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The Rationale for State-Owned Banks

Saturday, 10 July 2010 10:52
Mayor of Lansing, Michigan Verg Bernero, announces his intention to run for governor, 02/08/10. (photo: Blogging for Michigan)

Mayor of Lansing, Michigan Verg Bernero, announces his intention to run for governor, 02/08/10. (photo: Blogging for Michigan)



Reader Supported News | Perspective

ichigan has an unemployment rate of 14 percent, and has been particularly hard hit by the economic downturn. Verg Bernero, Mayor of Lansing, the state's capital, and a leading Democratic candidate for governor, proposes to relieve the state's economic ills by opening a state-owned bank. He says the bank could protect consumers by making low-interest loans to those most in need, including students and small businesses; it could also help community banks by buying mortgages off their books and working with them to fund development projects.

Bernero's proposal should be seriously considered given the political state of the nation right now, since Republicans and Wall Street have combined forces to impede any possibility of the Obama administration fixing the economic problem created by their recklessness. Their strategy is to dictate by stalemate, the Party of "NO" using the filibuster! Consequently, Bernero's words ring even louder: "Hundreds of jobs-creating projects are still on hold because Michigan businesses and entrepreneurs cannot get bank financing. We can break the credit crunch and beat Wall Street at their own game by keeping our money right here in Michigan and investing it to retool our economy and create jobs."

Ellen Brown, a litigation attorney from Los Angeles turned researcher who has done superb work letting the nation know about the state of North Dakota's thriving economy, says, "Bernero joins a growing A list of candidates proposing this sensible solution to their state's fiscal ills. Local economies have collapsed because of the Wall Street credit freeze. To reinvigorate local business, Main Street needs a heavy infusion of credit, and publicly-owned banks could fill that need."

Where are we now? We have a severely depressed economy - and that depressed economy is inflicting long-term damage. The national unemployment rate is 9.5 percent as of July 2, 2010, or 15 million people. The rate jumps up to 16.6 percent if we count part-time workers that need full-time jobs and those who stopped looking. Plus 6.8 million have been out of work longer than six months. Nobel Prize economist Paul Krugman says, "Every year that goes by with extremely high unemployment increases the chance that many of the long-term unemployed will never come back to the work force, and become a permanent underclass. Every year that there are five times as many people seeking work as there is job openings means that hundreds of thousands of Americans graduating from school are denied the chance to get started on their working lives."

The time is ripe for state-owned banks. The American people, the vast majority of them, have identified Wall Street as the main enemy. Many Americans that poll against Obama are doing so on the belief that he is too chummy with Wall Street. According to a Gallup poll released in mid-June, the number of Americans that see themselves as conservatives rose to 42 percent. This poll has to be put in the context that many Americans view the Wall Street "feast" as a result of liberal policies that have allowed this kind of economic behavior. The American people realize that Wall Street has us in a barrel. Obama and the Democrats are paying dearly for prevailing political misconceptions that Obama's policies have produced record deficits while not providing jobs. Somehow the nation has been allowed to forget that Republicans cut taxes twice while starting two wars. It's in the Democrats self-interest to find ways to energize the economy without having to beg cooperation from those who want them to fail.

Back to Ellen Brown, in an article published March 18, 2010 for Yes! Magazine she states she had been tracking candidates in five states running on a state bank platform and one state (Massachusetts) has a bill pending. One month later, there are three more bills on the rolls - in Washington State, Illinois and Michigan - and joining Bernero as a candidate of proponents is Gaelan Brown of Vermont, who is running for the State Senate. That brings the total to seven candidates in as many states (Florida, Oregon, Illinois, California, Washington State, Vermont and Idaho) campaigning for state-owned banks, including three Democrats, two Greens, one Republican (yes, Virginia, there are still a few decent Republicans left) and one Independent.

Gaelan Brown says on his website, "Vermont should explore creating a state-owned bank that would work with private VT-based banks, to insulate VT from Wall Street corruption, and to increase investment capital for VT businesses, modeled after the very successful state-owned bank of North Dakota."

The time has come to undress the crown prince, the Bank of North Dakota. This is how Ellen Brown describes it: "The Bank of North Dakota, currently the nation's only owned state bank, is the model (with variations) for all the other proposals on the table. The Bank of North Dakota acts as a 'banker's bank,' partnering with other banks in 'participation loans' which allow them to compete with larger banks. In a participation loan, the community bank originates the loan and takes responsibility for it, while the participating banks contribute funds and shares in the risk and profits. The Bank of North Dakota also makes low-interest loans to students, farmers and businesses; underwrites municipal bonds and provides liquidity for more than 100 banks around the state." It is important to add for naysayers' sake that the Bank of North Dakota was founded in 1919. Last year North Dakota had the largest surplus it has ever had. It was the only state adding jobs when others were losing them. In March 2009, when 46 of 50 states were in fiscal crisis, the Council of State Governments noted that North Dakota was in the enviable position of discussing tax cuts and looking for ways to spend its surplus. North Dakota's riches have been attributed to oil, but many states with oil are floundering. The sole truly distinguishing feature of North Dakota seems to be that it has managed to avoid the Wall Street credit freeze by owning and operating its own bank.

Other states are crying uncle. They need to find ways to help their own people. They need to liberate themselves from the economic limitations imposed by Wall Street's financial recklessness. There is a MAJOR difference between seeking profits and unbridled greed. Our nation developed the world's largest middle class because we created the regulations to keep unbridled greed under control. We need to find our way again or all hell might break loose.

Lorenzo A. Canizares has been a Union Organizer for 30 years, is on the Board of Directors of Keystone Progress and resides in Harrisburg, Pennsylvania. your social media marketing partner


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0 # Guest 2010-07-10 11:22
the only state (doing business as) is North Dakota this will totslly undermine the federal resrve,so expect pushback even his murder,every state should do this.
+5 # Guest 2010-07-10 13:02
Amen! After Biddle's' bank was closed by Andrew Jackson in the 1830s the USA operated without a central bank for about 80 years. Then in 1913, about Christmas time, the Federal Reserve, a spiffied up central bank, was created by the congress. Now, almost a 100 years later, we are in need of another significant overhaul or recreation of the monetary system. State run banks in open competition to privately owned banks is a very good start.
0 # Guest 2010-07-10 16:53
Whoa! Don't forget history. Ohio insured banks failed big time back in the 80's. The man who brought down the whole system - Home Federal in Cincinnati got off Scott free by residing in Florida. His son-in-law, the attorney who set up the scams committed suicide as he had regrets - Warner did NOT.
Don't idealize that states have the expertise to police state insured banks as the con men to get into this industry know how to rig the game. That is why we need a Federal standard across the board that has some teeth and actually is enforced. Don't get stars in your eyes that individual states could and would coordinate banks on their own. It would only open the whole country to temptation for the same bankers to start all over again.
Pay is is a dangerous road. I went through it and if the FED hadn't stepped in, would have lost everything.
+1 # Guest 2010-07-10 17:02
Can anyone tell me why a state as progressive as New York is not on this state owned bank band wagon? Does it have something to do with the stock market being located in NYC?
+3 # Guest 2010-07-10 18:04
Ronald Reagan, patron saint of the Republican Party, himself said "GREED IS GOOD!!"

Perhaps my bank in Washington State would not have failed if there had been a state-owned bank, if dubiia-the-inco mpetent hadn't been so greedy, if there had been no Republicans undoing FDRF's work . . .
0 # Guest 2010-07-11 03:51
I suggest the reader take a hard look at state-owned banks in the rest of the world. The state owned Landesbanks in Germany made the same mistakes as US banks did in real estate. State banks also tend to be a forum for behind-closed-d oors favor trading by politicians and friends. There is an un-addressed question of the source of funding for the banks. Are we willing to be taxed to provide such funding? If not then the bank has to compete on the market for deposits and funding and that puts them under the same profit pressure as a private bank. (comment continues next post)
0 # Guest 2010-07-11 03:54
(cont.) The assumption seems to be that state owned banks would fund projects in the interest of the "pubic good" that otherwise go unfunded. There are two problems with this: the first is that if those projects are not able to re-pay, then the bank can't fund itself (assuming market funding) and eventually falls to a publicly funded bailout. The second fundamental problem is that I'm not sure we as a country and society have anything close to a shared understanding of what is the public good to be pursued by such an entity and that leaves it as yet another area for partisan interests to try to assert control in their own interest. So if properly supervised and left to be politically independent, this could work, but then the same argument applies to private banks.
0 # Guest 2010-07-28 06:31
Quoting Jason L Cook:
There is an un-addressed question of the source of funding for the banks.

The backing for the state bank comes from the states assets and payrolls. There is no need to tax anyone for funding. Secondly, loans are created out of thin air by the fractional reserve system (which is supposed to be 10% but in reality is effectively zero). If the loans are made to depositors or municipalities that do their banking with the state, payments can be re-loaned. Using the money multiplier effect, that can lead up to 10 times the amount of the original loan.

State owned banks are an excellent way of breaking the stranglehold of Wall Street, then...maybe... just maybe we can start talking about real monetary reform.

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