How America Can Replace Wall Street Financing with
By Marc Armstrong
Executive Director, Public Banking
This article was adapted from a speech Armstrong gave at the
Progressive Festival in Petaluma, California, on Sept 15,
Many of you have likely heard about public banking and how
it is central to many developed economies in the world, and
the dominant model in others. Germany has public banks
funding much of their manufacturing sector as well as their
rapid installation of renewable and distributed energy
New Zealand has a postal bank, which they use to provide
convenient and low cost banking services to their people.
China has the largest development bank in the world. Japan
has the largest public bank by deposits in the world. India
has the largest public bank, in terms of its number of
branches, in the world. And Scotland has the largest public
bank by assets.
And the United States? Our country is bereft of public
banking and true public finance. Sure, we talk about public
finance as if it serves the public, but the reality is that
virtually all of our public finance has been co-opted by
private banks. With the exception of North Dakota, all state
treasurers deposit their state tax revenues and fees into
private banks — usually the ones on Wall Street, setting the
stage for endless dependency on the private banking cartel.
We've been led to believe there is no alternative. Take, for
example, the California Infrastructure Bank, or I Bank. An I
Bank is a public entity that uses private money to fund
public projects. On the face it it, this seems like a good
approach — not using taxes to fund public projects. But the
reality is that the I Bank is another form of hidden
taxation, in the form of interest payments, making wealthy
people wealthier by teeing up safe, long-term investments in
public projects like bridges and other infrastructure.
The San Francisco/Oakland Bay Bridge was initially funded
with the I Bank. Ignoring the twists and turns of the
planning process during the 90's and the last decade, the
new bridge is a safe investment; the money will undoubtedly
be paid back by tolls. The cost for this new bridge is $6.4
billion, a sum widely quoted in local papers. What is not
said is that the interest and fees for this will be another
$6 billion. $6 billion to be paid until the year 2049.
This is a good time to ask why we hold labor costs under the
microscope and rarely do the same for debt servicing costs?
Ask your local elected officials; do they know the debt
servicing costs in their budget? I suspect that many of them
know, to the penny, what the labor costs are.
This is now playing out in Detroit where pension plans are
readily placed on the altar to be sacrificed, but what is
due to the banks is sacrosanct. Yet North Dakota, the only
state in our country with a public bank, does not have debt
servicing costs because they "don't spend more than they
take in," or so the locals like to say.
The reality is that North Dakota doesn't issue general
obligation bonds because the state has its own bank to
finance public infrastructure. Last year their public bank,
the Bank of North Dakota, issued a $50 million loan to fund
a new water pipeline. The paid interest on this loan is
reported as profits to the bank and — guess what — it gets
returned to the state general budget, benefiting the very
same people who paid for the water.
Meanwhile, in California, public finance is being starved
for funds. Earlier this year, California Watch published a
study that showed that over the last six years over $9
billion in loans have been taken out as "capital
appreciation bonds" by our school districts to fund school
construction and improvements. The estimated cost in
interest: over $26 billion. In other words, we are
obligating future taxpayers, our sons and daughters, to pay
$35 billion for our use of $9 billion today! What kind of
legacy is that?
Elected officials cannot raise taxes; they've cut as much as
they can cut, many districts are bonded out, they've reached
their debt ceiling and are privatizing whatever they can for
short-term gain. So, what options do they have other than to
take out these toxic debt products peddled by Wall Street?
It does not have to be this way. Your treasurers at city,
county and state levels can easily take public monies that
are on deposit in Wall Street banks, deposit them in a
public bank and use the bank credit for the public good.
If we had a state Bank of California, the state could have
funded the entire $6.4 billion bridge construction cost
simply with bank credit generated by state deposits. Think
of that the next time you pay the $6 toll on the Bay Bridge
— knowing that over 55% of that money is going toward
decades of interest payments to the big Wall Street banks.
A state public bank means the state gives itself a license
to issue credit through use of deposits. The "bank" is
simply a few cubicles staffed by people who understand
credit and interest rate risk. But the heart of it is the
license, issued by the California
State Department of Financial Institutions. This
can be done at the county or city level and can effectively
eliminate debt servicing costs, a major line item in the
Public banking is all about economic sovereignty and self
sufficiency. It is about sharing the exclusive privilege
that we, as a people, have given banks to use bank credit,
issuing loans simply by writing them into their books.
We recognize that in a free market there are essential
public utilities that exist side by side with well-regulated
products. Tap water at low cost exists side by side with
more expensive bottled water. Electricity provided over the
wires exists side by side with power generators. Mass
transit exists as an alternative to using expensive cars,
and are complimentary. 44-cent first class postage through
the US Postal Service exists side by side, for now at least,
with $17 overnight delivery through FedEx.
We are so used to banks being the exclusive provider of bank
credit that many of us don't even recognize that we can
create an alternative. Fortunately, most other
countries,have not been snookered the way we have. They are
not paying FedEx prices for public finance.
Banking Institute's vision is to see a network of
public banks — 50 state owned banks and scores of county and
city owned banks, with the US Postal Service additionally
providing core, low cost banking services to 10 million
currently unbanked people and over 20 million who are
underbanked — established throughout the United States.
Not only can this network provide low cost banking services
and affordable credit for infrastructure financing and to
create jobs, but it can also provide LIBOR-like interest
rate benchmarks that can be used instead of relying upon the
private banking cartel for this important index.
Even more important, our vision is for the self sufficiency
of our communities. Do you want your county to reduce its
carbon footprint? Start a loan program to improve the energy
efficiency of homes. Sonoma County in northern California
did this a few years ago, but did it with tax assessments on
property bills. The costs for the Sonoma County Energy
Independence Program (SCEIP) could have been much lower with
a county owned bank. The Bank of North Dakota has 26 of
these loan programs.
Do you want to see your county build or extend mass transit,
clean water, clean energy, etc? Fund these projects with a
county bank, and every one of these loans will be self
liquidating — paid back with the fees generated from the
So, if you're looking for one cause to take on that truly
changes the way our society works, pick up public banking in
your city or county. Austerity, the fiscal cliff, the
dominating headlines that scream “We're Broke!!” — these are
all myths, and they are being steadily, increasingly
revealed as such. Challenge the Wall Street cartel of
private banks and you will be contesting with the most well
financed lobby the world has ever known.
But you will be acting as a citizen in the interest of your
community and your country. And the great thing about it is:
We, the People, can win.
Why Economic Democracy Now? The Reasons Keep Piling Up
by Matt Stannard
Development Director, Public Banking
What do a recent analysis of the Detroit bankruptcy
crisis, and recent revelations of wide-scale corporate
spying on citizen activists, have in common? They both
suggest that we need to revitalize the public sphere,
democratize economic policy, and dismantle the hierarchy
created by material inequality.
New reasons for building community power and dismantling the
power of private capital are manifest every day.
Wallace Turbeville’s November
20 report on the Detroit bankruptcy concludes
that the exacerbating factor in that city’s financial
problems–what is literally holding Detroit back from
addressing the crisis–are the risky financial instruments
with which Wall Street stuck Detroit. The “complex financial
deals Wall Street banks urged on the city over the last
several years” included interest rate swaps containing
provisions wildly favoring the banks, as well as devastating
credit rating downgrades.
An important point in Turbeville’s conclusion is the
contradiction in ethical duties present in private finance
of public endeavors.
The banks and insurance companies were in a far better
position to understand the magnitude of these risks and they
had at least an ethical duty to forbear from providing the
swaps under such precarious circumstances.
But, of course, as private corporations, the banks and
insurance companies’ main ethical duty was to their
shareholders, private investors who stood to benefit from
Detroit’s risky deal. This is, above all, a reason for
democratically-run, public finance.
Meanwhile, it’s looking like private corporations are (as
Walter Brasch once called them
in the context of consumer spying) the new “Big Brother.”
Stuart Pfiefer covered this in
LA Times on November 20, and both
Bill Moyers and
Democracy Now! reported on it this morning as well. From
large companies employ former Central Intelligence Agency,
National Security Agency, FBI, military and police officers
to monitor and in some cases infiltrate groups that have
been critical of them, according to the report by Essential
Information, which was founded by Ralph Nader in the 1980s.
“Many different types of nonprofits have been targeted with
espionage, including environmental, anti-war, public
interest, consumer, food safety, pesticide reform,
nursing-home reform, gun control, social justice, animal
rights and arms control groups,” the report said…
The conclusion of the report’s author is serious:
“Corporate espionage against nonprofit organizations is an
egregious abuse of corporate power that is subverting
democracy,” said Gary Ruskin, the report’s author.
Revelations of corporate spying highlight the material
powers possessed by economic entities: political powers,
powers over people’s lives, “bio-power” as the Foucauldians
call it. Fighting against
state police power is hard enough. When
corporate America practice police state tactics, that fight
gets harder, because we can’t vote the violators out of
office. We can subject them to tort actions, but not the
kind of judicial review available when we’re fighting the
oppressive arm of the state.
Building accountability into our political institutions is
hard enough without the impunity and out-of-proportion power
of our financial institutions. We need the same kinds of
checks and balances in both.
Public Banks: Key to Freeing America From Wall Street?
Just one U.S. state currently has a public bank -- and it's
trouncing the competition.
In its continued fight for economic justice for the 99
percent, especially in the wake of the 2008 financial
collapse, Occupy Wall Street recently shared a
story detailing how
America can replace Wall Street financing with public banks.
While the idea of a public bank may sound far too much like
“socialism” to occur in the U.S., conservative North Dakota
has a public banking system, and studies have found that in
addition to being less corrupt, the state’s public banks are
more efficient and profitable than private banks.
1919 in the midst of
economic woes for many of the state’s farmers, the
Non-Partisan League, a populist organization, voted to
implement public banks in the Midwestern state to free
farmers from “impoverishing debt dependence.”
Some 90 years later, the bank is still in existence in North
Dakota and is reportedly thriving while it helps the state’s
community banks, businesses, consumers and students obtain
loans at a reasonable rate.
But it’s not just Occupy Wall Street advocates and
“socialists” who view public banks as a smart investment for
the nation’s economic future — some Wall Street economists
also agree public banks are a better financial choice.
Take Michael Hudson for example. Hudson is a former Wall
Street economist who
says the private
banking industry is “cannibalizing the economy,” since
private banks “are supposed to make money” and engage in
“parasitic” behavior in order to do so. Public banks, on the
other hand, “would make loans for long-term purposes to
serve the economy and help the economy grow.”
said when the banks
failed in 2008, the federal government should have taken
over control of the banks and began to operate them as
“If the government would have taken over Citibank it would
not have done the kind of things that Citibank did. The
government would not have used depositors’ money and
borrowed money to gamble. It wouldn’t have gone down the
casino capitalism route. It wouldn’t have played the
derivatives market. It wouldn’t have made corporate takeover
“None of these are productive from the vantage point of
economic growth and raising productive powers and living
standards. They would not be the proper behavior of a public
Ellen Brown is the president of the Public Banking
Institute, a group that argues there is a need for a public
bank in every state and major city in the U.S. She agreed
with Hudson and
said that if
California had public banks, the state’s economic outlook
would look much different right now:
“At the end of 2010, [California] had general obligation and
revenue bond debt of $158 billion. Of this, $70 billion, or
44 percent, was owed for interest. If the state had incurred
that debt to its own bank — which then returned the profits
to the state — California could be $70 billion richer today.
Instead of slashing services, selling off public assets, and
laying off employees, it could be adding services and
repairing its decaying infrastructure.”
Land of financial socialism
Formed in January 2011, the
Public Banking Institute
was started by financial writers, public finance experts and
former bankers to “further the understanding, explore the
possibilities, and facilitate the implementation of public
banking at all levels — local, regional, state, and
Public banks differ from private banks in that instead of
public revenue from sales taxes or property taxes being
invested in a Wall Street endeavor, a public bank reinvests
that money by investing in small businesses, public
infrastructure projects and student loans, among other
PBI often points to the Bank of North Dakota as an example
of how public solutions exist as a way to end Wall Street’s
grip on the U.S. economy, since it’s the nation’s sole state
to have a public bank and has been for quite some time.
Though most states have struggled to avoid a budget deficit,
North Dakota is the only state in the U.S. that continues to
have record-setting surpluses.
According to a
press release from
May 2013, PBI reported that the BND had reported a record
$81.6 million in profits in 2012, which is the bank’s 40th
continuous year of profitability.
“Even though its Lending Services Portfolio balance
increased from $2,996 million in 2011 to $3,274 million in
2012, credit losses shrunk from $52.9 million in 2011 to
$52.3 million in 2012, indicating a healthy portfolio,” the
“The commercial loan portfolio grew from 36 percent to 40
percent of the Lending Services portfolio, representing
$1.273 billion in loans. Student loans and residential loans
decreased proportionally from 35 percent and 19 percent,
respectively, to 32 percent and 18 percent. Agriculture
loans remained at the same relative percentage year-to-year
at 10 percent, growing to $343 million in 2012 from $289
million in 2011.”
That’s not surprising for supporters of public banks, such
as those at PBI. They said that if the some
$1 trillion that is
invested in Wall Street was instead given back to the public
to support infrastructure projects, small businesses and
education, about 10 million new jobs could be created
throughout the U.S., which “would effectively end our
destructive unemployment crisis.”
“Public banks don’t speculate or gamble on high
risk,’financial products,’” Brown said. “They don’t pay
outrageous salaries and bonuses to their management, who are
instead salaried civil servants. The profits of the bank are
all returned to the only shareholder — the people.
“North Dakota is a small state,” she added. “Imagine the
returns to the people of larger states, with larger
populations and a larger volume of economic activity.”
Coming soon: End of Wall Street?
Though North Dakota has been the sole state in the U.S. thus
far to have public banks, about
20 states are
currently considering legislation to create state banks. If
more and more states start to implement such a financial
structure, Sam Knight says Wall Street may fire back by
filing a lawsuit against the banks — and Wall Street may
Knight said that the activities of the BND and other state
banks may be ruled illegal because “foreign bankers could
claim the BND stops them from lending to commercial banks
throughout the state.”
But as Les Leopold wrote in an article for
Salon, since the
financial collapse activism against Wall Street has slowly
been replaced by fatalism as many advocates began to feel
Wall Street was too big and too powerful to change. However,
“this new public banking movement could have legs,” since
most Americans are still furious about how much bigwigs in
the financial industry profited from the crisis.
agrees that the more
people know about the public banks, the more likely it is
they will begin to appear throughout the U.S. “We need to
get more information out there and develop a groundswell of
popular support,” she said.
said PBI would like
to see 50 state-owned banks and scores of county- and
city-owned banks providing low-cost banking services to 10
million currently unbanked people and over 20 million who
are underbanked throughout the United States.
Public Banking in Costa Rica: A Remarkable Little-Known
by Ellen Brown
President, Public Banking Institute
Web of Debt Blog
In Costa Rica, publicly-owned banks have been available
for so long and work so well that people take for granted
that any country that knows how to run an economy has a
public banking option. Costa Ricans are amazed to hear there
is only one public depository bank in the United States (the
Bank of North Dakota), and few people have private access to
So says political activist Scott Bidstrup, who writes:
For the last decade, I have resided in Costa Rica, where we
have had a “Public Option” for the last 64 years.
There are 29 licensed banks, mutual associations and credit
unions in Costa Rica, of which four were established as
national, publicly-owned banks in 1949. They have remained
open and in public hands ever since—in spite of enormous
pressure by the I.M.F. [International Monetary Fund] and the
U.S. to privatize them along with other public assets.
The Costa Ricans have resisted that pressure—because the
value of a public banking option has become abundantly clear
to everyone in this country.
During the last three decades, countless private banks,
mutual associations (a kind of Savings and Loan) and credit
unions have come and gone, and depositors in them have
inevitably lost most of the value of their accounts.
But the four state banks, which compete fiercely with each
other, just go on and on. Because they are stable and none
have failed in 31 years, most Costa Ricans have moved the
bulk of their money into them. Those four banks now account
for fully 80% of all retail deposits in Costa Rica, and the
25 private institutions share among themselves the rest.
According to a
2003 report by the World Bank,
the public sector banks dominating Costa Rica’s onshore
banking system include three state-owned commercial banks
(Banco Nacional, Banco de Costa Rica, and Banco Crédito
Agrícola de Cartago) and a special-charter bank called Banco
Popular, which in principle is owned by all Costa Rican
workers. These banks accounted for 75 percent of total
banking deposits in 2003.
Competition Policies in
Emerging Economies: Lessons and Challenges from Central
America and Mexico (2008), Claudia
Schatan writes that Costa Rica nationalized all of its banks
and imposed a monopoly on deposits in 1949. Effectively,
only state-owned banks existed in the country after that.
The monopoly was loosened in the 1980s and was eliminated in
1995. But the extensive network of branches developed by the
public banks and the existence of an unlimited state
guarantee on their deposits has made Costa Rica the only
country in the region in which public banking clearly
Scott Bidstrup comments:
By 1980, the Costa Rican economy had grown to the point
where it was by far the richest nation in Latin America in
per-capita terms. It was so much richer than its neighbors
that Latin American economic statistics were routinely
quoted with and without Costa Rica included. Growth rates
were in the double digits for a generation and a half. And
the prosperity was broadly shared. Costa Rica’s middle class
– nonexistent before 1949 – became the dominant part of the
economy during this period. Poverty was all but abolished,
favelas [shanty towns] disappeared, and the economy was
This was not because Costa Rica had natural resources or
other natural advantages over its neighbors. To the
contrary, says Bidstrup:
At the conclusion of the civil war of 1948 (which was
brought on by the desperate social conditions of the
masses), Costa Rica was desperately poor, the poorest nation
in the hemisphere, as it had been since the Spanish
The winner of the 1948 civil war, José “Pepe” Figueres, now
a national hero, realized that it would happen again if
nothing was done to relieve the crushing poverty and
deprivation of the rural population. He formulated a plan
in which the public sector would be financed by profits from
state-owned enterprises, and the private sector would be
financed by state banking.
A large number of state-owned capitalist enterprises were
founded. Their profits were returned to the national
treasury, and they financed dozens of major infrastructure
projects. At one point, more than 240 state-owned
corporations were providing so much money
that Costa Rica was building infrastructure like mad and
financing it largely with cash. Yet it still had the lowest
taxes in the region, and it could still afford to spend 30%
of its national income on health and education.
A provision of the Figueres constitution guaranteed a job to
anyone who wanted one. At one point, 42% of the working
population of Costa Rica was working for the government
directly or in one of the state-owned corporations. Most of
the rest of the economy not involved in the coffee trade was
working for small mom-and-pop companies that were suppliers
to the larger state-owned firms—and it was state banking,
offering credit on favorable terms, that made the founding
and growth of those small firms possible. Had they been
forced to rely on private-sector banking, few of them would
have been able to obtain the financing needed to become
established and prosperous. State banking was key to the
private sector growth. Lending policy was government policy
and was designed to facilitate national development, not
bankers’ wallets. Virtually everything the country needed
was locally produced. Toilets, window glass, cement, rebar,
roofing materials, window and door joinery, wire and cable,
all were made by state-owned capitalist enterprises, most of
them quite profitable. Costa Rica was the dominant player
regionally in most consumer products and was on the move
Needless to say, this good example did not sit well with
foreign business interests. It earned Figueres two coup
attempts and one attempted assassination. He responded by
abolishing the military (except for the Coast Guard),
leaving even more revenues for social services and
When attempted coups and assassination failed, says
Bidstrup, Costa Rica was brought down with a form of
economic warfare called the “currency crisis” of 1982. Over
just a few months, the cost of financing its external debt
went from 3% to extremely high variable rates (27% at one
point). As a result, along with every other Latin American
country, Costa Rica was facing default. Bidstrup writes:
That’s when the IMF and World Bank came to town.
Privatize everything in sight, we were told. We had little
choice, so we did. End your employment guarantee, we were
told. So we did. Open your markets to foreign competition,
we were told. So we did. Most of the former state-owned
firms were sold off, mostly to foreign corporations. Many
ended up shut down in a short time by foreigners who didn’t
know how to run them, and unemployment appeared (and with
it, poverty and crime) for the first time in a decade. Many
of the local firms went broke or sold out quickly in the
face of ruinous foreign competition. Very little
of Costa Rica’s manufacturing economy is still locally
owned. And so now, instead of earning forex [foreign
exchange] through exporting locally produced goods and
retaining profits locally, these firms are now forex
liabilities, expatriating their profits and earning
relatively little through exports. Costa Ricans now darkly
joke that their economy is a wholly-owned subsidiary of the
The dire effects of the IMF’s austerity measures were
confirmed in a 1993 book excerpt by Karen Hansen-Kuhn
Adjustment in Costa Rica: Sapping the Economy.”
She noted that Costa Rica stood out in Central America
because of its near half-century history of stable democracy
and well-functioning government, featuring the region’s
largest middle class and the absence of both an army and a
guerrilla movement. Eliminating the military allowed the
government to support a Scandinavian-type social-welfare
system that still provides free health care and education,
and has helped produce the lowest infant mortality rate and
highest average life expectancy in all of Central America.
In the 1970s, however, the country fell into debt when
coffee and other commodity prices suddenly fell, and oil
prices shot up. To get the dollars to buy oil, Costa Rica
had to resort to foreign borrowing; and in 1980, the U.S.
Federal Reserve under Paul Volcker raised interest rates to
In The Gods of Money (2009), William Engdahl fills in
the back story. In 1971, Richard Nixon took the U.S. dollar
off the gold standard, causing it to drop precipitously in
international markets. In 1972, US Secretary of State Henry
Kissinger and President Nixon had a clandestine meeting with
the Shah of Iran. In 1973, a group of powerful financiers
and politicians met secretly in Sweden and discussed
effectively “backing” the dollar with oil. An arrangement
was then finalized in which the oil-producing countries of
OPEC would sell their oil only in U.S. dollars. The
quid pro quo was military protection and a strategic boost
in oil prices. The dollars would wind up in Wall
Street and London banks, where they would fund the
burgeoning U.S. debt. In 1974, an oil embargo conveniently
caused the price of oil to quadruple. Countries
without sufficient dollar reserves had to borrow from Wall
Street and London banks to buy the oil they needed.
Increased costs then drove up prices worldwide.
By late 1981, says Hansen-Kuhn, Costa Rica had one of the
world’s highest levels of debt per capita, with debt-service
payments amounting to 60 percent of export earnings. When
the government had to choose between defending its stellar
social-service system or bowing to its creditors, it chose
the social services. It suspended debt payments to nearly
all its creditors, predominately commercial banks. But that
left it without foreign exchange. That was when it resorted
to borrowing from the World Bank and IMF, which imposed
“austerity measures” as a required condition. The result was
to increase poverty levels dramatically.
Bidstrup writes of subsequent developments:
Indebted to the IMF, the Costa Rican government had to sell
off its state-owned enterprises, depriving it of most of its
revenue, and the country has since been forced to eat its
seed corn. No major infrastructure projects have been
conceived and built to completion out of tax revenues, and
maintenance of existing infrastructure built during that era
must wait in line for funding, with predictable results.
About every year, there has been a closure of one of the
private banks or major savings coöps. In every case, there
has been a corruption or embezzlement scandal, proving the
old saying that the best way to rob a bank is to own one.
This is why about 80% of retail deposits in Costa Rica are
now held by the four state banks. They’re trusted.
Costa Rica still has a robust economy, and is much less
affected by the vicissitudes of rising and falling
international economic tides than enterprises in neighboring
countries, because local businesses can get money when they
need it. During the credit freezeup of 2009, things went on
in Costa Rica pretty much as normal. Yes, there was a
contraction in the economy, mostly as a result of a huge
drop in foreign tourism, but it would have been far worse if
local business had not been able to obtain financing when it
was needed. It was available because most lending activity
is set by government policy, not by a local banker’s fear
Stability of the local economy is one of the reasons
that Costa Rica has never had much difficulty in attracting
direct foreign investment, and is still the leader in the
region in that regard. And it is clear to me that state
banking is one of the principal reasons why.
The value and importance of a public banking sector to the
overall stability and health of an economy has been well
proven by the Costa Rican experience. Meanwhile, our
neighbors, with their fully privatized banking systems have,
de facto, encouraged people to keep their money in Mattress
First National, and as a result, the financial sectors in
neighboring countries have not prospered. Here, they
have—because most money is kept in banks that carry the full
faith and credit of the Republic of Costa Rica, so the money
is in the banks and available for lending. While our
neighbors’ financial systems lurch from crisis to crisis,
and suffer frequent resulting bank failures, the Costa Rican
public system just keeps chugging along. And so does the
Costa Rican economy.
My dream scenario for any third world country wishing to
develop, is to do exactly what Costa Rica did so
successfully for so many years. Invest in the Holy Trinity
of national development—health, education and
infrastructure. Pay for it with the earnings of state
capitalist enterprises that are profitable because they are
protected from ruinous foreign competition; and help out
local private enterprise get started and grow, and become
major exporters, with stable state-owned banks that
prioritize national development over making bankers rich.
It worked well for Costa Rica for a generation and a half.
It can work for any other country as well. Including the
Happy Planet Index,
which rates countries based on how many long and happy lives
they produce per unit of environmental output, has ranked
Costa Rica #1 globally. The Costa Rican model is
particularly instructive at a time when US citizens are
groaning under the twin burdens of taxes and increased
health insurance costs. Like the Costa Ricans, we could
reduce taxes while increasing social services and rebuilding
infrastructure, if we were to allow the government to make
some money itself; and a giant first step would be for it to
establish some publicly-owned banks.
The Bank Guarantee That Bankrupted Ireland
by Ellen Brown
President, Public Banking Institute
Web of Debt Blog
The Irish have a long history of being tyrannized,
exploited, and oppressed—from the forced conversion to
Christianity in the Dark Ages, to slave trading of the
natives in the 15th and 16th
centuries, to the mid-nineteenth century “potato famine”
really a holocaust.
The British got Ireland’s food exports, while at least one
million Irish died from starvation and related diseases, and
another million or more emigrated.
Today, Ireland is under a different sort of tyranny, one
imposed by the banks and the troika—the EU, ECB and
IMF. The oppressors have demanded austerity and more
austerity, forcing the public to pick up the tab for bills
incurred by profligate private bankers.
The official unemployment rate is 13.5%—up from 5% in
2006—and this figure does not take into account the mass
emigration of Ireland’s young people in search of better
opportunities abroad. Job loss and a flood of foreclosures
are leading to suicides. A raft of new taxes and charges has
been sold as necessary to reduce the deficit, but they are
simply a backdoor bailout of the banks.
At first, the Irish accepted the media explanation: these
draconian measures were necessary to “balance the budget”
and were in their best interests. But after five years of
belt-tightening in which unemployment and living conditions
have not improved, the people are slowly waking up. They are
realizing that their assets are being grabbed simply to pay
for the mistakes of the financial sector.
Five years of austerity has not restored confidence in
Ireland’s banks. In fact the banks themselves are packing up
and leaving. On October 31st,
RTE.ie reported that
Danske Bank Ireland was closing its personal and business
banking, only days after ACCBank announced it was handing
back its banking license; and Ulster Bank’s future in
Ireland remains unclear.
The field is ripe for some publicly-owned banks. Banks that
have a mandate to serve the people, return the profits to
the people, and refrain from speculating. Banks guaranteed
by the state because they are the state, without resort to
bailouts or bail-ins. Banks that aren’t going anywhere,
because they are locally owned by the people themselves.
The Folly of Absorbing the Gambling Losses of the Banks
Ireland was the first European country to watch its entire
banking system fail. Unlike the Icelanders, who
refused to bail out their bankrupt banks, in September 2008
the Irish government gave a blanket guarantee to all Irish
banks, covering all their loans, deposits, bonds and other
At the time, no one was aware of the huge scale of the
banks’ liabilities, or just how far the Irish property
market would fall.
Within two years, the state bank guarantee had bankrupted
Ireland. The international money markets would no
longer lend to the Irish government.
Before the bailout, the Irish budget was in surplus. By
2011, its deficit was 32% of the country’s GDP, the highest
by far in the Eurozone. At that rate,
bank losses would take every
penny of Irish taxes for at least the next three
“This debt would probably be manageable,”
wrote Morgan Kelly,
Professor of Economics at University College Dublin, “had
the Irish government not casually committed itself to absorb
all the gambling losses of its banking system.”
To avoid collapse, the government had to sign up for an €85
billion bailout from the EU-IMF and enter a four year
program of economic austerity, monitored every three months
by an EU/IMF team sent to Dublin.
Public assets have also been put on the auction block.
Assets currently under
consideration include parts of Ireland’s power
and gas companies and its 25% stake in the airline Aer
At one time, Ireland could have followed the lead of Iceland
and refused to bail out its bondholders or to bow to the
demands for austerity. But that was before the Irish
government used ECB money to pay off the foreign bondholders
of Irish banks. Now its debt is to the troika, and the
troika are tightening the screws. In September 2013,
they demanded another 3.1 billion euro reduction in
Some ministers, however, are resisting such cuts, which they
say are politically undeliverable.
In The Irish Times on October 31, 2013,
a former IMF official warned
that the austerity imposed on Ireland is self-defeating.
Ashoka Mody, former IMF chief of mission to Ireland, said it
had become “orthodoxy that the only way to establish market
credibility” was to pursue austerity policies. But five
years of crisis and two recent years of no growth needed
“deep thinking” on whether this was the right course of
action. He said there was “not one single historical
instance” where austerity policies have led to an exit from
a heavy debt burden.
Austerity has not fixed Ireland’s debt problems. Belying the
rosy picture painted by the media, in September 2013 Antonio
Garcia Pascual, chief euro-zone economist at Barclays
Investment Bank, warned
that Ireland may soon need a second bailout.
According to John Spain,
writing in Irish Central in September 2013:
The anger among ordinary Irish people about all this has
been immense. . . . There has been great pressure here for
answers. . . . Why is the ordinary Irish taxpayer left
carrying the can for all the debts piled up by banks,
developers and speculators? How come no one has been jailed
for what happened? . . . [D]espite all the public anger,
there has been no public inquiry into the disaster.
Bail-in by Super-tax or Economic Sovereignty?
In many ways, Ireland is ground zero for the
austerity-driven asset grab now sweeping the world. All
Eurozone countries are mired in debt. The problem is
In October 2013, an IMF report discussed balancing the books
of the Eurozone governments through a super-tax of 10% on
all households in the Eurozone with positive net wealth.
That would mean the confiscation of 10% of private savings
to feed the insatiable banking casino.
The authors said the proposal was only theoretical, but that
it appeared to be “an efficient solution” for the debt
problem. For a group of 15 European countries, the measure
would bring the debt ratio to “acceptable” levels, i.e.
comparable to levels before the 2008 crisis.
A review posted on Gold Silver
[T]he report right away debunks the myth that politicians
and main stream media try to sell, i.e. the crisis is
contained and the positive economic outlook for 2014.
. . . Prepare yourself, the reality is that more bail-ins,
confiscation and financial repression is coming, contrary to
what the good news propaganda tries to tell.
A more sustainable solution was proposed by Dr Fadhel Kaboub,
Assistant Professor of Economics at Denison
University in Ohio. In a letter posted in The Financial
Times titled “What
the Eurozone Needs Is Functional Finance,” he
The eurozone’s obsession with “sound finance” is the root
cause of today’s sovereign debt crisis. Austerity measures
are not only incapable of solving the sovereign debt
problem, but also a major obstacle to increasing aggregate
demand in the eurozone. The Maastricht treaty’s “no
bail-out, no exit, no default” clauses essentially amount to
a joint economic suicide pact for the eurozone countries.
. . . Unfortunately, the likelihood of a swift political
solution to amend the EU treaty is highly improbable.
Therefore, the most likely and least painful scenario for
[the insolvent countries] is an exit from the eurozone
combined with partial default and devaluation of a new
national currency. . . .
The takeaway lesson is that financial sovereignty and
adequate policy co-ordination between fiscal and monetary
authorities are the prerequisites for economic prosperity.
Standing Up to Goliath
Ireland could fix its budget problems by leaving the
Eurozone, repudiating its blanket bank guarantee as “odious”
(obtained by fraud and under duress), and issuing its own
national currency. The currency could then be used to fund
infrastructure and restore social services, putting the
Irish back to work.
Short of leaving the Eurozone, Ireland could reduce its
interest burden and expand local credit by forming
publicly-owned banks, on
the model of the Bank of North
Dakota. The newly-formed
Public Banking Forum of Ireland
is pursuing that option. In Wales, which has also been
exploited for its coal, mobilizing for a public bank is
being organized by the
Arian Cymru ‘BERW’
(Banking and Economic Regeneration Wales).
Irish writer Barry Fitzgerald, author of
Building Cities of Gold,
casts the challenge to his homeland in archetypal terms:
The Irish are mobilising and they are awakening. They hold
the DNA memory of vastly ancient times, when all men and
women obeyed the Golden rule of honouring themselves, one
another and the planet. They recognize the value of this
harmony as it relates to banking. They instantly intuit that
public banking free from the soiled hands of usurious debt
tyranny is part of the natural order.
In many ways they could lead the way in this unfolding, as
their small country is so easily traversed to mobilise local
communities. They possess vast potential renewable
energy generation and indeed could easily use a combination
of public banking and bond issuance backed by the people to
gain energy independence in a very short time.
When the indomitable Irish spirit is awakened, organized and
mobilized, the country could become the poster child not for
austerity, but for economic prosperity through financial
The Money Monopoly
by Mike Krauss
Member of the Board of Directors, Public
Chair, Pennsylvania Public Banking
In a masterful study of the Federal Reserve, Secrets of
the Temple , William Greider observed that the average
American farmer in 1880 knew more about banking and money
than most U.S. college graduates today.
Let me prove that.
Take a bill from your wallet or purse. Read the side with
the portrait. It says very clearly at the top, "Federal
The Federal Reserve is not a part of the federal government.
It receives no appropriation from Congress. It is a private
corporation and its stock is privately traded. The
stockholders are the member banks of the regional Federal
Reserve Banks, so its major stockholders are the largest
banks and their owners.
Historically these have been the powerful Wall Street and
European banking families: think Rothschild, Warburg,
All the bills and coins in circulation today are a tiny
fraction of the supply of money in the American economy. All
the rest is credit, created on the books of the banks "ex
nilo" -- out of nothing.
This money comes into circulation at interest paid to the
banks that create it. A central bank like the Federal
Reserve creates the money supply of the United States, at
The Bank of England was the first privately owned central
bank to control a nation's currency. One of its owners, of
the Rothschild family well understood what that meant and
said: "Give me control of a nation's money, and I care not
who makes the laws."
The colony of Pennsylvania escaped the clutches of the Bank
of England and its tax on money by printing its own. It was
Writing in The Wealth of Nations in 1776, Adam Smith
noted: "The government of Pennsylvania, without amassing any
treasure [gold or silver] invented a method of lending, not
money indeed, but what is equivalent to money. By advancing
to private people at interest " paper bills of credit "
legal tender in all payments " it raised a moderate revenue
which went a considerable distance toward defraying the
whole ordinary expense of that frugal and orderly
Until the mid 1750s there was broad prosperity in
Pennsylvania. On a trip to London, Ben Franklin let the cat
out of the bag. He noted the widespread poverty he saw there
and explained how by printing their own money and avoiding
the need for the notes of the Bank of England to conduct
their commerce, the people of Pennsylvania insured their own
The private owners of the Bank of England went the 1700s
version of ballistic and lobbied King and Parliament (Sound
familiar?) to outlaw this colonial "script." The depression
that followed was the cause of the American Revolution.
Franklin wrote, "In one year the conditions were so reversed
that the era of prosperity ended, and a depression set in,
to such an extent that the streets of the Colonies were
filled with unemployed."
He concluded, "The Colonies would gladly have borne the
little tax on tea and other matters, had it not been the
poverty caused by the bad influence of the English bankers
on the Parliament [Again, sound familiar?]: which has caused
in the Colonies hatred of England, and the Revolutionary
The bankers got control. Hamilton fronted for
them in the young United States. Jefferson and Jackson
fought them. Lincoln fought them. Lincoln was assassinated,
the bankers once again had control and the war for control
of the nation's supply of money raged on.
After decades of planning and massive PR and propaganda,
having bought up the support of Ivy League scholars,
journalists and the requisite number of votes in Congress,
the Wall Street cartel and their foreign allies pushed
creation of the Federal Reserve through Congress and got
complete control of the nation's money and credit.
Before you pay your taxes, the money you pay with has
already been taxed by the owners of the Federal Reserve,
which for over 100 years have diverted trillions of dollars
of interest payments on our money from the American people
into their own pockets.
That is what "central banks" are designed to do: extract
wealth from nations by monopolizing the supply and cost of
money and credit.
The debt ceiling, sequestration, austerity and budget
deficit are a diversion. The U.S. Congress can slash the
debt by taking back control of our money from the Federal
Reserve monopoly and returning it to the U.S. Treasury and
the American people, as the Constitution (Article I, Section
8) wisely provided.