Nov 20, 2014. Public banks are, above all, tools of local control. The Bank of North Dakota allows that state to bypass Wall Street and finance local and state-wide projects without fear of paying exploitative interest rates, or of losing those interest payments to outside shareholders who wouldn’t re-invest them in local endeavors.
Local media understand this, and so coverage of local campaigns for public banks tends to be generally accurate concerning the positions taken by advocates, and the interactions between those advocates and local officials or community bankers. Some of those battles go well for the public banking movement and others do not, but local newswriters cover those struggles with a goal of understanding and reporting them.
Big national media presents a different challenge. National newswriters are more bound by the ideological assumptions of their publications and editors, and national news is more overtly political than local news. Public banking, however, is really not about politics, at least not about left/right politics. There are good reasons why conservatives would support public banks as a means of restoring local control to financing decisions and liberating local communities from the financial stewardship of the federal government. There are equally good reasons why liberals and others on the left would support public banks as means of preserving the commons and building public ser vices through transparent, democratically-controlled bodies that bypass Wall Street. Public banking is transpartisan.
But big media doesn’t always know how to handle that. So articles about public banking will emphasize some features and minimize others. The Wall Street Journal’s November 16 lauding of the Bank of North Dakota is a reminder of the growing national consensus that the time has come to find viable ways to finance the public good. Chester Dawson, who typically covers Canadian business news for the Journal, writes in praise of the Bank of North Dakota(BND) in his article, whose title, “Shale Boom Helps North Dakota Bank Earn Returns Goldman Would Envy,” demonstrates how national economics writers can recognize the benefits of public banking even if they sometimes point the causal arrow in the wrong direction.
Dawson praises the Bank of North Dakota for being “more profitable than Goldman Sachs” and for not having a drop in profit growth since 2003. In doing so, he joins a growing chorus of economic writers recognizing the promise of public banks, from the New York Times’ Robb Mandelbaum to The Nation’s John Nichols, and from University of Massachusetts economist Richard Wolff to former Rolling Stone crusader Matt Taibbi.
Dawson points out that the BND, which acts as the repository for all state revenues and then lends at low-interest to endeavors that benefit the state, has paid tens of millions of dollars back into North Dakota’s general budgetary fund every year for several years—except when the state legislature has determined that budgets are flush and the money is better off being invested in North Dakota’s communities. Since the BND’s mission is the promotion of economic development rather than shareholder returns or competition with private banks, the fact that the BND has a superior bottom line to private banks is just icing on the cake.
But while leaders of the public banking movement in America agree that the economic strengths of the BND are important, they say the real importance of North Dakota’s public economic institution lies in the model it offers the rest of the country. Gwen Hallsmith, Executive Director of the non-partisan Public Banking Institute (PBI), is pleased that the Journal is finally catching up with previous praise for the BND in the New York Times and other publications. “The Bank of North Dakota demonstrates another very practical model of how to fund important public priorities like infrastructure and education,” she says. “It also promotes fiscally sound government. The false alternatives given to us by the mainstream politicians— cutting spending or raising taxes— are not the only way.”
Hallsmith and others agree that Dawson’s treatment gets a lot right about the benefits of a state-owned bank. But in asserting that the reason for the BND’s success is “the boom in Bakken shale-oil production from hydraulic fracking,” Dawson misses the forest for the trees, according to Ellen Brown, public banking’s most prolific proponent. “It’s not accurate to say the boom made the bank,” says Brown, a founder of PBI and author of Web of Debt and The Public Bank Solution. “It might be more accurate to say the bank made the boom.” This is because the BND financed the infrastructure that made economic growth possible in the first place, including roads, housing, hospitals, and public services. And, as Brown points out, the BND was doing quite well long before the oil boom. “North Dakota was the only state to have escaped the credit crisis by the spring of 2009, and the oil boom didn’t hit until 2010,” she says.
Dawson accurately points out that the BND partners with community banks. But community banks are the real alternative to the bloated (and often corrupt) operations of Goldman, BoA, and other Wall Street behemoths. As Jill Herriges recently wrote in the Chippewa Valley Business Report, community banks serve families and local businesses and use local deposits to lend to neighborhoods where depositors work and live. PBI Director Hallsmith says she longs for the time when the criteria for banking success will be something more meaningful than being “better than JP Morgan Chase” or successful financing of the fracking industry.
“The Wall Street and extractive industry models might not be the best criteria for a truly healthy economy,” she says. “Public banking can offer new ways of doing business that benefit everyone, supporting renewable energy, affordable housing, and job creation.”
In the end, Dawson’s piece remains extremely positive. It emphasizes the financial success of the BND and only minimally, halfheartedly doubts the model could be replicated elsewhere (of course, we already know it works in other countries). The article belongs on a short list of national media treatments of the public banking movement. Here are some other articles that comprise that (non-exhaustive) list:
“Public Banking is the Answer,” Ruth Conniff, The Progressive, November 26, 2013. “Keeping the focus on Main Street, the Public Banking Institute is mostly talking to local government officials, who are not under as much pressure from the banking lobby as federal and state officials. It’s a simple case to make: debt-servicing costs give away millions that could be used by counties to finance public projects themselves.”
“What North Dakota’s Public Bank Does for Small Business,” Robb Mandelbaum, The New York Times, March 13, 2014. “By allowing smaller banks to make so-called overline loans, ‘It keeps them competitive with the Wells Fargos and U.S. Banks of the world,’ said Russ Erickson, president and chief executive of the Fargo operations of Bremer Bank, a regional lender based in St. Paul with 22 branches in North Dakota. ‘Without the Bank of North Dakota, the economy wouldn’t be as vibrant as it is today.’”
“Overthrow the Speculators,” Chris Hedges, Truthdig, December 29, 2013. “We can wrest back control of our economy, and finally our political system, from corporate speculators only by building local movements that decentralize economic power through the creation of hundreds of publicly owned state, county and city banks. The establishment of city, regional and state banks, such as the state public bank in North Dakota, permits localities to invest money in community projects rather than hand it to speculators. It keeps property and sales taxes, along with payrolls for public employees and pension funds, from lining the pockets of speculators such as Jamie Dimon and Lloyd Blankfein. Money, instead of engorging the bank accounts of the few, is leveraged to fund schools, restore infrastructure, sustain systems of mass transit and develop energy self-reliance.”
“Banking for the People,” John Nichols, The Nation, March 29, 2010. The nation’s only state-owned bank avoided subprime lending and the derivatives markets during the recent real estate bubble and now has $4 billion under management. It maintains the faith of its founders and, in the words of bank president Eric Hardmeyer, continues to ‘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.’ What that means, according to Ellen Brown, author of the book Web of Debt, is that North Dakota has avoided the credit freeze ‘by creating its own credit [and] leading the nation in establishing state economic sovereignty.’”
“How the Nation’s Only State-Owned Bank Became the Envy of Wall Street,” Josh Harkinson, Mother Jones, March 27, 2009. [BND President Eric Hardmeyer:] “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.”