Public Bank – Voices for New Democracy

| Madeline Chang |

The movement for Public Banks is growing. California has passed a law clearing the way for cities to form their own banks. 25 of 50 states have proposed legislation in support of publicly-owned banks, New York, Oregon, New Mexico and Washington among them. The Bank of North Dakota was, for 100 years, the only state public bank, started in the aftermath of a populist uprising of farmers and small businessmen in 1919. California just legalized public banking with the Public Banking Act, which will allow city and county governments to create or sponsor public banks.

Below are remarks made as part of the New York Town Hall on Public Banking.

There are successful models of the government using public money for the public good in our history. One of them is the Reconstruction Finance Corp, or the RFC. This was a lending agency that President Roosevelt used to fund the New Deal and World War 2. It issued bonds and loaned or invested over $40 billion.

What’s important about this is that instead of taking out high interest loans from private banks to pay private corporations (to build roads, for example), which is what we tend to do today, the RFC cut out the middlemen. It was the Government that created the money to loan and invest in highways, bridges, and Post Offices at this time and it was the Government that put people back to work — about 3 million unemployed men and women. And the net profit to the government was over $690 million. So we have this precedent where the government became the biggest investor in the economy. Economic power was essentially relocated from Wall Street to Washington DC.

Today, we need reconstruction again, just like during the Depression of the 1930s.

We need to rebuild the economy, but we can do even better than that by correcting past injustice. Black & brown communities have been hit the hardest by COVID-19, on top of all the inequality and disinvestment that private banks have made worse for decades. Public banks can help reverse the racial wealth gap by lending to Black & brown families, providing capital historically available mostly to white families. The RFC example shows that we don’t need to raise taxes. We don’t need austerity measures, like cuts to public education or transportation.

Another successful model is Postal Banking, which we actually had from 1911 to 1967. We have two Postal Banking bills now pending in Congress. The great thing about Postal Banking is that the infrastructure is already there. There’s an existing network of 30,000 Post Offices.

So Postal Banking is a perfect opportunity to serve the 25% of households that are unbanked or under-banked because people can’t afford to keep a balance or because there are no banks located in their communities. These households spend about $40,000 over a lifetime just on checking and savings account fees and pay up to 400% on payday loans.

For further reading go to the Public Banking Institute website and Ellen Brown’s many books such as Banking on the People, Democratizing Money in the Digital Age and The Web of Debt.

| Madeline Chang |

In 1985, the Post-Industrial Society published by the New Democratic Movement began to articulate a new vision of an economy that will provide for and be inclusive of all people in our society. It observed at the time that “most fundamental structural problem of the U.S. economy is failure to increase productivity,” and for more than 30 years, now, the problem has only become worse.

With every crisis, the Federal Reserve prints more money, adding to an unsustainable level of debt, but wages and living standards do not grow for real people. The largest private banks, such as JP Morgan Chase, Deutsche Bank and HSBC, were never required to increase their lending to Main Street. So they didn’t. No one told the corporations who got bailout money that they were under any obligation to do anything with this cheap money either. So they didn’t.

They can go for the quick profit instead of investing in their workers or developing real products and technology.

But people can’t borrow money at 0% interest like banks can. And the banks turn around and charge form loans, credit cards, and student loans. Meanwhile, the central bankers are not even elected by the voters. They are basically free to decide monetary policy as they see fit without any accountability.

The whole structure is undemocratic. They have so much power yet there is no requirement that their policies lead to real growth.

In truth, there hasn’t been laissez-faire capitalism for a long time — and now the most powerful banks and the central bank are running the world. But because of that, the way forward is clear.

The Federal Reserve should be a public utility mandated to serve the productive economy, together with local public banks established to serve the liquidity needs of local economies.

Madeline Chang was a labor and community organizer in Chicago for over a decade. She is currently retired and living in New York City, where she worked in the public schools for 30 years.