Welcome to the PBI Newsletter, November Edition
Dear Friends of PBI,
What's going on at the Public Banking Institute? Plenty! For a start, we are going to have a national public banking conference, planned to be in Philadelphia in in
mid-April, 2012. This conference is a direct result of the Occupy Wall Street (OWS) movement and aims to influence the national discussion concerning solutions to the current financial lawlessness. We are pre-announcing it to you now - look for a PBI News Alert in December with the specifics.
Why Philadelphia? There is plenty of rich symbolism in Philadelphia, the location of one of the first public banks in the colonies and the location where so many of the original documents forming this country were drafted, ratified, and signed. Even now, Pennsylvania has the distinction of having the first state-based lobbying organization to support a state-owned bank (see below). With the conference held in Philadelphia, we'll be able to showcase the leadership shown by the citizens of Pennsylvania and set the tone for one of the unofficial OWS events scheduled for July 4, 2012 in Philadelphia.
Leading up to the conference will be a series of audio conference calls, beginning in late winter, that will lead to a "Public Banking" draft version of the Economic Bill of Rights. Working closely with Occupy Philly, we hope to attract hundreds of people to these calls and use the output for other conferences and conventions throughout 2012. Read Ellen Brown's call for an Economic Bill of Rights here.
Also beginning in January, the "Democratizing Money" Project will be launched. It will develop models reflecting Bernard Lietaer's work on alternative currency systems and new lending systems coming out of Europe and South America, plus our own models of public banking at the state, county, and municipal level. The Democratizing Money project will give us a voice in the new banking and monetary systems as they develop.
Finally, Occupy Your Statehouse, a legislative initiative, will start nationwide and will include public banking legislation for every state. This is your chance to get involved and help take back your state's credit-generating capacity. Currently, 49 of the 50 state treasurers give away this credit -- billions of dollars worth -- to private banks for private benefit. The public's credit should be used in the public interest! This is what a democratic economy looks like.
For all that has happened this year and is coming up next year, we are truly thankful. These are exciting times.
PBI Newsletter Editor
Public Banking Institute
The Pennsylvania Project - We Have Liftoff!
Public Banking Institute
Founder and Chair
The Pennsylvania Project
The Pennsylvania Project, Inc. is a not-for-profit and non-partisan Pennsylvania public corporation. We are filing for IRS 501c4 status. This means contributions are not tax deductible, but that we have considerable latitude to participate in the political process. And we will.
Observing the progress, or lack thereof, of legislative efforts for public banking in other states, we concluded that in too many cases, legislation was introduced before a foundation of support was created in those constituencies to which legislators and other policy makers might respond, governors and state treasurers among them.
Our first effort was to create a web site (www.papublicbankproject.org
). We formed our corporate vehicle, raised some funds and put a college intern to work building a 1,000 person contact list among: community bankers, local elected officials, chambers of commerce, tax payer and civic organizations, local newspapers and radio stations, unions, and others.
At the same time, directors and members have been making contact with key figures among the constituent groups noted above.
In January, we will begin distribution to our contact list of an initial informational and educational package, drawing on the substantial research and information provided by the PBI and its national partners. At that time, our members will begin personal visits to as many on our contact list as we can manage, and host forums and informational meetings throughout the state.
We will avail ourselves of the available modern telecommunication and social-networking capabilities to widen the circle.
Later, we intend to host a forum in the state capitol, targeting legislators and policy makers and featuring speakers from PBI and our partners, who can describe how a public Bank of Pennsylvania might benefit the people of our commonwealth, as well as describe the “best practices” of capitalization, governance, management, accountability, transparency, and risk management.
While this outreach is underway, we will work with PBI, the national partners and other state public banking organizations to draft model legislation, which we will seek to have introduced later in 2012.
Then we fight it out in legislature during the 2012 election cycle, when all of our state representatives, half the senators, and the state treasurer will be on the ballot, and must meet the voters in public, not only the lobbyists in private.
This takes money and we have begun an active fundraising campaign. It is our intention to “upstream” 10 percent of what we raise to the PBI, to support its critical work. We suggest that all local public banking organizations do the same.
Featured Article: Interview with Mike Krauss
The Public Banking Institute, a non-profit based in Sonoma, Calif., was launched in January to study and promote the idea of government-owned banks. Mike Krauss is a director of the institute and chairman of the Pennsylvania Project in charge of rallying support for a state-owned bank in Pennsylvania. He began his involvement with the institute through its president, Ellen Brown, who wrote a book, "The Web of Debt" about the banking industry. Mr. Krauss, 62, who works as a consultant in international logistics, talked with the Pittsburgh Post-Gazette this week about the institute's efforts.
Q: How many other state-level organizations does the institute have like the one in Pennsylvania?
A: About 20 that are really active. Most are identified on the public banking website [www.publicbankinginstitute.org]. We're not lobbying legislators right now. We are going to launch a public education campaign.
Q: Currently there is only one state-owned bank in the nation, which is the nearly 100-year-old Bank of North Dakota. So this is an unfamiliar concept to most people. Could you briefly explain how a government-owned bank works and what is different about public banking vs. traditional private banking?
A: A public bank is capitalized with public funds. The Bank of North Dakota holds all [state] tax revenues, assets, land, buildings and special funds of the people of the state of North Dakota. The Bank of North Dakota is a state doing business as a bank. It's the people's money. That's the first big difference.
How it operates is different. No dividends are issued to shareholders, no bonuses to executives. Profits are returned to the [state's] general fund or plowed back into the bank to increase its loan activity.
The third difference is it's not a retail bank. It does not loan directly to anybody, rather it supports community bank loans [by making partnership loans]. Say a company comes to a community bank and needs a $5 million loan, but the limit is $2 million. They can go to the Bank of North Dakota [for the rest].
The loan must be originated by a retail bank. They have to approve it. When they approve it, then they approach the Bank of North Dakota, and they have their own risk review. You get two levels of risk management.
Q: What's behind the push for state-owned banks now? Why is this the right time?
A: I think people have seen, I would call it the collapse of the too-big-to-fail banks which were allowed to take market share from the community banks. They pushed them out of the market. I think people have seen the downside of that. This is an opportunity to strengthen the community bank. Wall Street has given banks a bad name.
Q: If a state-run bank were to be formed in Pennsylvania, all state funds, such as tax revenues and the funds of all state agencies, would have to be deposited with the bank, is that right?
Q: Who would insure the funds?
A: The state. The Bank of North Dakota insures itself. That is why prudent risk management is important.
Q: Right now, lawmakers in only a few states are considering bills that would create a public bank. (They don't include Pennsylvania.) Which states are they?
A: There are, in fact, to date 14 states in which legislative activity has been undertaken at various stages. Some bills are to start a state bank, some are to form a study commission.
Q: Where do you think you have the best shot of seeing something pass any time soon?
A: I think we are a year out from any legislation, at least. This is an idea not well understood. That's why I said earlier, our effort in Pennsylvania is one of public education.
Q: If public banking is such a good idea, why is there only one public bank in the country?
A: Because we haven't had a banking crisis [until now] that exposed the systemic failures of the banking industry. Public banking is about solid banking that gets credit flowing into the community through local businesses.
Q: What kind of support do you have?
A: We are way too early to be talking about putting a bill out there. We need to be addressing the concept and issues. Who governs it? In North Dakota, the governor, attorney general and secretary of agriculture, they are the directors. Then there's management. And accountability. Transparency. How do you see what's going on? Public audits twice a year? How do you do that? And of course, risk management.
Q: Who supports the idea locally?
A: I've been talking with [Allegheny County Council member] John Defazio. I have met with state Treasurer Rob McCord and his staff. We have an invitation to meet with Gov. Corbett's policy people. I know lots of state legislators, and we are talking with them.
Q: What would you like to see happen in Pennsylvania?
A: I would like to see the Commonwealth organize a public bank, modeled on the Bank of North Dakota. They have been there and done that. They have addressed the issue of governance and accountability. Over the last decade, they have returned about $300 million in non-tax revenue to the general fund. That is in a state with a population no bigger than Bucks County [Pennsylvania].
Q: In Massachusetts -- where in August a panel studying the possibility of a state-owned bank roundly rejected the idea -- it was estimated that such a bank would need $3.6 billion in start-up funds. How much would a public bank in Pennsylvania need?
A: That's ludicrous. In Oregon, Maine and Washington state, they proposed a $100 million start-up. But it is not an appropriation. You capitalize the bank with revenue from the state.
Q: With state and local governments around the country struggling financially, where would that start-up money come from?
A: There are a couple of ways to do this. One is a simple bond issue. [Another] is with a "rainy day" fund. Then the bank is your rainy day fund.
Q: The Pennsylvania Bankers Association told me they have not taken a stance on the issue of public banking. But the American Bankers Association was quite critical. A top executive there said there are hundreds of government-run banks around the world and ultimately they end up being corrupted by political influences. He said, "When the government gets into the banking business, the incentives are all different. They end up making decisions influenced by politics instead of economics." How do you respond to that?
A: I think that is hysterical. That is one of the most corrupt industries in the history of the world. The fact of the matter is, a public bank provides more prudent risk analysis. There is not incentive to take a bad loan. There are no bonuses for volume, or commissions. You don't get $10-million-dollar salaries.
Let's be clear, [the big banks] failed. They required trillions in public funds to stay in business. To listen to these guys preach about how to run a bank is laughable.
Q: At the risk of understating the situation, it seems like your group is going to have an uphill battle.
A: I think we will have a challenge to explain this. But we have a couple things going for us. One is people are finally looking at the American banking industry and saying, "Wait a minute." [Big banks] failed and took a lot of people's homes, savings and futures. The reality is things are bad in America primarily because the Wall Street-dominated banks gambled with the assets of the American people and lost them.
We need a restructured banking industry in which public banking is a counterweight to the inevitable risk-taking of the [big banks]. Public banking brings investment back to Main Street and away from Wall Street.
Q: What's the biggest drawback to having government in the banking role, as you see it?
A: I don't think you would want to have only publicly-held banks. I'm not sure a public bank would have backed Bill Gates when he dreamed up Microsoft. There certainly is a role for private banking. But it's clear we need something else in the mix, whose focus is the public interest.
Q: Any final thoughts?
A: We want to come back at the end of the day to the large picture. The Bank of North Dakota has successfully invested billions in local economic activity. At the same time, it has returned hundreds of millions of dollars in the last decade to the general fund without taxes.
It is reasonable to project in Pennsylvania -- with a far larger population and far more diverse economy -- that we can realize even greater benefits.
First published on November 18, 2011 at 12:00 am
More about the Public Banking Institute
The Public Banking Institute (PBI) was formed in January 2011 as an educational non-profit organization. Its mission is to further the understanding, explore the possibilities, and facilitate the implementation of public banking at all levels -- local, regional, state, and national.
PBI’s vision is to establish a distributed network of state and local publicly-owned banks that create affordable credit, while providing a sustainable alternative to the current high-risk centralized private banking system. This network will act in the public interest, using its counter-cyclical credit-generating capacity to stabilize potential credit crises, maintain the floor against threats of asset devaluations, build infrastructure, and fund expansion of critical industrial productive capacity. Most important, public banking will create jobs, by partnering with local banks to fund local business, advancing credit for public infrastructure, and augmenting government revenues.
PBI’s mission includes analyzing U.S. and global financial events to facilitate public banking, sharing best practices and lessons learned from research and initiatives in the U.S. and around the globe, and providing resources using PBI’s website, webinars, blogs, and in-person conferences. PBI’s activities include:
•Publication of research involving the U.S. private banking system, past and current;
•Evaluation of existing and historical public banking models, in the U.S. and abroad;
•Publication of research regarding the legal requirements, structure, and daily operations of existing and proposed public banking and financing systems;
•Publication of a semi-annual legislative guide and presentations to aide local public banking initiatives; and
•Organization of public forums that enable state and local public banking efforts.
The quarterly PBI donors call is Friday, Dec 2nd, at 11am Pacific. Members of the PBI Board, including Ellen Brown, will discuss our year-to-date progress. This is time for PBI's financial supporters to ask questions and discuss important matters. All year-to-date donors will receive an email invitation, with all conf call information, to this important event. If you wish to donate, click the "Choose Main Street" button on the left.
In this Issue
• The Penn
sylvania Project - We Have Liftoff!
• Featured Article: Interview with Mike Krauss
• Public Banking in the News (sidebar)
• CANARD ALERT (sidebar)
• No More Foreclosures: A Simple, Two-Step Solution. (sidebar)
Whenever anyone tells me that there’s just a very, very small group of people who control everything, I say, ‘That’s great news! It means there are way, way more of us than there are of them.
— Swami Beyondananda
Public Banking in the News
Huffington Post, “Lobbying Firm Memo To Advise Wall Street Clients On Occupy Movement,”
Jason Cherkis, November 19, 2011
The Economist, “Pockets of Credit,” November 19, 2011
Huffington Post, “Super Committee Deadlock: Heads They Win, Tails We Lose,” Ellen Brown, November 18, 2011
Patriot-News Op-Ed, “Harrisburg's financial plight shows why private debt system isn't working,” Mike Krauss, November 18, 2011
, "What Price the New Democracy? Goldman Sachs Conquers Europe
," Stephen Foley, November 18, 2011
, "North Dakota’s State-Run Bank Boosts Treasury, Spurs Imitators
," Alison Vekshin, November 17, 2011
New Economic Perspectives
, "Some Modest Proposals for Reforming the U.S. Financial and Tax System
," Michael Hudson, November 17, 2011
, "Banking on a Big Change
," Eli Johnson, November 16, 2011
Asia Times Online
, "Time for a new Bill of Rights
," Ellen Brown, November 16, 2011
, "A Municipal Bank In San Francisco?
" Aaron Sankin, November 4, 2011
From the Web:
Main Street Matters, "No More Foreclosures: A Simple, Two-Step Solution,"
Blue Oregon, "Banking is Now a Political and Social Issue
," Todd Olson, November 20, 2011
The Bill of Rights provides adequate protections for U.S. citizens.
ca·nard. noun. A deliberately misleading fabrication.
The Bill of Rights did not contemplate the once-sovereign U.S. money creation processes being usurped by private banks. As a result, financiers gained control over governmental functions, stripping U.S. citizens of their rights, which were transferred to corporations. Therefore, it has become necessary to amend the Constitution to clarify the primacy of individual rights over those of corporate entities, whose sole objective is profit, and to spell out specific economic rights for individuals. (See link to Ellen Brown's article, "Now Is the Time for an Economic Bill of Rights
No More Foreclosures:
A Simple, Two-Step Solution
PBI Advisory Board Member
Founder, National Commonwealth Group, Inc.
Wall Street abuses! Inaction in Washington! Regardless of where one points the finger, the foreclosure crisis continues to devastate the American economy.
Community banks are particularly hard hit, through no fault of their own, and many have failed, seized by regulators or snatched up by larger banks seemingly immune to regulatory heavy handedness. Collapsing real estate markets have a domino effect on institutions that are dependent on healthy real estate values, in particular local governments that rely on property taxes.
The problem is that the players who might have a solution to the crisis are pressured in ways that exacerbate it. For example, community banks would be penalized by the FDIC and other regulators if they tried to help homeowners by renegotiating their loan payment amounts, providing them payment holidays or simply writing down the value of the loans. The federal government would have to initiate a massive new program to cover the costs to the banks that would produce, or require regulators to radically alter their rules to allow banks to take such actions without a negative impact on their own status. Neither is politically feasible. And Wall Street banks have no motivation to step in and solve the crisis that they helped to create.
But there is a way out. Through creative use of existing banking laws and the exercise of eminent domain, local governments can solve the problem.
Public vs. Private Banks
The solution begins with public banking. Public banks are owned directly or indirectly by the public sector (the federal government, states, counties, cities and other administrative districts). Examples can be found around the world, but with the exception of the Bank of North Dakota (BND, a DBA of the state of North Dakota) and a few non-profit-owned banks, banks in the United States are owned by private investors.
Nonetheless, BND can serve as a model for what is possible in other jurisdictions (states, counties and cities). North Dakota has the healthiest economy of any state, with a low 3.5% unemployment, no credit crisis and the lowest default rate on loans. It is also one of only two solvent states in the country. And even though oil is often cited as its secret to success, it is not. Profits from BND are the largest revenue source for North Dakota with oil-related revenues coming in second.
In contrast to what many might assume, BND does not compete with private banks but instead serves as their mini-Fed, partnering with community banks in a manner that proves to be very profitable for them. The state actually has more local banks per capita than any other and has had no bank failures in more than a dozen years!
The BND success story is catching on. Several states are exploring variations on the North Dakota model. For example, the California legislature recently passed a bill to study the feasibility of establishing a state-owned bank. Even cities are looking to get into the act: A recent mayoral candidate in San Francisco advocated a city-owned bank.
We can see similar BND stories in other countries. In May 2010, The Economist noted that the strong and stable publicly owned banks of India, China and Brazil helped those countries weather the banking crisis. And Germany, with one of the healthiest economies in Europe, has a large number of public banks, (see also The Public Option in Banking: Another Look at the German Model) accounting for about 40% of the country’s banking assets.
So how can this public banking concept be used to solve the foreclosure crisis in the U.S.?
County and City-Owned Banks
Counties and medium-to-large sized cities can take direct control of their local foreclosure problem and resolve it using banking laws and eminent domain powers. Let’s use a county as an example.
The county applies to its state’s banking regulatory body for a state bank charter (all states define the requirements for charters and oversee compliance.) Once a charter is granted, a bank can commence normal banking activities that conform to internationally accepted processes and procedures. However, all banks are not alike in who they serve and using the BND model, we would advocate that they not offer retail banking services to the general public (personal checking and savings accounts, car loans etc.), but rather serve the community in a wholesale banking role like BND.
How will that help solve the foreclosure problem? By taking advantage of how banks work and their unique role in injecting money into the economy.
One fundamental banking activity is the ability to create credit (money). When a bank creates credit for a borrower, it does not reach into a pool of existing funds but rather creates that credit simply with an accounting entry. (For example, if my bank grants me a $20,000 car loan, it does so by entering a liability on its balance sheet to give me $20,000 offset by an entry on the asset side of their balance sheet represented by the loan document I signed. It doesn’t have to get that money from depositors or anyone else, but creates it out of thin air!)
The only constraint on how much credit money banks can create is based on a long-standing convention that limits the amount to a multiple of the bank’s assets. That varies by jurisdiction (i.e., conditions set by local regulators) and the prevailing economic climate, but averages around 10 times, i.e., for every $1 in assets owned by the bank, it is allowed to create $10 in loans. Thus, a new bank capitalized by $10 million dollars is able to create approximately $100 million in loan money for borrowers!
So if our example bank is established as a DBA of the county, the entire balance sheet of the county is essentially the starting balance sheet of the county bank. If the county owns just a $100 million in net assets (a small county by most standards) that county bank would have the credit generating capability of up to a $1 billion!
Public Banks & Foreclosures
How can a county use that credit generating ability to solve its foreclosure problem? It takes just two steps.
1. The county issues a moratorium on all foreclosures, requiring instead that all mortgage holders deal with the county bank instead of instituting foreclosure procedures against property owners.
2. It buys distressed real estate loans from the existing lenders, just as the Federal Reserve did by buying toxic assets from the Wall Street banks. The county bank acquires those loans by creating a credit account for the current mortgage holder in the amount of the outstanding balance for each loan. This now puts the distressed mortgage in the hands of the county.
This benefits everyone: the county, the homeowner and the mortgage holder, especially if it is a local bank.
PBI and Move Your Money - Return to Prosperity
For people who are starting from scratch and wish to learn enough about public banking to make a difference in their communities, www.returntoprosperity.org
provides both a handbook and a presentation that can be used to help spread the word.
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The mission of the Public Banking Institute (PBI) is to leverage the historic role of publicly-owned banks nationally and internationally in fostering access to affordable and readily available credit, particularly as used for increasing productive capacity.
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March, 2011 Newsletter
April, 2011 Newsletter
May "Read the Bills (1 of 2)"
May "Read the Bills (2 of 2)"
May "The Fed Speaks" Special Edition Newsletter
June, 2011 Newsletter
July, 2011 Newsletter
August, 2011 Newsletter
September, 2011, Newsletter
October, 2011, Newsletter