The Secret to Funding the Green New Deal

Some Thoughts on Monetary Policy and How It Can Work

by Ellen Brown

As alarm bells sound over the advancing destruction of the environment, a variety of Green New Deal proposals have appeared in the U.S. and Europe, along with some interesting academic debates about how to fund them. Monetary policy, normally relegated to obscure academic tomes and bureaucratic meetings behind closed doors, has suddenly taken center stage.

The 14-page proposal for a Green New Deal submitted to the U.S. House of Representatives by Rep. Alexandria Ocasio-Cortez, D-N.Y., does not actually mention Modern Monetary Theory (MMT), but that is the approach currently capturing the attention of the media—and taking most of the heat. The concept is good: Abundance can be ours without worrying about taxes or debt, at least until we hit full productive capacity. But, as with most theories, the devil is in the details.

MMT advocates say the government does not need to collect taxes before it spends. It actually creates new money in the process of spending it; and there is plenty of room in the economy for public spending before demand outstrips supply, driving up prices.

Critics, however, insist this is not true. The government is not allowed to spend before it has the money in its account, and the money must come from tax revenues or bond sales.

In a 2013 treatise called “Modern Monetary Theory 101: A Reply to Critics,” MMT academics concede this point. But they write, “These constraints do not change the end result.” And here the argument gets a bit technical. Their reasoning is that “the Fed is the monopoly supplier of CB currency [central bank reserves], Treasury spends by using CB currency, and since the Treasury obtained CB currency by taxing and issuing treasuries, CB currency must be injected before taxes and bond offerings can occur.”

The counterargument, made by American Monetary Institute (AMI) researchers, among others, is that the central bank is not the monopoly supplier of dollars. The vast majority of the dollars circulating in the United States are created, not by the government, but by private banks when they make loans. The Fed accommodates this process by supplying central bank currency (bank reserves) as needed, and this bank-created money can be taxed or borrowed by the Treasury before a single dollar is spent by Congress. The AMI researchers contend, “All bank reserves are originally created by the Fed for banks. Government expenditure merely transfers (previous) bank reserves back to banks.” As the Federal Reserve Bank of St. Louis puts it, “federal deficits do not require that the Federal Reserve purchase more government securities; therefore, federal deficits, per se, need not lead to increases in bank reserves or the money supply.”

What federal deficits do increase is the federal debt; and while the debt itself can be rolled over from year to year (as it virtually always is), the exponentially growing interest tab is one of those mandatory budget items that taxpayers must pay. Predictions are that in the next decade, interest alone could add $1 trillion to the annual bill, an unsustainable tax burden.

To fund a project as massive as the Green New Deal, we need a mechanism that involves neither raising taxes nor adding to the federal debt; and such a mechanism is proposed in the U.S. Green New Deal itself—a network of public banks. While little discussed in the U.S. media, that alternative is being debated in Europe, where Green New Deal proposals have been on the table since 2008. European economists have had more time to think these initiatives through, and they are less hampered by labels like “socialist” and “capitalist,” which have long been integrated into their multi-party systems.

A Decade of Gestation in Europe

The first Green New Deal proposal was published in 2008 by the New Economics Foundation on behalf of the Green New Deal Group in the U.K. The latest debate is between proponents of the Democracy in Europe Movement 2025 (DiEM25), led by former Greek finance minister Yanis Varoufakis, and French economist Thomas Piketty, author of the best-selling “Capital in the 21st Century.” Piketty recommends funding a European Green New Deal by raising taxes, while Varoufakis favors a system of public green banks.

Varoufakis explains that Europe needs a new source of investment money that does not involve higher taxes or government deficits. For this purpose, DiEM25 proposes “an investment-led recovery, or New Deal, program … to be financed via public bonds issued by Europe’s public investment banks (e.g., the new investment vehicle foreshadowed in countries like Britain, the European Investment Bank and the European Investment Fund in the European Union, etc.).”

To ensure that these bonds do not lose their value, the central banks would stand ready to buy them above a certain yield. “In summary, DiEM25 is proposing a re-calibrated real-green investment version of Quantitative Easing that utilizes the central bank.”

Public development banks already have a successful track record in Europe, and their debts are not considered government debts. They are financed not through taxes but by the borrowers when they repay the loans. Like other banks, development banks are money-making institutions that not only don’t cost the government money but actually generate a profit for it. DiEM25 collaborator Stuart Holland observes:

While Piketty is concerned to highlight differences between his proposals and those for a Green New Deal, the real difference between them is that his—however well-intentioned—are a wish list for a new treaty, a new institution and taxation of wealth and income. A Green New Deal needs neither treaty revisions nor new institutions and would generate both income and direct and indirect taxation from a recovery of employment. It is grounded in the precedent of the success of the bond-funded, Roosevelt New Deal which, from 1933 to 1941, reduced unemployment from over a fifth to less than a tenth, with an average annual fiscal deficit of only 3 percent.
Roosevelt’s New Deal was largely funded through the Reconstruction Finance Corporation (RFC), a public financial institution set up earlier by President Hoover. Its funding source was the sale of bonds, but proceeds from the loans repaid the bonds, leaving the RFC with a net profit. The RFC financed roads, bridges, dams, post offices, universities, electrical power, mortgages, farms and much more; and it funded all this while generating income for the government.

A System of Public Banks and “Green QE”

The U.S. Green New Deal envisions funding with “a combination of the Federal Reserve [and] a new public bank or system of regional and specialized public banks,” which could include banks owned locally by cities and states. As Sylvia Chi, chair of the legislative committee of the California Public Banking Alliance, explains:

The Green New Deal relies on a network of public banks — like a decentralized version of the RFC — as part of the plan to help finance the contemplated public investments. This approach has worked in Germany, where public banks have been integral in financing renewable energy installations and energy efficiency retrofits.
Local or regional public banks, Chi says, could help pay for the Green New Deal by making “low-interest loans for building and upgrading infrastructure, deploying clean energy resources, transforming our food and transportation systems to be more sustainable and accessible, and other projects. The federal government can help by, for example, capitalizing public banks, setting environmental or social responsibility standards for loan programs, or tying tax incentives to participating in public bank loans.”

U.K. professor Richard Murphy adds another role for the central bank—as the issuer of new money in the form of “Green Infrastructure Quantitative Easing.” Murphy, who was a member of the original 2008 U.K. Green New Deal Group, explains:

All QE works by the [central bank] buying debt issued by the government or other bodies using money that it, quite literally, creates out of thin air. … [T]his money creation process is … what happens every time a bank makes a loan. All that is unusual is that we are suggesting that the funds created by the [central bank] using this process be used to buy back debt that is due by the government in one of its many forms, meaning that it is effectively canceled.
The invariable objection to that solution is that it would act as an inflationary force driving up prices, but as argued in an earlier article of mine, this need not be the case. There is a chronic gap between debt and the money available to repay it that needs to be filled with new money every year to avoid a “balance sheet recession.” As U.K. professor Mary Mellor formulates the problem in her book “Debt or Democracy” (2016):

A major contradiction of tying money supply to debt is that the creators of the money always want more money back than they have issued. Debt-based money must be continually repaid with interest. As money is continually being repaid, new debt must be being generated if the money supply is to be maintained. … This builds a growth dynamic into the money supply that would frustrate the aims of those who seek to achieve a more socially and ecologically sustainable economy.
In addition to interest, says Mellor, there is the problem that bankers and other rich people generally do not return their profits to local economies. Unlike public banks, which must use their profits for local needs, the wealthy mostly hoard their money, invest it in the speculative markets, hide it in offshore tax havens or send it abroad.

To avoid the cyclical booms and busts that have routinely devastated the U.S. economy, this missing money needs to be replaced; and if the new money is used to pay down debt, it will be extinguished along with the debt, leaving the overall money supply and the inflation rate unchanged. If too much money is added to the economy, it can always be taxed back; but as MMTers note, we are a long way from the full productive capacity that would “overheat” the economy today.

Murphy writes of his Green QE proposal:

The QE program that was put in place between 2009 and 2012 had just one central purpose, which was to refinance the City of London and its banks. … What we are suggesting is a smaller programe … to kickstart the UK economy by investing in all those things that we would wish our children to inherit whilst creating the opportunities for everyone in every city, town, village and hamlet in the UK to undertake meaningful and appropriately paid work.
A network of public banks, including a central bank operated as a public utility, could similarly fund a U.S. Green New Deal—without raising taxes, driving up the federal debt or inflating prices.

This article originally appeared in TruthDig.com

Ellen Brown

Ellen Brown
Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of twelve books including “Web of Debt” and “The Public Bank Solution.”

IN THIS ARTICLE:
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GLOBAL VOICESTruthdig Women Reporting
MAR 18, 2019 |TD ORIGINALS
Tunisian Children Pay for Jihadist Parents’ Sins
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Tunisians gather at an anti-terrorism protest. Many oppose repatriating IS families, and the country doesn’t have a structure in place to rehabilitate radicals once they return. (Wikimedia Commons)
<i>Truthdig is proud to present this article as part of its Global Voices: Truthdig Women Reporting, a series from a network of female correspondents around the world who are dedicated to pursuing truth within their countries and elsewhere.</i>

“I lost them forever. I can’t get my grandchildren back from Syria.”

Tahia Sboui cries as she talks about her son’s children living in a Syrian camp after their father, a Tunisian Islamic State (IS) fighter, was killed. He had been fighting in Boukamal, a city in eastern Syria.

Sboui, who lives in Kairouan in central Tunisia, tells the distressing story of how she fought for months to bring her grandchildren home but ultimately lost contact with them.

Sboui’s grandchildren are among the estimated 200 Tunisian children and 100 Tunisian women detained in refugee camps and prisons in Libya, Syria and Iraq, according to Human Rights Watch (HRW). A recent HRW report says these IS family members are being held in squalid—and sometimes violent—conditions and that “Tunisia officials have been dragging their feet on helping bring [them] home.”

The Tunisian women and children are part of a larger problem that began in 2016 as IS started to suffer military defeats in the region. Currently, an estimated 2,000 children and 1,000 women from 46 nations are detained in Iraqi and Libyan prisons and in Syrian camps. Repatriating these detainees has been painfully slow—hampered by fear of terrorism at home and by a complex web of international relations.

<b>Pleading Over the Phone</b>

A year ago, Sboui received a phone call. At the other end of the line was a young woman speaking in a Syrian dialect. The woman told Sboui that she was the first wife of Sboui’s son, Awas, and that she was with his five children in a camp in northern Syria. Three of the children were hers; the two others were the children of Awas’ now-deceased second wife, a Tunisian. (Awas had two wives at the same time.) The 18-year-old Syrian woman pleaded for Sboui’s help to move to Tunisia with the children, ages 7 months to 4 years (pictured below).

Awas had left Tunisia in 2012 to fight in Syria, and Sboui was surprised to learn he had married two women and had five children. The call began a long struggle as she tried to get Tunisian authorities to repatriate the youngsters. She made contact with the Tunisian Ministry of Foreign Affairs, but it didn’t provide help.

Her other son went to Turkey to ask for help at the Tunisian Consulate in Istanbul. The consulate said it could not enter Syrian territories and that he had to arrange for the children and the woman to enter Turkey. Awas’ brother sent money to his sister-in-law to pay smugglers to bring her to the Turkish border, but when the woman and children arrived there, Turkish authorities sent them back to the camp in Syria.

In the meantime, one of the five children died in the camp. (Sboui says her grandchild was malnourished and suffered from disease, but she doesn’t know what caused the death.)

The grandmother blames the Tunisian authorities for not cooperating. “We told the Ministry of Foreign Affairs that we [the father’s family in Tunisia] … welcome them and [will] take care of them, but it refused to help us,” she says.

Sboui is very angry. In 2012, she had warned government authorities that her son was leaving Tunisia to join IS in Syria (via Libya), and she is upset they didn’t stop him at the Libyan border. “My son was killed with his second wife” in the Boukamel fighting, she says. “I’m the only family that remains to those children, [their only chance] to live in a safe place.”

Moncef Abidi, who lives in Kef in northwestern Tunisia, also is trying to bring home relatives following IS defeats. His sister Wahida and his 4-year-old nephew Baraa are imprisoned in Mitiga Prison in Tripoli, the capital of Libya. The prison is under the control of the Special Deterrence Force, a radical Islamist militia organization. “The last call that I got from my sister was three months ago,” Abidi says. “She was asking me to help her to come back with her sick child, even if she will be imprisoned in Tunisia.”

In 2012, Wahida’s husband took her to live in Libya, and he joined IS two years later. According to Abidi, his sister didn’t know her husband was an IS fighter, and when she discovered it and wanted to go back to Tunisia, he “threatened to take away their son.”

In 2016, Wahida, her husband and other IS fighters were running away from an armed confrontation and were caught in a U.S. raid. Wahida’s husband was killed, and she and Baraa were hurt. The boy’s injuries were especially severe—a bullet entered his back and exited through his stomach.

 

Wahida and Baraa. (Zineb Benzita)
The Special Deterrence Force moved Wahida to Mitiga, where she was imprisoned with 14 other IS women and 22 of their children, says Mohamed Ikbal Ben Rejab, president of the Rescue Association of Tunisians Trapped Abroad (RATTA). This nongovernmental organization works to help Tunisian citizens abroad and repatriate them into Tunisian society.

Baraa spent four months in a hospital and underwent five surgeries. The boy needs additional medical care that isn’t available in Libya. “His situation is critical,” Abidi says. “It’s unacceptable to let him [remain] in prison.”

<b>Problems With Repatriation</b>

Some countries are moving forward to repatriate IS family members—Russia, Kazakhstan, Uzbekistan, Indonesia, Egypt and Sudan have made the most progress, according to HRW. Other countries, from the U.S. to Tunisia, have done very little.

Tunisia has had one of the highest rates of nationals going to Syria, Iraq and Libya to join terrorist groups. From 2011 to 2013, Ennahdha, the Muslim Brotherhood party that held power in Tunisia, facilitated the process of sending fighters through Libya and Turkey to Syria. Tunisian authorities estimate the country’s number of jihadists at 3,000, but other sources report more than 6,000, including 1000 women.

After IS defeats in Syria and Libya, some Tunisian fighters and family members started to return home. Some came back on their own, while Turkish authorities handed over others to Tunisian authorities. Most of the fighters are in prison or under police supervision. Officially, the number is 800, but it could be higher because all of them haven’t been declared to the Tunisian authorities. Among them, 25 women and 30 children came back from Syria, according to a source in Tunisia’s Ministry of the Interior. (The source spoke to this reporter but asked to remain anonymous.)

Since 2017, Libyan authorities have put pressure on Tunisia to repatriate the women and children imprisoned in Libya, but the two countries haven’t reached an agreement, according to Ikbal. He says Tunisian authorities want to allow children back without their mothers, while the Libyan government wants Tunisia to take back all its citizens—and even 80 corpses of Tunisian IS fighters. (Other countries have recently made moves to repatriate children while leaving their mothers behind.)

For its part, the Tunisian government is reluctant to repatriate IS women for fear of social disruption at home. “We are afraid that they will bring terrorist ideas with them,” says the source at the Interior Ministry.

That source adds that Tunisia doesn’t have a structure in place to rehabilitate radicals once they return.

In 2014, Moncef Marzouki, then the president of Tunisia, suggested rehabilitating some returnees, but the idea was abandoned due to social opposition. Popular sentiment at the time held that the jihadists were dangerous and should be imprisoned. Government action—plus a community support system—is essential for a rehabilitation plan to succeed, according to the Carnegie Endowment for International Peace. However, it’s not clear whether the public would support that kind of effort at present.

Khaoula Ben Aicha, a member of Tunisia’s legislature, is actively involved in the move to repatriate Tunisian IS children. She gives another explanation of the impasse between Libya and Tunisia, one based on international politics. “Tunisian authorities don’t want to deal with Libyan militias [such as the Special Deterrence Force] that are imprisoning children, because it will be considered as a form of recognition to them,” she says. But “children [should] not continue to pay for this situation.”

The political situation with Syria is complex, as well. Like many countries, Tunisia doesn’t have official relations with the Syrian government, and the camps housing IS families are controlled by Kurdish authorities—not by a formally recognized government.

<b>Pressure Leads to Some Action</b>

Under pressure from Libyan authorities and concerned Tunisian citizens, the Tunisian government has sent three delegations to Libya since April 2017. Negotiations resulted in the repatriation of Tamime, a 4-year-old orphan, in October 2017 and two other children at the end of 2018.

Tunisian authorities acted in these cases after major efforts on the part of the children’s families.

Tamime’s grandfather, Fawzi Trablesi, went to Libya four times and engaged in direct negotiations with representatives of the Special Deterrence Force. “It was difficult to repatriate him,” Trablesi says. “But now he’s here, and I’m very happy that he will be raised in Tunisia within his family.”

In the case of the two other children—siblings ages 7 and 10—their family hired a Libyan lawyer to negotiate with Libyan authorities.

Last January, another delegation went to Libya to take the DNA of six orphans who had been cared for by the Libyan Red Crescentsince December 2016. The DNA tests established that the children were Tunisian. By law, a child born to a Tunisian mother in another country is a Tunisian citizen.

According to the recent HRW report, international law dictates that everyone “has the right to a nationality,” and the document adds that the “Tunisian Constitution prohibits denying or revoking citizenship or preventing citizens from returning home.” However, HRW points out that the Tunisian women and children detained in other countries are unable to return home without help from their government.

Libya and Tunisia agreed that the orphans would be transferred to Tunisia in February, but the transfer hasn’t taken place yet. Tunisian authorities acted because the Libyan Red Crescent warned them it could no longer take care of the children.

“It was a good initiative [by] Tunisian authorities, but it is not enough,” Ikbal says. “It is necessary to repatriate all the Tunisian children abroad.” RATTA, one of the few groups working on this issue, has stepped up activities since 2017. Its efforts to pressure the Tunisian government range from press conferences to sit-ins.

Human rights activists feel Tunisian IS children and mothers should be repatriated together, even if the mothers are imprisoned when they return home. “Legitimate security concerns are no license for governments to abandon young children and other nationals held without charge in squalid camps and prisons abroad,” according to Letta Tayler, senior HRW researcher on terrorism and counterterrorism. Quoted in the organization’s report last month, Tayler added: “Tunisian children are stuck in these camps with no education, no future, and no way out while their government seems to barely lift a finger to help them.”

Sboui, the grandmother who tried to bring her son’s children back to Tunisia last year, has no hope of seeing them again. Her former daughter-in-law has remarried and cut off communication with her former husband’s family.

“For me, I lost them forever,” Sboui says.

Hanene Zbiss
Hanene Zbiss has been an investigative journalist since 2011 and has written a variety of articles on Tunisia and Iraq. She received the European Union’s Samir Kassir Award for Freedom of the Press in 2014 and…

IN THIS ARTICLE:
children families human rights watch iraq islamic state libyarepatriation syria td originals terrorism tunisia
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MAR 18, 2019 |
Corporate Media Has Learned Nothing From Iraq
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Screen shot / New York Times
Glenn Greenwald (The Intercept, 3/10/19) exposes the media’s role in parroting the U.S. government’s pro-war propaganda against Venezuela.

Readers will likely know by now, that the late February story, complete with vivid video footage, about the forces of elected Venezuelan President Nicolás Maduro burning trucks that were trying to bring the besieged country food and medicine was false. Weeks later, the New York Times (3/10/19) reported that the humanitarian trucks were not set on fire by Maduro’s forces, but instead by anti-Maduro protestors who threw a Molotov cocktail. The Times outlined how the fake story took root, passing from US officials to media that simply reported their claims as fact with no investigation—and does any of this sound familiar?

Folks like CNN‘s Marshall Cohen noted the Times debunking as if it were just an interesting development—a “classic example of how misinformation spreads,” Cohen said in a tweet. Except, as The Intercept‘s Glenn Greenwald pointed out (3/10/19), it was Cohen’s own network, CNN, that led the way in spreading the lie around the world.

And not simply by parroting official claims. On February 24, the network told viewers that “a CNN team saw incendiary devices from police on the Venezuelan side of the border ignite the trucks.” It was then we got to Mike Pence claiming that “the tyrant” Maduro “danced as his henchmen…burned food and medicine”; Marco Rubio’s comment that “each of the trucks burned by Maduro carried 20 tons of food and medicine. This is a crime and if international law means anything, he must pay a high price for this”; Mike Pompeo’s fist-shaking, “What kind of a sick tyrant stops food from getting to hungry people?”

It isn’t merely that corporate media will never, in a million years, go back to each of these people and demand to know why they won’t insist on the same sort of response, now that it appears it was Maduro’s opponents who were to blame. It’s more that the very news dissemination process here superficially being indicted will not itself be reconsidered.

 

Max Blumenthal (Grayzone Project, 2/24/19) questioned the US government’s claim that Maduro burned the aid trucks weeks before the New York Times.

After all, this false story arrived embedded within another false story: that the Venezuelan government is blocking needed humanitarian aid to the country. The Venezuelan government has and does allow aid into their country—from countries that are not actively and vituperatively threatening to overthrow the elected president with an external coup. Groups from the Red Cross to the UN have challenged the US’s earnest claims of humanitarian concern. NPR (2/16/19) acknowledged that US moves are not simply humanitarian, but “also designed to foment regime change in Venezuela—which is why much of the international aid community wants nothing to do with it.”

That, plus the evidence that it was in fact opposition protesters that burned the trucks, would suggest a real flipping of the current script, and with it some consideration of how that script got written in the first place. But, as  happened with those raising questions about evidence of Saddam Hussein’s possession of weapons of mass destruction—or the Cuban airfield in Grenada, or Iraqis throwing babies out of incubators, or North Vietnam firing on US ships in the Gulf of Tonkin—the outlets that vigorously pushed the false story will not extend any new skepticism toward the official sources that sold it to them. Nor will they offer any new respect—or platform—to the people (like Max Blumenthal, like Boots Riley) who questioned the claim…not weeks later, but in real time.

Those official sources will still be central and those asking questions will still be marginal. Those who cannot believe that the US government is working, with corporate media support, to set up a false storyline to push the public to support another war on another country might at this point ask themselves: If they were doing that, how would that look different than what we’re seeing now?
Janine Jackson / FAIR
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Close Loss For L.A. Public Bank

Ellen Brown

Ellen Brown on the public banking measure: Hi, I’ve gotten inquiries on the outcome of the Los Angeles ballot measure to approve a city-owned bank , so thought I would send a quick update. Unfortunately it did not pass, but it did get 42 percent of the vote. It was a remarkable outcome considering that the dynamic young Public Bank LA advocacy group effectively only had a month to educate 4 million voters on what a public bank is and why passing the measure was a good idea. If they had had another month, the bill could well have passed.

The City Council took supporters by surprise when it put the charter amendment on the ballot in July, leaving only four months to promote it. Passing a ballot measure typically takes a campaign war chest of $750,000 or more, and the all-volunteer PBLA group began with no funding and no formal group. The first challenge was clearing the legal requirement of forming a campaign committee, which itself takes funding and some expertise. The committee only began amassing campaign funds a month before the November 6 vote, after which it managed to bring in $60,000.

Most of the campaign, however, was conducted with sheer people power. According to PBLA political director Ben Hauck, in that short time the all-volunteer team managed to gain endorsements from over 100 organizations and community leaders, text message 350,000 voters, hand out over 50,000 flyers, reach over 500,000 voters through social media campaigns, get included in three mailers reaching over 1,200,000 voters, put up hundreds of yard signs and banners across L.A., talk with thousands of voters at events, universities, rallies and gatherings across the city, get featured in dozens of major news stories, articles and TV coverage, manage their own paid social media campaign, drive over 150,000 video views on a YouTube campaign, contact 200,000 voters via a robocall from the Chairman of the California Democratic Party, put on several significant campaign events, get featured in a press event with senatorial candidate Kevin de León and City Council President Herb Wesson, and create several featured videos, dozens of ads, and countless pieces of written content.

The PBLA team is pressing on undaunted. Leader Trinity Tran wrote after the vote, “Over a quarter million Angelenos voted in support of Measure B and the conversation on public banking has now been amplified across the country. This is just the beginning of the national movement. And it’s a fight we are certain will be won.”

We’re hugely proud of the PBLA team! Their dramatic achievements in a very short time are a testament to the power of a committed group of volunteers working together at the local level for a cause they feel strongly about.

If you would like to follow the progress of the public banking movement across the country, please sign up for the Public Banking Institute newsletter, linked here.

Best wishes,
Ellen 
http://EllenBrown.com
http://PublicBankingInstitute.org

How Los Angeles Can Have It’s Own Bank & Free Itself From Wall Street

The Movement to Public Banking

by Ellen Brown

Photo by Paul Hunt

Wall Street Owns The Country

(From Ellen Brown’s article on TruthDig.com)  Wall Street owns the country. That was the opening line of a fiery speech that populist leader Mary Ellen Lease delivered around 1890. Franklin Roosevelt said it again in a letter to Colonel House in 1933, and Sen. Dick Durbin was still saying it in 2009. “The banks—hard to believe in a time when we’re facing a banking crisis that many of the banks created—are still the most powerful lobby on Capitol Hill,” Durbin said in an interview. “And they frankly own the place.”

Wall Street banks triggered a credit crisis in 2008-09 that wiped out over $19 trillion in household wealth, turned some 10 million families out of their homes and cost almost 9 million jobs in the U.S. alone. Yet the banks were bailed out without penalty, while defrauded home buyers were left without recourse or compensation. The banks made a killing on interest rate swaps with cities and states across the country, after a compliant and accommodating Federal Reserve dropped interest rates nearly to zero. Attempts to renegotiate these deals have failed.

In Los Angeles, the City Council was forced to reduce the city’s budget by 19 percent following the banking crisis, slashing essential services, while Wall Street has not budged on the $4.9 million it claims annually from the city on its swaps. Wall Street banks are now collecting more from Los Angeles just in fees than it has available to fix its ailing roads.

Local governments have been in bondage to Wall Street ever since the 19th century despite multiple efforts to rein them in. Regulation has not worked. To break free, we need to divest our public funds from these banks and move them into our own publicly owned banks.

L.A. Takes It to the Voters

Some cities and states have already moved forward with feasibility studies and business plans for forming their own banks. But the city of Los Angeles faces a barrier to entry that other cities don’t have. In 1913, the same year the Federal Reserve was formed to backstop the private banking industry, the city amended its charter to state that it had all the powers of a municipal corporation, “with the provision added that the city shall not engage in any purely commercial or industrial enterprise not now engaged in, except on the approval of the majority of electors voting thereon at an election.”

Under this provision, voter approval would apparently not be necessary for a city owned bank that limited itself to taking the city’s deposits and refinancing municipal bonds as they came due, since that sort of bank would not be a “purely commercial or industrial enterprise” but would simply be a public utility that made more efficient use of public funds. But voter approval would evidently be required to allow the city to explore how public banks can benefit local economic development, rather than just finance public projects.

The L.A. City Council could have relied on this 1913 charter amendment to say “no” to the dynamic local movement led by millennial activists to divest from Wall Street and create a city owned bank. But the City Council chose instead to jump that hurdle by putting the matter to the voters. In July 2018, it added Charter Amendment B to the November ballot. A “yes” vote will allow the creation of a city owned bank that can partner with local banks to provide low-cost credit for the community, following the stellar precedent of the century old Bank of North Dakota, currently the nation’s only state-owned bank. By cutting out Wall Street middlemen, the Bank of North Dakota has been able to make below-market credit available to local businesses, farmers and students while still being more profitable than some of Wall Street’s largest banks. Following that model would have a substantial upside for both the small business and the local banking communities in Los Angeles.

Rebutting the Opposition

On Sept. 20, the Los Angeles Times editorial board threw cold water on this effort, calling the amendment “half-baked” and “ill-conceived,” and recommending a “no” vote.

Yet not only was the measure well-conceived, but L.A. City Council President Herb Wesson has shown visionary leadership in recognizing its revolutionary potential. He sees the need to declare our independence from Wall Street. He has said that the country looks to California to lead, and that Los Angeles needs to lead California. The people deserve it, and the millennials whose future is in the balance have demanded it.

The City Council recognizes that it’s going to be an uphill battle. Charter Amendment B just asks voters, “Do you want us to proceed?” It is merely an invitation to begin a dialogue on creating a new kind of bank—one geared to serving the people rather than Wall Street.

Amendment B does not give the City Council a blank check to create whatever bank it likes. It just jumps the first of many legal hurdles to obtaining a bank charter. The California Department of Business Oversight (DBO) will have the last word, and it grants bank charters only to applicants that are properly capitalized, collateralized and protected against risk. Public banking experts have talked to the DBO at length and understand these requirements; and a detailed summary of a model business plan has been prepared, to be posted shortly.

The L.A. Times editorial board erroneously compares the new effort with the failed Los Angeles Community Development Bank, which was founded in 1992 and was insolvent a decade later. That institution was not a true bank and did not have to meet the DBO’s stringent requirements for a bank charter. It was an unregulated, non-depository, nonprofit loan and equity fund, capitalized with funds that were basically a handout from the federal government to pacify the restless inner city after riots broke out in 1992—and its creation was actually supported by the L.A. Times.

The Times also erroneously cites a 2011 report by the Boston Federal Reserve contending that a Massachusetts state-owned bank would require $3.6 billion in capitalization. That prohibitive sum is regularly cited by critics bent on shutting down the debate without looking at the very questionable way in which it was derived. The Boston authors began with the $2 million used in 1919 to capitalize the Bank of North Dakota, multiplied that number up for inflation, multiplied it up again for the increase in GDP over a century and multiplied it up again for the larger population of Massachusetts. This dubious triple-counting is cited as serious research, although economic growth and population size have nothing to do with how capital requirements are determined.

Bank capital is simply the money that is invested in a bank to leverage loans. The capital needed is based on the size of the loan portfolio. At a 10 percent capital requirement, $100 million is sufficient to capitalize $1 billion in loans, which would be plenty for a startup bank designed to prove the model. That sum is already more than three times the loan portfolio of the California Infrastructure and Development Bank, which makes below-market loans on behalf of the state. As profits increase the bank’s capital, more loans can be added. Bank capitalization is not an expenditure but an investment, which can come from existing pools of unused funds or from a bond issue to be repaid from the bank’s own profits.

Deposits will be needed to balance a $1 billion loan portfolio, but Los Angeles easily has them—they are now sitting in Wall Street banks having no fiduciary obligation to reinvest them in Los Angeles. The city’s latest Comprehensive Annual Financial Report shows a Government Net Position of over $8 billion in Cash and Investments (liquid assets), plus proprietary, fiduciary and other liquid funds. According to a 2014 study published by the Fix LA Coalition:

Together, the City of Los Angeles, its airport, seaport, utilities and pension funds control $106 billion that flows through financial institutions in the form of assets, payments and debt issuance. Wall Street profits from each of these flows of money not only through the multiple fees it charges, but also by lending or leveraging the city’s deposited funds and by structuring deals in unnecessarily complex ways that generate significant commissions.
Despite having slashed spending in the wake of revenue losses from the Wall Street-engineered financial crisis, Los Angeles is still being crushed by Wall Street financial fees, to the tune of nearly $300 million—just in 2014. The savings in fees alone from cutting out Wall Street middlemen could thus be considerable, and substantially more could be saved in interest payments. These savings could then be applied to other city needs, including for affordable housing, transportation, schools and other infrastructure.

In 2017, Los Angeles paid $1.1 billion in interest to bondholders, constituting the wealthiest 5 percent of the population. Refinancing that debt at just 1 percent below its current rate could save up to 25 percent on the cost of infrastructure, half the cost of which is typically financing. Consider, for example, Proposition 68, a water bond passed by California voters last summer. Although it was billed as a $4 billion bond, the total outlay over 40 years at 4 percent will actually be $8 billion. Refinancing the bond at 3 percent (the below-market rate charged by the California Infrastructure and Development Bank) would save taxpayers nearly $2 billion on the overall cost of the bond.

Finding the Political Will 

The numbers are there to support the case for a city owned bank, but a critical ingredient in effecting revolutionary change is finding the political will. Being first in any innovation is always the hardest. Reasons can easily be found for saying “no.” What is visionary and revolutionary is to say, “Yes, we can do this.”

As California goes, so goes the nation, and legislators around the country are watching to see how it goes in Los Angeles. Rather than criticism, Council President Wesson deserves high praise for stepping forth in the face of predictable pushback and daunting legal hurdles to lead the country in breaking free from our centuries-old subjugation to Wall Street exploitation.

Hear Ellen Brown in Santa Monica

DATE: Thursday October 4, 2018

LOCATION: The Satellite Flexible Workspace 3110 Main St., Annex Building C 2nd Floor Santa Monica, CA 90405

TIME: 7:30 PANEL BEGINS!
6:30-7:30 Please arrive EARLY for NETWORKING and snacks
Followed by Q & A with the members of our Public Bank LA panel & more snacks and networking! (we will wrap it up by 9:30/10)

COST: $10 (donation for location and snacks)