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

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.

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

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  1. Public Banks for Public WorksEllen Brown, J.D.The Pennsylvania Project &The Public Banking InstituteFriends Center, PhiladelphiaOctober 18, 2014

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

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

  4. Frank Baum: editor by day, populist by night.

  5. 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.

  6. Turned away at the Capitol steps.

  7. The wizard was powerless.

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

  9. 2008-09: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

  10. Globally, 40% of banks are publicly-owned.

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

  12. 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%.

  13. 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

  14. 40% of the cost of public projects goes to interest. Drinking Water 38% Garbage Collection 12% Public Housing 77% From Margrit Kennedy

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

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

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

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

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

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

  21. 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

  22. Projected ROE using pension funds @ 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

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

  24. 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 funds @ 0.25% • Money market @ 0.15% • Smaller banks can hold higher reserves

  25. 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

  26. Projected ROE @30% 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

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

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

  29. . . . 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

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

  31. For more information – PublicBankingInstitute.orgEllenBrown.com

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