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Handouts to accompany slideshow Return to Prosperity
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3/19/14
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Presented by:
To: Date:
Scott Baker, NY State Coordinator, Public Banking Institute [email protected] Occupy: Alternate Banking Group March 23, 2014
1. The Budget Problem
2. Why A Public Bank?
3. What Can Be Done
The Budget Problem
“We don’t have the money!”
An all too familiar refrain.
Options have been limited to: • Cut spending • Raise taxes • Sell off public assets
This argument is getting old!
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The Budget Problem
Federal Option is off the table.
Wall Street Journal, January 8, 2011: “We have no expectation or intention to get
involved in state and local finance,” Mr. Bernanke said in testimony before the Senate Budget Committee. The states, he said later,
“should not expect loans from the Fed.“
In January 2009, President Obama said the Fed might bail out hard-hit state and municipal governments. But the Fed says they are on their own.
The Budget Problem Federal Option is off the table
NO RESCUE FOR YOU!
$191B would Rescue all the states… $16T has gone to the banks - 2012 audit of the Federal Reserve
The Budget Problem
“We don’t have the money!”
Solutions have been limited to: • Cutting spending • Raising taxes • Selling off public assets
No federal rescue.
But now, there’s a new option: • Invest in our own citizens
The public can own its own bank!
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Why A Bank?
Community banks
Dividends
(Interest)
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A typical Systemically Important Financial Institution (SIFI) like JP Morgan has just a 31% Loan to Asset ratio – less than ½ of ND’s community banks. SIFIs don’t make most of their money by making loans!
The States with the Most Community Banks Generally have the fewest Foreclosures…and Vice Versa
Foreclosure Rates for the U.S. January 2014 U.S.: 1 in every 1058
Worst 5 States: Florida: 1 in every 346 Nevada: 1 in every 533 Maryland: 1 in every 543 Illinois: 1 in every 603 New Jersey: 1 in every 619
Best 5 States: North Dakota: 1 in 106,489 Vermont: 1 in 26,854 Mississippi: 1 in 13,851 Nebraska: 1 in 12,654 Montana: 1 in 10,698
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Small Banks are Disappearing Common definition: Total assets < $1 billion
The Big Banks get Bigger…but do not increase their Percentage of Loans to the Community
Small Banks’ Share of Assets Continues to Decline
The largest 25 domestically chartered banks in the country control about two-thirds of all the assets held by domestically chartered banks.
There were 2,118 U.S. banks with less than $100 million of assets at Sept. 30, 2013, down from more than 3,000 at the end of 2008 - FDIC
"Fifteen years ago, the assets of the six largest banks in this country totaled 17 percent of GDP…The assets of the six largest banks in the United States today total 63 percent of GDP.” Senator Sherrod Brown on Sunday, April 25th, 2010 in an interview on ABC’s "This Week.”
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And what do these Big Banks do with the Bulk of their Assets?
The biggest banks are now even bigger than ever.
Are they still Too Big To Fail…or will they actually Fail next time?
The operations of the TBTF banks have been compared to a Casino, but this is unfair…to Casinos! In a Casino, you have consistent rules, and if you go bust, you don’t get bailed out, you get thrown out.
New option: Create a state-owned bank
North Dakota owns its own bank – and therefore it creates its own credit.
As a result, North Dakota’s options are to: • Expand public services • Lower taxes • Increase their bank’s capital, to make even more credit available to the people of North Dakota
No need for a federal rescue.
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The North Dakota experience:
• State-owned bank established 1919 • State budget surpluses 2008-2009 • Lowest unemployment in U.S. • Lowest foreclosure rate • The most local banks per capita • No bank failures in over 20 years* • Bank funds economic growth, from Main Street to high tech to oil production
* Proper risk analysis should include more than that for the Public Bank itself. North Dakota has had no bank failures in over 20 years, while there were 517 bank failures through the end of Sept, 2013 nationwide since 2000, says the cash-strapped FDIC, which has to pick up the pieces.
Why a Public Bank? Profit the People
• The Bank of North Dakota (BND) earns 20+% annual
return on equity by investing within the state.
• BND’s profits ($300M over 10 years) go to the state treasury, reducing tax burdens while supporting public services.
Why are our tax dollars supporting Wall Street?
Why not invest in-state? For education? Higher education? Renewable energy? Tech startups? Infrastructure?
Rating and Staffing: Learning from the Bank of North Dakota
• Standard & Poor's (S&P) maintained Bank of North Dakota's (BND) credit ratings in its latest review of the Bank released July 23, 2013. Its long-term issuer credit rating remained "AA-" and its short-term issuer credit rating to "A-1+”
• What about “key man” risk? What is the risk of key executives leaving and what does that portend for the safety of the bank? Maybe this is an over-rated fear. While Jamie Dimon makes millions running JP Morgan Chase, the president of the Bank of North Dakota – a Civil Servant - earns about $300 thousand a year. Which is the safer, better-run bank?
JP Morgan recently paid over $20 billion in fines for multiple Civil violations (not criminal…so far). The BND has never been found guilty of securities or bank fraud.
What are we paying for?
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Why a Public Bank?
Invest in Our Own Citizens
Meanwhile, public pension funds in most states have lost billions of dollars.
What if these funds were used to own a state bank?
And invested in their own citizens, as North Dakota does?
What are Our Assets Right Now? Check the Comprehensive Annual Financial Reports…
$164 billion in NY State Net Assets Restricted for Pensions and other Purposes (March, 2013 CAFR)
$139 Billion in NY City Net Assets Restricted for Benefits Payments (June, 2013 CAFR)
There are 10s of billions in other liquid funds too
What if 10% of these liquid funds were reallocated to a Public Bank?*
OK, these assets are not quite a Money Tree, but they are money that can be loaned into the community, often with higher expectations of return than investments on Wall Street. Remember: it is not under-funding that hurts pension fund reliability, it is under-performance and volatility.
* By comparison, the Bank of North Dakota has only $6.4B in assets.
Other Municipalities are Investigating Alternate Investment strategies
22 States* are considering some form of State Banking Legislation – and many municipalities are too. Many of these proposals look to fund a Public Bank with State and city funds.
• By law, all taxes from North Dakota and the Chickasaw Indian Nation Banc2 in Oklahoma, go first to these regions’ Public Banks.
• Philadelphia, PA is considering a Public Bank.
Existing Public Banks in Green: North Dakota: Bank of North Dakota Oklahoma: Chickasaw-owned Bank2 of Oklahoma City.
Is it a better local fiscal solution to reallocate some existing funds into a Public Bank?
* http://www.nytimes.com/roomfordebate/2013/10/01/should-states-operate-public-banks/many-states-see-the-potential-of-public-banking - citing the National Conference of State Legislatures (NCSL)
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Why a Public Bank?
Free up Funds
• Banks have unlimited low-interest credit lines with the Fed
• States and municipal governments have no credit line with the Fed
So they must create large “rainy day funds”— public money that sits, earning little interest.
Why a Public Bank? Level the Playing Field
Federal law and the banking system give banks huge advantages and place states at a financial disadvantage.
• Banks borrow at rates as low as 0.2% (overnight Fed funds rate) to 1.27% (6-month CD)
• States borrow at much higher rates Our state is paying too much for credit.
• Banks face new regulatory & compliance issues with Dodd-Frank. A State Public Bank could help community banks comply.
Why a Public Bank?
Control Rising Credit Costs
• States are now hit with lower credit ratings, making borrowing even more expensive
• A year ago, California was rated BBB, barely higher than bankrupt Greece
What is OUR state’s credit rating? New York’s rating is AA+ to AA– (2013)
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Why a Public Bank?
Urgent Need: Affordable Credit
What about municipal governments? Don’t they borrow by issuing bonds?
Yes, at “market rates”— but these rates are being driven up, increasing the cost of money.
The issue is not just available credit, but affordable credit.
What Can Be Done?
What Can Be Done
Today, state and local governments are:
• Investing their capital (pension funds), and • Depositing their tax revenues (our money!) on Wall Street
Translation: They are handing over their huge credit generating power to the same big banks that got us into this mess in the first place.
They are investing in Wall Street, not Main Street.
Does this make sense to you?
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What Can Be Done Banking in the Public Interest
Deposits begin the creation of credit in a bank. This credit is an asset of the bank.
If a state deposits funds in a Wall Street bank, it is giving away its power to create credit.
This credit rightfully belongs to the public, not to private banks.
Our state and cities should be managing that credit in a public bank—serving the public interest by investing in our own Main Street.
What Can Be Done
Invest in Main Street Through a Public Bank
• Keeps our tax money working within the state, city, or borough
• Keeps our credit from leaving the state, city, or borough
• Strengthens our community banks
• Demonstrates that our elected officials are working for us and not for Wall Street • Helps our communities return to prosperity in
a nonpartisan way
Recap: Solution Choices
• Raise taxes
• Cut services
• Sell assets • Invest in our own citizens by creating a public bank
There are no other choices.
Will we continue having our tax payments sent to Wall Street banks?
What Can Be Done
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What Can Be Done
Next Steps
Refine and pass a resolution: “Return to prosperity by forming a state-owned bank.”
Tell your state representative that keeping tax revenues in our state is vital—an urgent need.
Find “natural allies” to speak with one voice for public banking in the public interest.
Natural Allies
• Community leaders whose budgets are being gutted by the state
• Enlightened legislators
• Enlightened Media & Reporters
• Public employees and unions faced with state and city budget cuts: teachers, firefighters, construction workers, etc.
• Community bankers wanting to originate loans
• Unemployed and under-employed people
• Small business owners burdened by high credit card APRs to pay for inventory
• Activist groups like Occupy Alt.banking
Research, Approach, Petition (RAP) R - Join online groups:
https://groups.google.com/forum/#!forum/public-banking (219 members) and https://groups.google.com/forum/?hl=en#!forum/pbivolunteers (141 members) https://www.facebook.com/groups/publicbanking/ (236 members)
R - Download this slideshow: http://www.slideshare.net/ScottOnTheSpot/return-to-prosperity and http://www.slideshare.net/ScottOnTheSpot/return-to-prosperity-6-slides-per-page
R - Begin a study of benefits of a Public Bank in your community, city, state, compare funding alternatives and current investments (will require experts!).
A - Hold a Press Conference or public event: https://vimeo.com/68244964
A - Cultivate the Press: “What North Dakota’s Public Bank Does for Small Businesses” http://boss.blogs.nytimes.com/2014/03/13/what-north-dokotas-public-bank-does-for-small-businesses/
P - Demand that your Assembly Member, City Council member, State Senator, support Public Banking. 10 co-sponsors already support the Sandy Galef bill, above. Get them to sign the Resolution in favor of the bill in the Files section of this Facebook page: https://www.facebook.com/groups/publicbanking/
P - Sign onto the petition to support a State Public Bank - study bill A01696 - and gather more signatures: http://www.change.org/petitions/support-a-public-state-bank-for-new-york-state A thousand signatures hand-delivered in each district would make a big difference!
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Approach Members of the Banking Committee to Co-Sponsor the Galef Bill: A01696
New York State Assembly Banking Committee: http://assembly.state.ny.us/comm/?sec=mem&id=4
Chair: Annette Robinson Members: Peter Abbate; Jr. Joseph Borelli; Karim Camara; Brian Curran; Patricia Fahy; Andrew Garbarino; Mark Gjonaj; Michael Kearns; Micah Kellner; William Magee; Nicole Malliotakis; Michael Miller Walter Mosley; N. Nick Perry; Andrew Raia; Robert Rodriguez; Gabriela Rosa; Sean Ryan; William Scarborough; Luis Sepúlveda; Aravella Simotas; Dan Stec; Claudia Tenney; Raymond Walter; Harvey Weisenberg; David Weprin
All Co-Sponsors: O'Donnell; Steck; Rosenthal; Mosley; Skartados; Quart; Buchwald; Gottfried; Jacobs; Mayer
Approached in Red Agreed to Co-Sponsor in Green