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Banking for California's Future
Intro by Ilene
California's legislature passed a bill to study the feasibility of forming a state-owned bank. It just needs Jerry Brown's signature. According to the Public Banking Institute, "14 states have decided enough is enough; they have introduced legislation for publicly owned banks or derivations, or for studies or task forces to determine how a publicly owned bank would operate in their jurisdiction. Eight of these states have bills that were only recently submitted, in 2011." Arizona, Montana and Maine have introduced legislation to form state banks. In Massachusetts, the commission to study feasibility was in full force, but the Mass. study commission decided against it, after the Boston Fed came out with a statement saying it wasn't necessary--that the private banks had the state's banking needs covered. Visit Public Banking Institute for more information. Ellen Brown is president of the Public Banking Institute.
Banking for California's Future
Courtesy of Ellen Brown of Web of Debt
Wall Street's not cutting it: California's legislature voted to do a feasibility study on establishing a state-owned bank.
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Photo by Steve Rhodes
AB 750, California’s bill to study the feasibility of establishing a state-owned bank that would receive deposits of state funds, has passed both houses of the legislature and is now on the desk of Governor Jerry Brown awaiting his signature.
It could be the governor’s chance to restore the state to its former glory. As noted in TIME Magazine:
[I]n the 1950s and ‘60s, California was a liberal showcase. Governors Earl Warren and Pat Brown responded to the population growth of the postwar boom with a massive program of public infrastructure—the nation’s finest public college system, the freeway system and the state aqueduct that carries water from the well-watered north to the parched south.
But that was before Proposition 13, a California constitutional amendment enacted by voter initiative in 1978. Prop 13 limited real property taxes to one percent of the full cash value of the property and required a two-thirds majority in both legislative houses for future increases of any state tax rates.
Prop 13 radically reduced the tax base, and as economist Michael Hudson observes, it is too late to raise property taxes now. The tax savings simply drove property prices up, getting capitalized into additional debt service to the banks. Today, he says, “so much urban property is sinking into negative equity territory that a rise in property taxes will lead to even more foreclosures and abandonments, and hence even lower fiscal returns.”
Meanwhile, the state is struggling to meet its budget with a vastly shrunken tax base. What it needs is a new source of revenue, something that won’t squeeze consumers, homeowners, or local business.
A state-owned bank can provide that opportunity. North Dakota, the one state that currently has its own bank, is the only state to be in continuous budget surplus since the banking crisis began. North Dakota’s balance sheet is so strong that it recently reduced individual income taxes and property taxes by a combined $400 million and is debating further cuts. It also has the lowest unemployment rate, lowest foreclosure rate and lowest credit card default rate in the country, and it hasn’t had a bank failure in at least the last decade.
Revenues from the Bank of North Dakota (BND) have been a major boost to the state budget. The bank has contributed over $300 million in revenues over the last decade to state coffers, a substantial sum for a state with a population less than one-tenth the size of Los Angeles County. North Dakota is an oil state, but according to a study by the Center for State Innovation, from 2007 to 2009 the BND added nearly as much money to the state’s general fund as oil and gas tax revenues did. Over a 15-year period, according to other data, the BND has contributed more to the state budget than oil taxes have.
North Dakota is a conservative red state, not the sort you would expect to be engaging in government enterprise. But the conservative justification for a state-owned bank is that it preserves state sovereignty, allowing the state to be independent of Wall Street and the Feds. The BND is not a business competitor of the local banks but partners with them, helping with capital and liquidity requirements. It participates in loans, provides guarantees, and acts as a sort of mini-Fed for the state.
According to the annual BND report for 2010:
Financially, 2010 was our strongest year ever. Profits increased by nearly $4 million to $61.9 million during our seventh consecutive year of record profits. . . . We ended the year with the highest capital level in our history at just over $325 million. The Bank returned a healthy 19 percent ROE, which represents the state’s return on its investment.
A 19 percent return on equity beats the 170 billion dollars LOST by CalPERS and CalSTRS, California’s two public pension funds, by the time the stock market hit bottom in March 2009. The BND was making record profits all through that period.
The BND augments state revenues in other ways besides just returning its profits to the general fund. It helps build the tax base by providing the funding needed by local businesses, and by financing the infrastructure that attracts them. Among other resources, it has a loan program called Flex PACE that allows a local community to provide assistance to borrowers in areas of jobs retention, technology creation, retail, small business, and essential community services.
North Dakota: Banking on the Locals
The BND also furnishes a credit line to the state itself, one that is effectively interest-free, since the state owns the bank. Credit lines are extended in times of emergency or whenever state departments or municipalities face unforeseen circumstances, such as the recent flooding in the state. Having a credit line to the state’s own bank allows state and local governments to avoid extortionate interest rates from Wall Street and pressure to privatize and reduce services in order to avoid downgrades from rating agencies.
Timothy Canova is Professor of International Economic Law at Chapman University School of Law in Orange, California. In a June 2011 paper called “The Public Option: The Case for Parallel Public Banking Institutions,” he compared North Dakota’s comfortable financial situation to California’s:
. . . California is the largest state economy in the nation, yet without a state-owned bank, is unable to steer hundreds of billions of dollars in state revenues into productive investment within the state. Instead, California deposits its many billions in tax revenues in large private banks which often lend the funds out-of-state, invest them in speculative trading strategies (including derivative bets against the state’s own bonds), and do not remit any of their earnings back to the state treasury. Meanwhile, California suffers from constrained private credit conditions, high unemployment levels well above the national average, and the stagnation of state and local tax receipts.
California was once the nation’s leader in technology, industry, entertainment and public education. Under Governor Pat Brown, tuition at UC campuses was free, making higher education available to all. Today tuition is about $13,000 a year, and the state has an unemployment rate hovering at 12%.
California, like North Dakota, is resource-rich. A state-owned bank will allow it to capitalize on its resources to full advantage by providing the credit needed to realize its potential. As the bank was described by Assembly Member Ben Hueso of San Diego, who authored AB 750, "It's not the fad of the moment, a pair of tight fitting jeans; it's a pair of construction boots."
Ellen Brown wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Ellen is an attorney, president of the Public Banking Institute, and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are WebofDebt.com and PublicBankingInstitute.org.
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Say that again, out loud and slowly.....
California dollars backed by nachos and guacamole! Nom nom!
And Green Jobs! Free money for everyone! (except you. and I.)
Banking is a fractional-reserve lending 10:1 leverage whatever currency. The Feds are not necessary to supply additional funds or not for State contracts to deliver FRNs. An aternate to Fed- Private corporation of Member Banks' monopoly is the point here.
I see someone finally got it. You can bet these banks will be required to buy Cal bonds, Fed-Primary dealer light, if you will. Then you can decacube the whole thing again when the state "central" banks start to buy each other's bonds ala the Eurozone. All ensuring a very spectacular end to the republic as we know it when it implodes.
10:1 huh, that's funny.
California government cannot be trusted with your kid's lollipops no less a bank with people's money. If they got their hands on a state run bank it would be tits to the wind in two years. It is about the highest tax state and yet mediocre at best with what that tax buys, and I am a native Californian that finally gave up and moved away in 2005, moved across the state line to Oregon where there are no sales taxes, it was like giving myself a 10% raise. I am pretty sure it has a lot to do with millions and millions of undocumented on welfare with their anchor babies, but whatever the reason the state that used to be by far the best is now at the bottom by most metrics of livability. I would rather live in Georgia than CA at this point.
Anyone remember just a few weeks ago when the state tried to arrange a 5 bn dollar commercial loan in case the federal government shut down and did not pay the states? California is one of the few states that has no balanced budget requirement. As a result it is so deep in debt there is no hope of fiscal stability anytime soon. If they did run a state bank you want to bet they would be belly up to the loan window every time there was any money in there to lend?
Oregon is trying to get one going as well. I have mixed feelings about it. Our property taxes are moderate, our income tax tops out at 9% I think, I do not know for sure since I have never filed, my income is exempt. And we have no sales tax, but the legislature (both parties though the GOP is very quiet about it) want a sales tax so they can double revenues. I have a sneaking suspicion they would use the bank as a backdoor to getting that sales tax once and for all. I would not even be against a sales tax if it were constitutionally limited to 3% and exempted necessities like food and medicine, basic clothing. But every time anyone sets up a sales tax it grows and grows and grows, once it rises it never goes back down.
And what about FDIC? Would it insure deposits in a state bank? What about securities enforcement, SIPC? Who is going to cover the disaster it could become when the economy tanks?
The pro's of such a bank sound great when they are selling the idea to you, but the potential con's are pretty steep as well under the right circumstances.
" I would rather live in Georgia than CA at this point. "
Uh...No...you would not...for many, many, many reasons...most of which you cannot imagine unless you have actually lived in Ga.
I've lived in both states.
If you don't live in the Atlanta metro area, then anywhere else in Georgia pretty much sucks unless you have some overwhelming compelling reason to live there.
California is pretty much a failed state from Sac. to San Diego. North of Sac is pretty nice, but once you go south of Gerry Brown, then forget it.
I did live in Leon County FL in the panhandle on the state line just down the road from Thomasville GA and Dothan AL for years, a part of the country I like to call Baja Alabama. And I am well aware of the shortcomings of the region, but I am a native Californian and on top of all their problems I have the added burden of seeing the place I once loved most in the world turned now into a total shithole. I am a left liberal progressive in many ways and even I do not like the level of PC tax and spend on nothing worth anything that is going on in my home state. More important to me is uncontrolled illegal immigration there has destroyed any hope of ever seeing it return to a livable state, and that I just can't stick around and watch. So as bad as GA might be I would live there before going back to CA, I would live in Michigan or Ohio before CA.
you've got my attention about the immigration thing.
my wife is from monterrey (originally...but she spent her high-school years in new england).
nevertheless, she HATED the south until i showed her around. you have to 'belong' around here before you can enjoy life. people don't trust 'outsiders' around here; nor are they welcome. my apologies. i'm workin on my neighbors; but they are a stubborn sort.
anyway, back to my wife. when we first met, i found that i agreed with her on most everything except immigration. she thought that unchecked immigration was horrid.
i, on the other hand, love mexicans. but, then again, we are in no way 'over-run'. i don't really know how to feel about it. i do know, however, that your average mexican (the economic and political forces that drove him notwithstanding) is a good, honest, HARD WORKING, family man -- who really just wants to get ahead of the grim reaper. most, if my anecdotal estimates are correct, want badly to someday RETURN to mexico.
and if whites are too lazy to do the work, then i don't really see the problem in 'unchecked' immigration. by my way of reckoning, these things have a way of achieveing their own equilibrium.
now, don't take this all sour-like, but, let's just say you're an okie; was it not unchecked immigration that called your people to the promised land to begin with?
PS Janus WILL most certainly live in CA if it's ever again affordable and stable. i've been all over the world and it is by FAR my favorite place.
yer bro,
janus
Right. The banksters are doing such a good job now, why mess with success. /sacrc off
State Power!
I wonder if the Unions will allow Wells Fargo to move their HQ if that happens ?
This article is a perfect example of a writer who does not understand what she is talking about. The same goes for good many bloggers.
America problems are not coming from a free market economy. America does not have any more free market economy. America problems come from the Central Banking Mafia also known as the FED.
The FED, its masters and associates control US banking system, the office of the President and the Congress. Consequently, the US economy and the political system are controlled by the Mafia. It is much worse than either fascism or communism when a government controls economy and there are clear and enforceable rules. Granted, these rules are not democratic but these rules allow centrally controlled economies to functions (just look at the Nazi or Chinese economic miracles). At the same time, any Mafia is a malignant cancer that poisons and killed everything.
The thought that our totally corrupt State politicians to run a bank is such a travesty that only a university brainless fool totally removed from the reality could concoct such thing.
We all must pray for a collapse of our economy. It will not be the end of America. Like a wild forest fire removes the dead woods, an inevitably coming collapse will remove the cancer and then a real recovery & rejuvenation process will take place.
Ellen Brown DOES understand what she is talking about. Read her stuff at Web of Debt.
This is nothing more than a search for a new source of leverage, because the old sources of leverage are dead. It is a predictable response to our current crisis, which is a deleveraging. Relever or die, bitches.
ho hum.
Ha!
Fuck fiat currency and all the people it buys.