“Hundreds of job-creating projects are still on hold because Michigan businesses and entrepreneurs cannot get bank financing. We can break the credit crunch and beat Wall Street at their own game by keeping our money right here in Michigan and investing it to retool our economy and create jobs.”
-Lansing Mayor Virg Bernero in The Detroit News March 9, 2010
Michigan, which has an unemployment rate of 14 percent, has been particularly hard hit by the economic downturn. Virg Bernero, mayor of Lansing, the state’s capital, and a leading Democratic candidate for governor, proposes to relieve the state’s economic ills by opening a state-owned bank. He says the bank could protect consumers by making low-interest loans to those most in need, including students and small businesses; it could also help community banks by buying mortgages off their books and working with them to fund development projects.
Bernero joins a growing list of candidates proposing this sensible solution to their states’ fiscal ills. Local economies have collapsed because of the Wall Street credit freeze. To reinvigorate local business, Main Street needs a heavy infusion of credit, and publicly-owned banks could fill that need.
In a recent article for YES! Magazine, I tracked candidates in five states running on a state bank platform and one state (Massachusetts) with a bill pending. Just one month later, there are now three more bills on the rolls-in Washington State, Illinois and Michigan-and two more candidates joining the list of proponents (joining Bernero is Gaelan Brown of Vermont). That brings the total to seven candidates in as many states (Florida, Oregon, Illinois, California, Washington State, Vermont, and Idaho) campaigning for state-owned banks, including three Democrats, two Greens, one Republican, and one Independent.
The Independent, Vermont’s Gaelan Brown, says on his website, “Washington, D.C. has lost all moral authority over Vermont.” He adds, “Vermont should explore creating a State-owned bank that would work with private VT-based banks, to insulate VT from Wall Street corruption, and to increase investment capital for VT businesses, modeled after the very successful state-owned Bank of North Dakota.”
The Bank of North Dakota, currently the nation’s only state-owned bank, is the model (with variations) for all the other proposals on the table. The Bank of North Dakota acts as a “bankers’ bank,” partnering with other banks in “participation loans,” which allow them to compete with larger banks. In a participation loan, the community bank originates the loan and takes responsibility for it, while the participating bank contributes funds and shares in the risk and profits. The Bank of North Dakota also makes low-interest loans to students, farmers and businesses; underwrites municipal bonds; and provides liquidity for more than 100 banks around the state.
Three New Bills Pending for Publicly Owned Banks
Proposals for publicly owned banks in other states have now progressed beyond the campaign talk of political hopefuls to be drafted into several bills.
The Michigan Development Bank
The Michigan bill has gotten the most press. Introduced into the legislature earlier this month, it mirrors Bernero’s state bank idea. According to a press release issued by Michigan Senate Democrats on March 9, the bill’s aim is to “keep Michigan’s money in Michigan” by putting tax dollars into a proposed “Michigan Development Bank.” The bank would function like a traditional bank, but would focus on economic development rather than profit. The press release quoted Senator Gretchen Whitmer (D-East Lansing):
Investing in the state’s economy is the greatest way to create jobs, and this proposal will provide small businesses and entrepreneurs the funding they need to invest and grow. Our economy has stagnated due in part to stale thinking in Lansing, and this is just the type of innovative idea we need to create real economic change, using our own money to rebuild the state.
Senate Democratic Leader Mike Prusi (D-Ishpeming) stated:
Michigan’s economy has been suffering, and working families in the state have had difficulty keeping up with credit card bills, college tuition prices and mortgage payments. Establishing the Michigan Development Bank will keep our hard-earned dollars right here in the state to invest in small business, create good-paying jobs to get people back to work, and help protect the middle class.
Also quoted was Senator Hansen Clarke (D-Detroit):
With the current state of our economy, every dollar counts, yet we’re depositing our money in other people’s pockets by investing in big corporate banks without seeing much lending in return. It’s time for the Mitten State to lend itself a helping hand and establish a bank that is willing to invest in our small businesses and offer the financial support necessary to see job growth.
For start-up capital, the Senate Democrats suggested that Michigan could sell voter-approved bonds. With an initial capitalization of $150 million, they estimated the bank could lend up to $1 billion to small businesses, students and farmers, and offer low-interest credit cards to consumers. For deposits, the bank could follow the model of the Bank of North Dakota and use state revenues. So says Gene Taliercio, a Republican candidate for the state Senate, who has also put his weight behind the Michigan Development Bank. In a video clip on the website of the local Oakland Press, he says, “We’re talking about restructuring the whole tax system, in the sense that the way it’s set up is that all taxes are going to go into this central bank … Every dollar that the state of Michigan makes goes into this bank.”