 |
|
| Politics Forum Index » Economic Politics Forum » Cut Wall Street Out! Own Your Own Bank: How States Can... |
|
Page 1 of 1 |
|
| Author |
Message |
| Moderator... |
 Posted: Thu Nov 05, 2009 2:44 pm |
|
|
|
Guest
|
I remain skeptical of correcting what I perceive as fundamental
problems in our society but the following article by Ellen Brown may
indicate the mainstream is looking for answers.
Cut Wall Street Out! Own Your Own Bank
How States Can Finance Their Own Recovery
By Ellen Brown
URL of this article: www.globalresearch.ca/index.php?context=va&aid=15905
Global Research, November 3, 2009
Web of Debt - 2009-11-01
Pouring money into the private banking system has only fixed the
economy for bankers and the wealthy; it has not done much to address
either the fundamental problem of unemployment or the debt trap so
many Americans find themselves in.
President Obama's $787 billion stimulus plan has so far failed to halt
the growth of unemployment: 2.7 million jobs have been lost since the
stimulus plan began. California has lost 336,400 jobs. Arizona has
lost 77,300. Michigan has lost 137,300. A total of 49 states and the
District of Columbia have all reported net job losses.
In this dark firmament, however, one bright star shines. The sole
state to actually gain jobs is an unlikely candidate for the
distinction: North Dakota. North Dakota is also one of only two states
expected to meet their budgets in 2010. (The other is Montana.) North
Dakota is a sparsely populated state of less than 700,000 people,
largely located in cold and isolated farming communities. Yet, since
2000, the state's GNP has grown 56 percent, personal income has grown
43 percent and wages have grown 34 percent. The state not only has no
funding problems, but this year it has a budget surplus of $1.3
billion, the largest it has ever had.
Why is North Dakota doing so well, when other states are suffering the
ravages of a deepening credit crisis? Its secret may be that it has
its own credit machine. North Dakota is the only state in the Union to
own its own bank. The Bank of North Dakota (BND) was established by
the state legislature in 1919, specifically to free farmers and small
businessmen from the clutches of out-of-state bankers and railroad
men. The bank's stated mission is to deliver sound financial services
that promote agriculture, commerce and industry in North Dakota.
The Advantages of Owning Your Own Bank
So, how does owning a bank solve the state's funding problems? Isn't
the state still limited to the money it has? The answer is no.
Chartered banks are allowed to do something nobody else can do: They
can create credit on their books simply with accounting entries, using
the magic of "fractional reserve" lending. As the Federal Reserve Bank
of Dallas explains on its web site:
"Banks actually create money when they lend it. Here's how it works:
Most of a bank's loans are made to its own customers and are deposited
in their checking accounts. Because the loan becomes a new deposit,
just like a paycheck does, the bank ... holds a small percentage of
that new amount in reserve and again lends the remainder to someone
else, repeating the money-creation process many times."
How many times? President Obama puts this "multiplier effect" at eight
to ten. In a speech on April 14, he said:
"[A]lthough there are a lot of Americans who understandably think that
government money would be better spent going directly to families and
businesses instead of banks - 'where's our bailout?,' they ask - the
truth is that a dollar of capital in a bank can actually result in
eight or ten dollars of loans to families and businesses, a multiplier
effect that can ultimately lead to a faster pace of economic growth."
It can, but it hasn't recently, because private banks are limited by
bank capital requirements and by their for-profit business models. And
that is where a state-owned bank has enormous advantages: States own
huge amounts of capital, and they can think farther ahead that their
quarterly profit statements, allowing them to take long-term risks.
Their asset bases are not marred by oversized salaries and bonuses;
they have no shareholders expecting a sizable cut, and they have not
marred their books with bad derivatives bets, unmarketable
collateralized debt obligations and mark-to-market accounting
problems.
The Bank of North Dakota (BND) is set up as a dba: "the State of North
Dakota doing business as the Bank of North Dakota." Technically, that
makes the capital of the state the capital of the bank. Projecting the
possibilities of this arrangement to California, the State of
California owns about $200 billion in real estate, has $62 billion in
various investments and has $128 billion in projected 2009 revenues.
Leveraged by a factor of eight, that capital base could support nearly
$4 trillion in loans.
To get a bank charter, specific investments would probably need to be
earmarked by the state as startup capital; but the startup capital
required for a typical California bank is only about $20 million. This
is small potatoes for the world's eighth largest economy, and the
money would not actually be "spent." It would just become bank equity,
transmuting from one form of investment into another - and a lucrative
investment at that. In the case of the BND, the bank's return on
equity is about 25 percent. It pays a hefty dividend to the state,
which is expected to exceed $60 million this year. In the last decade,
the BND has turned back a third of a billion dollars to the state's
general fund, offsetting taxes. California could do substantially
better than that. California pays $5 billion annually just in interest
on its debt. If it had its own bank, the bank could refinance its debt
and return that $5 billion to the state's coffers; and it would make
substantially more on money lent out.
Besides capital, a bank needs "reserves," which it gets from deposits.
For the BND, this too is no problem, since it has a captive deposit
base. By law, the state and all its agencies must deposit their funds
in the bank, which pays a competitive interest rate to the state
treasurer. The bank also accepts deposits from other entities. These
copious deposits can then be plowed back into the state in the form of
loans.
Public Banking on the Central Bank Model
The BND's populist organizers originally conceived of the bank as a
credit union-like institution that would free farmers from predatory
lenders, but conservative interests later took control and suppressed
these commercial lending functions. The BND is now chiefly a "bankers'
bank." It acts like a central bank, with functions similar to those of
a branch of the Federal Reserve. It avoids rivalry with private banks
by partnering with them. Most lending is originated by a local bank.
The BND then comes in to participate in the loan, share risk and buy
down the interest rate.
One of the BND's functions is to provide a secondary market for real
estate loans, which it buys from local banks. Its residential loan
portfolio is now $500 billion to $600 billion. This function has
helped the state to avoid the credit crisis that afflicted Wall Street
when the secondary market for loans collapsed in late 2007. Before
that, investors routinely bought securitized loans (CDOs) from the
banks, making room on the banks' books for more loans. But these
"shadow lenders" disappeared when they realized that the derivatives
called "credit default swaps" supposedly protecting their CDOs were a
highly unreliable form of insurance. In North Dakota, this secondary
real estate market is provided by the BND, which has invested
conservatively, avoiding the speculative derivatives debacle.
Other services the BND provides include guarantees for entrepreneurial
startups and student loans, the purchase of municipal bonds from
public institutions and a well-funded disaster loan program. When the
city of Fargo was struck by a massive flood recently, the disaster
fund helped the city avoid the devastation suffered by New Orleans in
similar circumstances; and when North Dakota failed to meet its state
budget a few years ago, the BND met the shortfall. The BND has an
account with the Federal Reserve Bank, but its deposits are not
insured by the FDIC. Rather, they are guaranteed by the State of North
Dakota itself - a prudent move today, when the FDIC is verging on
bankruptcy.
The Commercial Banking Model: The Commonwealth Bank of Australia
The BND studiously avoids competition with private banks, but a
publicly-owned bank could profitably engage in commercial lending. A
successful model for that approach was the Commonwealth Bank of
Australia, which served both central bank and commercial bank
functions. For nearly a century, the publicly-owned Commonwealth Bank
provided financing for housing, small business, and other enterprise,
affording effective public competition that "kept the banks honest"
and kept interest rates low. Commonwealth Bank put the needs of
borrowers ahead of profits, ensuring that sound investment flows were
maintained to farming and other essential areas; yet, the bank was
always profitable, from 1911 until nearly the end of the century.
Indeed, it seems to have been too profitable, making it a takeover
target. It was simply "too good not to be privatized." The bank was
sold in the 1990s for a good deal of money, but it's proponents
consider it's loss as a social and economic institution to be
incalculable.
A State Bank of Florida?
Could the sort of commercial model tested by Commonwealth Bank work
today in the United States? Economist Farid Khavari thinks so. A
Democratic candidate for governor of Florida, he proposes a Bank of
the State of Florida (BSF) that would make loans to Floridians at much
lower interest rates than they are getting now, using the magic of
fractional reserve lending. He explains:
"For $100 in deposits, a bank can create $900 in new money by making
loans. So, the BSF can pay 6 percent for CDs, and make mortgage loans
at 2 percent. For $6 per year in interest paid out, the BSF can earn
$18 by lending $900 at 2 percent for mortgages."
The state would earn $15,000 per $100,000 of mortgage, at a cost of
about $1,700, while the homeowner would save $88,000 in interest and
pay for the home 15 years sooner. "Our bank will save people about
seven years of their pay over the course of 30 years, just on interest
costs," says Dr. Khavari. He also proposes 6 percent credit cards and
6 percent certificates of deposit.
The state could earn billions yearly on these loans, while saving
hefty sums for consumers. It could also refinance its own debts and
those of its municipal governments at very low interest rates.
According to a German study, interest composes 30 percent to 50
percent of everything we buy. Slashing interest costs can make
projects such as low-cost housing, alternative energy development, and
infrastructure construction not only sustainable, but profitable for
the state, while at the same time creating much-needed jobs.
Written for Truthout.
Ellen Brown developed her research skills as an attorney practicing
civil litigation in Los Angeles. In Web of Debt, her latest book, she
turns those skills to an analysis of the Federal Reserve and “the
money trust.” She shows how this private cartel has usurped the power
to create money from the people themselves, and how we the people can
get it back. Her earlier books focused on the pharmaceutical cartel
that gets its power from “the money trust.” Her eleven books include
Forbidden Medicine, Nature's Pharmacy (co-authored with Dr. Lynne
Walker), and The Key to Ultimate Health: Non-toxic Dentistry (co-
authored with Dr. Richard Hansen). Her websites are www.webofdebt.com
and www.ellenbrown.com. |
|
|
| Back to top |
|
|
|
| Immortalist... |
| Posted: Thu Nov 05, 2009 2:52 pm |
|
|
|
Guest
|
Informative article but what is the author's bias towards?
The name bank derives from the Italian word banco "desk/bench", used
during the Renaissance by Florentine bankers, who used to make their
transactions above a desk covered by a green tablecloth.[2] However,
there are traces of banking activity even in ancient times.
In fact, the word traces its origins back to the Ancient Roman Empire,
where moneylenders would set up their stalls in the middle of enclosed
courtyards called macella on a long bench called a bancu, from which
the words banco and bank are derived. As a moneychanger, the merchant
at the bancu did not so much invest money as merely convert the
foreign currency into the only legal tender in Rome--that of the
Imperial Mint.[3]
The earliest evidence of money-changing activity is depicted on a
silver drachm coin from ancient Hellenic colony Trapezus on the Black
Sea, modern Trabzon, c. 350-325 BC, presented in the British Museum in
London. The coin shows a banker's table (trapeza) laden with coins, a
pun on the name of the city.
In fact, even today in Modern Greek the word Trapeza (Τράπεζα) means
both a table and a bank.
# 2 Traditional banking activities
# 3 Definition
# 4 Accounting for bank accounts
# 5 Wider commercial role
# 6 Economic functions
# 7 Law of banking
# 8 Entry regulation
# 9 Banking channels
# 10 Types of banks
* 10.1 Types of retail banks
* 10.2 Types of investment banks
* 10.3 Both combined
* 10.4 Other types of banks
# 11 Banks in the economy
* 11.1 Size of global banking industry
* 11.2 Bank crisis
# 12 Challenges within the banking industry
# 13 Brokered deposits
# 14 Profitability
http://en.wikipedia.org/wiki/Bank |
|
|
| Back to top |
|
|
|
| whitebread... |
| Posted: Thu Nov 05, 2009 9:24 pm |
|
|
|
Guest
|
"Immortalist" <reanimater_2000 at (no spam) yahoo.com> wrote in message
news:51c66369-d37b-4b74-a51e-5b6f05ee1e03 at (no spam) x25g2000prf.googlegroups.com...
Informative article but what is the author's bias towards?
The name bank derives from the Italian word banco "desk/bench", used
during the Renaissance by Florentine bankers, who used to make their
transactions above a desk covered by a green tablecloth.[2] However,
there are traces of banking activity even in ancient times.
In fact, the word traces its origins back to the Ancient Roman Empire,
where moneylenders would set up their stalls in the middle of enclosed
courtyards called macella on a long bench called a bancu, from which
the words banco and bank are derived. As a moneychanger, the merchant
at the bancu did not so much invest money as merely convert the
foreign currency into the only legal tender in Rome--that of the
Imperial Mint.[3]
The earliest evidence of money-changing activity is depicted on a
silver drachm coin from ancient Hellenic colony Trapezus on the Black
Sea, modern Trabzon, c. 350-325 BC, presented in the British Museum in
London. The coin shows a banker's table (trapeza) laden with coins, a
pun on the name of the city.
In fact, even today in Modern Greek the word Trapeza (Τράπεζα) means
both a table and a bank.
# 2 Traditional banking activities
# 3 Definition
# 4 Accounting for bank accounts
# 5 Wider commercial role
# 6 Economic functions
# 7 Law of banking
# 8 Entry regulation
# 9 Banking channels
# 10 Types of banks
* 10.1 Types of retail banks
* 10.2 Types of investment banks
* 10.3 Both combined
* 10.4 Other types of banks
# 11 Banks in the economy
* 11.1 Size of global banking industry
* 11.2 Bank crisis
# 12 Challenges within the banking industry
# 13 Brokered deposits
# 14 Profitability
http://en.wikipedia.org/wiki/Bank |
|
|
| Back to top |
|
|
|
|
|
All times are GMT - 5 Hours
The time now is Fri Dec 11, 2009 9:53 pm
|
|