Thursday, March 20, 2014

Public Banksters. - Part VII

A Vermont State Public Bank - Too Great of an Idea to Fail?

According to the folks at the California based Public Banking Institute where Vermonters for a New Economy co-founder and public banking cheerleader Gwen Hallsmith now serves as its executive director (although the PBI makes no mention of such a role at its website), the notion of a public bank is "a no-brainer."

The public banksters frame the narrative in this way:

"(Is public banking) riskier than the current system? In fact, the opposite is true. The only thing that saved the private banking system from complete bankruptcy in late 2008 and early 2009 was a backroom deal in which the U.S. taxpayer bailed out the so-called “too big to fail” (TBTF) banks..."
This is just another one of the fact contorting misrepresentations that have come to define the factual assertions of the national and local public banking proponents. Let's just take a look at the public banking failure noted by Vermont Treasurer Beth Pearce that puts the lie to the public banksters claim that they are the sole source of banking purity on the scene:

"In 1807, the Delaware General Assembly passed an act to establish the “Farmers’ Bank of the State of Delaware,” and in 1837, the General Assembly authorized the state’s purchase of 40% of the common stock of Farmers’ Bank. The Farmer’s Bank became the state’s exclusive depository and took on various revenue collection and accounting functions. The state’s ownership was later increased to 49.8% giving it effective control. While the Framers’ Bank was in operation for many years, the bank, according to one study, was “permeated by cronyism, politics, lack of oversight, and crisis management.”i In 1976, the bank became saddled with bad loans. This put the state’s uncollateralized deposits at risk. It escaped failure only after the FDIC bailed it out using extraordinary measures that had been used but five times since 1950."

"The State of Delaware was also required to join in the bailout, tying up millions of dollars. The state’s purchase of a new class of preferred stock at Farmers’ Bank for $20 million pushed its ownership up to 83.8% in exchange for the FDIC purchase of non-performing debt.iii In the end, special legislation enacted by the General Assembly and signed by the Governor in 1978 permitted the expedited sale of the bank. Legislation authorizing the sale stated that “the sale of the state’s interest in the Bank will limit such financial jeopardy to the public.” iv It was finally sold to Girard Bank of Philadelphia in 1981, which was subsequently acquired by Mellon Bank and is now Citizens Bank as a result of the Citizens/Mellon asset purchase."
Sounds like a "backroom deal" to bail out a TGTF (Too Great to Fail) public bank to me, no? And that was less than 35 years ago! Is it at all surprising to find that when people are involved the potential for fiscal or political problems never seem to change or go away?

Treasurer Pearce exposed yet another lie from the unregistered lobbyists in their proposal that didn't escape her notice:

"A recent document from one public bank advocate (at a website created by longtime Vermont secessionist Jim Hogue) states that Vermont “sends roughly $80 million per year to out of state financial institutions in interest costs and administrative fees. This money stays out of state.” Treasurer’s Office debt payments to investors are in that approximate range, but in fact, many of those dollars go to Vermonters."
Treasurer Pearce then dropped this bombshell on one of the myths of the public banksters, specifically that the Bank of North Dakota is well run:

BND’s History Demonstrates it is Not Immune to Politics

"As discussed above, BND’s board of directors is the Industrial Commission, which is composed of, amongst others, the North Dakota governor, agriculture commissioner and attorney general. While I am impressed with its current management, BND struggled as it developed alongside changing political landscapes. In 1985 BND was criticized by an independent audit firm (then Touche Ross and Co.) for making loans against the advice of its top management and for inadequate loan documentation. The bank CEO at the time was quoted in news articles as saying that due to ''political reasons'' the bank got involved with ''some loans that we probably wished we wouldn't have.” According to reports, auditors also “criticized BND for not having any long-range plans or any measure of departmental performance.” In the mid-1990s there was significant discussion about questioned loans."

"Political or external pressures to reap success in certain investments could take precedence over a state bank’s long-term view and fiduciary responsibilities. The state might also be pressured to get projects off the ground by charging less for loans than the market rates. The State Treasurer is bound by the prudent investor provisions in state statute."
And this was by no means the BND's only occasions of questionable banking practices. Improper assessment fees was another controversey that BND was involved in but you'll never hear about BND's repeated banking improprieties from the public banking lobby. No, it's just the fairy tale that the public banksters want Vermonters to know, not anything close to the whole truth.

Treasurer Pearce continues:

"Vermonters buy our bonds and both the VMBB and the Treasurer’s Office have expanded their use of retail or “citizen bonds” providing Vermonters the opportunity to invest in Vermont. The Treasurer recently sold just under $25M in bonds to Vermonters and approximately 80% of VMBB financings are sold to Vermont investors. Other instrumentalities have significant local investment. We hope to do even more with local investors. Further, when we sell bonds to investors outside of Vermont, capital actually surges into the state and then trickles back out as principal and interest are repaid. Replacing this outside capital with the state’s operating cash would actually represent a loss of state financing resources."
What the unregistered lobbyists for the public banking proposal for the State of Vermont haven't disclosed is that their California based leadership has another great idea - county public banks. And they've solved that pesky capitalization problem that plagues their statewide proposal; simply seize public employee pension's investment assets to fund their bank. Never mind that pension fund employees have a seat at the investment table; merely seize the pension funds by legislative fiat. What could possibly be wrong with that?

This sort of dictatorial, "what's yours is mine" is the very essence of neo-Georgist economic hokum on steroids. If they dare, I'd expect the Vermont secessionist public banksters to be just as spectacularly unsuccessful with this scheme as they were with their proposal outlined in Senate bill S. 204.

Next up in the Public Bankster series: Gwen Hallsmith declares victory!

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * For the archive of the Free Vermont Framework listserv, click here.

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