Dale Wetzel/AP Photo
The Bismarck headquarters of the Bank of North Dakota, the only operating public bank in the United States
It was lost amid everything this week, but the biggest advance for public banking since 1919 happened when California Governor Gavin Newsom signed AB 857 into law.
A lot of people hear “public banks” and think about a no-fee government bank account, which is not quite the concept (that’s more postal banking, though the two ideas could theoretically be pooled). I have been following the public-banking movement for many years now, and it really represents a radical shift in understanding money, what it represents, and how it can work collectively.
We all pay taxes and fees, and before that money converts into public services, it has to sit somewhere. Typically, reserves end up in Wall Street banks with no community interest at heart. To fund public projects, cities and states must tap the municipal bond market, which charges exorbitant interest.
With a public bank, local revenues become the deposit base for a new nonprofit lending institution not pressured by investor desire for profit maximization. The deposits aren’t lent out, because that’s not how banks work. Banks create new money by extending credit, and the deposits balance the books. This opens up a new vein of funding for small business or affordable housing or transit; it’s a new money supply for local needs. And not only can the public bank offer lower interest rates, any earnings flow back into the city or state, virtually eliminating financing costs.
If you think this sounds fanciful, visit North Dakota, which a century ago chartered the one and only operating public bank in the United States. It acts more like a central bank for community banks in the state, partnering with them on economic development loans. During the Great Recession, no North Dakota banks failed. And the Bank of North Dakota has earned record profits every year for more than a decade; the Wall Street Journal called it more profitable than Goldman Sachs. The state receives back those profits.
The California law doesn’t charter a state bank right away; it just creates a framework for cities and counties to apply for a public bank license, which would require an independent board, a business plan, state Department of Business Oversight approval, and FDIC deposit insurance. We’re at least a couple years away from California public banks. But if it succeeds, it can democratize money, putting the public in control of their future. Not bad!
LINKS TO MY STORIES
Stephen Smith is running a campaign for governor in West Virginia, but it’s really a bottom-up political movement.
Tobacco giant Altria lobbied for flavored e-cigarettes in 2015, bought into flavored e-cigarette leader Juul in 2018, then had its execs take over top spots at Juul in 2019.
ALSO AT THE PROSPECT
A stunning piece from Brandon Mulder about a race massacre in a small Arkansas town in 1919.
Brittany Gibson on how the whole world is falling short of its climate goals.
Brett Heinz on why it’s time to break up Disney.
Paul Starr on how neoliberal policies shaped the internet.
Jonathan Guyer reflects on a year since Jamal Khashoggi’s murder.
Olivia Webb on private equity’s domination of the ambulance industry.
Alex Sammon on Henry Kissinger and the need for a broad impeachment inquiry.
DEPT OF CORRECTIONS
I wrote another story this week, about Bernie Sanders’s plan to tax corporations with high CEO pay, and it was all about the performance pay loophole, a Clinton-era innovation which ended up shifting CEO compensation to stock awards. I wondered why reversing that loophole wasn’t part of the plan, and now I know: Trump’s Tax Cuts and Jobs Act reversed it. This was a small give-back in the context of reducing corporate tax rates by 40 percent. But I got it wrong, and we took down the story. When I screw up, I try to be candid. I screwed up!
APPEARANCES
I’m on The Ring of Fire Radio this weekend talking about our #DayOneAgenda series. Check your local listings and the podcast will show up here.
YES, I KNOW
Impeachment. Apparently Trump’s getting exactly what he wanted: an investigation of Hunter Biden’s interests in Ukraine. Here are the text messages House Democrats released last night. Also the White House will formally object to cooperation without an impeachment inquiry vote, which Nancy Pelosi should hold, in my opinion.
Oh, and there’s an IRS whistleblower, too.
SHARING THE WEALTH
After losing to AOC, Joe Crowley is hosting a fundraiser for Joe Kennedy, who’s challenging AOC’s Green New Deal partner Ed Markey for Senate. (Boston Globe)
Film and television tax breaks are a waste of money. (Sacramento Bee)
The WeWork downfall. (Business Insider)
Facebook’s partners already going wobbly on Libra. (Wall Street Journal)
The litany of fake public comments on repealing net neutrality. (Buzzfeed)
There is no “Trumpcare,” but there are a ton of ads for it. (Axios)
Every one of private prison giant GEO Group’s banking partners have divested from private prisons. (Forbes)
Tesla’s “Smart Summon” should maybe be renamed “Smart Accidents in Parking Lots.” (CNBC)
Life inside Capital One, from an insider. (New Republic)
Get well, Bernie Sanders. (Reuters)
We have to deal with another Lieberman? (HuffPost)
Alex Trebek saying “genre.” (Boing Boing)
