On CNN March 14, Roger Altman, a former deputy Treasury secretary in the Clinton administration, said that American banks were on the verge of being nationalized:
What the authorities did over the weekend was absolutely profound. They guaranteed the deposits, all of them, at Silicon Valley Bank. What that really means … is that they have guaranteed the entire deposit base of the U.S. financial system. The entire deposit base. Why? Because you can’t guarantee all the deposits in Silicon Valley Bank and then the next day say to the depositors, say, at First Republic, sorry, yours aren’t guaranteed. Of course they are.
… So this is a breathtaking step which effectively nationalizes or federalizes the deposit base of the U.S. financial system.
The deposit base of the financial system has not actually been nationalized, but Congress is considering modifications to the FDIC insurance limit. Meanwhile, one state that does not face those problems is North Dakota, where its state-owned bank acts as a “mini-Fed” for the state. But first, a closer look at the issues.
Financial podcasts have been featuring ominous headlines lately along the lines of “Your Bank Can Legally Seize Your Money” and “Banks Can STEAL Your Money?! Here’s How!” The reference is to “bail-ins:” the provision under the 2010 Dodd-Frank Act allowing Systemically Important Financial Institutions (SIFIs, basically the biggest banks) to bail in or expropriate their creditors’ money in the event of insolvency. The problem is that depositors are classed as “creditors.” So how big is the risk to your deposit account? Part I of this two part article will review the bail-in issue. Part II will look at the derivatives risk that could trigger the next global financial crisis.
From Bailouts to Bail-Ins
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 states in its preamble that it will “protect the American taxpayer by ending bailouts.” But it does this under Title II by imposing the losses of insolvent financial companies on their common and preferred stockholders, debtholders, and other unsecured creditors, through an “orderly resolution” plan known as a “bail-in.”
The point of an orderly resolution under the Act is not to make depositors and other creditors whole. It is to prevent a systemwide disorderly resolution of the sort that followed the Lehman Brothers bankruptcy in 2008. Under the old liquidation rules, an insolvent bank was actually “liquidated”—its assets were sold off to repay depositors and creditors.
The Real Goal of Fed Policy: Breaking Inflation, the Middle Class or the Bubble Economy?
“There is no sense that inflation is coming down,” said Federal Reserve Chairman Jerome Powell at a November 2 press conference, — this despite eight months of aggressive interest rate hikes and “quantitative tightening.” On November 30, the stock market rallied when he said smaller interest rate increases are likely ahead and could start in December. But rates will still be increased, not cut. “By any standard, inflation remains much too high,” Powell said. “We will stay the course until the job is done.”
Fixing supply chains is of course beyond any central bank’s power. What the Fed can do is reduce spending levels, which would in turn exert downward pressure on prices. But this would be a mistaken response to shortages. It would answer a scarcity of goods by bringing about a scarcity of money. The effect would be to compound the hit to living standards that supply shocks already caused.
So why is the Fed forging ahead? Some pundits think Chairman Powell has something else up his sleeve.
Instead of buying into the World Economic Forum’s dystopian “Great Reset,” we can build an alternative system with a mandate to serve the people.
This is part two to a May 4, 2022 article called “A Monetary Reset Where the Rich Don’t Own Everything,” the gist of which was that national and global debt levels are unsustainably high. We need a “reset,” but of what sort? The “Great Reset” of the World Economic Forum (WEF) would leave the people as non-owner tenants in a feudalistic technocracy. The reset of the Eurasian Economic Union would allow participating nations to opt out of the Western capitalist system altogether, but what of the Western countries that are left? That is the question addressed here.
It may be heresy to those who think the Fed is all-powerful, but the honest answer is that raising interest rates wouldn’t put out the fire. Short of throwing millions of people out of work in a recession, higher rates wouldn’t bring supply and demand back into balance, a necessary condition for price stability.
The Fed (and those who are clamoring for the Fed to raise rates immediately) have misdiagnosed the problem with the economy and are demanding the wrong kind of medicine. …
Prices are going up because crucial inputs—labor, electronics, energy, housing, transportation—are in short supply. Normally, the way to solve this imbalance would be to give workers and businesses incentives to increase their supply. …
The Fed has been assigned the job of fixing this. Unfortunately, the Fed doesn’t have the tools to do it. Monetary policy works (in theory) by tweaking demand, but it has no direct impact on supply.
The Fed has options for countering the record inflation the U.S. is facing that are more productive and less risky than raising interest rates.
The Federal Reserve is caught between a rock and a hard place. Inflation grew by 6.8% in November, the fastest in 40 years, a trend the Fed has now acknowledged is not “transitory.” The conventional theory is that inflation is due to too much money chasing too few goods, so the Fed is under heavy pressure to “tighten” or shrink the money supply. Its conventional tools for this purpose are to reduce asset purchases and raise interest rates. But corporate debt has risen by $1.3 trillion just since early 2020; so if the Fed raises rates, a massive wave of defaults is likely to result. According to financial advisor Graham Summers in an article titled “The Fed Is About to Start Playing with Matches Next to a $30 Trillion Debt Bomb,” the stock market could collapse by as much as 50%.
Congress seems to be at war with the states. Only $150 billion of its nearly $3 trillion coronavirus relief package – a mere 5% – has been allocated to the 50 states; and they are not allowed to use it where they need it most, to plug the holes in their budgets caused by the mandatory shutdown. On April 22, Senate Majority Leader Mitch McConnell said he was opposed to additional federal aid to the states, and that his preference was to allow states to go bankrupt.
No such threat looms over the banks, which have made out extremely well in this crisis. The Federal Reserve has dropped interest rates to 0.25%, eliminated reserve requirements, and relaxed capital requirements. Banks can now borrow effectively for free, without restrictions on the money’s use. Following the playbook of the 2008-09 bailout, they can make the funds available to their Wall Street cronies to buy up distressed Main Street assets at fire sale prices, while continuing to lend to credit cardholders at 21%.
If there is a silver lining to all this, it is that the Fed’s relaxed liquidity rules have made it easier for state and local governments to set up their own publicly-owned banks, something they should do post haste to take advantage of the Fed’s very generous new accommodations for banks. These public banks can then lend to local businesses, municipal agencies, and local citizens at substantially reduced rates while replenishing the local government’s coffers, recharging the Main Street economy and the government’s revenue base. Continue reading →
Interest in public banking is high! I just finished a run of 11 presentations and in-person interviews in 7 cities in 10 weeks. Here’s a video from one, a debate with a county official sponsored by the League of Women Voters in San Diego, and two power points from another, the Soil and Nutrition Conference in Southbridge, MA.
As public banking gains momentum across the country, policymakers in California and Washington state are vying to form the nation’s second state-owned bank, following in the footsteps of the highly successful Bank of North Dakota, founded in 1919. The race is close, with state bank bills now passing their first round of hearings in both states’ senates.
In California, the story begins in 2011, when then-Assemblyman Ben Hueso filed his first bill to explore the creation of a state bank. The bill, which was for a blue-ribbon committee to do a feasibility study, sailed through both legislative houses and seemed to be a go. That is, until Gov. Jerry Brown vetoed it, not on grounds that he disapproved of the concept, but because he said we did not need another blue-ribbon committee. The state had a banking committee that could review the matter in-house. Needless to say, nothing was heard of the proposal after that.
So when now-Sen. Hueso filed SB 528 earlier this year, he went straight for setting up a state bank. The details could be worked out during the two to three years it would take to get a master account from the Federal Reserve, by a commission drawn from in-house staff that had access to the data and understood the issues.
Sen. Hueso also went for the low hanging fruit—a proposal to turn an existing state institution, the California Infrastructure and Development Bank (or “IBank”), into a depository bank that could leverage its capital into multiple loans. Continue reading →
Phil Murphy, a former banker with a double-digit lead in New Jersey’s race for governor, has made a state-owned bank a centerpiece of his platform. If he wins on November 7, the nation’s second state-owned bank in a century could follow.
A UK study published on October 27, 2017 reported that the majority of politicians do not know where money comes from. According to City A.M. (London) :
More than three-quarters of the MPs surveyed incorrectly believed that only the government has the ability to create new money. . . .
The Bank of England has previously intervened to point out that most money in the UK begins as a bank loan. In a 2014 article the Bank pointed out that “whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”
Crushing regulations are driving small banks to sell out to the megabanks, a consolidation process that appears to be intentional. Publicly-owned banks can help avoid that trend and keep credit flowing in local economies.
At his confirmation hearing in January 2017, Treasury Secretary Stephen Mnuchin said, “regulation is killing community banks.” If the process is not reversed, he warned, we could “end up in a world where we have four big banks in this country.” That would be bad for both jobs and the economy. “I think that we all appreciate the engine of growth is with small and medium-sized businesses,” said Mnuchin. “We’re losing the ability for small and medium-sized banks to make good loans to small and medium-sized businesses in the community, where they understand those credit risks better than anybody else.”
The number of US banks with assets under $100 million dropped from 13,000 in 1995 to under 1,900 in 2014. The regulatory burden imposed by the 2010 Dodd-Frank Act exacerbated this trend, with community banks losing market share at double the rate during the four years after 2010 as in the four years before. But the number had already dropped to only 2,625 in 2010. What happened between 1995 and 2010?
Six weeks after September 11, 2001, the 1,100 page Patriot Act was dropped on congressional legislators, who were required to vote on it the next day. Continue reading →
Phil Murphy, the leading Democratic candidate for governor of New Jersey, has made a state-owned bank a centerpiece of his campaign. He says the New Jersey bank would “take money out of Wall Street and put it to work for New Jersey – creating jobs and growing the economy [by] using state deposits to finance local investments … and … support billions of dollars of critical investments in infrastructure, small businesses, and student loans – saving our residents money and returning all profits to the taxpayers.”
A former Wall Street banker himself, Murphy knows how banking works. But in an April 7 op-ed in The New Jersey Spotlight, former New Jersey state treasurer Andrew Sidamon-Eristoff questioned the need for a state-owned bank and raised the issue of risk. This post is in response to those arguments, including a short refresher on the stellar model of the Bank of North Dakota (BND), currently the nation’s only state-owned depository bank. Continue reading →
Americans could save $1 trillion over 10 years by financing infrastructure through publicly-owned banks like the one that has long been operating in North Dakota.
President Donald Trump has promised to rebuild America’s airports, bridges, tunnels, roads and other infrastructure, something both Democrats and Republicans agree should be done. The country needs a full $3 trillion in infrastructure over the next decade. The $1 trillion plan revealed by Trump’s economic advisers relies heavily on public-private partnerships, and private equity firms are lining up for these plumbing investments. In the typical private equity water deal, for example, higher user rates help the firms earn annual returns of anywhere from 8 to 18 percent – more even than a regular for-profit water company might expect. But the price tag can come as a rude surprise for local ratepayers. Continue reading →
On the latest episode of “It’s Our Money,” David Morris, co-founder of the Institute for Local Self Reliance, talks with PBI Chair Walt McRee about how to reclaim the narrative that government can and should work well on our behalf. And Ellen Brown talks with “The Earth Belongs to Everyone” author Alanna Hartzok about how our current method of taxation overlooks a more obvious and fair approach based on land and the Earth itself. Listen here.
The Bank of North Dakota started a century ago with the simple goal of service to citizen victims of the Wall Street monopoly. It now inspires the hopes of citizens nationwide, as they struggle to wrest their financial freedom from the same financial masters. Ellen talks with Dr. Rozanne Enerson Junker, who got her doctorate studying how this upstart institution took on the big banks and turned a challenged economy into a financial powerhouse of service to its owners, the people of North Dakota. Rozanne is featured in a documentary called “The Bank of North Dakota,” linked below. Walt McRee then talks with Tom Tresser about a new collaborative book called “Chicago is Not Broke – Funding the City We Deserve” — there’s more money laying around than most citizens know. And Matt Stannard discusses What Wall Street Costs America with a focus on Detroit and Harrison, NJ – yet more victims of the global banking cartels that keep America under the thumb of debt servitude. Listen to the archive here.
In Part II of Rozanne’s interview, played on June 8th’s show, we continue our conversation about the founding factors and functional dimensions of America’s only state-owned public bank. Ellen also discusses block-chain technology with co-host Walt McRee, while this week’s What Wall Street Costs America examines the impact of predatory banking costs on the city of Detroit — Matt Stannard talks with Tom Stevens of “Detroiters Resisting Emergency Management.” Archived here.
Despite North Dakota’s collapsing oil market, its state-owned bank continues to report record profits. This article looks at what California, with fifty times North Dakota’s population, could do following that state’s lead.
In November 2014, the Wall Street Journal reported that the Bank of North Dakota (BND), the nation’s only state-owned depository bank, was more profitable even than J.P. Morgan Chase and Goldman Sachs. The author attributed this remarkable performance to the state’s oil boom; but the boom has now become an oil bust, yet the BND’s profits continue to climb. Its 2015 Annual Report, published on April 20th, boasted its most profitable year ever. Continue reading →
The Dodd-Frank regulations are so lethal to community banks that some say the intent was to force them to sell out to the megabanks. Community banks are rapidly disappearing — except in North Dakota, where they are thriving.
At over 2,300 pages, the Dodd Frank Act is the longest and most complicated bill ever passed by the US legislature. It was supposed to end “too big to fail” and “bailouts,” and to “promote financial stability.” But Dodd-Frank’s “orderly liquidation authority” has replaced bailouts with bail-ins, meaning that in the event of insolvency, big banks are to recapitalize themselves with the savings of their creditors and depositors. The banks deemed too big are more than 30% bigger than before the Act was passed in 2010, and 80% bigger than before the banking crisis of 2008. The six largest US financial institutions now have assets of some $10 trillion, amounting to almost 60% of GDP; and they control nearly 50% of all bank deposits.
Meanwhile, their smaller competitors are struggling to survive. Community banks and credit unions are disappearing at the rate of one a day. Access to local banking services is disappearing along with them. Small and medium-size businesses – the ones that hire two-thirds of new employees – are having trouble getting loans; students are struggling with sky-high interest rates; homeowners have been replaced by hedge funds acting as absentee landlords; and bank fees are up, increasing the rolls of the unbanked and underbanked, and driving them into the predatory arms of payday lenders. Continue reading →
At what point are you willing to challenge your own notions of what’s really going on? Can you even imagine that the mavens of the Money Power would threaten human survival to serve themselves for even bigger personal profits? Ellen’s guest, researcher Dane Wigington, has a trove of data to suggest that they would. And they do so in the form of geoengineering, a covert tool allegedly being used to control natural systems for private profit. We also hear commentary from Matt Stannard about the economics of the Baltimore uprising and from Marc Armstrong about America’s only publicly-owned depository bank, the Bank of North Dakota, which just issued its latest annual report — it’s another record-setting winner!
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.
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 →
1156. 2-25-23, 15:00-17:00 GMT (Ireland), Think Local Conference 2023, Panel 3 – Money & Economics – New Paradigms
1155. 2-16-23, 5 pm pst, National Infrastructure Bank Coalition, “Washington, Hamilton, Lincoln: National Banking and the Economic Demands of Today’s Crisis,” NIB Zoom Town Hall
1130. Mar. 31, Power Point presentation on youtube, Universidad Nacional de Colombia, Invita: Debates Ensayos de Economia Coordina: Guillermo Maya — Profesor adscrito al Departamento de Economia
1115. Feb. 23, 7 pm est, Eco Justice Collaborative Webinar, “Why the Crises We Face Make Financial Reform Essential,” Religious Society of Friends, Philadelphia
1114. Feb. 17, 11 am, Steff Overbeck, Pod of Gold radio interview
1113. Feb. 18, radio interview, Phil Mikan, wlis1420
1112. Feb. 16, National Infrastructure Bank Coalition Presidents’ Day Webinar 2021 – “National Infrastructure Bank: Standing on the Shoulders of Giants”
1111. Feb. 6, radio interview, Sylvia Richardson, Latin Waves
1097. Oct. 26, Phil Mikan Show, WLIS/WMRD Radio, Conn., pre-recorded for Friday at 10 est or Saturday at 9-11 est
1096. Oct. 22, 1:15 pm EST, power point presentation, “Public Banking, Modern Monetary Theory (MMT) and the National Debt,” Carolina Hills Community, Chapel Hill, NC
1088. July 15, 6 pm EST, Connecticut Public Banking Town Hall, livestream here
1087. July 13, Webinar, Center for Global Justice, “Why Public Banking Needs to Be Run as a Public Utility,” San Miguel de Allende, Mexico, 11am-1pm PDT
1086. Interview with Susan Johnson on public banking for Connecticut, WILI’s Let’s Talk About It Show, 5 pm EST
1044. Nov. 12, interview in New York with Max Keiser, Keiser Report, “Repo Markets and UBI”
1043. Nov. 6, 5 pm EST, The CivicLab Show with Tom Tresser, live@www.facebook.com/tomtree
1042. Oct. 23, 11:30 am-1:30 pm, luncheon presentation on public banking, League of Women Voters of San Diego, Tom Ham’s Lighthouse Restaurant, 2150 Harbor Island Dr., San Diego
1041. Oct. 22, Presentation on public banking, DSA San Diego, Unite Here Union Hall, 2436 Market Street, San Diego, 6-7:30 pm.
1006. Oct. 22, speaker with Gar Alperovitz at Praxis Peace Institute, “Changing the System: California’s Strategic Role in National Strategic Change,” Sonoma, CA, 276 E. Napa St, Sonoma. 7:00 pm.
1005. Oct 19-21, Bioneers Conference, panelist on Oct 20, 2:45 pm, Marin Center, San Rafael, CA.997.
999. Oct. 7, panel, Americans for Democratic Action of Southern California Annual Garden Party, 2-5:30 pm, Santa Monica, CA
998. Oct. 4, 7:30 pm, Living Economy Salon, panelist, Public Bank LA: “Solutions for Social and Environmental Justice”, 3110 Main St., Annex Building C 2nd Floor, Santa Monica, CA 90405
997. Oct. 3, interview on Unmediated, podcast of Reader Magazine, episode title: Making Money The Public’s Slave (The Public Banking Solution), 10 a.m. PT
WEB OF DEBT BLOG 
Banking Crisis 3.0: Time to Change the Rules of the Game
On CNN March 14, Roger Altman, a former deputy Treasury secretary in the Clinton administration, said that American banks were on the verge of being nationalized:
The deposit base of the financial system has not actually been nationalized, but Congress is considering modifications to the FDIC insurance limit. Meanwhile, one state that does not face those problems is North Dakota, where its state-owned bank acts as a “mini-Fed” for the state. But first, a closer look at the issues.
Continue reading →Filed under: Ellen Brown Articles/Commentary | Tagged: Bank of North Dakota, banking crisis, banks, economy, Ellen Brown, FDIC, Fed, Federal Reserve, nationalization, public banking, SIGNATURE BANK, SILICON VALLEY BANK | 4 Comments »