The role of corporate banking in causing the recent recession has made many people wary of large scale banks. With a shortage of government oversight, it seems that many of the major banks have their shareholders in mind more so than the customers they should be serving.
The public's skepticism has made more savvy investors turn to public banks to ensure that their money's in good hands and going where it's supposed to go.
We talked to Walt McRee of the Public Banking Institute to learn more about the advantages of public banking.
The Public Banking Institute was formed in the wake of questionable bank practices which helped lead to a recession. For those that aren't familiar with that story, what were some of these practices?
PBI was actually formally organized in January of 2011 after a couple years of group development following the publication of Ellen Brown's best-selling book Web of Debt, in which she traced the long history of money creation, issuance and brokerage by private parties. She documents the powerful control that private money issuers created through the issuance of money as a debt, even though money is really a neutral and necessary utility to the health of any economy.
The demonstrably criminal practices of the largest banking interests, such as sale of compromised securities, mail fraud, mortgage scams and other unsound investments created a heated market for money speculators - particularly in the housing and real estate industries, which later collapsed. These same banking institutions, the "Too Big to Fail (or Jail)" giants such as Goldman Sachs, Wells Fargo, JP Morgan, Bank of America, HSBC, Citicorp and others, have returned to many of their old practices and are now bigger than ever, having grown over 30% since the collapse in 2008.
Another inspiration for the Public Banking Institute was when you discovered the Bank Of North Dakota. Can you share a bit of what makes the BND different from big business corporate banks, and why they might be better for individuals or a community?
While public banks are common the world over, there is only one in the United States: the Bank of North Dakota, which was launched after the Non-Partisan League took over the government there in 1919. At 95 years old, BND is still owned by the people (the State of ND) and is the depository of all the state's revenues including tax money, fees and other such receivables. Instead of sending their money to Wall Street for investment, BND keeps its money in the state and invests in a wide variety of needs and projects that help the state build internal strength and financial health.
It has an almost unbelievable track record of establishing economic stability in the state through this independence from the global banker realm, as evidenced by the fact that the collapse of the Western central banks in 2008 had very little effect on the North Dakota or the BND. North Dakota was also the only state with a budget surplus while the other 49 struggled with red ink.
It is this inherent ability to build internal financial strength through investing local money in local economies that the Public Banking Institute is promulgating around the U.S., now in about 36 different markets. The Wall Street Journal recently reported that the Bank of North Dakota outperforms Wall Street banks by about 2:1 and is one of the most efficient and profitable banks anywhere in the US.
As recently as 2010, it has been reported that states can send out over a billion dollars annually that get invested elsewhere. Is this still the case? Have things improved at all?
This very logical observation is as true today as it was then, and perhaps even more so in that the instability of the global banking cartel is evident in the countries where they operate. One need only ask whether they would prefer to give their money to Wall Street for speculation in unpredictable and frequently bank-manipulated commodities or foreign currencies with questionable returns, higher risk and more expense; or whether they would want to keep their money closer to home where it can make a difference in the lives and assets of the people whose money it is in the first place while spinning off new non-tax generated revenues for government operations.
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One advantage of public banks is their ability to increase the size of an individual's loan. Can you think of a real world example where that could be important and how a traditional loan might not meet those needs?
This refers to the fact that the public Bank of North Dakota helps strengthen local financial institutions by enabling them to make larger loans by partnering with them on particular projects and loan programs. One benefit is that local community banks and credit unions are able to better compete in the marketplace by writing more and larger business loans, thereby protecting themselves from the unfortunate national trend of getting bought out by the mega-banks and leaving fewer financing choices for local borrowers.
These community banks are key members of every community and are on the front lines of local economies because they know the people and they know the markets. The global Wall Street giants are not interested in taking chances on local outcomes or people, and hence the credit available to local economies was severely curtailed after the 2008 crash, causing damage to all types of businesses that need to have access to credit for continuing and expanding business or other needs.
Another advantage of public banking is the ability to provide better interest rates on personal loans. First of all, how do public banks achieve this? And secondly, can you illustrate what that difference might look like over the lifespan of a loan?
A public bank isn't driven by the need to maximize profits, though it is a profitable enterprise. In fact, the Bank of North Dakota has been so profitable that it has created hundreds of millions of non-tax revenues for the state in the last 10 years alone. And because BND doesn't want to compete with local bankers by offering retail bank products like ATMs, multiple branches, etc., they have low overhead and fewer physical and personnel assets to support.
Consequently, if a student wants a loan to go to school, BND will give them one for 1.5%/annum; or if a businessperson wants to start a business, BND has a program that will provide $50,000 for 5 years at 1%. These are significant programs that help the people with their lives and the local economy with its financial health.
The Public Banking Institute offers a series of courses called the New Economy Academy. Can you talk a bit about what you mean by the New Economy, and give us some thoughts on where it might be heading? What are some topics you discuss in the New Economy Academy?
While part of our work at the Public Banking Institute is to educate people about public banking, there is also the need to learn about how money, banking, economy and the trends that are underway in the midst of big changes.
The New Economy is a broad term that is defined differently by monetary and economic reformers. Generally speaking, it refers to movements that are dedicated to bringing about a new quality of life in which monetary scarcity and instability is replaced by the natural abundance of our common wealth, to rediscover and celebrate the "commons" which we all share and enjoy, and to move past the typical pursuits of constant consumption and accumulation.
The "New Economy" is a stand for values expressed by author David Korten which he describes as a shift from "sacred money/sacred markets" to "sacred life/sacred earth;" in other words, a sea change in our personal and societal objectives that refocuses our systems and public policies on the mechanics of healthy, secure, prosperous lives in which money is a utility rather than a goal. PBI offers its New Economy courses periodically and can be reviewed by visiting our website.