John R. Houk

© June 2011

I get many emails from Tony Newbill that usually relates to the development of a New World Order (NWO). Newbill basically is my Conspiracy Theory guru. Although I placed great strength into a lot of Conspiracy Theory in my early days of Internet usage and somewhat prior to my embracement of the Internet (i.e. the good ole days of books and magazines), these days I am not so much inclined. And yet, I still hold onto the thought that some Conspiracy Theories have an inkling of truth that should pick-up the ears of caution for all Americans.

There are two pet peeves of mine that many would classify as Conspiracy Theories, yet I believe their threat is very real to the American way of Life, Liberty and the Pursuit of Happiness. Those two threats are the theopolitical nature of Islam and Marxist/Socialism.

Tony Newbill (and a few others) has convinced me there is a third threat. That threat is the ubiquitous undercurrent of the United Nations associated Agenda 21 (SA HERE). Agenda 21 appears to be a blend of Marxist/Socialism and wealthy Leftist global elites (including Americans) that have an agenda to manage the global population via the ecology, food production, and societal transformation to prevent population blow-back from an unhappy populace, population control by any means necessary and you get the idea.

In essence Agenda 21 has the concept of many power tentacles that makes the typical power to the people deception of Socialism, Marxism, Leninism, Trotskyism, Stalinism, Gramscism, and Maoism and so on to be backward concepts of political science in comparison.

There is one commonality in the midst of Political Islam, Marxist Socialism and Agenda 21. That commonality is the destruction of the American influenced Capitalism/Free Enterprise and the destruction of Judeo-Christian values that has been a huge influence in the development of Western Society as well as American life.

That commonality of hate from the triumvirate of global transformationists is probably a series of essays in itself. Tony Newbill sent me an email a couple of months ago wondering about State-Owned banks:

Feasibility of a CA State-owned Bank: The California Assembly Bill 750 Introduced to Study the Feasibility of a CA State-owned Bank; the USA needs this for ALL States Fast, because this is what’s heading our way.

 

Bill AB 750 is sponsored Assemblyman Ben Hueso. The Bill is entitled Bergeson-Peace Infrastructure and Economic Development Bank Act.

The link was sent April 14, 2011 so if it is still functional (and it was as of today), then California State Assembly Committee work may have amended the Bill since the date I received it. The point I wish to examine though is the operation of a State-owned bank. At first glance a State-owned bank has the appearance of Socialism. It is Socialism in the sense that the State government owns and manages the bank separate from private enterprise.

Leftists like to point out a State-owned bank is owned by the people. However, the reality is the people have zero to do with the bank policy or bank management. A State-owned bank would be managed at the least by the State bureaucracy and at most by some direct accountability to a State Governor. That is not “people” ownership that is government ownership.

Then there is the centrist politician (both Democrat and Republican) that might provide the illusion of saying a State-owned bank is owned and accountable to the taxpayers. You know, like the Police Force on State and local arenas are taxpayer supported thus accountable to elected representatives. The thing is a majority of law enforcement are not directly accountable to the voting taxpayer. Most States have some sort of County elected Sheriff; most Police Chiefs or heads of State Police are appointed. Police organizations are accountable to budgets developed by City Councils or State Congresses but that is a long way from direct accountability to taxpaying voters. Policies are set in blue print by a bureaucracy and executed by the interpretation of the Chief Police executive.

The same undoubtedly apply to a State-owned bank, right?

Here is the paradigm that has inspired many States and not just California to explore the potential to create a State-owned bank. That paradigm comes from the only State-owned bank currently in operation in America. That State is North Dakota. North Dakota has had a State-owned bank for about 91 years.

Now think of that. North Dakota has had a State-owned bank that has not only weathered the near decade long Great Depression that began in 1929, but has survived various economic assaults on banks from inflation, bad loans and especially the biggest American recession (someday it may be called a depression) that assaulted our economy because of the domino effect of the bad paper loans of Fannie May and Freddie Mac. Indeed the Bank of North Dakota (BND) actually registered a profit of $62 Million in 2010 when privately owned banks were struggling to survive. Now millions might sound like small scale for a State profit; however North Dakota’s population is 672,591 (2010 census).

The thing that is exciting other States that are contemplating the feasibility of a State-owned bank is the potential of per capita percentages adjusted to bigger populated States. That $62 Million profit in North Dakota might comparatively be in the hundreds of millions or in the billions with larger States that have larger economies.

When a State-owned bank makes a profit in competition with private banks based only fiscal decisions rather State mandated regulation favoring the State-owned bank, is that not Capitalism in action? Or is it still Socialism merely because the State owns and manages their bank?

Let us face one reality that applies to me and probably to a majority of other Americans. We the People for the most part are not economists. We rely on our ideological favorites that we want to trust to keep us informed, right? So here I go making some no-name blogger non-economist presumptive thoughts on State-owned banks.

My thought on State-owned banks at first glance is indeed they are an act of Socialism. Yet the BND paradigm is a successful competitive one that has brought prosperity rather than the typical Socialist atrophy that follows bureaucratic management. So let’s read a few pro-State-owned bank thoughts.

Mother Jones: How was the bank formed?

Eric Hardmeyer: It was created 90 years ago, in 1919, as a populist movement swept the northern plains. Basically it was a very angry movement by a large group of the agrarian sector that was upset by decisions that were being made in the eastern markets, the money markets maybe in Minneapolis, New York, deciding who got credit and how to market their goods. So it swept the northern plains. In North Dakota the movement was called the Nonpartisan League, and they actually took control of the legislature and created what was called an industrial program, which created both the Bank of North Dakota as a financing arm and a state-owned mill and elevator to market and buy the grain from the farmer. And we’re both in existence today doing exactly what we were created for 90 years ago. Only we’ve morphed a little bit and found other niches and ways to promote the state of North Dakota.

MJ: What makes your bank unique today?

EH: Our funding model, our deposit model is really what is unique as the engine that drives that bank. And that is we are the depository for all state tax collections and fees. And so we have a captive deposit base, we pay a competitive rate to the state treasurer. And I would bet that that would be one of the most difficult things to wrestle away from the private sector—those opportunities to bid on public funds. But that’s only one portion of it. We take those funds and then, really what separates us is that we plow those deposits back into the state of North Dakota in the form of loans. We invest back into the state in economic development type of activities. We grow our state through that mechanism.  

 

…

 

MJ: So you are able to invest in certain areas because they provide a public good.

EH: Yeah, or a direction, whether it’s energy or primary sector type of businesses. We have specific loan programs that are designed at very low interest rates to encourage activity along certain lines. Here’s another thing: We’re gearing up for a significant flood in one of the communities here in North Dakota called Fargo. We’ve experienced one of those in another community about 12 years ago which prior to Katrina was the largest single evacuation of any community in the United States. And so the Bank of North Dakota, once the flood had receded and there were business needs, we developed a disaster loan program to assist businesses. So we can move quite quickly to aid with different types of scenarios. Whether it’s encouraging different economies to grow or dealing with a disaster.

MJ: What do private banks think of you?

EH: The interesting thing about the bank is we understand that we walk a fine line between competing and partnering with the private sector. We were designed and set up to partner with them and not compete with them. So most of the lending that we do is participatory in nature. It’s originated by a local bank and we come in and participate in the loan and use some of our programs to share risk, buy down the interest rate. We even provide guarantees similar to SBA to encourage certain activity for entrepreneurial startups. Aside from that, we also act as a bankers’ bank or a wholesale bank. So we provide services to banks, whether it’s check clearing, liquidity, or bond accounting safekeeping. There’s probably 20 other bankers’ banks across the country. So we act in that capacity as kind of a little mini-fed actually. And so we service 104 banks and provide liquidity to them and clear their checks and also we buy loans from them when they have a need to overline, whether it’s beyond their legal lending limit or they just want to share risk, we’ll do that. We’re a secondary market for residential loans, so we have a portfolio of $500 to $600 million of residential loans that we buy.

MJ: So what’s the advantage of a publicly owned “bankers’ bank” instead of a privately owned one?

EH: Our model is we use our deposit base to help [other banks] with funding their loans, even providing fed funds lines with our excess liquidity—we buy and sell fed funds and act as a clearinghouse for check clearing activity. That would be the benefit or different model. We’re a depository bank and can bring that to bear. (How the Nation’s Only State-Owned Bank Became the Envy of Wall Street; By Josh Harkinson; Mother Jones; Mar. 27, 2009 6:33 PM PDT)

What is the economic environment that makes the Bank of North Dakota successful that perhaps may not apply in another economic venue?

Because all state funds in North Dakota pass through BND, including regulatory and licensing fees, the institution is extremely well-capitalized. Because BND sticks to investing conservatively on behalf of the people and businesses of North Dakota, and ignores hinky transactions such as credit-default swaps, it has weathered the depressions and recessions of the 20th and 21st centuries with little turbulence.

In the midst of the current economy, with every other state in the country wrestling with crippling debt, North Dakota has none. It has billions in surplus. In addition to paying state government a competitive interest rate, BND issues dividends to the state. According to a March 7 article by Ellen Brown for GlobalResearch.ca, in 2008, the bank provided the state a 26 percent return in dividends alone. (Can State-Owned Development Banks Save America?; By Zane Fischer; Santa Fe Reporter; 03.16.2011)

The above quote is from a New Mexico newspaper. I quoted the part about BND; however the article was about a prospect of New Mexico entering the State-owned banking business. The author Zane Fischer refers to Ellen Brown of who I found an article that promotes California AB 750. Brown salivates about the potential a State-owned bank might do to save California from its debt woes. But note Brown relates to applying a California paradigm which is actually untested like the BND which has been tested successfully under the paradigm of an agricultural and business incentive economy that has avoided Housing as a principle business.

California is the eighth largest economy in the world, and it has a debt burden to match. It has outstanding general obligation bonds and revenue bonds of $158 billion, largely incurred for infrastructure. Of this tab, $70 billion is just for interest. Over $7 billion of California’s annual budget goes to pay interest on the state’s debt.

 

As large as California’s liabilities are, they are exceeded by its assets, which are sufficient to capitalize a bank rivaling any in the world. That’s the idea behind Assembly Bill 750, introduced by Assemblyman Ben Hueso of San Diego, which would establish a blue ribbon task force to consider the viability of creating the California Investment Trust, a state bank receiving deposits of state funds. Instead of relying on Wall Street banks for credit – or allowing a Wall Street bank to enjoy the benefits of lending its capital – California may decide to create its own, publicly-owned bank.

…

 

California joins eleven other states that have introduced bills to form state-owned banks or to study their feasibility. Eight of these bills were introduced just since January, including in Oregon, Washington State, Massachusetts, Arizona, Maryland, New Mexico, Maine and California. Illinois, Virginia, Hawaii and Louisiana introduced similar bills in 2010. For links, dates and text, see here.

 

…

 

The Center for State Innovation, based in Madison, Wisconsin, was commissioned to do detailed analyses for the Washington and Oregon bills. Their conclusion was that a state-owned bank on the model of the Bank of North Dakota would have a substantial positive impact in those states, increasing employment, new lending, and government revenue.

 

What California Could Do with Its Own Bank

 

Banks create “bank credit” from capital and deposits, as explained here. Under existing capital requirements, $8 in capital can be leveraged into $100 in loans, drawing on the liquidity provided by the deposits to clear the outgoing checks. Assuming a 10% reserve requirement (the amount in deposits normally held in reserve), $8 in capital and $100 in deposits are sufficient to create $90 in loans ($100 less $10 held back for reserves).

 

In North Dakota (population 647,000), the Bank of North Dakota has $2.7 billion in deposits, or $4000 per capita. The majority of these deposits are drawn from the state’s own revenues. The bank has nearly the same sum ($2.6 billion) in outstanding loans.

 

California has 37 million people. If the California Investment Trust (CIT) performed like the BND, it might amass $148 billion in deposits. With $12 billion in capital, this $148 billion could generate $133 billion in credit for the state (subtracting 10%, or 14.8 billion, to satisfy reserve requirements).

 

There are various ways the state could come up with the capital, but one possibility that would not require new taxes or debt would be to simply draw on the treasurer’s existing pooled money investment account, which currently contains $65 billion in accumulated revenues dispersed to a variety of funds. This money is already invested; a portion could just be shifted to the CIT. Since it would be an investment in equity rather than an expenditure, it would not cost the state money. Rather, it would make money for the state. In recent years, the Bank of North Dakota has had a return on equity of 25-26%. Compare the 25-30% lost in the two years following the 2008 banking crisis by CalPERS, the California Public Employees’ Retirement System, which invested its money on Wall Street.

 

There are many inviting possibilities for applying the CIT’s $133 billion in credit power, but here is one easy alternative that illustrates the cost-effectiveness of the approach. Assume the bank invested $133 billion in municipal bonds at 5% interest. This would give the state close to $7 billion annually in interest income – nearly enough to pay the interest tab on the state’s debt.

 

Choosing Prosperity

 

What California can do with its own bank, other states can do as well, on a scale proportionate to their populations and economies. North Dakota has a population that is less than 1/10th the size of Los Angeles; the BND produced $62 million in revenue last year and $2.2 billion in loans. Larger states could generate much more.

 

We have been trapped in an austere neo-liberal economic model in which the only alternatives are to slash services, raise taxes, and sell off public assets, all in a futile attempt to “balance the budget” in a shrinking economy. We need to start thinking outside the box. We can choose prosperity, and public banks are a key tool for achieving that end. (WHAT A PUBLIC BANK COULD MEAN FOR CALIFORNIA; By Ellen Brown; ThePeoplesVoice.org; May 20th, 2011)

If you have read down this far, I have a question. Did anyone notice Brown attached California’s needs to North Dakota’s paradigm? There was a lot of talk of a deposit based banking paradigm as in North Dakota. Also Brown connects everything from tax revenue to State government bureaucracy being tied to the bank.

Here is the thing I noticed though. Brown’s delight of tying all California revenue through a State-owned bank seems to lead to the possibility of moving budgetary money around to meet State needs covered by the State-owned deposits. Now I know in a perfect world with the revenue flying in on all cylinders that this would not be a big deal to move bank deposits or borrowing against bank deposits to shore up a State need to be a big deal. BUT what would happen if the borrowing on deposits to shore-up say social programs began to exceed the deposits? Keep in mind the North Dakota paradigm did not eliminate private enterprise banks but indeed worked with partner situations with the private banks. Also keep in mind the BND is not a Federally insured bank. The bank deposits are insured by the State of North Dakota.

With this in mind private banks play a huge role in California as opposed to North Dakota. California has been in the red so long that there might be a little distrust to place money in a Federally UNINSURED bank. I am thinking deposits in a State-owned bank in California could be just as bad news for the Californian economy if the State-owned banking revolves around California’s huge economy that goes way beyond agriculture and small businesses. I am betting some Governor, State Congress or bureaucrat might be willing to gamble in a less than conservative manner which could backfire.

If there is crisis in State-owned banking I am guessing a State like California would have to implement greater tentacles of Socialism that will indeed make the Bank of North Dakota look like a true Capitalist venture. Then Constitutional issues could arise because I am just unsure how Socialized a State can be outside the U.S. Constitution.

It seems to me that large State economies cannot work out a semi-Socialist/Capitalist success as has happened in North Dakota.

JRH 6/3/11