaiming Its Waterfront From an Elevated Urban Highway

07.01 Affordable Housing Crisis Grows Across the Country as Apartment Rents Skyrocket

06.30 Wealth Doesn't Trickle Down, But the Effects of Housing Discrimination Do

06.30 What's Really Happening in Puerto Rico? [As with Greece, expect mass population shift to avoid local government debt-service taxes]

06.30 The GOP Fails Its Empathy Test

06.30 Barack Obama moves to double US salary limit on overtime pay

06.29 Bernie Sanders can give America what it needs: Some good old-fashioned class warfare

06.29 Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable’

Justice Matters
High Crimes?
Economics, Crony Capitalism

07.03 Europe’s Many Economic Disasters

07.01 How the euro became a weapon of mass destruction

06.30 Robert Reich: America is facing an economic apartheid

06.30 Europe’s Attack on Greek Democracy

06.29 The economic plan that could save America (but scares conservative billionaires senseless)

06.29 Report: Millions of dollars in fraud, waste found in charter school sector [a BIG overlooked story of the failure to sensibly regulate]

06.29 The world is defenceless against the next financial crisis, warns BIS

International

07.03 Boko Haram attack on Nigerian village leaves nearly 100 people dead

07.02 Nicholas Winton, Rescuer of 669 Children From Holocaust, Dies at 106

07.02 Weak Power Grids in Africa Stunt Economies and Fire Up Tempers

07.02 Greece's economic crisis: 100 Greeks give their view

07.02 Hillary Clinton emails reveal powerful families' intricate relationships

07.02 Attacks on Egyptian checkpoints signal escalation in Isis capabilities

07.02 Islamic State threatens to topple Hamas in Gaza Strip in video statement

07.01 A Paradox of American Religion: Diversity Brings Tolerance [Obvious countries should learn from this!]

07.01 The United Nations in a Post-Nation World

07.01 Prime Minister Signals Greece May Accept Bailout Terms

07.01 The Hard Work of Taking Apart Post-Work Fantasy

07.01 Iran's nuclear program may have cost the country $500 billion or more

We are a non-profit Internet-only newspaper publication founded in 1973. Your donation is essential to our survival.

You can also mail a check to:
Baltimore News Network, Inc.
P.O. Box 42581
Baltimore, MD 21284-2581
Google
This site Web
  Print view: Keeping The State's Money In The State: An Alternative Solution To The Budget Crisis
ECONOMIC ANALYSIS:

Keeping The State’s Money In The State: An Alternative Solution To The Budget Crisis

by Ellen Hodgson Brown, J.D.
www.webofdebt.com/articles
Sunday, 27 March 2011
State-owned banks could be a win-win for everyone interested in a thriving local economy. Objections are usually based on misconceptions or a lack of information.

Cut spending, raise taxes, sell off public assets – these are the unsatisfactory solutions being debated across the nation; but the budget crises now being suffered by nearly all the states did not arise from too much spending or too little taxation. They arose from a credit freeze on Wall Street. In the wake of the 2009 financial market collapse, banks curtailed their lending more sharply than in any year since 1942, driving massive unemployment and causing local tax revenues to plummet.

The logical solution, then, is to restore credit to the local economy. But how? The Federal Reserve could provide the capital and liquidity necessary to create bank credit, in the same way that it provided $12.3 trillion in liquidity and short-term loans to the large money center banks. But Fed Chairman Ben Bernanke declared in January 2011 that the Fed had no intention of doing that — not because it would be too costly (the total deficit of all the states comes to less than 2% of the credit advanced for the bank bailout) but because it is not part of the Fed’s mandate. If Congress wants the Fed to advance credit to local governments, he said, it will have to change the law.

The states are on their own. Policymakers are therefore considering a variety of reforms designed to increase bank lending, particularly to small businesses, the hardest hit by tightening credit standards. One measure that is drawing increasing interest is the creation of a bank modeled on the Bank of North Dakota (BND), currently the only state-owned bank in the country. The BND has a 92-year history of safe, secure and highly profitable banking. North Dakota has the lowest unemployment rate in the country; and in 2009, when other states were floundering, it had the largest budget surplus it had ever had.

Eight states now have bills pending either to form state-owned banks or to do feasibility studies to determine their potential. This year, bills were introduced in the Oregon State legislature on January 11; in Washington State on January 13; in Massachusetts on January 20 (following a 2010 bill that lapsed); and in the Maryland legislature on February 4. They join Illinois, Virginia, Hawaii, and Louisiana, which introduced similar bills in 2010. The Center for State Innovation, based in Madison, Wisconsin, was commissioned to do detailed analyses for Washington and Oregon. Their conclusion was that state-owned banks in those states would have a substantial positive impact on employment, new lending, and state and local government revenue.

State-owned banks could be a win-win for everyone interested in a thriving local economy. Objections are usually based on misconceptions or a lack of information. Proponents stress that:

  1. A state-owned bank on the BND model would not compete with community banks. Rather, it would partner with them and support them in making loans. The BND serves the role of a mini-Fed for the state. It provides correspondent banking services to virtually every financial institution in North Dakota and offers a Federal Funds program with daily volume of $330 million. It also provides check clearing, cash management services, and automated clearing house services. It leverages state funds into credit for local purposes, funds that would otherwise leave the state and be leveraged for investing abroad, drawing away jobs that could go to locals.
  2. The BND not only does not compete for loans but does not compete for commercial deposits. Less than 2% of its deposits come from consumers. Municipal government deposits are also reserved for local community banks, which are able to use these funds for loans specifically because the BND provides letters of credit guaranteeing them. Virtually all of the BND’s deposits come from the state itself. All state revenues are deposited in the BND by law.
  3. Although the BND is a member of the Federal Reserve system, it is insured by the state rather than by the FDIC. This does not, however, put deposits at risk. Rather, it helps avoid risk and unnecessary expense, since the BND’s chief depositor is the state, and the state has far more to deposit than $250,000, the maximum covered by FDIC insurance. FDIC insurance is not only very expense but subjects members to FDIC regulation, making the state subservient to a semi-private national banking association. (The FDIC calls itself an independent agency of the federal government, but it receives no Congressional appropriations. Rather, it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities.) North Dakota prefers to maintain its financial independence.
  4. BND officials stress that the bank is run by bankers, not politicians bent on funding their favorite development projects or bestowing political favors. The bank is run very conservatively, doing only creditworthy deals and avoiding speculation in derivatives and risky subprime loans. By partnering with local banks, the BND actually shields itself from risk, since the local bank takes the initial loss if the borrower fails to pay.
  5. The BND does not imperil state funds or tax money but is self-funding and self-sustaining. It manages VA, FHA and other forms of loans that are federally guaranteed and would otherwise go to large out-of-state banks. Profits on these federally-guaranteed loans are then used to build a capital surplus from which riskier loans can be made to local businesses and development projects. The BND has a return on equity of 25-26% and 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. Compare California’s public pension funds, which entrust their money to Wall Street and are down more than $100 billion, or close to half the funds’ holdings, following the banking debacle of 2008.
  6. Partnering with the BND allows community banks to fund local projects in which Wall Street is not interested, leveraging municipal government funds that would otherwise not be available for loans. Further, infrastructure projects can be funded through the state bank at substantially less cost, since the state owns the bank and gets the interest back. Studies have shown that interest composes 30-50% of public projects.
  7. The North Dakota Bankers’ Association does not oppose the BND but rather endorses it. North Dakota has the most local banks per capita and the lowest default rate of any state.

Other states could realize similar benefits, if they were to form banks on the BND model. Paying interest to coupon clippers on state and municipal bonds means sending money out of the state on a one-way trip to Wall Street. Having a state-owned bank allows the state to keep its money local, flowing into the state treasury and the local economy.


Ellen Brown

Ellen Brown is an attorney and the author of eleven books. In Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free, she shows how the Federal Reserve and "the money trust" have usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are webofdebt.com, ellenbrown.com, and public-banking.com.

Ms. Brown's stories are republished in the Baltimore Chronicle with permission of the author.



Copyright © 2010 The Baltimore News Network. All rights reserved.

Republication or redistribution of Baltimore Chronicle content is expressly prohibited without their prior written consent.

Baltimore News Network, Inc., sponsor of this web site, is a nonprofit organization and does not make political endorsements. The opinions expressed in stories posted on this web site are the authors' own.

This story was published on March 27, 2011.
 


Public Service Ads: