Newspaper logo  
 
 
Local Gov’t Stories, Events

Ref. : Civic Events

Ref. : Arts & Education Events

Ref. : Public Service Notices

Travel
Books, Films, Arts & Education
Letters

Ref. : Letters to the editor

Health Care & Environment

07.30 Why Lead Paint Still Haunts Industrial Cities in the U.S.

07.30 Dear corporate Canada: it's time to pay for your part in climate change

07.30 England's plastic bag usage drops 85% since 5p charge introduced

07.29 Breakthrough solar cell captures carbon dioxide and sunlight, produces burnable fuel

07.29 The Africans buying sunshine with their phones

07.29 Where are the world’s most water-stressed cities?

07.28 The quest for clean water

07.28 HOW A NEW SOURCE OF WATER IS HELPING REDUCE CONFLICT IN THE MIDDLE EAST

07.28 Insecticide Can Cut Bee Sperm by Nearly 40 Percent, Study Finds

07.28 ExxonMobil Top Sponsor at ALEC's Upcoming Annual Meeting

07.28 Blasting "McCarthy-Like Overreach," State AGs, Climate Groups Won't Comply With GOP Subpoenas

News Media Matters

07.29 Greenwald Explains What Out-of-Touch Media Doesn't Get About Trump, Russia, and US Electorate

07.28 Is the French Press Right to stop Printing Pictures, Names of Terrorists?

Daily: FAIR Blog
The Daily Howler

US Politics, Policy & 'Culture'

07.30 Hillary Clinton and Her Hawks

07.30 Donald Trump says he's 'taking the gloves off' as party conventions wrap

07.30 10 reasons why #DemExit is serious: Getting rid of Debbie Wasserman Schultz is not enough [DLC/Corporate Democrat dominance must end!]

07.29 5 REASONS WHY TRUMP WILL WIN

07.29 Hillary Clinton's Democratic convention speech: what she said and what she meant [Hillary Clinton accepts nomination with 'boundless confidence in America's promise']

07.29 New York’s Most Dangerous Neighborhood is Safer than Baltimore

07.28 Bloomberg's Case Against Trump

07.28 The Next President Will Likely Appoint 4 Supreme Court Justices: Which President Do You Want Picking Them?

07.28 Campaigns End on Election Day. Revolutions Don't.

Justice Matters

07.30 Republican-authored voting laws in Wisconsin and Kansas overturned

07.30 Ex-Fox News employee says Roger Ailes sexually exploited her for 20 years

07.30 Six More Charged in Flint Water Crisis, but Still No Accountability for Snyder

07.30 Court Rules NC Voter ID Law 'Intentionally Discriminatory'

High Crimes?

07.30 Possible War Crime: Syrian Maternity Hospital Bombed

Economics, Crony Capitalism

07.29 1MDB: The inside story of the world’s biggest financial scandal

07.29 IMF admits disastrous love affair with the euro and apologises for the immolation of Greece

07.28 Ohio taking a reckless gamble with pension funds

07.28 Hillary’s Choice: Why Tim Kaine Isn’t a ‘Safe’ Pick

International

07.30 Russia’s Flirtation With Fascism

07.30 HOW ROUSSEAU PREDICTED TRUMP

07.29 A tribute to female flâneurs: the women who reclaimed our city streets

07.29 A musical tour of Europe’s great cities: Venice

07.29 'I begged them to kill me instead': women in South Sudan raped under nose of UN

07.28 The only way to defeat Islamic State is to give young Arabs hope

07.27 Welcome to the new age of uncertainty

07.27 Japan to unveil huge $266bn economic stimulus, say reports

07.27 MPs predict surge in immigration amid Brexit uncertainty

07.27 Catalonia tells Spain it will push for secession with or without assent

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: