How can i industry sign banking colorado iou
I don't want to compare myself to Martin Luther King but I feel like you know I have a dream or I have a vision and that's well in fact I actually went to India in 1991 with a meditation group and actually had a two-day transcendental experience which I know that we the human that we people are capable of another more enlightened state than we're in now but it's Maslow's hierarchy of needs that you got to start at the bottom with first you got to feed the people and get the shelter and stuff and so it's sort of like whoever it was said all right now you've seen it you know what's possible so figure out how to get there what I want to talk about tonight is there is people say well we've got the reason we haven't gotten these 20 bills passed that we've got 20 states that have bills pending for state-owned banks but they haven't passed yet like in California what I think telephone you got the farthest so it we had a bill three years ago that passed both houses of the legislature for a feasibility study but Jerry Brown didn't sign it and what he said was we don't need another committee this is supposed to be a blue-ribbon committee so we don't need another committee we can do this in-house but then they haven't done it so it's like what Mike says they could do it if they had the will they could do it so our job is to give them the will to show them that this is a no brainer that you can make money this way this this is actually the answer to your funding problems every legislator should we should be able to convince them that this is quick easy and we'll get the money right away and we'll solve their funding problems a few years ago I called the California Treasury Department and then the the Washington State Treasurer they both said we don't have the money to lend we need our deposits for our budget which shows that they don't understand how if anything works and they say we can't afford the capital we can and I'll show how they can afford the capital they'll say we can't wait for decades for this bank to become profitable it won't take decades in fact you could do it overnight because it's really just an accounting function you could do it with one guy in an office who's just working with a computer they will say that it's too risky to that making loans and to the community is too risky in fact there's a way you could do it that would be virtually risk-free which I will explain they're actually facing a huge risk right now with the bail and so it's much less risky to be putting your money in your own bait so in order to understand why this is a no-brainer first we need to go into the basics of banking which actually we avoided this up until now I know one woman who has worked really hard for a California state bank she says I never bring up the fact that banks create money because nobody believes that and so she you know so then you try to do it some other way and say well of course we should have our own money and all the things that we always say but but the real value of a bank the thing about a bank that's different from anything else is that banks have this alchemical ability to create money on their books you can tell that from a chart of the money supply which this is okay the top one is m2 so that's basically the circulating money supply what we the people have access to not that we're not what's in the reserve accounts but but we what we trade with what the gut most people think money's created by the government but in fact the only money that the government creates are coins and that is I think about a billion dollars so it doesn't even show up on this chart the red line is M 1 which is coins dollar bills and checkbook money you could argue that dollar bills some people would say dollar bills are created by banks I mean sorry by the government but in fact their Federal Reserve notes a note is a promissory note the Federal Reserve is composed of twelve branches all of which are a hundred percent owned by the banks in their district and if it were actually the Treasury creating it like like the American colonies did where they created money they would just spend it into the economy they wouldn't be lending it to us so that's the thing all of our money is created as a loan and the loans are always an interest so there is always more money owed back than was created in the first place and where does that money come from it can only come from more debt because that's the only place that we can get money so that's a pyramid scheme and it's unsustainable so in order to make this sustainable we need to retrieve the power to create money ideally we could do that by through the Treasury if we if we the people had enough control influence over Congress Congress could decide to just print the money and spend it on the things that they need goods and services this would not actually be inflationary because your supply would go up along with demand so prices would stay stable so it would not inflate prices but it's very hard to get Congress to do anything and especially with our current Congress which is a Republican dominated so therefore opposed to anything that would hurt the big banks etc not that this would hurt that I would argue that it won't hurt the big banks but anyway it'll hurt the control issue as noemi says many different authorities have said that banks create money but this one I really like because he's just so explicit on how it's done Robert B Anderson was a US Treasury secretary under Eisenhower in 1959 he said when a bank makes a loan it simply adds to the borrowers deposit account in the bank by the amount of the loan the money is not taken from anyone else's deposit it was not previously paid into the bank by anyone it's new money created by the bank for the use of the borrower the Bank of England actually just last a year ago came out with a directive saying it's saying just that and they basically they said contrary to popular belief banks do not act simply as intermediaries lending out deposits the city that savers placed with them and nor do they multiply up central bank money to create new loans and in other words the money multiplier theory is obsolete commercial banks create money in the form of bank deposits by making new loans so they do it by double entry bookkeeping so for example if you want to if you go for a $500,000 mortgage you will sign a promissory note for $500,000 and that is actually a negotiable instrument so the bank will write that on one side of its books as an asset to itself because you have agreed to pay that back over time and then they'll write the same $500,000 on the other side of their books as a liability to themselves because when your $500,000 check goes into the your sellers bank the first bank is going to have to cover that check so they're gonna owe that money so you may ask why do they need the deposits if they're actually creating the money on their books the reason is that they have to balance their books at the end of the day so you have checks coming in and going out all the time you're supposed to keep a certain amount in your reserve account usually 10% so if if your reserve balance goes below that 10% the Federal Reserve will treat that as an overdraft and you will have to fix the overdraft and you can get you can do it by moving some reserves from somewhere else so basically the bank will have will borrows the bank borrows in order to balance its books so the cheapest place they can borrow is from their depositors which it chase right now for example it's 0.1% and that is on a savings account so that means that if you put $10,000 in the bank and leave it there for a year you will get $1 back in interest so the money market 0.15 percent Fed Funds that's where you borrow from other banks that you borrow the reserves from other banks 0.25 percent if you have if they have to they'll resort to borrowing from the Federal Reserve they don't really like to do that because it sort of gives them a bad name but it's zero point seven five percent so no matter what it's very cheap compared to what they're getting on these loans like if it's a mortgage it might be four or five percent or business loan might be eight percent or if you're talking credit cards etc it's higher and higher so there's a very nice spread which is their profit now small banks will tell you that they only make like one percent on the spread because their costs are so high but if you're a public bank your costs are almost nil you have very low costs and so you actually get to keep most of that spread and that is why that's the main reason that public banks are more profitable within private banks for example the Wall Street Journal came out with this article in November of nineteen twenty fourteen in which they said I just thought this is a good opening so according it is more profitable than goldman sachs grouping has a better credit rating than JPMorgan Chase and hasn't seen profit growth drop since 2003 meet Bank of North Dakota the u.s. is loan state-owned Bank which has one branch no automated teller machines and not a single investment Baker return on equity a measure of profitability is eighteen point five six percent about seventy percent higher than those at Goldman Sachs and JP Morgan that particular article said it was because of oil because they got the oil deposits from from the state but that wasn't the reason and I wrote a whole article saying why that wasn't but also you can see that it's not the reason earth we have other evidence that public banks outperform private banks this report just came out in January of 2015 that just this month from the spark Housing Group which is the public baking group of Germany the spark and sparkles and banks have they do most of the commercial lending in in Germany so they have a strong public banking sector this report showed that the spark has in public banks along with the regional banks and credit unions they have about the same in the way of deposits and about the same in a way of loans as the private commercial banks including the big you know Deutsche Bank's their big biggest private commercial bank I think but the private banks paid less than half the taxes and the public banks even with that high tax bill came out more profitable than the private banks so these charts are a little hard to see but you can see the orange is the spark housing group and you can see this is profit before tax you can see that the orange has far exceeded the light blue which is the private bank the private commercial banks that wasn't actually true in them well this chart goes back to 2003 so in from 2003 to to the collapse of 2008 the private banks actually did better but the spark chasm have now overtaken well overtaken the private banks so this is the same net profit before taxes as a percentage of average total assets you can see the green the spark hasn't have far distance the blue which is the commercial banks after tax again the spark is earnest the green is still way ahead of that way ahead of the blue return on capital before tax again I mean all these charts that the green is just doing much better than the blue so I'm gonna post this PowerPoint on my on my website in case you want to study these charts which are pretty impressive I'm sorry yeah the red the orange is the spark housing group okay so why are the public bank why did the public Macy won't do so much better than the private bank well let's take the Bank of North Dakota model they do not have to advertise at all they don't have to advertise for depositors that's what your your small regional local bank would have to do they'd have to compete to get deposits so that and they'd have to pay a you know more interest on their deposits the Bank of North Dakota has a captive deposit base which is the the tax revenues are the revenues of the state they don't pay bonuses fees commissions their their CEO is I think around $240,000 so they don't pay much for their executives they don't have branches except the one branch in capital city they don't have ATMs and they don't really they don't go out there and do the work of figuring out who's creditworthy they don't deal with the customer the customer is dealt with for the most part I mean I get they do make some direct loans but for the most part they partner with the local bank which is sort of like the front office that this is good for the local bank they get the business and they get to charge the fees and so forth for it for doing the business and then they get this big partner that will help them with capital and liquidity but from the point of view of the Bank of North Dakota it's very simple they just they look around they find the good loans the ones that they actually want to support and then they put in capital and liquidity and they get a cut of the proceeds legislators often say we don't have the capital where we're going to find the capital they don't want to go into debt they don't want to go and hit up their tax revenues but there is a way that they could actually do it that would cost them nothing I mean they can actually finance the whole thing so let's say you want to set up just a small pilot project type bank 20 million dollars will get you a bank in California so you need 20 million dollars for your capital so California actually has six hundred billion dollars in various funds around the around the state rainy day funds and including the pension funds etc so twenty million dollars is almost nothing the treasurer himself has managed as an investment pool that has sixty billion dollars in it currently invested at 0.23% interests almost nothing so let's say you take 20 million from one of those rainy day funds or you could do a bond issue either way and let's say you offer them three percent interest that's going to be a lot more than they're making in the treasurer's investment pool right so they're gonna be really happy about that your cost of funds is going to be 0.6 million then you pull 200 million in deposits out of your Wall Street bank because with the 10% capital requirement you can support 10 times your capital in deposits and then you hold back 20 million in reserve because you have a 10 percent reserve requirement and that leaves you one hundred and eighty million that you can lend but let's say you want to do the safe quick easy thing that makes you a guaranteed return overnight you don't have to do any work for it you can invest that money in bonds municipal bonds which you're gonna help out the municipalities by stabilizing that the municipal bond market so let's say you get paid 3% on these municipal bonds so you're going to be paying out one-time 3% and you're going to be taking in nine times 3% so you're gonna be taking in a lot more than you're putting out these are your own state deposits but let's say you pay yourself 0.3% interest because you are probably getting 0.2% or something a chase though your cross the funds is 0.55 million so if you deduct all that from your profit which was 5.4 million so if you deduct your cost of funds you're left with four point two six million which is a return on equity of 21% and you can do that like in a matter of days you just put one guy in an office and you you have them do this so it set up an online sort of Bank so you're instantly profitable and you're taking almost no risk you could do it with the pension funds maybe you don't want to do a bond issue because maybe you don't want to go further into debt even though you're gonna instantly get the money back but maybe there's all this resistance among the legislators so you say fine we'll borrow it from the pension fund which is a state pension fund I mean it's still public money they want 8% now they're not actually getting 8% these days but that's that's what they like so we'll say okay fine we'll give you eight percent you put your cost of funds up to for your capital up to one point six million so that lowers your profit a bit but you still are going to make sixteen point three percent return on your I'm just doing this like overnight let's say you held back 30 percent in reserve because you're a small bank and and it's better to have a bigger reserve for a small Bank because it's not that easy to get your instant liquidity etc so even if you hold back
thirty percent in reserve and you do a bond issue or you use your rainy day funds your return on equity is still 16 percent so if you did it with pension funds and you did held back 30 percent in reserve at least you're making eleven percent interest overnight on just by pulling your money out of wall street doing exactly what Wall Street is doing with your money right now and you're putting in a very safe investment you don't even have to worry about loan officers etc you really don't need any employees except one math guy to work work all this out but of course you want you'll want to be making loans into the community so after you build up a little little capital base or or if your Legislature is willing and they're fine with a little bit of risk then you can immediately start lending out that 180 million into the community for those things that the community needs and you assuming you're there what's called self funding loans you'll get your money back that's what Roosevelt did was made all these self funding loans during that 30s and they made a profit they lay like rebuilt the entire country with their own it was the reconstruction Finance Corporation because they couldn't get the Fed to do it so it was their own state-owned financial institution or government owned and they actually turned a profit at the end of all that after World War Two and they rebuilt the entire country and financed World War two but what they invested in were what are called self funding loans which means things that will pay back so solar for example would be one of those things or roads and bridges and all these things you can that you can maybe charge a toll for or various funds or energy that you get your money these figures are from Margaret Kennedy who is a German researcher and she got them from the Bundesbank she found that 35 to 40 percent on average of the cost of public projects is interest so this is another major savings for your legislature which I said this before but California for example is looking at a 700 billion dollar bill for infrastructure over the next decade which they absolutely don't have so if you can cut your costs in half by funding yourself through your own loans plus you're saving all those fees then when you go through wall street and they do a bond issue they take huge fees and they don't even tell you I mean it's like buried in their contract and that's considered a trade secret and you you can't even find out if you um you know with freedom of information you still can't find out what kind of fees that we the taxpayers are paying so you save all of that by funding it yourself using your own deposits leveraging your to put your capital and deposits just like the Wall Street banks do for infrastructure it's actually 50% that you save I saw this in an article that that's standard procedure to assume 50% for interest for financing so the bay bridge retrofit was six billion dollars in principle and by the time they added on interest or whether when they're done paying it off the interest will be another six billion the bullet train the initial outlay the part that was approved by the voters was close to 10 billion by the time they talk on interest it'll be another 10 billion so all that could be saved by funding it through your own state owned bank then there is the issue of safety that we now have this whole Baylin situation I just went into this earlier but the state and local banks think that their deposits are safe because I could they're collateralized but this collateral it's like pooled collateral or even if it's not pooled collateral they're using that collateral for multiple things and when they have a big derivatives bus derivatives are going to go first in a bankruptcy they're going to take all the collateral so there could well be nothing left for either the statement governments or for the FDIC and this was actually formalized in last November by the Financial Stability Board that g20 voted or they all should actually they just I think they just shook hands on it but they or maybe they vote it anyway they all agreed on this whole bail-in resolution mechanism I think they're supposed to take comments and then they'll actually formalize it early in this year but at that point you the depositor can't even go to your bank and sit and sue them for your money back this is just the law that's what the law is that they are being instructed to take our deposits in order to recapitalize themselves in order to save themselves at our expense and the reason they can do that is that legally when you put your money in the bank it becomes the property of the banks and all you have is an IOU you become a creditor of the bank so the new rule is they take the money of the creditors and they turn it into equity I just like this little joke it's a stick up my says give me all the money in my account goes after the Cypress event this chart just shows you what we're talking about here that this is a bit outdated the FDIC fund actually has a bit more than in this chart but the FDIC fund had twenty five billion dollars in it to insure nine thousand two hundred and eighty three billion in other words nine point two three eight trillion in deposits although I think only half of those are actually the kind that are under $250,000 that the FDIC fund actually ensures so four and a half trillion dollars and then the real risk is this that red line on the right which is the derivatives so the derivatives exposure is close to three hundred trillion so how can we eliminate interest protect public deposits and multiply public revenues on the bank so that's that's all I got North Dakota has about six billion and I think roughly in assets right now and I'm not sure how much they count as reserves but I know it's a pretty big amount Colorado was roughly seven and a half times bigger in terms of population economy and so forth would it make sense to start off a bank in Colorado with say forty two billion dollars of revenue bonds or general obligation bonds it would if you can convince your legislature that they're gonna get that money back immediately which which they would if they did it in you know if they structured it right they certainly could so again it's just a question of persuading your legislators that this is a no-brainer that this is really what they should be doing or the voters if we do it isn't it all right as an initiative yeah as you may know there's been a problem in Colorado with the legal marijuana industry not being able to bank mm-hmm would a public bank give them that opportunity could they put their money through a public bank well it you could of course it's all in your legislation but it seems to me it would be difficult to persuade your legislatures to do it because the reason you can't get your banks to do it is because there's that that risk that the feds will come in and shut them down because they they have a real against it so probably you don't want to do that right away you probably want to do your pilot projects see how well that works and then keep adding things on as as it works out well I think you know a piece of bility study in the state Colorado is possible and but the thing that I really worry about is orthodoxy and the idea that we have to measure our success by interest you know on a regional bank I forget what Glenn calls that I call it a regional bank but it seemed to me that the primary measure would be social well-being and economists can I mean economists do this all the time I mean it's not just interest its what the community looks like after you put the money into these local communities and so how much resistance would there be from the traditional interests to finally doing something that is external and you know broad about how what we do with our money well it seems to me that you what you want to do ideally is sell it as a win-win-win if you can persuade everybody that this is good for them and it seems to me we may probably have to wait till the next crash they always say crashes when that's when real change happens that's when people are willing to do radical things and that even Wall Street might be fine you know if we can say we can fix this for you we can bail you out we're not going to throw you in jail good news you're not going to jail we're just gonna nationalize your bank and everything will be fine and they might go along with it you know if they can save their current they can save all those earnings they made or whatever so I think resistance is how you frame it and that that's our challenge is to figure out a way to frame it so that everybody thinks it's a great idea and everybody sees a benefit in it for them and nobody feels that their kingdom has been threatened but you know even like ruff Nader wrote that book only the rich can save us it seems to me we just you know they've got the money Willie Sutton why do you why do you rob banks cuz they've got the money hi I attend the University of Colorado and I'm a sustainability minor and you said when you're explaining why inflation wasn't worried something along the lines of the the supply will increase with the demand so there won't be in the inflation but the that kind of risk how do you reconcile the idea of an increased need for supply with the limitations of the planet and how that's because my big thing is recognized or reconciling any economic system we have with our need to not be perpetually exploiting the earth more and more and more mm-hmm well we're talking here yeah I know that issue but we're talking about giving people jobs I mean are you gonna say let's starve a bunch of people so that we don't use extra food we also have a duty to people to see that they have a basic standard of living and that's what these basic guarantee income guarantee plans are all about it's just making sure people have the minimum to to meet their basic standards and there are many things you could invest in that don't take any assets at all I mean there first of all there are kinds of jobs that are just service jobs that don't use resources and if you put money into education and to development research and development you could develop ways of saving the oceans saving the air saving there the you know like permaculture things that are more efficient than than the way we're doing things now that would actually maximize our use of our current resources so it's just I know there's the mantra Grahn is a cooperative in Spain and they have among their college students they have what's called the Department of good ideas I thought that was a great so so in the Department of good ideas they think of ways you know things that they can invest in so you could have a department where the whole goal is to think of ways to save the planet just to maximize our use of resources so you don't have to be spending spending spending or you don't have to be spending on super first things it seems to me that you can change the whole attitude so that you're spending you're putting that money into very efficient things what would a potential collapse look like and what would be the likely triggers I suspect the trigger will be that some a big derivative crisis it could be oil it could be the oil oil collapse that just like the subprime loan collapsing and that this time the government is going to say no more bailouts which is what they said in 2010 instead they'll be bailing in our deposits and that will bring that will bring an instant bank run everybody's going to run to the bank and pull their money out and then they're going to be looking around and saying well now what do we do with our money and then they might you know if we can plant some seeds they'll say what about that state bank idea you know that that wasn't a bad idea so that's what I'm hoping that we can catch them you know before it's a great disaster just sort of catch them in between as you're falling you know you're looking over the cliff and and then you change systems you know well I was actually going to write an article on this but haven't done it yet in the last 300 years we have changed systems every 20 years on average every 20 years so I mean the best example was in the 1930s and they didn't have the reserves there wasn't you know not enough gold so Roosevelt closed the banks in 1933 and when they opened up he said new rules no problem we're not going to use gold anymore we're just going to print the money and that fixed the problem you know they just changed the system so they could do the same and say new rules we're just going to make credit of public utility and simplify everything and guarantee everything and it's all gonna work out fine they could I don't know that they will I had a different question but I would like to follow up on that one if I could it to me it's phenomenal that they're headed to a disaster they've known this probably for as long as they've had the system in place have you ever thought that perhaps this is actually intentional and that they were like yeah and this is act 1 and there's an act 2 and possibly an act 3 yeah that that's actually my next book I mean I think it's definitely intentional among uh certain certainly not everybody in fact hardly anybody but there is a certain core who are that who is the wizard behind the curtain we still haven't figured that out and I think those people that few that element actually had that intent all along to basically own everything to force us all into debt so that it forced us to privatize everything to turn all our companies over into sure you know shareholder type Stella sell off the ownership of the companies and then the big money would come in and buy it all up and not though I end up owning everything and then I mean that's actually in carroll quigley wrote about that and yeah and his tone can i go back to my smaller question i brought me to the microphone when you mention you know simple bones the kind of red light went off in my head that when public banking comes in and you've got all these powerful interests you'd like to see it die the sooner the better we have to be very robust in how the thing gets implemented and municipal bonds in california i think you've got what 40 cities that are that are bankrupt so my question is was to prevent how do you prevent a public bank from making loans that are politically popular let's hypothetically say that the cities want municipal bonds to be purchased the cities can't pay them back so that's an obvious disaster how do you keep that kind of an obvious disaster from affecting public banking thank you one problem with when reason cities go bankrupt is because their interest rate floats I mean or look at Greece for example their interest rate went up to 30 percent at one point well so that totally magnifies your debt so if we buy their men in Nessebar bonds will stabilize the bond market the way the reason that the federal that the u.s. never goes bankrupt even though we have a giant debt-to-gdp ratio is because the Federal Reserve buys up all the extra bonds so the state could actually a well-funded state with a good credit system could save those cities from from going under in fact that could be one of their mandates thank you so much you
