Monday, June 22, 2015

You'll never get felon bankers in jail - how about public banking?

Robert Reich has the news that the city of Santa Cruz has voted to move it's business away from the 5 biggest banks pleaded guilty to a very serious crime:
"Five giant banks – including Wall Street behemoths JPMorgan Chase and Citicorp – recently pleaded guilty to criminal felony charges that they rigged the world’s foreign-currency market for their own profit." 
True enough those are serious crimes and everyone involved "made" a ton of money, more than most of the rest of us would see in a lifetime. What they did was theft and none of them are going to prison for it. They are, in a sense untouchables.

While it is true that we can move our municipal investments somewhere else, that somewhere else is almost always a private bank. Private banks are in a unique position. They can loan money to other people at interest and at risk. But what is it that they are actually risking? Money created from nothing. I find it odd that any sovereign nation would grant the power to create money to private individuals.

If we can't put the men responsible for high crimes in jail, crimes like foreign currency market rigging, LIBOR rigging and the housing bubble collapse of 2008, then we need to look at another option. An option that, thankfully, is getting more and more attention by the day: public banking.

The concept of public banking is simple (more details by The Public Banking Institute). Municipalities, states and the federal government keep their money in a private bank and they earn a pittance for interest. Then they borrow that money from a private bank at much higher interest when they need to cover deficits or do really big stuff, like infrastructure. That's how it's done now. With public banking, the money is kept in a bank owned by the government. That bank makes the loans needed to keep the economy moving. The bank returns interest earned to the treasury.

One state has been doing this for almost 100 years: The Bank of North Dakota (BND). The BND has been making local loans to farmers and commercial banks in order to avoid sending money away from the state. It has been returning money to the state treasury every year in its existence and continues to provide generous returns today.

Considering how lucrative municipal finance has been for the 5 biggest private banks, they would get really unhappy if public banking were to get traction and public banks were to start up everywhere. Government finance is one of their biggest sources of revenue. If they were to lose that business to public banking, they would not just be upset, they'd be working hard to repeal laws that enabled public banking, but with a lot less money for influence.

Public banking works for the people, not private monied interests that give us the boom and bust cycle. Public banks return interest earned to their respective treasuries. Public banks are a natural exercise of the sovereign power, a power derived from the people. Public banks would be far more accountable to the people than private banks and would actually act in the public interest first because their first duty is to the state, not shareholders seeking yet another profit center. And finally, public banking would be transparent, subject to intense scrutiny, limited to just really boring financing. You know, like financing infrastructure, education and health care.

Private banks would prefer that you consider them first, and they will give you every reason they can think of not to use public banking - except putting the public interest first. If we really want to punish the biggest banks doing the biggest crimes, then we must agitate, lobby and write our local representative to support and implement a public bank. The loss of business to private banks will be punishment for sure, but a shift to public banking might also create and encourage the political will to put the private bankers in jail. Without parole.
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