What everyone has failed to understand is that
banking is at its best and most effective locally. The closer we can operate to the real source
of all credit and wealth creation the better the results. This continues to be ignored and even
obscured by leaders and opinion makers.
It is obviously a long drawn out process but every
large city and every State can relieve themselves of an excessive interest rate
burden by incorporating their own bank and JVing with the local commercial
banks to support local needs. It has the
added advantage of making bad policy personally costly to the elected decision
makers.
Getting this solution to roll out continues to be a
challenge. It will obviously need a
strong leader somewhere to act o9n it and to drive it home.
Enough
Is Enough: Banksters Are Not Our Only Option
"Epic
in scale, unprecedented in world history . " That is how William K. Black, professor of law and
economics and former bank fraud investigator, describes
the frauds in which JPMorgan Chase (JPM) has now been implicated.
They involve more than a dozen felonies, including bid-rigging on municipal
bond debt; colluding to rig interest rates on hundreds of trillions of dollars
in mortgages, derivatives and other contracts; exposing investors to excessive
risk; failing to disclose known risks, including those in the Bernie Madoff scandal; and engaging in multiple forms of mortgage
fraud.
So why,
asks Chicago Alderwoman Leslie Hairston, are we still doing business with
them? She plans to introduce a city council ordinance deleting JPM from the
city's list of designated municipal depositories. As quoted in the January 14th Chicago
Sun-Times:
The bank has violated the city code by making admissions of dishonesty and deceit in the way they dealt with
their investors in the mortgage securities and Bernie Madoff Ponzi scandals. .
. . We use this code against city contractors and all the small companies, why
wouldn't we use this against one of the largest banks in the world?
A similar move has been recommended for the City of Los
Angeles by L.A. City Councilman Gil Cedillo. But in a January 19th editorial
titled "There's No
Profit in L A. Bashing JPMorgan Chase," the L.A. Times editorial
board warned against pulling the city's money out of JPM and other mega-banks
-- even though the city attorney is suing them for allegedly causing an
epidemic of foreclosures in minority neighborhoods. "L.A. relies on these
banks," says The Times, "for long-term financing to build bridges and
restore lakes, and for short-term financing to pay the bills." The
editorial noted that a similar proposal brought in the fall of 2011 by then-Councilman
Richard Alarcon, backed by Occupy L.A., was abandoned because it would have
resulted in termination fees and higher interest payments by the city.
It seems we must bow to our oppressors because we have no
viable alternative -- or do we? What if there is an alternative that would not
only save the city
money but would be a safer place
to deposit its funds than in Wall Street banks?
The Tiny State That Broke Free
There is a place where they don't bow. Where they don't park
their assets on Wall Street and play the mega-bank game, and haven't for almost 100 years.
Where they escaped the 2008 banking crisis and have no government debt, the
lowest foreclosure rate in the country, the lowest default rate on credit card
debt, and the lowest unemployment rate. They also have the only publicly-owned
bank.
The place is North Dakota, and their state-owned Bank of
North Dakota (BND) is a model for Los Angeles and other cities, counties, and
states.
Like the BND, a public bank of the City of Los Angeles would
not be a commercial bank and would not compete with commercial banks. In fact,
it would partner with them -- using its tax revenue deposits to create credit
for lending programs through the magical everyday banking practice of
leveraging capital.
The BND is a major money-maker for North Dakota, returning
about $30 million annually in dividends to the treasury -- not bad for a state
with a population that is less than one-fifth that of the City of Los Angeles.
Every year since the 2008 banking crisis, the BND has reported a return on
investment of 17-26%.
Like the BND, a Bank of the City of Los Angeles would
provide credit for city projects -- to build bridges, restore lakes, and pay
bills -- and this credit would essentially be interest-free, since the city
would own the bank and get the interest back. Eliminating interest has been
shown to reduce the cost of public projects by 35% or more.
Awesome Possibilities
Consider what that could mean for Los Angeles. According to
the current fiscal budget, the LAX Modernization project is budgeted at $4.11
billion. That's the sticker price. But what will it cost when you add interest
on revenue bonds and other funding sources? The San Francisco-Oakland Bay Bridge
earthquake retrofit boondoggle was slated to cost about $6 billion. Interest
and bank fees added another $6 billion. Funding through a public bank could
have saved taxpayers $6 billion, or 50%.
If Los Angeles owned its own bank, it could also avoid
costly "rainy day funds," which are held by various agencies as
surplus taxes. If the city had a low-cost credit line with its own bank, these
funds could be released into the general fund, generating massive amounts of
new revenue for the city.
The potential for the City and County of Los Angeles can be
seen by examining their respective Comprehensive Annual Financial Reports
(CAFRs). According to the latest CAFRs (2012), the City of Los Angeles has
"cash, pooled and other investments" of $11 billion beyond what is in
its pension fund ( page
85 ) , and t he County of Los Angeles has $22 billion ( page
66 ) . To put these sums in perspective, the austerity crisis
declared by the State of California in 2012 was the result of a declared state
budget deficit of only $16 billion.
The L.A. CAFR funds are currently drawing only minimal
interest. With some modest changes in regulations, they could be returned to
the general fund for use in the city's budget, or deposited or invested in the
city's own bank, to be leveraged into credit for local purposes.
Minimizing Risk
Beyond being a money-maker, a city-owned bank
can minimize the risks of interest rate manipulation, excessive fees, and
dishonest dealings.
Another risk that must now be added to the
list is that of confiscation in the event of a "bail in." Public
funds are secured with collateral, but
they take
a back seat in bankruptcy to the "super priority" of Wall
Street's own derivative claims. A major
derivatives fiasco of the sort seen in 2008 could wipe out even a mega-bank's
available collateral, leaving the city with empty coffers.
The city itself could be propelled into
bankruptcy by speculative derivatives dealings with Wall Street banks. The dire
results can be seen in Detroit, where the emergency manager, operating on
behalf of the city's creditors, put it into bankruptcy to force payment on its
debts. First in line were UBS and Bank of America, claiming speculative
winnings on their interest-rate swaps, which the emergency manager paid
immediately before filing
for bankruptcy. Critics say the swaps were improperly entered into and
were what propelled the city into bankruptcy. Their propriety is now being investigated by the bankruptcy judge.
[ I
would sure like to try that in a bankruptcy proceeding!! – arclein ]
Not Too Big to Abandon
Mega-banks might be too big to fail.
According to U.S. Attorney General Eric Holder, they might even be too big to
prosecute. But they are not too big to abandon as depositories for government
funds.
There may indeed be no profit in bashing
JPMorgan Chase, but there would be
profit in pulling deposits out and putting them in Los Angeles' own public
bank. Other major cities currently exploring that possibility include San
Francisco and Philadelphia.
If North Dakota can bypass Wall Street with
its own bank and declare its financial independence, so can the City of Los
Angeles. And so can the County. And so can the State of California.
No comments:
Post a Comment