8 Responses

  1. Great interview Ellen.

    I hope that my comments in YouTube are productive.

  2. We are working on potential initiatives in Rhode Island and New Hampshire.

    Using the DBA structure used in North Dakota, could New Hampshire, with a potential state owned bank credit pool of $4B, buy all of their outstanding state and municipal bonds, place them in their investment portfolio and in turn, use those bonds as a hard asset to collateralize another loan pool?

    It is my understanding that well rated municipal debt is regarded as “almost a hard asset” by bankers. Could a state bank that has bought back all of it’s debt use those bonds/debt instruments to back another credit pool?

    Thanks in advance for anyone’s view here.

    Tom Storey
    Newport, RI

    • Thomas, here’s an answer to your question from financial writer Nomi Prins:

      “technically, if the bank buys outstanding bonds – they are depleting their credit pool to do so, which reduces their cash reserves I guess, but that said, depending on the state of those bonds, they could be used to collateralize another pool – happens all the time”

      • And here’s another answer from Kevin Cox:

        “I believe long term assets that can be easily sold can be used as collateral.

        The bigger problem the public bank has is to keep their cash deposits equal to their loan portfolio.

        There are ways to overcome this problem. The first is that interest free loan money remain in the bank. This is a scheme I have previously described for interest free credit cards and is really the same as local currency schemes but using existing credit card infrastructure.

        Another way is to have deposits where money is rented, the rent on the money does not attract rent(interest), and any payments to depositors comes off the capital. That is, the same approach that I suggest for purchasing houses without the creation of a loan. (Rent and Buy)

        The key idea is to pay no interest on newly created money. Interest on interest is a big problem so we have deposit rules so that it does not happen. Interest (rent) can still be charged on money but whenever a depositor gets any money back it comes off the principal and we allow rent to accumulate without compounding.

        The whole idea is to get rid of compounding in the money system. Do this and the system stabilises. The brute force method is to ban interest entirely but that is not going to happen because people – quite reasonably – want to get a return on their savings otherwise why would they save?

        The above proposals are mechanisms – rule changes on deposits and loans – that get rid of interest on newly created money and do not allow interest to compound. They require no legislative changes and can be done by any bank tomorrow.”

    • And here’s another answer, Thomas, from a financial advisor at Merrill Lynch:

      “I imagine anyone could buy the bonds – IF they Could get them – once they are sold on the primary market they go into the secondary markets where individual investors like you and me buy them. At that point- no one can take them away from us – unless We are willing to Resell them –

      (Corporations do something call Reorganizations or share buy backs – where they offer to Buy your holdings at such and such price – but this is still optional typically – I have to agree that I want to and will – Although there are mandatory “reorganizations” as well – typically with merges – and I can choose cash or to receive the new company stock)

      So my working knowledge guess would be – it might have to be Optional and at a gain to the individual owner or pension fund who currently owns the bonds WHEREVER THEY MAY BE – they could be widely held by many diverse owners – Unless the state was under such duress that to the Bond Holders (you and me) selling them back to the state seemed like a safe or good thing to do…

      Today municipal bonds have been very strongly sought after investments despite debt/credit worries – because of the lack of tax shelters and states are not as easily or cheaply borrowing money or issuing new debt as in the past 10 years- so you still have more buyers than sellers right now

      I don’t know much about the hard asset thing – ETC – but clearly well rated General Obligation bonds (GO)s are among the highest quality out there – and you can see that during the depression of the 30s VERY FEW bonds like 2% went bankrupt…So despite Meredith Whitney’s call last year to abandon Munis – the States seem Very beholden to the bond owners much more so than to being the provider of social services…”

    • I suggest that you try to gain an appreciation regarding the powers the states may have in their authority to establish banking regulations separate from other jurisdictions.

      For example, if a bank wants to operate internationally, it must comply with the prevailing regulations (Basel Accords) in order to clear transactions and make currency exchanges. A bank that operates solely within a state does not have those needs.

      Byron Dale claims that the state can allow banks to eliminate the liability while creating a new asset – debt free money for state infrastructure projects. — http://www.wealthmoney.org/

      Second, and more specifically to your question; how far can states go in issuing 0% loans? For example, it may be that state banking regulations could allow 0% interest municipal bonds to be accepted as collateral to create new money.

      The potential is huge as all municipal, city and school district debt could be rolled over into 0% loans to save over 50% in payments. The terms (duration) could be extended as needed.


      • Thank you and I agree. The states can set their own regulations and I assume they will. I know that a municipal bond is given 70 to 80% when used to collateralize a personal loan. I also know that not all banks accept this arrangement, but some do.

        I feel that the “pitch” to legislators becomes stronger when billions of their state debt can be converted to the backing for a loan pool.

        Can you email me? tstorey_97@yahoo.com

  3. Hello Thomas,

    International banks typically comply with BIS Basel accords which have a RWA (Risk Weighted Asset) factor of 50% for Municipal Bonds. States might decide that 100% is more realistic and run with that percentage.

    Even at 100%, the bank would still require 2-4% Capital Adequacy Ratio (CAR) under BIS Basel and a positive Net Stable Funding Ratio (NSFR).

    I think the goal should be for private and public state chartered banks to position themselves to provide 0% loans for citizens and local government. The result could be that both citizens and could save roughly 50% on debt repayments.

    Interest also drives the prices of goods and services up to an average of around 35-50%. Margrit Kennedy has claimed that people could work half as to enjoy the same lifestyle if interest could be eliminated.

    Best of luck…


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