The fliers touted new ballfields, science labs and modern classrooms. They didn’t mention the crushing debt or the investment bank that stood to make millions.
— Melody Peterson, Orange County Register, February 15, 2013
Remember when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems that the ubiquitous investment bank has also put the squeeze on California and its school districts. Not that Goldman was alone in this; but the unscrupulous practices of the bank once called the undisputed king of the municipal bond business epitomize the culture of greed that has ensnared students and future generations in unrepayable debt. Continue reading
Public banks in North Dakota, Germany and Switzerland have been shown to outperform their private counterparts. Under the TPP and TTIP, however, publicly-owned banks on both sides of the oceans might wind up getting sued for unfair competition because they have advantages not available to private banks.
In November 2014, the Wall Street Journal reported that the Bank of North Dakota (BND), the nation’s only state-owned bank, “is more profitable than Goldman Sachs Group Inc., has a better credit rating than J.P. Morgan Chase & Co. and hasn’t seen profit growth drop since 2003.” The article credited the shale oil boom; but as discussed earlier here, North Dakota was already reporting record profits in the spring of 2009, when every other state was in the red and the oil boom had not yet hit. The later increase in state deposits cannot explain the bank’s stellar record either.
Then what does explain it? The BND turns a tidy profit year after year because it has substantially lower costs and risks then private commercial banks. It has no exorbitantly-paid executives; pays no bonuses, fees, or commissions; has no private shareholders; and has low borrowing costs. It does not need to advertise for depositors (it has a captive deposit base in the state itself) or for borrowers (it is a wholesome wholesale bank that partners with local banks that have located borrowers). The BND also has no losses from derivative trades gone wrong. It engages in old-fashioned conservative banking and does not speculate in derivatives.
Lest there be any doubt about the greater profitability of the public banking model, however, this conclusion was confirmed in January 2015 in a report by the Savings Banks Foundation for International Cooperation (SBFIC) (the Sparkassenstiftung für internationale Kooperation), a non-profit organization founded by the the Sparkassen Finance Group (Sparkassen-Finanzgruppe) in Germany. The SBFIC was formed in 1992 to make the experience of the German Sparkassen – municipally-owned savings banks – accessible in other countries. Continue reading
Greece and the troika (the International Monetary Fund, the EU, and the European Central Bank) are in a dangerous game of chicken. The Greeks have been threatened with a “Cyprus-Style prolonged bank holiday” if they “vote wrong.” But they have been bullied for too long and are saying “no more.”
A return to the polls was triggered in December, when the Parliament rejected Prime Minister Antonis Samaras’ pro-austerity candidate for president. In a general election, now set for January 25th, the EU-skeptic, anti-austerity, leftist Syriza party is likely to prevail. Syriza captured a 3% lead in the polls following mass public discontent over the harsh austerity measures Athens was forced to accept in return for a €240 billion bailout.
Austerity has plunged the economy into conditions worse than in the Great Depression. As Professor Bill Black observes, the question is not why the Greek people are rising up to reject the barbarous measures but what took them so long.
Ireland was similarly forced into an EU bailout with painful austerity measures attached. A series of letters has recently come to light showing that the Irish government was effectively blackmailed into it, with the threat that the ECB would otherwise cut off liquidity funding to Ireland’s banks. The same sort of threat has been leveled at the Greeks, but this time they are not taking the bait. Continue reading
The sudden dramatic collapse in the price of oil appears to be an act of geopolitical warfare against Russia. The result could be trillions of dollars in oil derivative losses; and depositors and taxpayers could be liable, following repeal of key portions of the Dodd-Frank Act signed into law on December 16th.
On December 11th, Senator Elizabeth Warren charged Citigroup with “holding government funding hostage to ram through its government bailout provision.” At issue was a section in the omnibus budget bill repealing the Lincoln Amendment to the Dodd-Frank Act, which protected depositor funds by requiring the largest banks to push out a portion of their derivatives business into non-FDIC-insured subsidiaries.
Warren and Representative Maxine Waters came close to killing the spending bill because of this provision. But the tide turned, according to Waters, when not only Jamie Dimon, CEO of JPMorgan Chase, but President Obama himself lobbied lawmakers to vote for the bill. Continue reading
On December 11, 2014, the US House passed a bill repealing the Dodd-Frank requirement that risky derivatives be pushed into big-bank subsidiaries, leaving our deposits and pensions exposed to massive derivatives losses. The bill was vigorously challenged by Senator Elizabeth Warren; but the tide turned when Jamie Dimon, CEO of JPMorganChase, stepped into the ring. Perhaps what prompted his intervention was the unanticipated $40 drop in the price of oil. As financial blogger Michael Snyder points out, that drop could trigger a derivatives payout that could bankrupt the biggest banks. And if the G20’s new “bail-in” rules are formalized, depositors and pensioners could be on the hook.
The new bail-in rules were discussed in my last post here. They are edicts of the Financial Stability Board (FSB), an unelected body of central bankers and finance ministers headquartered in the Bank for International Settlements in Basel, Switzerland. Where did the FSB get these sweeping powers, and is its mandate legally enforceable? Continue reading
On the weekend of November 16th, the G20 leaders whisked into Brisbane, posed for their photo ops, approved some proposals, made a show of roundly disapproving of Russian President Vladimir Putin, and whisked out again. It was all so fast, they may not have known what they were endorsing when they rubber-stamped the Financial Stability Board’s “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution,” which completely changes the rules of banking. Continue reading
While 49 state treasuries were submerged in red ink after the 2008 financial crash, one state’s bank outperformed all others and actually launched an economy-shifting new industry. So reports the Wall Street Journal this week, discussing the Bank of North Dakota (BND) and its striking success in the midst of a national financial collapse led by the major banks. Chester Dawson begins his November 16th article:
It is more profitable than Goldman Sachs Group Inc., has a better credit rating than J.P. Morgan Chase & Co. and hasn’t seen profit growth drop since 2003. Meet Bank of North Dakota, the U.S.’s lone state-owned bank, which has one branch, no automated teller machines and not a single investment banker.
I just got back from a really good and productive week in Ireland. Haven’t gotten an article out but thought I would post these two articles that were in the local Irish press (online and print). Two interviews are yet to be published, plus two video interviews (with the UK Guardian and Rabobank); so public banking got a lot of exposure.
I’m off to Ireland tomorrow to participate in the Kilkenny Festival and to help with the movement there for a network of publicly-owned banks. The Public Banking Forum of Ireland sent a quite promising report on developments that I thought I would post in the meantime, titled Exploring the Sparkassen Model of Local Savings Banks in Ireland with the Savings Bank Foundation for International Cooperation (SBFIC). It can be read here:
(I had a bit of trouble loading it; if it doesn’t come up, there is much similar information on the PBFI website.)
Many authorities have said it: banks do not lend their deposits. They create the money they lend on their books.
Robert B. Anderson, Treasury Secretary under Eisenhower, said it in 1959:
When a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposits; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.
The Bank of England said it in the spring of 2014, writing in its quarterly bulletin:
The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
. . . Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.
All of which leaves us to wonder: If banks do not lend their depositors’ money, why are they always scrambling to get it? Banks advertise to attract depositors, and they pay interest on the funds. What good are our deposits to the bank? Continue reading
The Pennsylvania Project hosted the East Coast edition of the Public Banking Institute national conference in Philadelphia last Saturday. Thanks Pennsylvania team!
I thought I would post my power point presentation (the sixth I’ve done since July), since it has a more complete discussion of the pressing issue always on the minds of elected officials: “Where will we find the money to capitalize our new public bank?” The relevant slides are at 21-26, expanding on the plan suggested in my article of October 12th titled Building an Ark: How to Protect Public Revenues from the Next Meltdown. The power point is here:
Concerns are growing that we are heading for another banking crisis, one that could be far worse than in 2008. But this time, there will be no government bailouts. Instead, per the Dodd-Frank Act, bankrupt banks will be confiscating (or “bailing in”) their customers’ deposits.
That includes local government deposits. The fact that public funds are secured with collateral may not protect them, as explained earlier here. Derivative claims now get paid first in a bank bankruptcy; and derivative losses could be huge, wiping out the collateral for other claims.
In a September 24th article titled “5 U.S. Banks Each Have More Than 40 Trillion Dollars In Exposure To Derivatives, Michael Snyder warns:
Trading in derivatives is basically just a form of legalized gambling, and the “too big to fail” banks have transformed Wall Street into the largest casino in the history of the planet. When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe.
In the worlds of economic theory and “acceptable” economic discussion, the terms “Socialism” and “Marxism” acquired an anti-patriotic stain during the 20th Century, despite the significant social economic progress realized by early American populist movements. Noted economics professor Dr. Richard Wolff, who has taught at many esteemed universities, has been overlooked for decades because of his Marxist/Socialist specialties; but suddenly he is out and about making the rounds on major media outlets talking about the failures of Capitalism, how they helped bring about the collapse of the American middle class and set a stage for continuing economic decline. Ellen talks with Dr. Wolff about a way forward that marries American values and sensibilities with the goals of these maligned economic theories.
Listen here (archived).
The Santa Fe Public Banking Conference last weekend was a great success. The videotaped event can be seen here.
Our guest on “It’s Our Money” on PRN next Wednesday, October 8th, will be Richard Wolff, the keynote speaker in Santa Fe. Listen at noon PST/3 pm EST or on archive here.
The Praxis Peace Economics of Sustainability Conference is coming up next week in San Francisco. I’ll be speaking at 10:30 am on Wednesday the 8th. Details here.
The Philadelphia Public Banking conference is on October 18. Details here.
Would love to see you at one of these events! Ellen