Image courtesy occupy.com
By Paul Gibson, Retake Our Democracy | June 13 2020
Like the gas & oil industry, the banking industry was teetering on the verge of collapse well before COVID-19. Many feel a recession worse than 2008 lies ahead. A public bank could insulate NM from the consequences. Read On.
Roxanne and I have been huge supporters of public banking for over five years, but NM public banking advocates have been working to develop a public bank in NM for ten years. We now have a golden opportunity in the 2021 legislative session to put NM on the path to public banking. Today’s post describes why NM needs a public bank and offers links to reading materials and an excellent video on public banking. Next week, we will follow up with a second post outlining the NM effort to achieve a state public bank and offer insights into how NM could use one to buffer itself against future economic disruption and form a financial backbone to sustainable economic development in NM. And on Tues., June 23, we’ll host a Zoominar on Public Banking in NM. Learn more and register below.
After our exploration of public banking, you will find Hell You Talmabout, inspiring modern dance video, followed by two more devastating videos from Republican Voters Against Trump. I can’t even imagine Trump’s reaction to the last one, featuring none other than Lindsay Graham.
Public Banking: What It Is & Why We Need It
Retake Our Democracy has already determined that the public banking bill that will be introduced in 2021 will be one of our highest priorities. To take advantage of this opportunity will require a strong, well-informed advocacy effort. Aside from the post today and Tuesday, our Zoominar on June 23 will focus on public banking in NM with state and national experts discussing what it is and why we need it.
Tuesday, June 23, 6:30 – 8pm. Conversation About the Enormous Benefits of Forming a NM State Public Bank with Public Banking Advocate Leadership & Experts in public banking.
Our panelists are Elaine Sullivan, Board President of New Mexico’s Alliance for Local Economic Prosperity (NM AFLEP); Angela Merkel, Executive Director of NM AFLEP; and Melissa Pickett, Outreach Coordinator for NM AFLEP. Joining them will be Paul Stull from the NM Credit Union Association, who will describe why the Association endorses the public banking initiative. Walt McRee will also be on the Zoom. He is an public banking expert from New Jersey and very involved in the national movement.
With the state experiencing a critical budget crisis, we need every strategy for maximizing our financial resources. Public banking has immense potential for increasing our state’s financial capacity and advancing economic justice. AFLEP has been hard at work building alliances throughout the state and they have a bill that will be introduced in 2021. This will be an important conversation. Click here to register. You must pre-register to guarantee a seat in the Zoom Room.
Why Do We Need Public Banking? Because Wall St. Won’t Reform Itself & It Is on the Verge of Collapse… Again
From a piece in The Atlantic, “The Looming Banking Collapse:”
Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed. You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse.
The Atlantic: “The Looming Banking Collapse”
The Atlantic does a detailed, deep dive into how Wall St. has again invested exorbitantly in risky ventures called “collateralized loan obligations” or CLOs. The article goes on to describe what a CLO is, how Wall St. has circumvented all efforts to contain their greed and resist extremely risky investments and how perilously close we are to a financial collapse worse than 2008. The Atlantic found that in December, “the Financial Stability Board estimated that, for the 30 ‘global systemically important banks,’ the average exposure to leveraged loans and CLOs was roughly 60 percent of capital on hand. ”
Just how risky are investments in CLOs? In a word: very. From The Atlantic:
So what sort of debt do you find in a CLO? Fitch Ratings has estimated that as of April, more than 67 percent of the 1,745 borrowers in its leveraged-loan database had a B rating. That might not sound bad, but B-rated debt is lousy debt. According to the rating agencies’ definitions, a B-rated borrower’s ability to repay a loan is likely to be impaired in adverse business or economic conditions. In other words, two-thirds of those leveraged loans are likely to lose money in economic conditions like the ones we’re presently experiencing. According to Fitch, 15 percent of companies with leveraged loans are rated lower still, at CCC or below. These borrowers are on the cusp of default.
The Atlantic: “The Looming Banking Collapse”
The situation calls to mind George Santayana’s trenchant observation: “Those who cannot remember history are doomed to repeat it.” And The Atlantic points to exactly how little we have learned from 2008:
The present situation is so dire in part because the banks fell right back into bad behavior after the last crash—taking too many risks, hiding debt in complex instruments and off-balance-sheet entities, and generally exploiting loopholes in laws intended to rein in their greed. Sparing them for a second time this century will be that much harder.
The Atlantic: “The Looming Banking Collapse”
The article outlines precisely how close we are to financial collapse. It injects significant urgency into the effort to create a NM State Public Bank. Click here to read more from The Atlantic about how the the private banking system could be on the verge of collapse.
Public Banking: A Financial Option that Works for You
So, what is a public bank?
A public bank is a bank that is controlled by and principally funded by a government body rather than by private investors. In essence, it is an extension of the governing body that created it — state, county, or city government. The governing body for the bank deposits all its revenue, taxes, fees, and other earnings in the bank. In addition, it can borrow from their bank. The officers of the bank report to a board or commission defined by the charter of the bank so as to ensure freedom from conflicts of interest, commitment to follow sound banking principles, and service to the public interest. Further, a public bank does not pay exorbitant salaries and bonuses, and they have no advertising, no branches, no tellers, or ATMs, and they do not pay commissions or fees, making it very sound financially.
Banking On Colorado: “What Are Public Banks and How Could They Benefit Us”
In essence, instead of giving the state’s money to Wall St. so it can invest in risky foreign ventures without scrutiny and at extremely high risk, we invest state funds in a locally controlled public bank that then invests those funds in NM infrastructure, renewable grid development, expansion of commercial hemp production, development of local food systems, and other initiatives that benefit NM.
Public banking is not some wild extremist idea. A public bank has existed in North Dakota sine the 1930s and, as the article below describes, North Dakota has used their state deposits to create the US’s most stable state economy (oil and gas didn’t hurt). While the rest of the nation was reeling economically during 2007-2008 recession, North Dakota barely noticed, with car sales and housing construction booming.
While dozens of states, including neighboring ones, have desperately begun raising fees, firing workers, shuttering tourist attractions and even abolishing holiday displays to overcome gaping deficits, lawmakers this week in Bismarck, the capital, were contemplating what to do with a $1.2 billion budget surplus.
New York Times: “A Placid North Dakota Asks, Recession? What Recession?”
Public banking is not some aberrant North Dakota institution. Throughout the world, about 20 percent of banks are publicly owned, with those countries with public banks suffering far less than the rest of the world during the recession.
So, if public banking is so good, why don’t we have more state public banks? I think we all know the answer to that question. Wall St. rakes in huge profits from state deposits. Those profits benefit the 1%, with big banks almost never investing in local small businesses. State public banks represent a serious threat to Wall St. There is the real prospect of one or two successful state banks causing other states to follow suit and even for Congress to consider a national public bank. Wall St. sees this as an existential threat, as well it should, and thus they have promulgated the usual alt-fact and fear-based campaign to cast doubt on the viability of public banking. We’ve seen in NM how the gas and oil industry can avoid regulation, fair leasing rates, and responsible penalties leaks. The power of the banking industry dwarfs that of gas and oil.
In a future post we will publish a second piece on public banking and the effort led by the Alliance For Local Economic Prosperity to bring a public bank to New Mexico. The time is ripe. If we are to insulate NM from future economic recession or worse, forming a state public bank should be the state’s highest priority. For more information on public banking, check out the resources below.
- “An Introduction to Public Banking,” From PublicBanking.org.
- “A Placid North Dakota Asks, Recession? What Recession?”
- “The One Strategy that Could Finance the Entire Green New Deal,” from Fast Company.
The video below is quite good as the moderator, Kim Iverson, clearly “gets” the urgency of our need for a public bank, and Ellen Brown, one of the founders of the public banking movement and author of two tremendous books on the subject, is adept at laying out the ways in which private banks risk our futures for their profit.
We All Need to Feel Joy & This Is Perfectly Joyous
I’d Pay to Watch Trump’s Reaction When He Saw This
And Another Devastating 45 Seconds
In solidarity and hope,
Paul & Roxanne
