Saturday, November 4, 2017

Ellen Brown: The Public Bank Option – Safer, Local and Half the Cost

Phil Murphy, a former banker with a double-digit lead in New Jersey’s race for governor, has made a state-owned bank a centerpiece of his platform. If he wins on November 7, the nation’s second state-owned bank in a century could follow. 

  For those few politicians who are aware of the banks’ magic money tree, the axiom that the people should own the banks – or at least some of them – is a no-brainer. One of these rare politicians is Phil Murphy, who has a double-digit lead in New Jersey’s race for governor. Formerly a Wall Street banker himself, Murphy knows how banking works. That helps explain why he has boldly made a state-owned bank a centerpiece of his platform. He maintains that New Jersey’s billions in tax dollars should be kept in the state’s own bank, where it can leverage its capital to fund local infrastructure, small businesses, affordable housing, student loans, and other state needs. New Jersey voters go to the polls on November 7.
That means New Jersey could soon have the second publicly-owned depository bank in the country, following the very successful century-old Bank of North Dakota (BND). Other likely contenders among about twenty public banking initiatives now underway include Washington State, which has approved a feasibility study for a state bank; and the cities of Santa Fe in New Mexico and Los Angeles and Oakland in California, which are exploring the feasibility of their own city-owned banks.

33 comments:

André said...

The promoters of public banks like to forget the desperately low quality that they usually provide to their customers

Unknown said...

Andre, the Public Bank, that Ellen talks about is not a bank that is open to the public, but rather acts as a back stop for the many community banks - the example is the Bank of North Dakota, started by an offshoot of socialists about a century ago). See History of BND

Quote:
BND fulfills its mission to promote the development of agriculture, commerce and industry in North Dakota. The operating policy, established in 1919, stated that the Bank shall be “helpful to and to assist in the development of state and national banks and other financial institutions and public corporations within the state and not, in any manner, to destroy or to be harmful to existing financial institutions.” The Bank’s operating policy continues to serve as a guiding principle for the Bank’s work in our state.

Clint Ballinger said...

Andre - what experience with public banks do you have or are referring to?

André said...

I live in Brazil, and the two biggest banks are Caixa Econômica Federal (CEF), a 100% federal owned bank, and Banco do Brasil (BB), 54% public (54% of the voting shares are owned by the Treasury).

I don't share the right-wing view that private companies and their owners are the paragons of virtue - the entrepreneurs that make our economy and society and so on. Instead, I believe that they are anthietical, selfish human beings, trying to be richer at the expense of the costumer.

However, I also don't share the left-wing view that public organizations are good for society - that they are indirectly controlled and accountable to the population and so are somehow superior. Contrary to most left-wingers, I acknowledge that public services are simply terrible. In Brazil things may be worse than US, but the public sector has a name all around the world for being highly inefficient.

Here in Brazil I'm not afraid to claim that 95% of public organizations are ridiculously ineffective. And CEF is just one of many examples.

All banks, public private, conduct anthietical or illegal activities, like lying when selling products for their costumers, charging fees for products and services they don't supply, selling costumer data, and generally ignoring laws that are not in their interest.

On top of that, CEF provides a poor service. Credit/Debit Cards are suddenly canceled for no reason and you have to wait 40 days to get another one. Online services randomly stop working, including online money transfers. You contract some service and suddenly you realize it was cancelled, and no one tells you that - but they keep changing for it. It takes hours and hours just to open an checking account. If hell exists, it must be exactly like a CEF office.

The solution is not to make commercial banks public. The solution is to take regulation and supervision seriously.

Andrew Anderson said...

The solution is to take regulation and supervision seriously. André

IF banks were 100% private with 100% voluntary depositors then there would be far less need to regulate and supervise them.

Why, for example, should any citizen be forced to have a checking account at a bank or else be limited to grubby, unsafe, inconvenient physical fiat? Why can't all citizens have fiat accounts at the central bank just like commercial banks, credit unions, etc have? And cui bono that citizens can't if not the banks and the most so-called credit worthy, the richer, at the expense of the poorer?

Neil Wilson said...

"The solution is not to make commercial banks public. The solution is to take regulation and supervision seriously."

The left's obsession with form of organisation and ownership is as deeply amusing as their love of globalisation. I've been in all sorts of organisations and the common thread for ineptitude is that they were big and had been around a long time without suffering near fatal destruction at some point. That's co-operatives, public sector organisations, 'non-profits' and both private and public limited companies.

Once you get beyond the 150 associations that a human brain can hold is when the fun starts to happen.

Really you want a network of medium sized operations that die frequently. That keeps things lean and mean.

André said...

"IF banks were 100% private with 100% voluntary depositors then there would be far less need to regulate and supervise them."

No, it wouldn't. Deposits have nothing to do with lying when selling products or charging fees for services not provided. Banks would still act without ethics (or illegaly).

Maybe you are implying that some kind of market self-regulation would occour (people would withdraw their deposits if banks were ineffective or anthietical), so a government supervision would not be so necessary.

But when you realize most depositors are common people that doesn't understand much about banking, that are limited and may be fooled by the experienced banker, then that self-regulation hypothesis fails.

"Why, for example, should any citizen be forced to have a checking account at a bank or else be limited to grubby, unsafe, inconvenient physical fiat?"

Because the alternative would be for the central bank or treasury to provide bank reserves accounts directly to common people. That would be a disaster.

Do you know that inefficiently I was talking about, that happens in the public sector? Well, that happens in the Treasury and Central Bank too. They would provide a poor service to the costumers. The best thing they can do is to outsource that kind of function to private banks. As long as the commercial banks' regulations and supervision are taken seriously, there would be no problem at all.

Tom Hickey said...

But when you realize most depositors are common people that doesn't understand much about banking, that are limited and may be fooled by the experienced banker, then that self-regulation hypothesis fails.

This is true of much of contemporary life. Most people are not capable of evaluating goods. Even highly qualified technical people are not trained in many other fields that are relevant for making an informed decision.

In addition, most markets are no where near perfectly competitive.

So relying on markets to produce optimal result through at least near perfect competition if not perfect is taking a chimera for reality. Moreover, lots of people have vested interests in creating chimeras.

There are no silver bullet solutions, nor are there one-shoe-fits-all solutions either. Most "solutions" that have been proposed are utopian since there is no plausible path for getting from there from here.

The pubic needs to be protected, but who is capable of protecting people at large in a highly stratified society?

This is a reason that history is dialectical, based on conflict of opposing forces and riddled with uncertainty, rather than categorical, e.g., developing in according with laws of nature that can be expressed as functions.

It's also a reason that history is not fair.

Unless ordinary people rise up and call BS, nothing constructive will happen for them.

Andrew Anderson said...

Because the alternative would be for the central bank or treasury to provide bank reserves accounts directly to common people. That would be a disaster. André

Allowing citizens to use their own Nation's fiat would be a disaster?! Equal protection under the law wrt fiat use would be a disaster? De-privileging usury cartels would be a disaster?

Yes, if not done wisely and carefully but it's certainly doable otherwise. I suggest Tom and others start thinking about plausible ways to have honest fiat and credit creation systems rather than long for a failed system Americans despise - socialism.

André said...

Some countries are now making government bonds "directly" avaliable to everyone, through "treasury direct" schemes. So people can earn directly the "risk free interest rate", without having to put their money in some investment fund, paying high fees for bad management.

But they are not totally direct, because we still have banks or brokers between the government and the costumers. Those intermediaries earn a small fee for managing the costumer retail accounts. The government doesn't manage the retail accounts (thanks god). They manage the few banks and brokers accounts.

It is "direct" in the sense that people can buy and sell the bonds with volume, maturies and indexing they want, paying some small custody fee for the intermediaries.

I guess that's the best kind of arrangement you can get without involving people in the totally ineffective retail management by government agencies.

Now that bitcoin and blockchain are fashionable, virtual government currency is also becoming somehow a center of attention. Some countries are even saying that they are creating they own virtual currencies (which probably have nothing to do with blockchain, but they say otherwise for propaganda purposes). Maybe that wave will bring some innovations and make things easier, we will have to wait and see. NuBank is creating free checking accounts, for example.

But I cannot see any technological advances that will eliminate costumer services, no matter what Tom and others start thinking. If the Central Banks was to supply direct reserve accounts to people, it would also need to supply costumer service directly. And that would be a disaster.

Kaivey said...

Some Americans despise socialism but not the youngsters anymore. The ruling elite has done a pretty good propaganda job at discrediting socialism so its surprising how its becoming popular again.

Kaivey said...

Yes Tom, I read an excellent book about how the public got ripped off with privatization where the price of most services doubled our trebled. But the book also spoke about how markets work very well for products that people can easily see that the price is fair, like food, consumer electronic goods, DIY, etc., but when it comes to medical, or pensions, schooling, etc, it gets too complicated for people to understand to see if they are being duped or not, so for these things governments do a better job the authors said.

For instance. When it comes to medical the government can hire a team of experts who will look deeply into it and then they can buy the best deal for the nation, and because they are bulk buying they can get the price right down. I think our pensions should be public too, and I mean really good pensions, not the safety net some governments provide. As for a private pension there would would be nothing to stop people topping up with a private scheme. But private pensions are to risky.

Kaivey said...

Hey everyone here, if public is so bad then why is the American health care system one of the most expensive and worst in the developed world? Because it is more profitable that way.

Tom Hickey said...

Agree, Kevin, but as Matt says, it requires competent people doing it.

André said...

I thought we were talking about banking, not about health care or philosophy

Tom Hickey said...

I thought we were talking about banking, not about health care or philosophy

In the US and UK, it's the same issue. "Mr. Market knows best."

Calgacus said...

Andre:If the Central Banks was to supply direct reserve accounts to people, it would also need to supply customer service directly. And that would be a disaster.

That is not true. One of the world's largest banks and companies is Japan Post Holdings, still 100% owned by the Japanese government, even after half-baked privatization BS. The USA had post office banking until the 1960s.

Contrary to most left-wingers, I acknowledge that public services are simply terrible.
Public companies, just like private companies can be run well or badly. The same for large or small. That public companies are inevitably terrible is nothing but propaganda, rather absurd propaganda.

but the public sector has a name all around the world for being highly inefficient.
Mostly, this is due to propaganda, in particular the practice of using nonsensical measures of efficiency for public enterprise. It is as if individuals expected to be paid for eating or for defending themselves and called themselves inefficient if they couldn't make a profit at these necessary activities. Of course public enterprises can be badly run, but one must never forget that when there is unemployment, as there usually is, public sector inefficiency leads to overall growth and efficiency.

Health care is a good example. The evidence is that public provision is in all respects better = cheaper and better quality. But one cannot forget the macroeconomics of it - James Galbraith is one of the very few who gets it right. The usually good Dean Baker doesn't, say. Part of the USA's relative success has been due to the "soft budget constraint" of its "private Keynesian" bloated, inefficient health care system. The lack of corruption in European health care systems say has led to a vicious cycle of underspending in health care and mismeasurement and austerity.

André said...

"Mostly, this is due to propaganda, in particular the practice of using nonsensical measures of efficiency for public enterprise"

No, my friend, it is not propaganda. As I costumer myself, I can attest the infuriating inefficiency of the public sector. I'm not talking about nonsensical metrics. I am talking about real life inefficiency, observed by everyone who actually experienced terrible public service.

But I agree with Tom, when he says "there are no silver bullet solutions, nor are there one-shoe-fits-all solutions either"

I was talking about banking, not about health care or defense. The subject suddenly changed.

There are times when bad public service is better than no service at all. There are times when private services simply doesn't exist for the necessary social purpose people want. Then some politicians will try to somehow create privatization where it is not possible and then things will eventually get out of control

Andrew Anderson said...

If the Central Banks was to supply direct reserve accounts to people, it would also need to supply costumer service directly. André

Not really. Lending should be left entirely to the private sector to avoid violating equal protection under the law in favor of the most so-called credit worthy. All the central bank should do, in addition to creating fiat for its monetary sovereign and the sale of central bank assets to the private sector, is manage accounts and transactions in fiat and neither buy from nor lend to the private sector since that constitutes fiat creation for the private sector.

André said...

"is manage accounts and transactions in fiat"

If that is the case, again, the central bank would have to provide costumer service.

People would have to register, create a login and password, then people would lose or forget their login/password, or maybe be stolen, then people would have to learn to use the system and have someone to answer their doubts. The Central Bank would need to provide support. That would be disastrous. It would be an error. Just let the banks in charge of that kind of stuff

Andrew Anderson said...

Just let the banks in charge of that kind of stuff André

No because that leaves us with only one payment system, the one that must work commercial banks, credit unions, etc. thus allowing them to hold the economy hostage during one of their recurrent panics.

Instead, let's have an additional payment system that completely bypasses the commercial banks, credit unions, etc. and which thus allows the economy to function while the banking wreckage is cleared in a just way.

André said...

You don't need to end banking as we know. I don't believe it would be good for society.

All we need is better regulation and supervision.

For example, maybe it would be interesting to raise the capital requirements and the liquidity requirements way above we have now.

To put that kind of payment system in the hands of the government would be a shoot in the foot.

Calgacus said...

Andre- I am not disagreeing that you may have experienced bad service from the public sector, usually or always. But just as many people can say the same about private enterprises. I used to run a mail order business, and was astonished at the low price, efficiency and speed of the US Postal Service, for instance.

However, the idea that public enterprises must be "inefficient" is a necessary, universal eternal truth is 100% propaganda. I'm old enough to remember when nobody talked that way in the USA - it really started up in earnest under Reagan. Contrarily, the pop culture in the 70s was that all businessmen are crooks.

The propaganda for the idea of public sector inefficiency exists for a reason - to foster the privatization of things which are more efficiently done publicly, because the privatizers can make enormous fortunes on it. And they often do so by sabotaging, starving the more efficient public operation, so they can pretend to be the saviors. So often the idea causes the observed inefficiency, not vice versa.

Tom Hickey said...

There are several separate issues.

The first and most salient has to do with the public-private distinction and what is proper for each and where they may overlap.

Private goods are generally rivalrous and excludable, while public goods are generally non-rivalrous and non-excludable.

Club goods are non-rivalrous and excludable, while common goods are rivalrous and non-excludable.

There is overlap between public and private wrt to club and common goods, while private goods are usually best provided by the private sector and public goods by the government, either administratively or through contracting.

There is a further distinction between vital goods and discretionary goods. There is a public interest in providing vital goods, while usually not wrt to discretionary goods.

The second point is often conflated with the first and it involves management.

Conservatives assume that the private sector is more efficient than the public sector owing to incentive and competition, as well as the risk of failure. Moreover, it is also assumed that government is more susceptible to corruption than the private sector. These are contestable assumptions.

In most cases this boils down to quality and competence of management. There is no inherent reason that public management should be inferior to private management. Both involves assignment and promotion based on qualification and performance.

Finally, conservatives advocate limited government and charge the opposition with favoring "big government." On the other hand, conservative also advocate strong government and a strong government with few people in charge is biased toward authoritarianism.

The proper goal is good governance, with the priorities being security, order, and welfare, in that order. The chief purpose of government is provision of security. Next, the maintenance of good order. Finally, the extension of welfare to the degree that availability of real resources allows.

André said...

Calgacus, I don't believe that's entirely propaganda, but we know that sometimes (a lot of times) that's the case. But my point is specifically about banking, and I believe that public commercial banking is a disaster.

I don't agree totally with Tom when he says that "there is no inherent reason that public management should be inferior to private management".

I believe there is. In the private sector, the leadership is worried about profits - which actually has good and bad sides, contrary to what claims the left (that sees only the bad side) and the right (sees only the good side). I'm not saying that private companies aren't going the be selfish and criminal, because they often do, and that's why we need regulation and supervision. I'm not saying that they always do a good job in costumer service, because they don't. But also they don't show a total lack of interest for the services they provide.

The public sector management, on the other hand, is a political market. People earn leadership positions because they voted right, not because they are competent. They use the public company as a plataform to serve their political objectives, and they don't care about or don't prioritize production of good quality goods and services. And guess what, the company won't go broke or anything. That's how it works.

Of course, things are complex, and you cannot say that the banking sector is similiar to health care, defense, telecommunications, or any other. Each sector has its characteristics, including but not limited to the public/private goods typology explained by Tom.

So I do not claim that privatization would work for other sectors. What I claim is that privatization works for the banking sector, if regulation and supervision are taken seriously. Public banks are a disaster, that's what I'm saying. Unregulated private banks are also.

And I also claim that left-wingers love to forget how bad are the public services provided by public banks when discussing such themes. Remembering just the good side and forgetting the bad side is a terrible way of discussing ideas, but unfortunately it's how both left and right discuss things.

Andrew Anderson said...

What I claim is that privatization works for the banking sector, if regulation and supervision are taken seriously. André

Works at what? Using, for example, what is in essence, due to government privileges for the banks, etc., the PUBLIC'S CREDIT to disemploy the public? You call that working? I call THAT a disaster.

The issue should not be who can best loot and oppress the less so-called credit-worthy but how to stop the looting and oppression in the first place.

And the way to do so, at least in part, is to have 100% private banks with 100% voluntary depositors.

André said...

Oppress how? By offering loans? Loans are not a problem.

The problem is unemployment, unjust wages, slavery, etc. High employment is a disaster.

A loan extended by a bank is legal and interesting for the society if it is not contracted based on lies and bad faith.

André said...

*high unemployment

Andrew Anderson said...

Loans are not a problem. André

"Bank loans create bank deposits" and supposed liabilities for fiat, 1-for-1 with the new deposits - so the accounting APPEARS legitimate.

However, since citizens may not use fiat except for grubby, unsafe, inconvenient physical fiat, aka "cash", the liabilities of the banks toward the non-bank private sector are largely a sham.

So the accounting is largely a sham except among the banks themselves and other account holders at the central bank.

Are you willing to say that sham accounting is not a problem?!

André said...

It is not a sham.

I have a checking account. I rarely use notes and coins, although I don't think they are "grubby, unsafe, inconvenient". They are good, bank deposits are better.

I just had problems when I held an account at a public bank. Fortunately, in just I few weeks I was able to close it.

I have an account at a private bank and never had a problem. Can pay my bills, taxes, transfer money to people and so on, without any problems. Sometimes they try to sell me products I don't want, and they lie a lot, and I believe that's a real problem. But I'm a smart guy and always refuse. Other than that, it's ok. It's not illegal and works fine.

Everyone can issue IOUs. It's not illegal. It's not problematic. I don't know why you make such an issue with private IOUs.

Andrew Anderson said...

I don't know why you make such an issue with private IOUs. André

I don't. My issue is with government privileges for the banks, credit unions, etc. such as government provided/backed deposit insurance, lender of last resort, positive yielding sovereign debt, etc.

André said...

1) in most countries today people can buy positive yielding sovereign debt. So you can't say it's a bank privilege.

2) Deposit insurance is good for the depositor. As a depositor, I would be mad if suddenly government removed that kind of insurance. I don't care if it good to banks or not. What I care is that it is good to me.

3) Lender of the last resort may indeed be a problem. The trick here is for the government to charge a penalty rate and avoid lending for banks that will break. When there is no going back, government probably will not recieve back the money lent or the interest. So it should never lend to banks that are already gone.

4) You did not explicitly said it, but we have the bail outs. Bail outs are a real problem. Either you let the bank go broke and a lot of innocent people will be harmed (and a lot of guilty people will also, but that is not a problem) or you bail out and save the innocent people, but end up helping the guilty people too... That's an issue

Andrew Anderson said...



1) in most countries today people can buy positive yielding sovereign debt. So you can't say it's a bank privilege. André

It is bank privilege in that it is welfare (the debt of a monetary sovereign is risk-free so it should yield AT MOST 0%) proportional to account balance and banks tend to have the largest accounts in sovereign debt, at least as far as fiat accounts at the central bank are concerned.

2) Deposit insurance is good for the depositor. André

Accounts at the central bank are inherently risk-free. So why should citizens need to deposit at a "private" bank in the first place? When they should be able to have risk-free checking accounts at the central bank? Same as the banks, etc.?

3) Lender of the last resort may indeed be a problem. The trick here is for the government to charge a penalty rate and avoid lending for banks that will break. When there is no going back, government probably will not recieve back the money lent or the interest. So it should never lend to banks that are already gone. André

Borrowing short to lend long is gambling. Why should government lend to gamblers at all?


4) You did not explicitly said it, but we have the bail outs. Bail outs are a real problem. Either you let the bank go broke and a lot of innocent people will be harmed (and a lot of guilty people will also, but that is not a problem) or you bail out and save the innocent people, but end up helping the guilty people too... That's an issue André

I've pointed out the way to protect innocents - make sure bank deposits are 100% voluntary and banks 100% private - but you reject that principled solution. Why? Because then banks are less able to loot and oppress the poor? Making you as immoral as the banking model you defend?