Even if financial services reforms finally are enacted at the federal level, it is unlikely they will create a banking system that serves the interests of Main Street America or the great mass of citizens who pay the taxes yet reap few of the benefits of this nation’s immense wealth. But what if that great mass of citizens owned the banks?
That’s a question that a growing number of gubernatorial candidates and state legislators across the country are answering with proposals to create state-owned banks. The idea has not come to Wisconsin yet. But it should find fertile ground in this state, as it has roots in a progressive-era reform initiated by allies of former Wisconsin Sen. Robert M. La Follette.
The new proposals for state banks borrow from an old model: The state of North Dakota has operated a successful financial institution since 1919, when it was developed by radical reformers who worked closely with La Follette and the Wisconsin progressives. But this is not a trip down memory lane. The explosion of interest in state-owned banks comes in response to a contemporary conundrum: The hundreds of billions of public dollars plowed into big banks by the federal bailout have done little to free up credit for job creation or economic development in recession-ravaged communities.
So, taking a cue from Nobel Prize-winning economist Joseph Stiglitz and other critics of private-bank bailouts, latter-day populists are proposing to put public money to work for the public good.
Oregon Democratic gubernatorial candidate Bill Bradbury is calling for the creation of a Bank of Oregon, which would keep money in the state and invest in sustainable development. “It is time to declare economic sovereignty from the multinational banks that are responsible for much of our current economic crisis,” says Bradbury. “Every year we ship over a billion dollars in Oregon taxpayer dollars to out-of-state and multinational banks in the form of deposits, only to see that money invested elsewhere. It’s time to put our money to work for Oregonians.”
Michigan’s Virg Bernero, a leading candidate for the Democratic nomination for governor, is another public-banking proponent. “We can break the credit crunch and beat Wall Street at their own game by keeping our money right here in Michigan and investing it to retool our economy and create jobs,” says the populist mayor of Lansing.
In Illinois, Green Party gubernatorial nominee Rich Whitney, who won 10 percent of the statewide vote in 2006, proposes depositing all state tax revenues and pension contributions in a state bank.
It is not just gubernatorial candidates who are talking up bold remedies. Legislators from Vermont to Virginia, from Michigan to Washington state are proposing to start state banks. They take inspiration from the Bank of North Dakota, created 91 years ago by radical members of the Non-Partisan League to serve as the depository for all state tax collections and fees.
The leaguers believed that unaccountable big banks were a threat not just to the economic security of farmers, working families and communities, but to democracy itself. So they set out to create a bank that was accountable and responsible.
That bank remains true to its mission.
The nation’s only state-owned bank avoided subprime lending and the derivatives markets during the recent real estate bubble and now has $4 billion under management. In the words of bank President Eric Hardmeyer, it continues to “plow those deposits back into the state of North Dakota in the form of loans. We invest back into the state in economic development type of activities.” What that means, according to Ellen Brown, author of the book “Web of Debt,” is that North Dakota has avoided the credit freeze “by creating its own credit (and) leading the nation in establishing state economic sovereignty.”
That sounds good to Massachusetts Senate President Therese Murray, who wants her state to look into creating its own bank. Washington House Finance Committee Vice Chair Bob Hasegawa, D-Seattle, has formally proposed a State Bank of Washington.
The movement to create state-run banks is part of a broader push to put public money to work for the people. In Los Angeles, the City Council voted unanimously on March 5 to ensure that taxpayer money is invested only in banks that have established track records of helping families stay in their homes, lending to small businesses that create jobs, and eschewing toxic interest-rate “swaps” that saddle communities with excessive fees and interest rates.
Urging these initiatives on is the Service Employees International Union, which is waging a national campaign to stop investing in unaccountable banks. “It’s time for Wall Street banks to stop focusing on their profits and start doing their part to help our cities and families recover,” says SEIU Secretary-Treasurer Anna Burger.
The prospect of what might be done with all the money that has flowed from the federal Treasury to private banks has some players talking of taking the North Dakota model national. A year ago, Stiglitz suggested, “If we had used the $700 billion to create a new financial institution, allowed it to lever 10-to-1, which is very modest compared to the 30-to-1 that we were doing — 10-to-1 would have generated $7 trillion of new lending capacity, far in excess of what our country needs. So the issue here is not about lending. It’s really about saving the bankers. And what we confused was saving the banks versus saving the bankers and their shareholders.”
Yet as Washington struggles with the task of imposing basic regulation on big banks, the action will be in the states. How likely is it? Hardmeyer used to doubt that the North Dakota model would ever be adopted elsewhere. Now, he says, “When I look around the country, it’s not quite as far a leap as I once thought it was.”
John Nichols is the associate editor of The Capital Times. firstname.lastname@example.org