A Real People’s Bank: Occupy Wall Street’s Call for a Public Banking Option

6228844109_7cb7931987_b"When faced with a radical crisis, when the old way of being in the world, of interacting with each other and with the realm of nature doesn't work anymore, when survival is threatened by seemingly insurmountable problems, an individual life-form -- or a species -- will either die or become extinct or rise above the limitations of its condition through an evolutionary leap." -- Eckhart Tolle, author, A New Earth

One of the demands floating around the Occupy Wall Street protest movement has been a call for a public banking option. In an October 8 interview on the Real News Network, Dr. Michael Hudson, a professor of economics at the University of Missouri-Kansas City, explains this demand:

"The demand isn’t simply to make a public bank but to treat the banks generally as a public utility, just as you treat electric companies as a public utility. The key about public utilities is their rate of return is guaranteed and the rules which they operate under are guaranteed. Just as there was pressure for a public option in health care, there should be a public option in banking. There should be a government bank that offers credit card rates without punitive 30 percent interest rates, without penalties, without raising the rate if you don’t pay your electric bill. This is how America got strong in the 19th and early 20th century, by essentially having public infrastructure, just like you’d have roads and bridges...The idea of public infrastructure was to lower the cost of living and to lower the cost of doing business. You’re not going to do that if you let Citibank write the rules."

Ellen Brown, the president of the non-profit Public Banking Institute writes, "We don’t hear much about a public banking option in the United States, but a number of countries already have a resilient public banking sector...the model remains a viable alternative to the private profiteering being protested on Wall Street today."

America's only state-run bank is the Bank of North Dakota, which was originally set up to provide loans to farmers. Unsurprisingly, this bank has been getting a lot of national attention of late. As of August 2011, North Dakota has the country's lowest unemployment rate at 3.5 percent -- the only state below 4 percent (Nebraska comes in second place at 4.2 percent). Brown notes that North Dakota is the only state to have had a continuous budget surplus since the banking crisis began.


The idea to kick America's banking system to the curb isn't a new idea. In 1813, as the country was embroiled in the War of 1812 with the British Empire, Thomas Jefferson wrote to John Eppes, chairman of the Committee on Ways and Means of the Thirteenth Congress: "Although we have so foolishly allowed the field of circulating medium to be filched from us by private individuals, I think we may recover it...The states should be asked to transfer the right of issuing paper money to Congress, in perpetuity." Two years later, he wrote to Treasury Secretary Albert Gallatin: "The treasury, lacking confidence in the country, delivered itself bound hand and foot to bold and bankrupt adventurers and bankers pretending to have money, whom it could have crushed at any moment."

More recently, on November 11, 2008, a day after the Treasury announced a USD 40-billion investment to prop up AIG, Salman Khan, the portfolio manager of Khan Capital Management, and Dr. David Leinweber, the Haas Fellow in Finance and founding director of the Center for Innovative Financial Technology at the Haas School of Business at the University of California Berkeley, released a paper in which they proposed an alternative to the Troubled Asset Relief Program (TARP), the USD 700-billion bank bailout package of public money to buy mortgage-backed securities and other distressed assets in response to the subprime mortgage crisis.

In "New American Bank Initiative: Removing structural flaws in the economic rescue," or NABI, Khan and Leinweber argue that the government's rescue plan had "structural flaws" and "the incentives for these plans to work to the benefit of the country, and not the failed firms are poorly aligned." On the face of it, the NABI plan was surprisingly simple yet wildly radical: "se the $700 billion in government funds to capitalize new banks and distribute the shares of the new entities to the American People. These new banks would then acquire the operational and human capital assets of failed banks in FDIC receivership."

"Sounds crazy at first," wrote Leinweber in a post on O'Reilly Media. "But we're in the midst of a crisis that requires bold, even drastic, action. Using the systems thinking that drives technology innovation, we lay out a simple, direct approach to re-creating our financial system in a way that benefits the taxpayers, and the country, and that doesn't reward failure and irresponsible decisions."


Perhaps the answer is not necessarily tearing down the private banking system in favor of capitalizing a publicly-owned system, but a mix of the two, a system that is working for the BRIC nations. A 2008 study on the Russian banking system by researchers from the Roosevelt Academy in the Netherlands, Ghent University and the University of Strasbourg, for example, found that Russia's "domestic public banks are more efficient than domestic private banks and that the efficiency gap between these two ownership types did not narrow after the introduction of deposit insurance in 2004."

In May 2010, The Economist reported on the modus vivendi that was attained between public and private banks in India, China and Brazil, countries where public banks helped stabilize the economy during the banking crisis. "Until the financial crisis in the West the private banks seemed to offer a template for the entire industry: within a decade or two, it seemed, the state would retreat significantly. Now India's mixed model of banking is likely to persist for longer."

The now-defunct Commerce Bank, a New Jersey bank that became TD Bank in 2007, called itself "The People's Bank." They had some services that helped separate them from the other big banks, such as no overdraft fees, 7-day teller service and free dog biscuits. But that was before the financial crisis. Today, the phrase "people’s bank" means so much more than banking on Sundays and treats for Fido.



Tolle, Eckhart. A New Earth: Awakening to Your Life's Purpose. London: Penguin Books, 2008, p. 20.
Brown, Ellen Hodgson and Reed Simpson. Web of debt: the shocking truth about our money system and how we can break free. Baton Rouge: Third Millennium Press, 2007, p. 76.

image: Occupy Wall Street protests, October 9, 2011, New York City (credit: Kimberlyki, Flickr Creative Commons)

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