June 2013 - Represent Consumers

Banking without banksters

Bravo to the Public Banking Institute for suggesting an alternative vision of what banks are and for raising a basic question: what should a bank do, and who should it serve?

I attended the Institute’s recent conference, which drew activists and interested citizens from around the country to San Rafael, California, to hear about public banking and to brainstorm about ways to fund a new economy that creates a sustainable economy for all of us, since current government officials and bankers are doing such a lousy job at it.

The varied presentations included nuts and bolts sessions on the steps involved in developing a plan and pushing for a public bank, reports on worker-owned cooperatives across the country, as well as an eye-opening session on how the government has been selling off our most gorgeous post offices, many built as part of the federal government’s robust effort to get the country back to work during the Great Depression – the Works Progress Administration.

It’s the lack of any such effort now, either by government or the private sector, that made the public banking conference so key. While it’s fashionable to minimize government’s ability to do anything right, it’s hard to argue with the track record of the Bank of North Dakota, the sole publicly owned bank in the U.S., operating successfully in that state since 1919, when it started with $2 million in capital.The solidly Republican state started its bank as part of a populist wave of anger that swept the state against Wall Street and big city bankers who were denying North Dakota farmers a credit lifeline. Though the state may have turned Republican since then, its residents continue their strong support of their public bank. The state places its revenues from taxes and fees into the bank, which currently holds $2.7 billion in deposits. It has plowed more than $300 million into the state’s economy over the past 10 years, including emergency assistance, state and local government funding and support for small businesses (in partnership with local banks) over the past 10 years, and has enjoyed a 25-26 percent return on equity annually. During that same time, we know what the too big to fail banks were up to – they paid their bankers outrageous bonuses while sinking the economy with risky investments they didn’t understand and relied on taxpayers’ generosity to keep them in business, then improperly foreclosed on millions of homeowners with forged or otherwise fraudulent documents while illegally manipulating the key mortgage interest rate known as LIBOR.

In North Dakota, the public bank makes below-market rate loans to business – but they come with strings attached: every $100,000 in loans must result in the creation of at least one job.

And while the president and CEO of the Bank of North Dakota earns a handsome living by most people’s standards – $232, 500 a year, it’s a pittance compared to the money lavished on the kings and queens of Wall Street.

North Dakota’s success has attracted attention around the country in the last few years: 20 states are now considering legislation to either enable public banks or study their feasibility.

California, with the eighth largest economy in the world, is a particularly intriguing case. The Public Banking Institute’s Ellen Brown estimates, based on the Bank of North Dakota’s experience, a California public bank might generate $148 billion in deposits; with a 10 percent reserve requirement, that could generate $133 billion for credit.

In 2011, California’s legislature passed a proposal to establish a commission to study the feasibility of setting up a such legislation a couple of years ago but then-Gov. Brown vetoed it, saying if the Legislature wanted to evaluate public banking, it should do so with its existing resources. Even though both Assembly and Senate passed the measure Gov. Brown vetoed, two years later, California’s Democratic-majority legislature has yet to answer Gov. Brown’s challenge. That might have something to do with the political contributions from the financial industry, which lavished nearly $78 million to influence state politics last year, according to the National Institute on Money in State Politics. The question we’re going to have to answer is: just how long will stand for private bankers standing in the way of the progress for the common good? If these banks want to gamble with their own money and take the consequences of their losses, that’s one thing. But why should we continue to give them our money? Shame on us if we do, with better alternatives like the Bank of North Dakota staring us in the face.

Video of some of the presentations is available here, and more will become available as time goes by. I’ll be exploring some of the issues raised at the conference in greater depth in the coming weeks.

Dummies For Austerity

From Athens, Greece to Stockton, California and Detroit, bankers feast while citizens and workers starve.

The diet takes many forms. But the basic idea behind it is that the only way to save our government is to starve it, cut services to those who need them most, and above all, keep the big bondholders and wealthy political contributors happy.

Meanwhile, beyond the government halls and bankers’ offices, the austerity diet causes real suffering.

In Greece, the bankers have exacted a painful price, with tax hikes, and layoffs that pushed unemployment over 27 percent, including 50 percent youth unemployment, in exchange for $310 billion in aid from the European Union and the International Monetary Fund.

And of course the money doesn’t go to the Greeks. It goes to the too big to fail bankers who the Greek government borrowed from.

Meanwhile the health consequences of austerity-related cuts to the social safety net amid extended recession across U.S. and are widespread and dire. Oxford and Stanford University researchers found that the U.S. suicide rate jumped during the 2007-2009 recession, with 4,750 “excess deaths” – beyond what pre-existing trends would predict, with the highest increases in the states that experienced the most job losses.

In Greece, suicide rates have skyrocketed, increasing 26 percent over the past year. The Oxford and Stanford University researchers found that, with cuts to HIV prevention and a huge increase in youth unemployment and drug abuse, the rate of the infection has risen 200 percent, while the country has seen its first malaria outbreak in decades after mosquito-spraying programs were cut.

In the U.S., more than 5 million Americans have lost access to health care – including Stockton’s retired city employees. Millions of long-term unemployed Americans will see their unemployment benefits slashed or eliminated as a result of the congressionally-approved sequester budget cuts. Meanwhile, in England, austerity policies have thrown 10,000 British families have been thrown into homelessness.

“The harms we have found include HIV and malaria outbreaks, shortages of essential medicines, lost healthcare access, and an avoidable epidemic of alcohol abuse, depression and suicide,” David Stuckler, Oxford researcher and co-author of “The Body Economic: Austerity Kills,” said. “Austerity is having a devastating effect.”

With no end in sight. In the U.S. Senate, it’s not just Republicans who are enthusiastically getting behInd austerity. Democrats supported a $4.1 billion cut to the nation’s food stamp program, the Nation’s Greg Kaufman reported.

In addition, while debating the farm bill, Democrats supported a draconian measure that would bar the families of those convicted of certain violent crimes from receiving food stamps – ever.

For his part, President Obama himself who has advocated cuts to Social Security (which will do nothing to bring down the deficit) in his budget earlier this year. His supporters say the president is just trying to appear more reasonable in budget negotiations than intransigent Republicans, and that the president would never cut Social Security. But they ignore the fact that when President Obama appointed a task force to make recommendations on entitlements in 2010, he stacked it with austerity hawks from both parties bent on cutting Social Security, like former Clinton chief of staff Erskine Bowles and former Republican Sen. Alan Simpson. While that commission failed to agree on specific recommendations, the president has continued to pursue proposals that would reduce Social Security benefits.

Austerity’s proponents don’t even pretend that that the majority supports it. The bankers and the politicians assure us they know what’s best, then try to sell their noxious cutbacks through fear and demonization – of the undeserving poor, overpaid government workers and others characterized by losing Republican presidential candidate Mitt Romney as the “47 percent” who get assistance from the government.

Sanjay Basu, the Stanford researcher who worked with Stuckler, insisted that the negative health affects of recession are worsened by austerity. The researchers found the negative health affects and the anguish that accompanies them aren’t inevitable. The citizens of European countries that chose stimulus and maintained social safety nets, like Germany, Iceland and Sweden, fared much better than countries that imposed austerity, like Spain, Italy and Greece.

We don’t have to swallow the austerity diet. But we will have to fight to get a menu that doesn’t include it.

“Ultimately what we show is that worsening health is not an inevitable consequence of economic recessions,” Basu said. “It's a political choice."