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March 26, 2013 |
North Dakota is the very definition of a red state. It voted 58
percent to 39 percent for Romney over Obama, and its statehouse and
senate have a total of 104 Republicans and only 47 Democrats. The
Republican super-majority is so conservative it recently passed the
nation's most severe
anti-abortion resolution – a measure that declares a fertilized human egg has the same right to life as a fully formed person.
But
North Dakota is also red in another sense: it fully supports its
state-owned Bank of North Dakota (BND), a socialist relic that exists
nowhere else in America. Why is financial socialism still alive in North
Dakota? Why haven't the North Dakotan free-market crusaders slain it
dead?
Because it works.
In 1919, the Non-Partisan League, a
vibrant populist organization, won a majority in the legislature and
voted the bank into existence. The goal was to free North Dakota farmers
from impoverishing debt dependence on the big banks in the Twin Cities,
Chicago and New York. More than 90 years later, this state-owned bank
is thriving as it helps the state's community banks, businesses,
consumers and students obtain loans at reasonable rates. It also
delivers a handsome profit to its owners -- the 700,000 residents of
North Dakota. In 2011, the BND provided more than $70 million to the
state's coffers. Extrapolate that profit-per-person to a big state like
California and you're looking at an extra $3.8 billion a year in state
revenues that could be used to fund education and infrastructure.
One of America's Best Kept Secrets
Each
time we pay our state and local taxes -- and all manner of fees -- the
state deposits those revenues in a bank. If you're in any state but
North Dakota, nearly all of these deposits end up in Wall Street's
too-big to-fail banks, because those banks are the only entities large
enough to handle the load. The vast majority of the nation's 7,000
community banks are too small to provide the array of cash management
services that state and local governments require. We're talking big
bucks; at least $1 trillion of our local tax dollars find their way to
Wall Street banks, according Marc Armstrong, executive director of the
Public Banking Institute.
So,
not only are we, as taxpayers, on the hook for too-big-to-fail Wall
Street banks, but we also end up giving our tax dollars to these same
banks each and every time we pay a sales tax or property tax or buy a
fishing license. In North Dakota, however, all that public revenue runs
through its public state bank, which in turn reinvests in the state's
small businesses and public infrastructure via partnerships with 80
small community banks.
How the State Bank Creates Jobs
Banks
are supposed to serve as intermediaries that turn our savings and
checking deposits into productive loans to businesses and consumers.
That's how jobs are supported and created. But the BND, a state agency,
goes one step further. Through its Partnership in Assisting Community
Expansion, for example, it provides loans at below-market interest rates
to businesses if and only if those businesses create at least one job
for every $100,000 loaned. If the $1 trillion that now flows to Wall
Street instead were deposited in public state banks in all 50 states
using this same approach, up to 10 million new jobs could be created.
That would effectively end our destructive unemployment crisis.
No Bailouts for the BND
Banking
doesn't have to be a casino. It doesn't have to be designed to create
gambling opportunities so bank traders and executives can make seven-
and eight-figure salaries. As BND president Eric Hardmeyer said in a
2009
Mother Jones interview:
We’re
a fairly conservative lot up here in the upper Midwest and we didn’t do
any subprime lending and we have the ability to get into the
derivatives markets and put on swaps and callers and caps and credit
default swaps and just chose not to do it, really chose a Warren Buffett
mentality—if we don’t understand it, we’re not going to jump into it.
And so we’ve avoided all those pitfalls.
As state
government employees, BND executives have no incentive to gamble their
way toward enormous pay packages. As you can see, the top six BND
officers earn a good living, but on Wall Street, cooks and chauffeurs
earn more.
- Eric Hardmeyer, President and CEO: $232,500
- Bob Humann, Chief Lending Officer: $135,133
- Tim Porter, Chief Administrative Officer: $122,533
- Joe Herslip, Chief Business Officer: $105,000
- Lori Leingang, Chief Administrative Officer: $105,000
- Wally Erhardt, Director of Student Loans of North Dakota: $91,725
The
very existence of a successful BND undermines Wall Street's claim that
in order to attract the best talent big banks need to offer enormous pay
packages. Yet somehow, North Dakota is able to find the talent to run
one of the soundest banks in the country? The BND is living proof that
Wall Street's rationale for sky-high executive pay is a self-serving
fabrication. (For more information on financial inequality please see my
latest book,
How to Earn a Million Dollars an Hour, Wiley, 2013.)
Wall Street Is Gunning for Bank of North Dakota
As
you can well imagine, our financial elites would love to see this
successful (socialist!) bank disappear. Its salary structure and local
investments makes a mockery of Wall Street's casino banking system. But
the bigger threat comes from the possible spread of this public banking
concept to other states. Already, there are 20 or so state legislatures
that are exploring state banks. Collectively, more public banks would
pose an enormous threat to the $1 trillion in state and local bank
deposits that now run through Wall Street.
But elite financiers
also stand to lose much more. In the 49 states without a public bank,
there's no safe place to turn for loans to rebuild schools and finance
other public infrastructure projects. That creates an enormous
opportunity for Wall Street firms to hook localities on expensive bond
programs -- like capital appreciation bonds, which can lead to
repayments equaling 10 times the original loan. Investment bankers and
advisers also make enormous fees by selling expensive, high-risk
financial schemes to state and local governments (
read an investigative report here).
But such schemes are useless in North Dakota where the state bank
provides the capital the state needs for a fraction of the long-term
costs.
Trade Agreements: Wall Street's Weapon of Mass Destruction
Clearly,
from Wall Street's perspective, the North Dakota bank must go, and all
other state efforts to replicate it must be thwarted. Wall Street's
stealth weapon may be lodged within the latest corporate trade agreement
called the Trans-Pacific Partnership (TPP), which currently is being
negotiated in secret. We already know that Wall Street is seeking to
remove all tariff restrictions that prevent the U.S. financial services
industry from doing business in countries like Brunei, Chile, Malaysia,
Mexico, New Zealand, Peru, Singapore and Vietnam. The biggest banks also
want the treaty to eliminate "non-tariff" barriers including
regulations that create "unfair" competition with state-owned financial
enterprises.
Depending on the final language, it is possible that
the activities of the Bank of North Dakota could be ruled illegal
because "foreign bankers could claim the BND stops them from lending to
commercial banks throughout the state," according to an
analysis by Sam Knight in Truthout. How perfect for Wall Street: a foreign bank can be used as a shill to knock out the BND.
The Public Bank Movement
A small but highly dedicated group of financial writers, public finance experts and former bankers have formed the
Public Bank Institute to spread the word. Working on a shoestring budget, its president Ellen Brown (author of
Web of Debt),
and its executive director Marc Armstrong, a former wholesale banker,
have become the Johnny Appleseeds of public banking, hopping from state
to state to encourage legislatures to explore state-owned banks.
The movement is gathering steam as it holds a
major conference
on June 2-4 at Dominican University in San Rafael, CA featuring such
anti-Wall Street hell raisers as Matt Taibbi and Gar Alperowitz, along
with Brigitte Jonsdottir, a member of the Icelandic parliament, and
Ellen Brown.
Is America Up For This Fight?
Since the
crash, the financial community has largely managed to wriggle off the
hook. In fact, fatalism may be replacing activism as we sense that maybe
Wall Street is simply too big and too powerful to change. After all,
the big banks seem to own Washington, as too-big-to-fail banks are
permitted to grow even larger and more invulnerable to prosecution and
control.
But this new public banking movement could have legs,
especially if it teams up with those fighting for a financial
transaction tax (see
National Nurses United.)
Most Americans remain furious about how financial elites profited from
the crisis -- before, during and after -- while the rest of us pick up
the tab. Americans know deep down that Wall Street is the predator and
we are the prey.
The state-owned and operated Bank of North Dakota
proves that it doesn't have to be that way. This is the time to fight
for public state banking in a big way.
You game?
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