Alarmed by the corruption and greed of Wall Street, many US cities and states are studying the feasibility of establishing public banks.
By John Lawrence, San Diego Free Press
Public banks are owned by cities, states or other jurisdictions and serve to keep funds local instead of being deposited on Wall Street. The funds are then used to support local economic activities like small business loans and student loans.
Washington State has already cut its ties with Wells Fargo because they funded DAPL. Now they want to get rid of Wall Street as a place to park their money making use of the local economy and profiting the people of Washington instead of the bankers of Wall Street. Bills were introduced on January 18 in both the House and Senate of the Washington State Legislature that add Washington to the growing number of states now actively moving to create public banking facilities.
Ellen Brown, author of Web of Debt and The Public Banking Solution writes:
The bills, House Bill 1320 and Senate Bill 5238, propose creation of a Washington Investment Trust (WIT) to “promote agriculture, education, community development, economic development, housing, and industry” by using “the resources of the people of Washington State within the state.”
Currently, all the state’s funds are deposited with Bank of America. HB 1320 proposes that, in the future, “all state funds be deposited in the Washington Investment Trust and be guaranteed by the state and used to promote the common good and public benefit of all the people and their businesses within [the] state.”
The legislation is similar to that now being studied or proposed in states including Illinois, Virginia, Hawaii, Massachusetts, Maryland, Florida, Michigan, Oregon, California, and others.
Santa Fe, NM Considers Public Bank as Trump Threatens to Take Away Funding for Sanctuary Cities
The Mayor of Santa Fe, New Mexico has declared his city to be a sanctuary city in which case Trump has threatened to deny Federal monies to the city. The Mayor noted that Santa Fe had welcomed immigrants for over 400 years. A public bank could replace that funding:
If McEvers [interviewer from NPR] had asked what possible sources of funding might replace the money Trump is threatening to take away, Gonzales might have answered that Santa Fe was in the advanced stages of considering the creation of a publicly owned bank. In late October, three City Council members introduced a resolution to take the “final steps to determine” whether a public bank would be feasible. Earlier in 2016, a local advocacy group named Banking on New Mexico released a five-year model projecting that a Santa Fe bank could reduce debt service costs by $1 million a year and earn an annual profit, netting the city over $10 million in the bank’s first five years. While that wouldn’t completely offset funds the new administration is threatening to withhold, it would put the city in better shape to absorb the loss and begin the process of building an autonomous local economy that over time could transcend much of the need for federal dollars.
Oakland, CA Gets Serious About Public Banking
Two Council members have introduced a resolution to the Oakland City Council which says in part:
Resolution Directing The City Administrator To Prepare An Informational Report With The Cost Estimates Of Commissioning A Study Analyzing The Feasibility And Economic Impact Of Establishing A Public Bank For Or Including The City Of Oakland, And Providing Funding Options For The Feasibility Study, Including The Option Of Allocating To The Study Any Remainder Of The Money That Was Budgeted For The Goldman Sachs Debarment Proceedings.
WHEREAS, a public bank can have investment priorities that focus on the creation of jobs in Oakland that spur local economic growth by providing affordable credit to small and medium-sized businesses that have been historically ignored by the larger, more established banks; and
WHEREAS, a public bank can have investment priorities that center on providing loans for low and moderate income housing to help relieve the current housing crisis facing Oakland; and
WHEREAS, a public bank can have investment priorities that provide loans for energy conservation, installation of solar panels and measures for conserving water in Oakland; and
WHEREAS, Wall Street banks seek short-term profits for their private shareholders by investing in stocks, derivatives, credit default swaps and other speculative financial instruments; and
WHEREAS, there is a desire for local funding solutions that reinvest public funds in the local community; and
WHEREAS, public banking operates in the public interest, through institutions owned by the people through their representative governments; and
WHEREAS, public banks are able to return revenue to the community and can provide low-cost financing in support of City policies; and
WHEREAS, on September 8, 2016, Wells Fargo bank was fined $185 million for fraudulently opening up accounts without customers’ consent, which then damaged customers’ credit scores and caused customers to be charged illegal banking fees; and
WHEREAS, on May 20, 2015, Citigroup Inc. and JP Morgan Chase & Co. agreed to plead guilty to felony charges for conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange spot market; and
WHEREAS, on May 20, 2015, Citigroup Inc. agreed to pay a criminal fine of $945 million and JP Morgan Chase & Co. agreed to pay a criminal fine of $550, for illegally manipulating the foreign exchange market; and
WHEREAS, on May 20, 2015, the Federal Reserve announced that it was imposing a separate set of fines on Citigroup, Inc. and JP Morgan Chase & Co. of $342 million for their illegal practices in the foreign exchange markets; and
WHEREAS, on March 9th, 2016, the Wall Street Journal reported that Wall Street banks had paid in total more than $100 billion in fines and penalties for mortgage-related fraud, and
WHEREAS, said Wall Street banks’ criminal conduct and wrongful behavior should not be rewarded with future business dealings with Oakland; and
WHEREAS, the City of Oakland is tasked with holding and protecting the fundamental interest of the public as well as the financial well-being of the City; now, therefore be it
RESOLVED: That the Oakland City Council directs the City Administrator, or his/her designee, to prepare an informational report with the cost estimates of commissioning experts in public banking to conduct a study analyzing the feasibility and economic impact of establishing a public bank for the City of Oakland;
Please note that these are only a few of the “Whereas’s”. There’s more.
Profits to the People
Currently, the Bank of North Dakota (BND) is the only public bank in the country. All other states and cities deposit their revenues and pension funds with Wall Street with the profits going to Wall Street. That’s why so many states are in dire straits while North Dakota’s fiscal situation is just fine.
According to a January 19, 2017, New York Times article:
[A]lmost everywhere the fiscal crisis of states has grown more acute. Rainy day funds are drained, cities and towns have laid off more than 200,000 people, and Arizona even has leased out its state office building…
“It’s the time of the once unthinkable,” noted Lori Grange, deputy director of the Pew Center on the States. “Whether there are tax increases or dramatic cuts to education and vital services, the crisis is bad.”
Is it any wonder that President Pussy Grabber and his Republican cohorts are calling for the privatization of everything? Their mantra is that government is incompetent when the true fault lies in the fact that states and municipalities are being bled to death by Wall Street. Wall Street banks borrow money from the Fed at zero percent interest and then loan it to municipalities at 5% interest. That profit could go to the municipalities. The antidote for that is to establish a public bank from which profits will flow to the people as they have in North Dakota. Local control of local money should be the mantra.
There is a move in Congress to let states go bankrupt the way many US cities have. For instance, San Bernardino, CA; Stockton, CA; Orange County, CA; Jefferson County, AL; and Detroit, MI have all declared bankruptcy with the result that concomitant pension fund and contractual obligations to unions and others have gone by the wayside.
While those and other cities have been drained by the Wall Street banking crisis which resulted in increased borrowing costs and loss of revenues, BND and North Dakota have churned along quite nicely, thank you very much. They have provided low-cost affordable loans to small businesses and students, thus totally averting the worst effects that most cities and states which rely on Wall Street have suffered.
BND provides back-up for local private banks by offering check clearing services and liquidity support. They invest in North Dakota municipal bonds to provide economic development. In the last ten years, the BND has returned more than a third of a billion dollars to the state’s general fund. North Dakota is one of the few states to consistently post a budget surplus.
Washington State Representative Bob Hasegawa, a prime sponsor of the Washington legislation, called the proposal for a publicly-owned bank “a simple concept that will reap huge benefits for Washington.”
In a letter to constituents, he explained, “The concept (is) to keep taxpayers’ money working here in Washington to build our economy. Currently, all tax revenues go into a ‘Concentration Account’ held by the Bank of America. BoA makes money off our money and we never see those profits again. Instead, we can create our own institution and keep taxpayers’ dollars here in Washington, working for Washington.”
Dennis Ortblad writes in the Seattle Times:
“In fact, we propose a public bank in Washington that lends primarily to public institutions — such as school districts, affordable housing programs, public utilities — in order to reduce the state’s or a municipality’s reliance on the expensive bonds and fees in Wall Street markets.”
While President Pussy Grabber, Betsy DeVos and Repubs in general want to privatize everything, a public bank would help to shore up public enterprises like the public school system and local infrastructure. BND has a sterling credit record and earned for the state $130 million in 2015 alone, with total assets of $7.4 billion (its 12th consecutive year of record profits for the people of the state). That $130 million would have gone to Wall Street in any other state.
The US banking system including its central bank, the Federal Reserve, is privately owned. Is it any wonder that during the banking crisis of 2008, the first and only order of business was to bail out the banks, not homeowners who were overdue in their mortgages? They were hung out to dry despite the fact that many were told the bank would “help” them either by lowering interest rates, refinancing or forgiving principal in “underwater” mortgages. A public banking system is beholden not to private interests but to the people of the state or city in which it’s registered.
In an article, Seattle Votes to End $3 Billion Relationship with Wells Fargo Because of the Bank’s Dakota Access Pipeline Financing, Sydney Brownstone writes:
The Seattle City Council has unanimously voted to end the city’s relationship with Wells Fargo over the bank’s financing of the Dakota Access Pipeline (DAPL), its financing of private prison companies, and a regulatory scandal involving the bank’s creation of two million unauthorized accounts.
All nine council members voted to take $3 billion of city funds away from the bank after Seattle’s current contract expires in 2018. The vote occurred just hours after the Army notified Congress that it will be granting an easement allowing DAPL builders to drill under the Missouri River following a presidential memo from Donald Trump.
That $3 billion could find a home in a Seattle or Washington state public bank when one becomes available. All they have to do is mimic North Dakota’s public bank which has been working well for over 100 years. The Public Banking Institute is working on a model which could be replicated in cities and states throughout the US. All city council members would have to do is to vote to replicate the model.
One Seattle City Council member who is determined to bring about a public bank is Kshama Sawant. She is an American socialist politician, activist, and member of the Socialist Alternative. A former software engineer, Sawant became a socialist activist and part-time economics instructor in Seattle after immigrating to the United States. Sawant ran unsuccessfully for the Washington House of Representatives before winning her seat on the Seattle City Council. Sawant was the first socialist to win a city-wide election in Seattle since Anna Louise Strong was elected to the School Board in 1916. Socialist Alternative describes itself as “a community of activists fighting against budget cuts in public services; fighting for living wage jobs and militant, democratic unions; and people of all colors speaking out against racism and attacks on immigrants, students organizing against tuition hikes and war,
Sawant ran unsuccessfully for the Washington House of Representatives before winning her seat on the Seattle City Council. Sawant was the first socialist to win a city-wide election in Seattle since Anna Louise Strong was elected to the School Board in 1916. Socialist Alternative describes itself as “a community of activists fighting against budget cuts in public services; fighting for living wage jobs and militant, democratic unions; and people of all colors speaking out against racism and attacks on immigrants, students organizing against tuition hikes and war, women, and men fighting sexism and homophobia.”
A public bank could cut the cost of building public schools in Washington in half. Half the cost of building new schools is in interest paid to banks and bondholders. That would all come back to state or city coffers depending on whether the schools were financed by a state or city public bank.
From the Washington Public Bank Coalition website:
How Our State Can Solve Its Budget Crisis: Create a Public Bank
Cut spending, fire teachers, raise taxes—these are the solutions always proposed to offset Washington State’s budget deficits. The state’s budget crises do not arise from too much spending or too little taxation on the poor and middle class. Instead, since 2000, corporate tax breaks in Washington State have more than doubled. The state simply isn’t getting enough tax revenue from corporations (see: realwashingtonstatebudget.info).
Also, since the 2008 financial market collapse, banks have cut back on lending. When small local businesses can’t secure low-interest loans, there are layoffs and business closures in the private sector, which also cause state revenues to plummet. To solve this problem, since 2010, 17 states, including Washington State, have drafted legislation to establish public banks based on the successful Bank of North Dakota.
A Public Bank for Cities in San Diego County
There is a local movement to create a public bank in San Diego. A group has been meeting regularly and is studying the possibilities for several cities within San Diego County. They are meeting with local officials people and hope to use the Oakland Resolution cited partially above as a first step in getting the ball rolling.
Notwithstanding some setbacks and some attrition of the ranks, our courageous group continues to fight for banking reform and the creation of public banks throughout California. We have been encouraged by the recent success in Oakland with the unanimous approval of the Public Banking Resolution by their City Council. It gives us hope! We need referrals to the mayors, city Council members and finance directors for the 18 incorporated cities in San Diego County to stop our money from flowing to Wall Street!
John Lawrence graduated from Georgia Tech, Stanford and University of California at San Diego. While at UCSD, he was one of the original writer/workers on the San Diego Free Press in the late 1960s. He founded the San Diego Jazz Society in 1984 which had grants from the San Diego Commission for Arts and Culture and presented both local and nationally known jazz artists. John received a Society of Professional Journalists, San Diego chapter, 2014 award. His website is Social Choice and Beyond which exemplifies his interest in Economic Democracy. His book is East West Synthesis. He also blogs at Will Blog For Food. He can be reached at firstname.lastname@example.org.