Public Banks for Public Works Ellen Brown, J.D. The Pennsylvania Project & The Public Banking Institute Friends Center, Philadelphia October 18, 2014

Return to our populist roots: The Wizard of Oz as monetary allegory.

The prototype: the 1894 march of Coxey’s Army on Washington.

Frank Baum: editor by day, populist by night.

Coxey proposed two bills. Good Roads Bill: $500 million in legal tender U.S. Notes to construct roads. Non-interest-bearing Bonds Bill: state and local governments could issue interest-free bonds to borrow U.S. Notes from the federal Treasury.

Turned away at the Capitol steps.

The wizard was powerless.

But Baum was also a theosophist: You are what you believe. We can have it all.

: Only one state escaped the credit crisis— the only state with its own bank. North Dakota also has: the nation’s lowest unemployment rate one of the lowest foreclosure rates lowest default rate

Globally, 40% of banks are publicly-owned.

In North Dakota, it was not about socialism but state sovereignty.

The Bank of North Dakota model: Depository for all state revenues. DBA of the state. Partners with local banks. $40M annual dividend; ROE of 17-26%.

Perks for the state Dividends and cheap credit lines replace rainy day funds. Prompt, efficient disaster relief ( ’97 Grand Forks flood) 40-50% savings on infrastructure

40% of the cost of public projects goes to interest. Public Housing 77% Drinking Water 38% Garbage Collection 12% From Margrit Kennedy

For example... Bay Bridge retrofit: principal, $6 billion; interest, $6 billion. Bullet train: principal, $10 billion; interest, $9.5 billion

Without interest, California could be $72 billion richer. General Obligation, Revenue, & other bonds, 2013 $92 billion principal + $72 billion interest = $164 billion – nearly double.

New liquidity rules could cause interest rates to soar. Compare Greece...

Another threat to state revenues: Dodd-Frank has replaced bailouts with “bail-ins.”

Even "secured" government deposits could be at risk. Blue line: FDIC fund Green line: deposits Red line: derivative exposure, 5 largest banks

How to eliminate interest and protect public deposits? Own the bank!

Where to find the money... Capital: $20M from rainy day fund or bond issue x 3% interest = $.6M cost of capital Deposits: $200M - $20M reserve = $180M x 0.3% interest = 0.54M cost of deposits $180M invested in bonds earning 3% = $5.4M profit - $1.14M (cost of funds) Net profit: $4.26M (21%) The magic of leverage

Projected ROE using pension 8%. Capital: $20M from pension fund x 8% interest = $1.6M cost of capital Deposits: $200M - $20M reserve = $180M x 0.3% interest =.54M cost of deposits Invested in bonds earning 3% = $5.4M profit - $2.14M (cost of funds) Net profit: $3.26M (16.3%) The magic of leverage

Minimal operating costs No bonuses, fees, commissions No high-paid CEOs No need for buildings, branches, tellers No need to advertise

What if the state needs its deposits? The bank can borrow. Banks do not lend their deposits. They create deposits when they make loans. They balance their books by borrowing: – Fed 0.25% – Money 0.15% Smaller banks can hold higher reserves

Projected ROE holding 30% in reserve. Capital: $20M from surplus fund or bond issue x 3% interest = $.6M cost of capital Deposits: $200M - $60M reserve = $140M x 0.3% interest =.42M cost of deposits $140M invested in bonds earning 3% = $4.2M profit - $1.02M (cost of funds) Net profit: $3.18M (16%) The magic of leverage

Projected reserve using pension funds. Capital: $20M from pension fund x 8% interest = $1.6M cost of capital Deposits: $200M - $60M reserve = $140M x 0.3% interest = 0.42M cost of deposits $140M invested in bonds earning 3% = $4.2M profit - $2.02M (cost of funds) Net profit: $2.18M (11%) The magic of leverage

Banking crises are making public banks more popular. Safer for depositors. Countercyclical lending. Less corrupt, more efficient, more profitable.

Twenty U.S. states have introduced bills for publicly-owned banks...

... and many municipalities are in active pursuit. Santa Fe, NM Brunswick, GA San Francisco, Ca Philadelphia, PA Pittsburgh, PA State of Vermont Boston, MA Reading, PA Sonoma, CA Mendocino, CA Seattle, WA Tacoma, WA Chattanooga, TN Collier County, FL

The door has been opened. It’s time to push through. NPL Convention, ND

For more information – PublicBankingInstitute.org EllenBrown.com