Greetings to CommonBound Co-operators from Massachusetts Public Bank Advocates

The New Economy Institute’s CommonBound 2018 conference will take place this weekend in St. Louis. Here’s an open letter that one of our coordinating group members will be circulating, featuring background on our situation here in Massachusetts as well as a look at an alternative funding mechanism for cooperatives and employee-owned businesses. 

Our congratulations and thanks for this important meeting. We hope to make the next one in two years and are glad you have other public bank advocates here to share the important changes public banking could bring to our struggle for a more just, democratic, and transparent society.

Public bank advocacy is a little like extolling the virtues of eating worms to an audience of vegetarians and meat lovers. The deficit hawks (meat-eaters) fulminate against public banks making loans raising the specter of “inflation.” They don’t recognize that the 60% of the world’s banks that are “public” haven’t had this problem. And they seem blind to the fact that private banks already create money every time they make a computer entry for a loan. Austerity is their shining goal, for they don’t want “less-deserving” folk to benefit from public bank loans.

Enter the vegetarians! Locked in an old Jimmy Stewart movie, they imagine Aunt Maude’s savings are the source of the mortgage taken out by a young, upstanding couple. They don’t seem to grasp that banks never lend out deposits and that things in the banking world are just not all rosy. It is difficult to realize that Woodrow Wilson gave away our government’s power to create money to a cabal of private bankers from the largest banks (the so-called Federal Reserve). We fail to see the connection between financial fraud and rigged elections.

Hopefully, we’ll wake up before there is no choice but to eat worms!

The Massachusetts Infrastructure Bank was conceived as an answer to the inefficient, captive market of the largest banks for local infrastructure, whether roads and bridges or schools and hospital information systems. The current market prioritizes the safety of investors and lenders. Large banks claim that if a town or city already spends more than 6% of its budget on debt service, then they can charge double and triple the interest rate on bonds. While triple A-rated Boston has to pay an ever-rising interest rate on bonds approaching 5%, Worcester might have to pay 13% and more to borrow to fix a pothole. Boston gets less than 1/2% interest on its deposits in Bank of America but pays 5% on a bond?

Bank bond salesmen are shrewd. They spout legal and financial terms at town managers. They show contracts with stipulations hidden in fine print. These include rate hikes for delays, and non-competition clauses that tie the hands of public officials who come up with alternative solutions. We did a survey of mayors and town officials and found that 41% reported difficulty raising finance for infrastructure, 54% had to defer critical projects, and 96% were highly interested in an alternative to the private bond market. (How about a public bank loan with a 2 to 3% rate, the profit from which the bank invests again in unmet public needs.)

Another advocacy group successfully requested that legislation be filed for a study commission on our Commonwealth having a public bank. The appointed members included large banks and the Massachusetts Bankers Association. In 2011 they, not surprisingly, vehemently opposed the idea of a public bank. (No one else should get to create money even for a public purpose! Only large private banks should get bailed out with free taxpayer funds and then invest these (our money!) in speculative derivatives to earn 20% for their own coffers.)

So we researched the profitability of local, community banks in North Dakota where they sometimes partner with a State public bank. We found that they were on average between two and three times more profitable than similar banks in Massachusetts. We went to the Banker’s Association and asked them not to oppose our bill as they, in general, don’t make large infrastructure loans. Further, we left the door open to partnering with interested community banks.

To fast forward for this brief summary, our bill, H3543, is before our State legislature. We wrote it to preclude the bank becoming a revolving loan fund or one used to extract public funds to support private profit. If it does not pass, we will re-file next year and develop social media support. See: HubPublicBanking.org.

Though our bill focuses only on infrastructure, once the bank achieves profitability in two to three years, the legislation is written so that the bank’s role can expand into funding student loans and other needs identified with public participation.

One such need under discussion is a funding mechanism for co-operatives, businesses transitioning towards worker ownership, and ESOPs.  Hopefully, it will eliminate the need for bridge loans. It is based on Switzerland’s WIR program and bank that started in 1932 and today includes fully one quarter of all small- and medium-sized businesses. Bernard Lietaer and Gwen Hallsmith also describe a “Commercial Credit Circuit” or “C3” program. It was almost adopted nationally in Uruguay until it met objections from large, private international banks.

Such a C3 program might be designed to provide invoice insurance for a network of co-operative businesses at a cost of 1% of any invoice (for example; .01x$30,000=$300). In turn, an insured invoice may be used as cash within the network and to pay public debts, fees, and taxes and many utility bills. This program is open to co-operatives because documented research points to their hiring and retaining community members rather than offshoring jobs, their support of local efforts and other cooperatives, and their environmental record. Hence, preventing cash flow problems for these businesses is of paramount value. (Note that a public bank may make little profit on this program, perhaps only supporting the few computer technicians and administrative staff that run it. However, it can make a great difference to the prosperity and well being of communities.)

Our public banking program needs your support and help in designing a successful invoice insurance program. We need your ideas to know about the timing of needed bridge loans and how cooperative networks at a regional or state level might achieve the necessary strength and mutual support. Then there is the hope that a State-run public bank might also transition into a cooperatively run-bank as well.

Please contact us with your feedback, ideas, good humor and brave spirit of innovation. Many thanks. For the Massachusetts Infrastructure Bank, Stephen Snyder, asterix40@gmail.com, 401-248-8052.

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