SUBSCRIBE TO OUR FREE NEWSLETTER
Daily news & progressive opinion—funded by the people, not the corporations—delivered straight to your inbox.
5
#000000
#FFFFFF
5
#000000
#FFFFFF
public banks
How to Bust the Bankers’ Club
C. J. Polychroniou speaks with progressive economist Gerald Epstein about why alternative banking is possible and urgently needed.
Feb 29, 2024
It’s been almost a year since the banking crisis kicked off last March. On Friday, March 10, 2023, Silicon Valley Bank, or SVB, a state-chartered commercial bank based in Santa Clara, California, collapsed after facing a sudden bank run and capital crisis. SVB’s collapse was the second largest bank failure in U.S. history since Washington Mutual in 2008. Two days later, New York-based Signature Bank also collapsed due to yet another bank run. But that was not the end of bank failures in 2023. On May 1, the San Francisco-based First Republic Bank, plagued by many of the same problems as those that doomed SVB and Signature Bank, also went under and was seized in turn by regulators who promptly sold all of its deposits and most assets to JP Morgan Chase. Two more banks would go on to declare insolvency later in the year, bringing the number of failed banks to a total of five.
Indeed, 2023 was the worst year for U.S. banks since 2008. But why do U.S. banks continue to fail after the reforms that were implemented in the aftermath of the 2008 global financial crisis? Why does the business model of commercial banks remain so fragile? World renowned progressive economist Gerald Epstein, author of the recently published book
Busting the Bankers’ Club: Finance for the Rest of Us, tackles these questions in the interview that follows. Epstein is professor of economics and co-director of the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst.
C. J. Polychroniou: Jerry, in your new book Busting the Bankers’ Club, you describe the business model of commercial banks in the age of neoliberalism as “roaring banking” and you juxtapose it with that of “boring banking,” which prevailed from the New Deal era right through the Reagan era. Under “boring banking,” banks were prohibited from many of today’s financial engineering practices and financial shenanigans. The result was relative financial stability and economic growth. Obviously, bankers hated this business model, but what factors made possible the transition from “boring banking” to “roaring banking?” Was it simply because of the “logic” of the free-enterprise system at work, or did it happen because of actual intervention in the realm of policymaking?
Gerald Epstein: Like much historical change, the evolution from “boring banking” to “roaring banking” was the outcome of the underlying dynamics and pressures of the economic system and specific historical conjunctures, all with plenty of involvement of actual human beings and classes.
The major Wall Street bankers were never happy with the New Deal financial regulatory rules that made it harder for them to charge excessively high interest rates, make highly leveraged bets, or engineer fraudulent Ponzi or “pump and dump” frauds against customers. The numbers on Wall Street bankers’ incomes show why. As The Bankers’ Club reports, prior to 1929, bankers scarfed down incomes almost twice as high as the average wage in the economy; but after the Depression and up until the late 1970s, their incomes were about average for the whole economy. As my colleague James Crotty put it, these bankers wanted to break out of their New Deal cages to restore their superior incomes and power.
So, starting in the 1960s the major Wall Street banks organized “the Bankers’ Club,” an army of politicians, lawyers, economists, regulators, and fellow business associates to incrementally poke holes, then ditches and finally massive canals through the wall of New Deal financial regulations. According to Robert Weissman, now president of Public Citizen, these financial firms spent over $5 billion, just counting from the early 80s, on the club and its activities. This effort led, most famously, to the repeal of the Glass-Steagall Act in 1999 under the Clinton administration, which then officially ended the separation of commercial from investment banking.
The Bankers’ Club had a different idea: Tear down the New Deal model and usher in a new era in banking, the “roaring banking” system of mega financial institutions and high-risk banking strategies.
These efforts, carried out by real (mostly) men, were aided by underlying dynamic changes in the U.S. and world economies. The U.S. experienced phenomenal economic growth in the aftermath of World War II, and the world also witnessed the resurrection of the European and Asian economies. In due time, competition facing the U.S. in trade and finance intensified, leading to the demise of the Bretton Woods system of fixed exchange rates and relatively stable interest rates. Massive military spending by the U.S. government on the war in Vietnam from 1964 to 1973 combined with the effects of the geopolitics of energy driven by the formation of OPEC led in the 1970s to large increases in commodity prices and inflation, again putting upward pressure on interest rates to keep up with inflation. Then-Fed Chair Paul Volcker jacked up interest rates in an attempt to break the inflationary pressure, once again destabilizing the interest rate structure in banking. All of these forces put enormous pressure on the New Deal framework, partly because the system depended on relatively stable interest rates. The New Deal model chose to stabilize interest rates in order to try to stabilize bank profits and promote borrowing and investment in non-speculative activities.
Thus, something had to give. In principle, the government could have reformed the system. But the Bankers’ Club had a different idea: Tear down the New Deal model and usher in a new era in banking, the “roaring banking” system of mega financial institutions and high-risk banking strategies.
CJP: The neoliberal era is replete with financial crises and bank failures. In 2008, the world experienced the worst economic disaster since the Great Depression because of a financial crisis that originated in the U.S. There was a sharp decline in economic activity which led to a loss of more than $2 trillion from the global economy while millions of people lost their homes and unemployment skyrocketed. Yet, the regulations that followed in the aftermath of the 2008 global financial crisis were essentially cosmetic, as evidenced by the collapse of five major banks in 2023. What were the reasons that SVB, Signature Bank, and First Republic Bank failed, especially since the Board of Governors of the Federal Reserve System insisted at the time that the banking system was “sound and resilient”?
GE: It is good that you bring up the collapse of SVB and the failures of Signature Bank and First Republic, since we are about to reach the one-year anniversary of these important events which occurred in early March 2023.
The Dodd-Frank Act, signed into law by then-President Barack Obama in 2010, was supposed to bring about the end of the “too-big-to-fail” (TBTF) banks and government bailouts. But a year ago when these banks got into trouble, the turmoil threatened to spread panic into the broader U.S. financial markets, signaling a possible series of bank runs in It’s a Wonderful Life style throughout the system. The Dodd-Frank Act had tried to forestall these types of events by making larger banks (those with assets of at least $50 billion) be subject to more careful monitoring by the Federal Reserve, requiring them to hold more capital of their own so that they could withstand larger shocks, and have greater liquidity (cash or cash-like assets) in order to help forestall bank runs. But during the Trump administration, these “medium-sized banks” lobbied to be exempt from the tougher rules. A major player in the fight was Silicon Valley Bank.
The Fed was still acting as chairman of the Bankers’ Club rather than steward of the public interest.
But on March 10, 2023, after a major bank run hit Silicon Valley Bank, it was forced to close. The Fed did not bail out the bank’s executives, but guaranteed the deposits of its remaining depositors even when these were far above the $250,000 amount covered by Federal Deposit Insurance Corporation insurance. When contagion spread to other banks in the U.S., the Fed guaranteed all deposits, no matter how big.
In April, the Federal Reserve published a major exercise of “self-crit” in its handling of SVB, prior to and after the crisis. It’s pretty accurate assessment included the following four problems:
- SVB’s board of directors and management failed to manage their risks.
- Federal Reserve supervisors did not understand SVB’s vulnerabilities.
- When the Fed supervisors did understand risks, they did not take sufficient steps to prevent a crisis.
- The Fed should not have allowed SVB to fly under the radar even though Congress had raised the threshold bank size in order to strictly monitor and regulate banks.
Though accurate as far as they go, these criticisms miss a crucial point: These are essentially the same problems that allowed bigger banks to instigate the Great Financial Crisis in 2008-2009. The Fed itself had done much to block more fundamental reforms during the Dodd-Frank negotiations and afterward as the rules were finalized. And the Fed under Jerome Powell supported the weakening of rules for the medium-sized banks.
In other words, the Fed was still acting as chairman of the Bankers’ Club rather than steward of the public interest. This, the Fed’s post-mortem would not admit.
CJP: Speaking of the Federal Reserve, in your book you do label it as the “chairman” of the Bankers’ Club. Briefly explain what you mean by that, and does the Fed actually have any input in regulatory reforms proposed by lawmakers?
GE: The Federal Reserve, the central bank of the United States, has two main functions. It is in charge of U.S. monetary policy, which includes trying to manage short-term interest rates and the overall supply of money and credit in the economy. And it also has a major role to play in regulating and supervising banks, including the mega banks or what I call the “roaring banks.” The Federal Reserve has been delegated these powers by the U.S. Congress, which, along with the president, establishes the mandates, or major goals, which the Federal Reserve is supposed to try to achieve. The question of the Fed’s mandates or goals has been a subject of long-term political fights in the United States, which explains why the Federal Reserve is a “contested terrain.” I say that the Fed is the “chairman” of the Bankers’ Club because history shows that, for most of the time, the big banks and the capitalist class at large win the contest for dominance of the Fed, both with respect to its monetary policy and regulatory policy. For example, after a long political battle, the Federal Reserve was given by Congress a dual mandate: to achieve high employment and stable prices (steady and low inflation). In addition, more recently, the Federal Reserve was given a mandate to maintain financial stability. But if one studies the Fed’s record, we find that when there is a conflict between keeping inflation very low (which finance normally prefers) and achieving full employment (which workers tend to prefer) the Fed almost always chooses low inflation. And when it comes to regulating banks tightly in order to maintain financial stability, or bailing them out after they get into trouble, the Fed has preferred to simply bail them out. More generally, the Fed offers significant favors to the banks, and in return expects the banks to protect its operations from the intrusive hands of Congress and the president.
To answer your question more directly, the Fed has a big influence on the regulations that Congress eventually passes, as one can see from the inordinate influence that Alan Greenspan had in the legislation to gut Glass-Steagall, and the inordinate role that Ben Bernanke and the Fed had in ensuring that Dodd-Frank regulations were riddled with loopholes.
CJP: The Dodd-Frank Wall Street Reform and Consumer Protection Act has been treated as one of the most significant U.S. regulatory reforms since the Great Depression. But it does remain a highly flawed regulatory framework, and even plugging all the holes in it won’t do the job, you argue in your book. What are the strategic shortcomings of the Dodd-Frank approach to financial regulation?
GE: To identify the flaws in Dodd-Frank, one can start by identifying the causes of the major financial crises we have experienced as well as the rocks and hard places the regulators found themselves between in responding to these crises. These causes are:
- Financial institutions that were allowed to become too big to fail, to manage, to regulate, and to jail.
- Lack of accountability for bad actors who took on excessive risk, even engaged in fraudulent activities, and were left free after the crash to take the money and run and hit the restart button on their next gig.
- Insufficient limits on the debt that these financial institutions could take on and the interconnectedness they could create between themselves and other financial institutions so that when one financial institution got into trouble it could threaten to bring down others like a house of cards.
- Insufficient controls on the short-term financing of long-term or excessively risky financial investments.
- Leaving dark holes in the financial system, that is, institutions and markets that are subject to little or no monitoring, much less regulation. These include hedge funds, private equity firms, and others. Post-crisis problems often emerged from these dark corners of the financial markets.
- Lack of precaution in the implementation of new financial products, so that dangerous products could infect the financial system before sufficient controls could be fashioned.
- No quid pro quos for government support: for example, bailouts with no strings attached.
Dodd-Frank did not really address these problems, and the Trump administration weakened the Dodd-Frank rules even further. As such, these problems are still very much with us.
CJP: What measures do you propose for improving financial regulation, so we won’t have bank failures and severe recessions triggered by financial crises?
GE: At a minimum, we must address these “causes” of the problems that I identified above:
- Cut down the size of the mega banks. For example, implement a modern Glass-Steagall Act that would reduce the maximum size of these banks and separate core banking functions from riskier, more speculative ones.
- Make traders and CEOs responsible for the steps and missteps they take. For example, implement “clawbacks” so that the incomes they are promised to receive from trades or decisions are held in escrow and only paid out when the investment pays off, without the need for government support. These bankers also need stricter legal consequences for breaking the law, including jail time for egregious offenses.
- Strict capital, leverage, and liquidity requirements for all banks that have significance for the overall economy, including “medium-sized banks” on the order of Silicon Valley Bank.
- Comprehensive monitoring and regulation of all financial institutions, markets, and products; no dark holes in the financial system.
- A precautionary principle for new financial innovations, such as Artificial Intelligence (AI) cryptocurrencies. Rules should ensure that these are safe and effective before they are allowed to be introduced into the core financial system. If anything, they should first be tested on the fringes where they cannot do significant harm.
- Support from the Federal Reserve or the U.S. Department of the Treasury in the case of a crisis should only be forthcoming as a last resort and should only come with strict strings (and quid pro quos) attached: Those responsible should be held accountable; the bank should have to change its business model to a safer form; the bank should engage in social services for the community, much like an individual legal offender, at least until it has paid back its bailout funds in full. A more reasonable quid pro quo is that the bank should always have to engage in more socially responsible behaviors simply by virtue of benefiting from this implicit insurance policy from the Federal Reserve or the U.S. government.
This last point touches on an important and more general issue. Financial regulation, at least since the New Deal, has been a negative screen: a list of things banks should NOT do. However, we have many crucial societal problems that the financial system should be taking a more proactive role to help solve. These include, for example, helping to build a green energy economy and ending our reliance on fossil fuels. Also, and this is equally important, contributing to the economic development of marginalized communities. Financial institutions that get government support—and that means ALL of them—should not only avoid crashing our economy but also contribute to our society’s important needs.
CJP: In Busting the Bankers’ Club, you advocate the establishment of banks without bankers because financial regulation alone will not be sufficient to address the plethora of problems (poverty, inequality, discrimination, climate change) facing the contemporary United States. How far can public banking go in addressing these problems, and how do we overcome the resistance of the political system to radical proposals that aim toward the making of a democratic economy?
GE: Yes. Private banks, no matter how regulated, or how incentivized to do socially useful activities, will not be sufficiently motivated to provide many of the key long-term social goods that we need: green energy, healthy communities for all, sufficient financial resources for the development of our rural areas. The reason is that these banks focus on maximizing profits in the short to medium term. Many of these other activities are socially profitable but might not be sufficiently privately profitable, at least in the short to medium term. As a result, we need more publicly oriented financial institutions, such as public banks that are dedicated to broader social goals.
There are activist groups in more than 20 states across the U.S. who are pushing for public banks of various kinds. The most successful ones so far are located in California, but New Jersey is also moving closer to establishing a public bank and there is a strong public bank campaign underway in Massachusetts.
The Federal Reserve should give the same level of support to public banking organizations as it has to private banks.
Still, there are several general obstacles to implementing an ecosystem of public banks adequate to face the problems we have. One is the intense opposition of the Bankers’ Club even though most of these public bank initiatives are structured to minimize competition with the private banks. For example, they do not take deposits; they do not lend directly to customers but rather to other banks who then lend to final customers, etc. Apparently, the Bankers’ Club simply does not want to legitimize any competitive sources of finance that could undercut their power.
Moreover, even if you add up all the public banking initiatives, they would still not be large enough or widespread enough to make a huge dent in the problems we are facing. What we need are national public banking institutions. For example, the Inflation Reduction Act (IRA) created a small Green Development Bank that, with support, could grow and thrive. A more activist and socially oriented Federal Reserve could play an important role here. The Federal Reserve should give the same level of support to public banking organizations as it has to private banks. And it should broaden its tools to promote key social goals: For example, the Fed could buy Green Bonds. It has already bought asset backed securities to bailout the banks.
How do we overcome resistance from the Bankers’ Club and right-wingers to these kinds of reforms? Two things: Join the Club Busters, those activists who are trying to block the Bankers’ Club and promote more socially useful institutions; and protect democracy by helping to get money out of the financial system (eg. repeal
Citizen’s United), expand voting rights, and fight against fascism.
In the last chapter of my book, I suggest that we all bite off what we can chew. Look around and join others who are fighting one of more of these battles. Join them and pitch in. As our forces gather, we will have impacts that build on each other. If some of our initiatives get blocked, other initiatives will move forward.
There are many Club Busters around the country, and indeed the world. In the U.S. we have public banking organizations,
Americans for Financial Reform, Better Markets, Rainforest Action Network, and many others. Support politicians who fight for these issues, including Elizabeth Warren, Sherrod Brown, Jeff Merkley, and Alexandria Ocasio-Cortez.
There are plenty of places to join others and take a stand. That’s how we fight the Bankers’ Club.
Keep ReadingShow Less
Tlaib, AOC Revive Public Banking Act to Take on Wall Street
"Wall Street-run banks are failing to serve many of my residents who are struggling to make ends meet," said Tlaib. "It's long past time to open doors for people who have been systematically shut out."
Dec 13, 2023
Citing the failure of Wall Street banks to adequately serve the needs of working people, Democratic U.S. Congresswomen Rashida Tlaib and Alexandria Ocasio-Cortez on Wednesday reintroduced their Public Banking Act, which if passed would facilitate the establishment of state and local public banks.
The legislation, an updated version of a bill introduced by the two "Squad" members in 2020, would create a "robust federal regulatory framework, grant programs, and financial infrastructure to promote public banks and ensure their success."
The bill also "mandates minimum standards for public banks relating to environmental justice, tenant protections, labor standards, democratic governance, and consumer data privacy."
"It's long past time to open doors for people who have been systematically shut out."
In a statement, Tlaib (Mich.) contended that "Wall Street-run banks are failing to serve many of my residents who are struggling to make ends meet. It's long past time to open doors for people who have been systematically shut out."
"We must provide a better option for those grappling with the costs of simply trying to participate in an economy that has been rigged against them with discriminatory and predatory practices," she added. "We need a financial system that is democratically accountable and puts the livelihoods of our residents ahead of private profits."
Ocasio-Cortez (N.Y.) asserted that "public banks are uniquely able to address the economic inequality and racial wealth gap exacerbated by the banking industry's predatory practices and discriminatory policies."
"The creation of public banks will also facilitate the use of public resources to construct additional public goods, including affordable housing, and local renewable energy projects," she added. "Public banks empower states and municipalities to establish new channels of public investment to help solve systemic crises."
If passed as written, the Public Banking Act would:
- Provide federal charters for public banks;
- Provide public banks a pathway to membership at the Federal Reserve, allowing public banks additional access to capital and loans;
- Establish a "Public Bank Primary Liquidity Facility" that provides liquidity to public member banks;
- Establish a public banking grant program, to facilitate bank formation, capitalization, and operations, among other purposes; and
- Establish a public banking incubator program for technical assistance and start-up support.
"The Public Banking Act ends the era of privileging unaccountable private banks over the public interest. By providing a comprehensive framework for local public banks to join the federal financial system, this legislation is a North Star for the U.S. public banking movement," said Michael Brennan, a leadership committee member at Public Money Action, which supports the legislation. "We are proud to join with organizations across the country to work to turn this bill into law."
"With public banking, we can start to flip the script, taking back our public deposits and reinvesting in low-income communities and communities of color."
The revived Public Banking Act comes as an increasing number of state legislatures are working to pass state-level community banking measures.
Tousif Ahsan of the New Economy Project, which coordinates the Public Bank NYC coalition—a supporter of the bill—said that "for too long, the big banks have maintained a lucrative monopoly on public deposits, making obscene profits as they continue to perpetuate racial and economic injustice."
"With public banking, we can start to flip the script, taking back our public deposits and reinvesting in low-income communities and communities of color," Ahsan added.
Keep ReadingShow Less
Where Is the Public Bank of New Jersey?
We have no shortage of public banking expertise or useful models. But what is lacking is the will to create the Public Bank of New Jersey.
Feb 27, 2022
Over 800 days ago, Gov. Phil Murphy issued Executive Order 91 authorizing the creation of a public bank implementation board. At his press conference in Newark on Nov. 12, 2019, he said, "With the creation of this implementation board, I am proud to take the first step toward ensuring that our taxpayer dollars are invested here in New Jersey."
The common denominator is simple--the vast majority of board members do not want a public bank of any kind that upsets the status quo that is based entirely on borrowing money through private banks.
Sadly, today we are further away from implementing such a bank than when he made that pledge.
The board has been captured by bureaucratic and private banking interests that do not want our tax dollars invested there. Except for two brave souls, his implementation board is wedded to the status quo, which relies on private banking to fulfill New Jersey's financial needs.
As a former banker, the governor knows that more than $13.2 billion of our tax money is being loaned by the state of New Jersey Cash Management Fund to big banks and corporations, who in turn profit by moving our money all over the world.
At the same time, our local, county and state government agencies currently borrow billions from private banks and through municipal bonds arranged by Wall Street firms, who profit yet again from us.
To short-circuit this perverse cycle, the governor has proposed lending our tax dollars directly to our own state and local agencies via a public bank. In addition, as in the Public Bank of North Dakota, it also could partner with local private banks to make badly needed loans for small businesses, affordable housing as well as provide a pool of capital for low-interest student loans.
But from the very beginning, the governor's own implementation board has nixed the North Dakota model where tax dollars go directly into the public bank, which can direct them to important public policy goals. Other more modest "starter" public bank models were proposed and then dismissed along with a plan to purchase a small private bank to obtain its charter and then convert it to a public bank. The common denominator is simple--the vast majority of board members do not want a public bank of any kind that upsets the status quo that is based entirely on borrowing money through private banks.
But the implementation board must do something, doesn't it? Well, it's about to put out a $250,000 request for a proposal to create a business plan--one which, barring massive public pressure, will avoid any and all efforts to ensure "that our tax dollars are invested here in New Jersey." Instead, it will call for a revolving fund supported by donations and/or low-interest loans from private philanthropic organizations that then will be loaned at low rates to support affordable housing and the like.
One could easily imagine that large private banks through their charitable arms also could pony up for this non-threatening program. Certainly, the good work of such a fund could seamlessly become an additional program within a real public bank, but a public bank it is not and never will be.
The governor now has two options: 1. He can pretend this philanthropic option somehow marks the first step toward a public bank, and then call it a day. This might slip by given how little access the public currently has to the board's deliberations. Or 2. He can give the job of creating a real public bank plan to those who actually believe in it.
We have no shortage of public banking expertise or useful models. But what is lacking is the will to create the Public Bank of New Jersey. What is lacking is the will to challenge the governor's own bureaucracies. And what is lacking, most of all is the will to challenge the total domination of New Jersey finance by Wall Street and the private banking establishment.
Many of us still cling to the belief that Governor Murphy wants a real public bank. If so, he has the power, right now, to formulate a business plan to make it a reality. But does he have the will?
After 800 days, New Jersey taxpayers deserve an answer.
Keep ReadingShow Less
150+ NY Groups Back Public Banking Bill to Declare 'Independence From Wall Street'
"From the South Bronx to Buffalo, New Yorkers will benefit from public financing services that will prioritize access, affordability, and growth, all while putting local dollars to work."
Jan 11, 2022
Over 150 advocacy groups from across the Empire State Tuesday sent a letter to New York legislative leaders urging them to follow in the footsteps of places like North Dakota, Germany, and Costa Rica and pass legislation allowing the creation of public banks that would help "advance racial equity and ensure a just recovery for all New Yorkers."
"We need to divest from destructive Wall Street banks and invest in our communities!"
"Our organizations are fighting for public banks that have a clear mission to advance racial, economic, and environmental justice," the letter supporting the New York Public Banking Act states. "With these principles at their core, public banks would reinvest in New York's low-income and immigrant neighborhoods and neighborhoods of color, meeting critical community needs and strengthening our ability to withstand future crises."
"Wall Street banks have for decades blocked low-income people, immigrants, and people of color from mainstream banking," the letter continues, "relegating them to high-cost, predatory financial services that extract massive amounts of wealth from communities and perpetuate poverty and inequality."
"Public banks would partner with our state's numerous community-based lenders to deliver responsible financing and emergency funding to small and worker-owned businesses--including MWBEs--hardest hit by Covid-19," the authors write, referring to New York state's Minority- and Women- Owned Business Enterprise Program.
"They would invest in economic development initiatives that build, rather than extract, wealth, such as permanently affordable housing, community-controlled renewable energy, and more," they argue. "And they would expand access to high-quality, affordable banking services in New York's historically-redlined communities of color."
The letter continues:
Public banking is a proven model; it is common throughout the world, from Costa Rica to Germany. In the U.S., the Bank of North Dakota has successfully financed public projects and made responsible loans to small businesses, farmers, and others for more than a century. Recently, California enacted legislation to facilitate public banking at the local level. It's time for New York to take action and usher in democratic financial institutions that meet the needs of New York's communities, during the Covid-19 crisis and beyond.
Voicing support for the proposed legislation, Democratic New York City Councilwoman Tiffany Caban said in a statement that "it is time our city and state declared independence from Wall Street."
"As long as we bank with massive for-profit financial firms, we will be helping the rich get richer and the poor poorer, creating financial insecurity for unbanked and underbanked working-class New Yorkers, and reinforcing racist inequalities," she continued. "It is high time we adopted a public bank, to allow us to invest in key pillars of safe, stable families and neighborhoods, such as permanently affordable housing, community-controlled clean energy, vital infrastructure, worker-owned businesses, community-development credit unions, and more."
State Assemblymember Amanda Septimo (D-84) added that "as New York prepares to rebuild from the Covid-19 pandemic, we have an opportunity to make way for financial infrastructure that will empower all New Yorkers across the state."
"Passing the New York Public Banking Act will open pathways for economic growth in everything from business to homeownership, and put underserved communities on the path to prosperity," she asserted. "From the South Bronx to Buffalo, New Yorkers will benefit from public financing services that will prioritize access, affordability, and growth, all while putting local dollars to work."
Keep ReadingShow Less
Justin Trudeau's New 'Public' Bank Delivers for Investors, not for Us
These public-private partnerships ultimately drive up the cost of the projects and leave municipalities with less control over their own infrastructure.
Mar 21, 2021
Governments are generally secretive about giving handouts to business, but the Trudeau government has come up with a particularly sneaky way to deliver corporate welfare -- through its Canada Infrastructure Bank (CIB).
This little-known business boondoggle is about to get much richer -- billions of dollars richer -- as Ottawa gears up for a binge of post-COVID spending to build infrastructure across the country, financed by its new bank.
Of course, municipalities badly need new infrastructure so the bank, endowed with $35 billion in public money to help finance infrastructure, should be a godsend.
But it isn't -- except for business and investors.
That's because of the business-friendly way the Trudeau government designed the bank. Municipalities that want the bank's financial support for an infrastructure project must "partner" with a private business.
These public-private partnerships (P3s) ultimately drive up the cost of the projects and leave municipalities with less control over their own infrastructure.
But if municipalities don't want to "partner" with business -- if they want instead to handle the projects themselves, raising the money through municipal bonds as they've traditionally done -- Canada's new public bank won't help them.
Like many municipalities, Mapleton needed to upgrade its water and wastewater systems. The CIB offered a $20 million debt-financing package, and proudly promoted Mapleton as a "pilot project" for its new model of financing municipal water projects.
But the $20 million financing package was aimed at ensuring the private partner achieved its profit targets, and offered nothing directly to the municipality.
When Mapleton township studied the deal carefully, it realized that it would be cheaper for the township to do the water project itself. So it canceled the deal -- and received no help from the CIB.
All that Mapleton was left with was a $367,000 legal bill in connection with the CIB process.
But why didn't the CIB offer the $20 million subsidy directly to the municipality to help finance the project? Why must a private partner be involved?
What the CIB calls its "innovative financing model" is really a mechanism for directing taxpayer dollars to private companies so they can earn profits managing our infrastructure -- even though we can build and operate these projects more cheaply on our own.
What's the point of this bank -- besides ensuring businesses profit from our public services?
Certainly, it's a far cry from the bank Justin Trudeau promised as a key plank in the 2015 Liberal election platform. During that campaign, Trudeau pitched the bank as a way to help struggling municipalities build needed infrastructure. He never mentioned municipalities would have to partner with businesses.
What Trudeau was describing back then sounded like European public banks, which clearly aim to advance the public interest.
Holland, for instance, has a public bank that helps finance local water projects by providing municipalities directly with extremely low-interest loans, as well as expertise in water management, according to David McDonald, a political economist at Queen's University and co-author of "Public Banks and COVID-19."
But once in power, Trudeau designed his new bank with extensive input from Wall Street titan Larry Fink, head of the mega-investment firm BlackRock. Along with key figures from Canada's business and financial community, Fink pushed for a bank that would open up lucrative opportunities for investors.
But those lucrative opportunities mean Canadians will pay more for infrastructure, either through higher taxes or user fees.
As the Ontario auditor general has shown, involving the private sector drives up the costs of infrastructure projects. In a 2014 investigation of 74 projects, the AG found that the province's decision to partner with the private sector -- rather than building the infrastructure itself -- cost Ontarians an extra $8 billion.
The little township of Mapleton figured this out all on its own. So Mapleton (population 11,000) is now funding its water projects itself.
No longer hosting the CIB's pet "pilot project," the township has been abandoned by Trudeau's new bank, which has plenty to offer rich investors but nothing for the people of Mapleton.
The township of Mapleton, Ont. recently got a taste of how tilted the bank is toward the interests of private business.
Keep ReadingShow Less
Will 2021 Be Public Banking's Watershed Moment?
For local governments, public banks offer a path to escape monopoly control by giant private financial institutions over public policies.
Mar 03, 2021
Just over two months into the new year, 2021 has already seen a flurry of public banking activity. Sixteen new bills to form publicly-owned banks or facilitate their formation were introduced in eight U.S. states in January and February. Two bills for a state-owned bank were introduced in New Mexico, two in Massachusetts, two in New York, one each in Oregon and Hawaii, and Washington State's Public Bank Bill was re-introduced as a "Substitution." Bills for city-owned banks were introduced in Philadelphia and San Francisco, and bills facilitating the formation of public banks or for a feasibility study were introduced in New York, Oregon (three bills), and Hawaii.
In addition, California is expected to introduce a bill for a state-owned bank later this year, and New Jersey is moving forward with a strong commitment from its governor to implement one. At the federal level, three bills for public banking were also introduced last year: the National Infrastructure Bank Bill (HR 6422), a new Postal Banking Act (S 4614), and the Public Banking Act (HR 8721). (For details on all these bills, see the Public Banking Institute website here.)
As Oscar Abello wrote on NextCity.org in February, "2021 could be public banking's watershed moment.... Legislators are starting to see public banks as a powerful potential tool to ensure a recovery that is more equitable than the last time."
Why the Surge in Interest?
The devastation caused by nationwide Covid-19 lockdowns in 2020 has highlighted the inadequacies of the current financial system in serving the public, local businesses, and local governments. Nearly 10 million jobs were lost to the lockdowns, over 100,000 businesses closed permanently, and a quarter of the population remains unbanked or underbanked. Over 18 million people are receiving unemployment benefits, and moratoria on rent and home foreclosures are due to expire this spring.
Where was the Federal Reserve in all this? It poured out trillions of dollars in relief, but the funds did not trickle down to the real economy. They flooded up, dramatically increasing the wealth gap. By October 2020, the top 1% of the U.S. population held 30.4% of all household wealth, 15 times that of the bottom 50%, which held just 1.9% of all wealth.
State and local governments are also in dire straits due to the crisis. Their costs have shot up and their tax bases have shrunk. But the Fed's "special purpose vehicles" were no help. The Municipal Liquidity Facility, ostensibly intended to relieve municipal debt burdens, lent at market interest rates plus a penalty, making borrowing at the facility so expensive that it went nearly unused; and it was discontinued in December.
The Fed's emergency lending facilities were also of little help to local businesses. In a January 2021 Wall Street Journal article titled "Corporate Debt 'Relief' Is an Economic Dud," Sheila Bair, former chair of the Federal Deposit Insurance Corporation, and Lawrence Goodman, president of the Center for Financial Stability, observed:
The creation of the corporate facilities last March marked the first time in history that the Fed would buy corporate debt... The purpose of the corporate facilities was to help companies access debt markets during the pandemic, making it possible to sustain operations and keep employees on payroll. Instead, the facilities resulted in a huge and unnecessary bailout of corporate debt issuers, underwriters and bondholders....This created a further unfair opportunity for large corporations to get even bigger by purchasing competitors with government-subsidized credit.
....This presents a double whammy for the young companies that have been hit hardest by the pandemic. They are the primary source of job creation and innovation, and squeezing them deprives our economy of the dynamism and creativity it needs to thrive.
In a September 2020 study for ACRE called "Cancel Wall Street," Saqib Bhatti and Brittany Alston showed that U.S. state and local governments collectively pay $160 billion annually just in interest in the bond market, which is controlled by big private banks. For comparative purposes, $160 billion would be enough to help 13 million families avoid eviction by covering their annual rent; and $134 billion could make up the revenue shortfall suffered by every city and town in the U.S. due to the pandemic.
Half the cost of infrastructure generally consists of financing, doubling its cost to municipal governments. Local governments are extremely good credit risks; yet private, bank-affiliated rating agencies give them a lower credit score (raising their rates) than private corporations, which are 63 times more likely to default. States are not allowed to go bankrupt, and that is also true for cities in about half the states. State and local governments have a tax base to pay their debts and are not going anywhere, unlike bankrupt corporations, which simply disappear and leave their creditors holding the bag.
How Publicly-owned Banks Can Help
Banks do not have the funding problems of local governments. In March 2020, the Federal Reserve reduced the interest rate at its discount window, encouraging all banks in good standing to borrow there at 0.25%. No stigma or strings were attached to this virtually free liquidity - no need to retain employees or to cut dividends, bonuses, or the interest rates charged to borrowers. Wall Street banks can borrow at a mere one-quarter of one percent while continuing to charge customers 15% or more on their credit cards.
Local governments extend credit to their communities through loan funds, but these "revolving funds" can lend only the capital they have. Depository banks, on the other hand, can leverage their capital, generating up to ten times their capital base in loans. For a local government with its own depository bank, that would mean up to ten times the credit to inject into the local economy, and ten times the profit to be funneled back into community needs. A public depository bank could also borrow at 0.25% from the Fed's discount window.
North Dakota Leads the Way
What a state can achieve by forming its own bank has been demonstrated in North Dakota. There the nation's only state-owned bank was formed in 1919 when North Dakota farmers were losing their farms to big out-of-state banks. Unlike the Wall Street megabanks mandated to make as much money as possible for their shareholders, the Bank of North Dakota (BND) is mandated to serve the public interest. Yet it has had a stellar return on investment, outperforming even J.P. Morgan Chase and Goldman Sachs. In its 2019 Annual Report, the BND reported its sixteenth consecutive year of record profits, with $169 million in income, just over $7 billion in assets, and a hefty return on investment of 18.6%.
The BND maximizes its profits and its ability to serve the community by eliminating profiteering middlemen. It has no private shareholders bent on short-term profits, no high-paid executives, no need to advertise for depositors or borrowers, and no need for multiple branches. It has a massive built-in deposit base, since the state's revenues must be deposited in the BND by law. It does not compete with North Dakota's local banks in the retail market but instead partners with them. The local bank services and retains the customer, while the BND helps as needed with capital and liquidity. Largely due to this amicable relationship, North Dakota has nearly six times as many local financial institutions per person as the country overall.
The BND has performed particularly well in economic crises. It helped pay the state's teachers during the Great Depression, and sold foreclosed farmland back to farmers in the 1940s. It has also helped the state recover from a litany of natural disasters.
Its emergency capabilities were demonstrated in 1997, when record flooding and fires devastated Grand Forks, North Dakota. The town and its sister city, East Grand Forks on the Minnesota side of the Red River, lay in ruins. The response of the BND was immediate and comprehensive, demonstrating a financial flexibility and public generosity that no privately-owned bank could match. The BND quickly established nearly $70 million in credit lines and launched a disaster relief loan program; worked closely with federal agencies to gain forbearance on federally-backed home loans and student loans; and reduced interest rates on existing family farm and farm operating programs. The BND obtained funds at reduced rates from the Federal Home Loan Bank and passed the savings on to flood-affected borrowers. Grand Forks was quickly rebuilt and restored, losing only 3% of its population by 2000, compared to 17% in East Grand Forks on the other side of the river.
In the 2020 crisis, North Dakota shone again, leading the nation in getting funds into the hands of workers and small businesses. Unemployment benefits were distributed in North Dakota faster than in any other state, and small businesses secured more Payroll Protection Program funds per worker than in any other state. Jeff Stein, writing in May 2020 in The Washington Post, asked:
What's their secret? Much credit goes to the century-old Bank of North Dakota, which -- even before the PPP officially rolled out -- coordinated and educated local bankers in weekly conference calls and flurries of calls and emails.
According Eric Hardmeyer, BND's president and chief executive, BND connected the state's small bankers with politicians and U.S. Small Business Administration officials and even bought some of their PPP loans to help spread out the cost and risk....
BND has already rolled out two local successor programs to the PPP, intended to help businesses restart and rebuild. It has also offered deferments on its $1.1 billion portfolio of student loans.
Public Banks Excel Globally in Crises
Publicly-owned banks around the world have responded quickly and efficiently to crises. As of mid-2020, public banks worldwide held nearly $49 trillion in combined assets; and including other public financial institutions, the figure reached nearly $82 trillion. In a 2020 compendium of cases studies titled Public Banks and Covid 19: Combatting the Pandemic with Public Finance, the editors write:
Five overarching and promising lessons stand out: public banks have the potential to respond rapidly; to fulfill their public purpose mandates; to act boldly; to mobilize their existing institutional capacity; and to build on 'public-public' solidarity. In short, public banks are helping us navigate the tidal wave of Covid-19 at the same time as private lenders are turning away....
Public banks have crafted unprecedented responses to allow micro-, small- and medium-sized enterprises (MSMEs), large businesses, public entities, governing authorities and households time to breathe, time to adjust and time to overcome the worst of the crisis. Typically, this meant offering liquidity with generously reduced rates of interest, preferential repayment terms and eased conditions of repayment. For the most vulnerable in society, public banks offered non-repayable grants.
The editors conclude that public banks offer a path toward democratization (giving society a meaningful say in how financial resources are used) and definancialization (moving away from speculative predatory investment practices toward financing that grows the real economy). For local governments, public banks offer a path to escape monopoly control by giant private financial institutions over public policies.
This article was first posted on ScheerPost.
Keep ReadingShow Less
Why the Fed Needs Public Banks
The Fed must rely on private banks to inject credit into Main Street, and private banks are currently unable or unwilling to do it. The tools the Fed actually needs are public banks, which could and would do the job.
Dec 02, 2020
On November 20, US Treasury Secretary Steven Mnuchin informed Federal Reserve Chairman Jerome Powell that he would not extend five of the Special Purpose Vehicles (SPVs) set up last spring to bail out bondholders, and that he wanted the $455 billion in taxpayer money back that the Treasury had sent to the Fed to capitalize these SPVs. The next day, Powell replied that he thought it was too soon - the SPVs still served a purpose - but he agreed to return the funds. Both had good grounds for their moves, but as Wolf Richter wrote on WolfStreet.com, "You'd think something earth- shattering happened based on the media hullabaloo that ensued."
Richter noted that the expiration date on the SPVs had already been extended; that their purpose was "to bail out and enrich bondholders, particularly junk-bond holders and speculators with huge leveraged bets"; and that their use had been "minuscule by Fed standards." They had done their job, which was mostly to be "a jawboning tool to inflate asset prices." Investors and speculators, confident that the Fed had their backs, had "created wondrous credit markets that are now frothing at the mouth," making the bond speculators quite rich. However, in Mnuchin's own words, "The people that really need support right now are not the rich corporations, it is the small businesses, it's the people who are unemployed." So why aren't they getting the support? According to Richter,
Powell himself has been badgering Congress for months to provide more fiscal support to small businesses and other entities because the Fed was not well suited to do so, which was the reason the Main Street Lending Program (MSLP) never really got off the ground.
The reason the Fed is not well suited to the task is that it is not allowed to make loans directly to Main Street businesses. It must rely on banks to do it, and private banks are currently unable or unwilling to make those loans as needed. But publicly-owned banks would. Several promising public bank bills were recently introduced in Congress that could help resolve this crisis.
But first, a look at why the Fed's own efforts have failed.
The Fed Lacks the Tools to Inject Liquidity into the Real Economy
Congress has charged the Federal Reserve with a dual mandate: to maintain the stability of the currency (prevent inflation or deflation) and maintain full employment. Not only are we a long way from full employment, but the stability of the currency is in question, although economists disagree on whether we are headed for massive inflation or crippling deflation. Food prices and other at-home costs are up; but away-from-home costs (gas, flights, hotels, entertainment, office apparel) are down. Food prices are up not because of "too much money chasing too few goods" (demand/pull inflation) but because of supply and production problems (cost/push inflation). In terms of "output," we are definitely looking at deflation. An August Bloomberg article quotes economist Lacy Hunt:
[A]ccording to the figures of the CongressionalBudget Office, the output gap will be a record this year and we will have a deflationary gap. In other words, potential GDP will be well above real GDP. And according to the CBO, we're going to have a deflationary output gap through 2030.
The Fed's monetary policies, it seems, are not working. On November 11 and 12, according to Reuters:
[T]he world's top central bankers ... tune[d] into the European Central Bank's annual policy symposium ... to figure out why monetary policy is not working as it used to and what new role they must play in a changed world - be it fightinginequality or climate change.
... Central banks' failure to achieve their targets is beginning to challenge a key tenet of monetary theory: that inflation is always a factor of their policy and that prices rise as unemployment falls.
The Fed adopted a fixed 2% target in 2012. To achieve it, explains investment writer James Molony, they "have implemented unprecedented policies. Interest rates have been slashed, in some cases to near zero, and they have engaged in printing money in order to buy bonds and other assets, otherwise known as quantitative easing."
Lowering the interest rate is supposed to encourage lending, which increases the circulating money supply and generates the demand necessary to prompt producers to increase GDP. But the fed funds rate, the only rate the central bank controls, is nearly at zero; and the equivalent rates in the European Union and Japan are actually in negative territory. Yet in none of these three countries has the central bank been able to reach its inflation target.
The Fed has now resorted to "average inflation targeting" - meaning it will allow inflation to run above its 2% target to make up for periods when inflation was below 2%. To turn up the economic heat, Chairman Powell has been pleading for more stimulus from Congress. If Congress issues bonds, increasing the federal debt, the Fed can buy the bonds; and the money spent into the economy will increase the money supply. But federal legislators have not been able to agree on the terms of a stimulus package.
Why can't the Fed do the job though itself? In a speech to the Japanese in 2002, former Fed Chairman Ben Bernanke argued (citing Milton Friedman) that it was relatively easy to fix a deflationary recession: just fly over the people in helicopters and drop money on them. They would then spend it on consumer goods, creating the demand necessary to prompt productivity. So where are the Fed's helicopters?
"The Fed Doesn't 'Do' Money."
In a recent article titled "Where Is It, Chairman Powell?", Jeffrey Snider, Head of Global Research at Alhambra Investments, questioned whether the Fed's policies were creating inflation as alleged at all. He wrote:
After spending months deliberately hyping a "flood" of digital money printing, and then unleashing average inflation targeting making Americans believe the central bank will be wickedly irresponsible when it comes to consumer prices, the evidence portrays a very different set of circumstances. Inflationary pressures were supposed to have been visible by now, seven months and counting, when instead it is disinflation which is most evident - and it is spreading.
The problem, said Snider, is that "The Fed doesn't do money, therefore there's no way the Fed can have its monetary inflation."
The Fed doesn't "do" money? What does that mean?
As explained by Prof. Joseph Huber, chair of economic and environmental sociology at Martin Luther University of Halle-Wittenberg, Germany, we have a two-tiered money system. The only monies the central bank can create and spend are "bank reserves," and these circulate only between banks. The central bank is not allowed to spend money directly into the economy or to lend it to local businesses. It is not even allowed to lend it directly to Congress. Rather, it must go through the private banking system. When the central bank buys assets (bonds or debt), it simply credits the reserve accounts of the banks from which the assets were bought; and banks cannot spend or lend these reserves except to each other. In an article titled "Repeat After Me: Banks Cannot And Do Not 'Lend Out' Reserves," Paul Sheard, Chief Global Economist for Standard & Poor's, explained:
Many talk as if banks can "lend out" their reserves, raising concerns that massive excess reserves created by QE could fuel runaway credit creation and inflation in the future. But banks cannot lend their reserves directly to commercial borrowers, so this concern is misplaced....
Banks don't lend out of deposits; nor do they lend out of reserves. They lend by creating deposits. And deposits are also created by government deficits. [Emphasis added.]
The deposits circulating in the producer/consumer economy are created, not by the Fed, but by banks when they make loans. (See the Bank of England's 2014 quarterly report here.) The central bank does create paper cash, but this money too gets into the economy only when other financial institutions buy or borrow it from the central bank in response to demand from their customers. The circulating money supply increases when banks make loans to businesses and individuals; and in risky environments like today's, private banks are pulling back from Main Street lending, even with massive central bank reserves on their books.
The Tools the Fed Needs to Get Liquidity into the Economy
Private banks are not following through on the Fed's attempted money injections, but publicly-owned banks would. In countries with strong government-owned banking systems, public banks have historically increased their lending when private banks pulled back. Public banks have a mandate to stimulate their local economies; and unlike private banks, they can do it and still turn a profit, because they have lower costs. They have eliminated the parasitic profit-extracting middlemen, and they do not have to focus on short-term profits to please their shareholders. They can pour their resources into improving the long-term prospects of the economy and its infrastructure, stimulating local productivity and strengthening the tax base.
Three promising new bills are before Congress that would facilitate the establishment of a public banking system in the US.
HR 8721, "The Public Banking Act", was introduced on Oct. 30, 2020. As described on Vox, the Act would "foster the creation of public [state and local government-owned] banks across the country by providing them a pathway to getting started, establishing an infrastructure for liquidity and credit facilities for them via the Federal Reserve, and setting up federal guidelines for them to be regulated. Essentially, it would make it easier for public banks to exist, and it would give some of them grant money to get started."
In September, Sens. Bernie Sanders and Kirsten Gillibrand also introduced The Postal Banking Act, which they said would
- Create $9 billion in revenue for the postal service, saving it from privatization;
- Protect low-income or rural families and communities from predatory lending; and
- Reestablish postal banking to provide basic, low-cost financial services to those who cannot access banks
The third bill, HR 6422, "The National Infrastructure Bank Act of 2020," is modeled on Franklin Roosevelt's Reconstruction Finance Corporation, which funded the rebuilding of the US economy in the Great Depression of the 1930s. According to its advocates, HR 6422 will build or restore over $4 trillion in infrastructure and create up to 25 million union jobs, while being "revenue neutral" (not burdening the federal government's budget). The promise of HR 6422 and the model of the "American System" that inspired it - the innovative banking systems of Alexander Hamilton, Abraham Lincoln and Franklin Roosevelt - will be the subject of another article, coming out next on ScheerPost.
Keep ReadingShow Less
'Banking for the People': Tlaib and Ocasio-Cortez Unveil Bill to Foster Creation of Public Banks Across US
"It's time for an option that works for the people and not solely privatized profits."
Oct 30, 2020
"It's long past time to open doors for people who have been systematically shut out and provide a better option for those grappling with the costs of simply trying to participate in an economy they have every right to--but has been rigged against them."
That's according to Rep. Rashida Tlaib (D-Mich.), who along with Rep. Alexandria Ocasio-Cortez (D-N.Y.) and a handful of other progressives in Congress introduced legislation on Friday they say "would provide a much-needed financial lifeline to states and municipalities, as well as unbanked and underbanked residents, that have been left in dire straits by the Covid-19 pandemic."
Specifically, as a joint statement from the congresswomen explains, the Public Banking Act (pdf) would enable "the creation of state and locally administered public banks by establishing the Public Bank Grant program administered by the secretary of the Treasury and the Federal Reserve Board which would provide grants for the formation, chartering, and capitalization of public banks."
"We spent $30 trillion in the global crisis from 2007-2009 propping up financial institutions that held the country hostage for their reckless behavior. Only $8 trillion dollars has been committed thus far in the Covid-19 pandemic," Tlaib noted. "These banks have been, are, and will continue to depend on the public dollar. It is time for this relationship to be reciprocated and have the banks work for the people and not solely privatized profits wreaking havoc on communities of color."
In addition to allowing the Treasury secretary and the Fed's board to give grants to public banks for "bank formation, capitalization, developing financial market infrastructure, supporter operations, covering unexpected losses, and more without the requirement to provide matching funds," the bill:
- Allows the Federal Reserve to charter and grant membership to public banks, and in conjunction with the appropriate federal agencies, establish a separate regulatory scheme with respect to these.
- Establishes public banking incubator program to provide technical assistance to public member banks to develop technologies, practices, and data that promote public welfare.
- Establishes new liquidity and credit facilities at the Federal Reserve to provide direct federal support to state and local public banks and their communities;
- Prohibits investment in fossil fuel projects.
Tlaib and Ocasio-Cortez argue that public banks not only would benefit city and state governments and aspiring entrepreneurs due to lower interest rates and fees, but also could result in broader community benefits by, for example, funding public infrastructure projects. Ocasio-Cortez called their legislation "monumental."
"Public banks are uniquely able to address the economic inequality and structural racism exacerbated by the banking industry's discriminatory policies and predatory practices," she said. "The creation of public banks will also facilitate the use of public resources to construct a myriad of public goods including affordable housing and local renewable energy projects. Public banks empower states and municipalities to establish new channels of public investment to help solve systemic crises."
The other half of the Squad--Congresswomen Ayanna Pressley (D-Mass.) and Ilhan Omar (D-Minn.)--and Reps. Jesus G. "Chuy" Garcia (D-Ill.), Pramila Jayapal (D-Wash.), Al Green (D-Texas), Bennie G. Thompson (D-Miss.), Earl Blumenauer (D-Ore.), Barbara Lee (D-Calif.), and Jan Schakowsky (D-Ill.) are backing the bill, as are 29 outside groups.
Organizations supporting the measure include the California Public Banking Alliance (CBPA), Take on Wall Street, Americans for Financial Reform, Beneficial State Foundation, Communications Workers of America, Friends of the Earth, Food & Water Action, Americans for Financial Reform, California Reinvestment Coalition, Center for Popular Democracy, Community Change, Farm Aid, Institute for Policy Studies, Jobs With Justice, NJ Citizen Action, Oil Change International, Oil Change International, People's Action, Strong Economy for All, UNITE HERE, Working Families Party, Democracy Collaborative, ACRE, and Public Citizen.
Climate Justice Alliance policy coordinator Anthony Rogers-Wright expressed excitement that "our values regarding the need for a rapid fossil fuel phaseout" are represented in the bill, highlighting evidence that economically, "Big Oil is in big trouble and the people don't want the money they keep in their banks utilized to bailout or finance an industry that's killing people and planet."
Take on Wall Street campaign director Porter McConnell explained that her group supports the Public Banking Act "because public banks can create jobs and boost the local economy, save cities and states money, and lend counter-cyclically to blunt the impact of Wall Street booms and busts."
"As we learned recently from the Paycheck Protection Program, when you pay big Wall Street banks to provide public goods, they inevitably reward themselves and their friends at the expense of white, Black, and brown working families," McConnell said, referencing the business loan program established in March by Congress' last Covid-19 relief measure. "We deserve a financial system for working families, not the big banks."
Keep ReadingShow Less
'After All, It's Our Money': Global Climate Campaigners Call for Public Banks to Fund Just Recovery and Green Transition
"Especially in the midst of a health and economic emergency, public money must be used to boost existing solutions that will create new jobs and support the people most impacted."
Oct 12, 2020
Amid the Global Week of Action for Debt Cancellation and one month ahead of the Finance in Common Summit, climate justice advocates on Monday urged public banks around the world to treat government responses to the coronavirus crisis as opportunities to coordinate just recoveries from the ongoing public health and economic calamities and to simultaneously facilitate just transitions from dirty to clean energy, thereby beginning to "build the world we want."
"Public financial institutions are accountable to the planet and the people. After all, it's our money, and what they are doing with it determines our lives and our future."
--Clemence Dubois, 350.org
"The climate crisis requires us to stay under the limit of 1.5degC of global warming, and the only way we can do it is rapidly moving away from fossil fuel production and use," said Clemence Dubois, France team leader at 350.org. "We need public finance institutions to be the first movers of this transition."
350.org executive director May Boeve argued that the Covid-19 pandemic and ensuing surge in unemployment and material hardship revealed "just how broken our economic systems are," while also stressing that the current catastrophe holds lessons for how to go about "solving other pressing global challenges," particularly the intertwined problems of intensifying inequality and climate disasters.
Contrary to the demands of social and environmental justice advocates, government and financial responses to the pandemic and recession in many countries to date have continued to prop up the fossil fuel industry rather than prioritizing investments in renewable energy development.
As Common Dreams reported earlier this month, the Trump administration and U.S. Federal Reserve have bailed out Big Oil during this crisis, and a May report by Oil Change International and Friends of the Earth showed that since the Paris Agreement, G20 countries have provided at least $77 billion per year in financing for oil, gas, and coal projects through their public finance institutions.
According to 350.org, a handful of institutions, such as the European Investment Bank, Swedfund, and the French Development Agency, have already committed to diverting public money away from fossil fuels--a move that climate campaigners say is necessary but insufficient.
Ahead of the Finance in Common Summit being held in Paris from November 10-12, advocacy groups have described this first ever international gathering of public banks--where nearly 450 financial institutions controlling approximately $2 trillion in public money will convene--as an opportunity for all public financial institutions to commit to aligning their investment policies with carbon emissions reductions, biodiversity protection, and other sustainable development goals.
Activists argued that public banks' ambitious commitments in support of an internationally just transition away from fossil fuels and toward renewable energy can help harness resources in ways that disempower the oil, gas, and coal industries while creating a more egalitarian and sustainable world that benefits workers, communities, and the environment.
"Debt contracted to finance harmful fossil fuel projects that lead to climate chaos is completely illegitimate and should not be repaid."
--Alex Lenferna, 350.org
Dubois explained in a statement that "this leadership is increasingly important as governments prepare to deploy historic levels of public finance in response to Covid-19. Such a commitment needs to be concrete and tangible, and would help set a high bar for what climate leadership looks like for public finance institutions."
"Development banks have the power to enact policies and direct funds towards a just recovery," Dubois said. "Especially in the midst of a health and economic emergency, public money must be used to boost existing solutions that will create new jobs and support the people most impacted."
"Public financial institutions are accountable to the planet and the people," he added. "After all, it's our money, and what they are doing with it determines our lives and our future."
Climate justice advocates also pointed out that this week is the Global Week of Action for Debt Cancellation, an initiative promoted by many organizations and movements in various regions around the world to highlight the negative impacts of debt on countries throughout the Global South.
350.org and others argue that the coronavirus pandemic and resulting economic crisis have highlighted the long-term consequences of colonization and imperialism for the world's poorest inhabitants.
"When major financial institutions lend money to Global South governments to develop fossil fuel projects, they are not only destroying the climate, weakening democratic processes and laws, deepening poverty and inequality, and violating human rights," said Alex Lenferna, a climate justice campaigner at 350.org Africa, "but also tying up young and future generations in debt slavery."
According to Lenferna, "we cannot have climate justice and a just recovery without debt justice."
"Debt contracted to finance harmful fossil fuel projects that lead to climate chaos is completely illegitimate and should not be repaid," Lenferna added. "Public finance institutions should cancel these debts and not allow any new ones."
Keep ReadingShow Less
We Need a Public Option for Banking
As families struggle to get stimulus checks, it's time to fix the rusty pipes of our inequitable financial system.
May 28, 2020
The COVID-19 pandemic response has shown that the very foundations of our economy are shaky, fragile, and--for some of us--downright dangerous.
We're once again watching working people, especially working people of color, bear the brunt of the fallout. Meanwhile, big companies traded on the stock market took two-thirds of the money meant to bail out small businesses.
As big banks have exited the business of serving poor people, one in four U.S. households are now underbanked or unbanked.
But in getting relief out, it's also become clear that we have a plumbing problem: We are forced to rely on the banks as middlemen to deliver government assistance.
Some of them are seizing our stimulus payments to pay themselves. And as big banks have exited the business of serving poor people, one in four U.S. households are now underbanked or unbanked. This has predictably led to marginalized communities and households waiting in distress for life-sustaining stimulus funds, simply because they lack access to a bank account.
The good news is that there's another way. The pandemic has shown that we need a public option for basic banking services.
Legal scholars Morgan Ricks, John Crawford, and Lev Menand have called for the Federal Reserve System to directly offer accounts to all U.S. citizens, residents, and small businesses. Today, only privileged banks and governmental entities are allowed to have these high-interest, low-fee accounts.
But the Fed could easily offer the same option to everyone, and provide better consumer safeguards than Wall Street, as well as higher interest, faster payments, and complete deposit protection. As a recent New York Times editorial endorsing FedAccounts for getting out stimulus payments put it: "Stop Dawdling. People Need Money."
The Fed could also work with the U.S. Postal Service to broaden its reach--strengthening our postal system at a time when it is facing continued attacks from predators.
As the Roosevelt Institute, a think tank, has shown, "Fed Accounts For All" could make sending money as easy as transferring funds through Venmo or Paypal--but with Fed Accounts For All, everyone could do it, without relying on Wall Street (or Silicon Valley).
Even after the pandemic, Fed Accounts For All could make it easier to prioritize assistance through more direct fiscal policy, avoiding ongoing issues with delayed funds, debt collection, and frozen bank accounts. A public option for basic banking services, and an improved, publicly accountable payments system, are necessary parts of a recovery infrastructure that works for everyone.
House Financial Services Chair Maxine Waters introduced legislation to create FedAccounts, and the Ranking Member on the Senate Banking Committee, Sherrod Brown, also introduced a bill to use FedAccounts.
Their proposals would ensure that no one needs to use an expensive check casher to access their stimulus payment, because the Fed--in partnership with the U.S. Postal Service--could deliver the payments to every household.
These bills were incorporated into the House version of the CARES Act in March. Unfortunately, the Senate stripped this provision out of the bill that passed. But it's not too late for them to get it right in the next stimulus bill. Our unbanked and underbanked neighbors are depending on it.
Keep ReadingShow Less
See More
Most Popular
To inform. To inspire. To ignite change for the common good.
News & Opinion
Trending
Common Dreams, Inc. Founded 1997. Registered 501(c3) Non-Profit
Privacy Policy