The Public Option in Banking: How We Can Beat Wall Street at Its Own Game

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DrKrbyLuv's picture
DrKrbyLuv
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Posts: 1995
The Public Option in Banking: How We Can Beat Wall Street at Its Own Game

Complete Article - By Ellen Brown

In Wall Street's latest affront to the public trust, the nine mega-banks graced with $125 billion in taxpayer bailout money under the Troubled Asset Relief Program (TARP) were reported last week to be paying out billions of dollars in bonuses to their executives. At least 4,793 bankers and traders received more than $1 million each in bonus payments, although it was one of Wall Street's worst years on record.

The bonuses paid to executives not only were not tied to national economic growth but were not even tied to some reasonable percentage of company profits. In fact they were generally greater than the net income of the banks. Morgan Stanley, for example, had $1.7 billion in earnings and paid $4.475 billion in bonuses. Goldman Sachs had $2.3 billion in earnings and paid $4.8 billion in bonuses. JP Morgan Chase had $5.6 billion in earnings and paid $8.69 billion in bonuses. JP Morgan's largesse involved showering 1,626 of its favorite execs and traders with bonuses of $1 million or more.

We may not be able to stop them, but we can join them. We the people need to play the bankers' game ourselves. Even corporate giants such as General Motors and WalMart have now gotten into the banking game and are easing their credit problems by forming their own banks. The U.S. public sector is late to the party. States, counties, public universities could take the lucrative system the private banking industry has created for itself and turn it to productive use in the public interest.

  Ellen Brown - "Web of Debt"  (Must Read Book)

In China, private-sector banking has also made some inroads; but state-owned banks still predominate. In a June 2009 article titled "The Chinese Puzzle: Why Is China Growing When Other Export Powerhouses Aren't?", Brad Setser noted that nearly all countries relying heavily on exports for growth have experienced major downturns and remain in the doldrums -- except for China. When China's external markets fell off, the government turned its credit machine inward to domestic development. Its state-owned banks engaged in a huge increase in lending, with local governments and state enterprises borrowing on a large scale. The result was to create a real fiscal stimulus that put workers to work and got money circulating again in the economy.

In the United States, the trendsetter in public banking is the state of North Dakota, which has owned its own bank for nearly a century. North Dakota is one of only two states (along with Montana) that are currently not facing budget shortfalls. Ever since 1919, North Dakota's revenues have been deposited in the state-owned Bank of North Dakota (BND). Under the "fractional reserve" lending scheme open to all banks, these deposits are then available for leveraging many times over as loans. Other banks in the state do not see the BND as a threat because it partners with them and backstops them, serving as a sort of central bank for the state. BND's loans are not insured by the Federal Deposit Insurance Corporation (FDIC) but are guaranteed by the state. North Dakota has plenty of money for student loans, makes low-interest loans to startup farms, has the lowest unemployment rate in the country, and is generally not feeling the pinch of the credit crisis at all.

A bank charter brings with it the privilege of creating "credit" simply as an accounting entry on the bank's books. The flaw in the private banking scheme is that banks create the principal portion of their loans but not the interest, which is continually drawn off the top as profit. New borrowers must continually be found to take out new loans to create this extra profit, making private banking effectively a pyramid scheme; and like any pyramid scheme, it has mathematical limits.

Today, those limits appear to have been reached. Personal and national debts have gotten so large relative to incomes that it is no longer possible to maintain the fiction of solvency. We soon won't have the money even to pay the interest on our existing debts, let alone to incur new ones. Public banking does not suffer from that flaw, because interest is not drawn out of the system but is returned to the public coffers. Public banking is thus mathematically sound and sustainable. 

Ellen is providing answers to the greatest problem of our lifetime - the financial collapse of the west.  I keep wondering why her ideas do not take more traction and I suspect it is because there is a preconceived notion that solutions can not be simple for complex problems.

This is especially true in national monetary systems where the scams are glitz-ed up with confusion and double speak all in an effort to make people give up on ever understanding the fundamentals.  It really is not as complicated as we've been led to believe - our monetary system is simply a scam.

It will be much easier for us to work at the state level as we are closer to the PTB and states; unlike Washington, must balance their budgets.  Tax revenues are dropping and states are desperately seeking solutions.

Larry

Ready's picture
Ready
Status: Platinum Member (Offline)
Joined: Dec 30 2008
Posts: 917
Re: The Public Option in Banking: How We Can Beat Wall ...

Larry,

You have my attention.

Play this out for us a little since you have obviously done some research here.

If every state adopted this today, what would be the result? Would the Fed still exist? The Treasury market?

How would the USGov change? Would we not still have deficit spending and trade imbalances? The federal debt, SS, medicare, etc. would still be looming in this scneario too, right?

Bear with me a bit more, as you look at a state like CA who is in obvious trouble, does this somehow give themselves the ability to lend (much like printing)  thier way out of crisis? Since they are doing this in USD, what would be the controls in place across the states?

Thanks,

Rog

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JAG
Status: Diamond Member (Offline)
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Posts: 2492
Re: The Public Option in Banking: How We Can Beat Wall ...

 Great post Larry, looking forward to the ensuing discussion.

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ccpetersmd
Status: Martenson Brigade Member (Offline)
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Posts: 799
Re: The Public Option in Banking: How We Can Beat Wall ...

This sounds interesting.  Off to do some research...

ccpetersmd's picture
ccpetersmd
Status: Martenson Brigade Member (Offline)
Joined: Oct 12 2008
Posts: 799
Re: The Public Option in Banking: How We Can Beat Wall ...

Here's some more information...

http://www.motherjones.com/mojo/2009/03/how-nation’s-only-state-owned-bank-became-envy-wall-street 

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