Sunday, May 18, 2014

Ellen Brown — Are Public Banks Unconstitutional? No. Are Private Banks? Maybe.

The movement to break away from Wall Street and form publicly-owned banks continues to gain momentum. But enthusiasts are deterred by claims that a state-owned bank would violate constitutional prohibitions against “lending the credit of the state.” 
California’s constitution is typical. It states in Section 17: “The State shall not in any manner loan its credit, nor shall it subscribe to, or be interested in the stock of any company, association, or corporation . . . .”

The language sounds prohibitive, but what does it mean? Hundreds of state and local government entities extend the credit of the state. State agencies make student loans, small business loans, and farm loans. State infrastructure banks explicitly leverage the credit of the state. Legally, state and local governments are extending their credit to private banks every time they deposit their revenues in those banks. When money is deposited, it becomes the property of the bank by law. The depositor becomes a creditor with an IOU or promise to be repaid. The state or local government has thus lent its money to the bank.

How can these blatant extensions of the state’s credit be reconciled with the constitutional prohibitions against the practice?
The Web of Debt
Are Public Banks Unconstitutional? No. Are Private Banks? Maybe.
Ellen Brown | attorney, founder of the Public Banking Institute, and candidate for California State Treasurer

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