money moves the world and banking moves money welcome to the public bank solution conversations about an emerging new american institution publicly owned partnership banks able to rebalance the scales of monetary control in service of the public interest and our common wealth brought to you by the public banking institute and its national association of partners and organizations bel segment a couple of shows here banking on new jersey this is a topic that there you may well have heard about since it has emerged in recent gubernatorial campaign  it's been championed by two of the candidates for governor seth kapor dale who was on our airwaves here a couple of weeks ago and also phil murphy the likely i suppose or the the the favored candidate this point who did something that broke through a national horizon of awareness around public banking and that is that he suggested that a state this state our state new jersey should have a state bank well what is it so let's hear what he had to say about it here's phil murphy talking to a group of citizens about what a state bank looks like and why he's supporting it i'm a big believer in something called the public bank it's been done once before in america i'm not surprised you never heard of this by the way i had myself a few years ago it's been done in north dakota ninety one years ago one question you if it's such a good idea why hasn't it done a damn good question i think the bank lobbies have pushed back on it let me describe it in thirty seconds because it's kind of cool right now whether it's mirror ball which whether it's bruce's freeholder capacity for union county the state of new jersey a board of education whatever might be you collect fees in taxes and you put them in the bank and to use them like any of us would write it turns out human nature you don't want to tell the boss  small bank you put them in went bust most of these go into big banks mostly big wall street or big international banks they earn a modest the deposits are in a modest interest the banks under no obligation frankly not the banks fault we could fault the banks for many things not this one they're not being obligated to come back and doing in new jersey and they don't want international bank took a lot of our deposits and did invest in infrastructure in japan another bank had average daily cash balances from new jersey of a billion three and they made three loans back in a new jersey in our small business administration plan for a total of two hundred twenty thousand dollars so a billion three hundred twenty thousand dollars so here's the idea all those deposits come on home they reside in the people's bank of new jersey own by the citizens it's a commercial operation at the end of the year for makes money we get dividends in our vision it has three lines of business all based in new jersey all focused on new jersey student loans not loan shark rates but it fair commercial rates small business loans working with community banks not against them putting capital through the community banks and you ask any small business the boss the didn't get started stayed small wanted to get big particularly its women own or owned by minorities the answer is almost invariably we couldn't get the capital no one would give us the money and the third which gets the route twenty twenty two is small scale non big arc tunnel projects to new york infrastructure here in communities  counties projects that don't rise to the billions of dollars but rise to the point of it's a local if you're waiting in line for the development authority in your county or you have to go to the bond market we think that ignited again working with community banks so you've got all the money back home we own the bank and it's focused on three big areas of need in new jersey so there you see that he has outlined a number of basic issues or a number of basic points about the benefits of it and why we need it and i know what i'd like to do is just illustrate a little bit more some of the background that that makes this matter and maybe a more urgent public policy option then some know we all know that the state is broke or at least we have a number of funds that are broke like the transportation trust fund which ran out of money this past year we know that our infrastructure is failing and i doing very poorly we don't know that students in this state carry on average a thirty thousand dollar debt to a very expensive over lay for for the local economies if our students are unable to start their lives out of debt then you know how are they going to build our economy how are they going to participate small businesses aren't getting money the loans that they need as you heard  murphy say and there i was just a tremendous amount of work to do the infrastructure needs are extensive and our debt load is as well in new jersey one of the highest per capita debt loads in the country on average if you look at what our to get out of debt it would be fifty nine thousand dollars per man woman and child in new jersey that's huge and of course not something that can be resolved very easily in part because there is a such a cycle of debt and taxes debt and taxes that why because the state doesn't have the money to do its work in the house or at least it doesn't think it does and so if it goes to the bond market or another place or says of private capital to get the money to do the repair the bridges and build the schools and so forth and that's very expensive it costs twice as my to build infrastructure when we go to these sources the bank the public bank state bank is is a way to reverse that cycle so today we're privileged to have once again the founder of the public banking institute really the woman who has started the movement around country is known around the world as a voice for public banking and now the chair of the public bank institute ellen brown ellen great to have you back thanks but yeah it's great to be here great to have you here again and  you know we've been talking around the country around this we've previous initiatives at the state level have have failed what has happened in those instances because it's this is been underway for what five six years  well it takes a long time you break through your accuracy for one thing and the resistance people don't understand the concept and what politicians are likely to say is first of all the say we don't have the money to land we need our money or our budget but that's not how banking works you do not lend your deposit that's where the bank of england came out with a directory in you don't either you don't have the small banks the small banks don't even necessarily want those deposits because they have you have to collateral collateralized them so you put them in a big wall street bank so putting it in your own public bank is the same thing that wall street bank when you ask for your deposits they're always there that's the way banking works the deposits are always there even though you have apparently lent them out but how is that how do they manage that the bank if it needs to borrow this very cheaply and so that basically what we want to do is if we have a bank we the states can borrow at bankers rates instead of borrowing on the foreign market  find market rate or on the private equity market whatever twelve percent that's what private equity firms want on an average of twelve percent like to build this infrastructure so we have one and one on the sta  goes back to the state which is us so the state is using that money for the purposes of the state to improve the local economy rather than being siphoned off into this sort of right now banker would gravitate toward decide to do it because he understands how banking works and that that it can make it work and that the idea that we don't have the money or you know where we're going to get the money to operate the bank is another one of or one of those issues that needs to be addressed at the outset here in new jersey were when we talk about creating a the people's bank of new jersey or whatever it gets to be called have a lot of this basic educating to do  the bankers themselves will say well you know you're putting the money the public's money at risk you know we're bankers we understand risk and indeed they do and our state bank would have to do that as well why would you say that they're not putting the states money at so you're going to have the same expertise to the bank what have you probably bankers might do something for their for their stake in north dakota i think the last i heard the president was making two hundred fifty that a lot of community bankers in particular and credit union people whose lives are about making a contribution and i and it's important when we talk about the problems we've had with the private banking industry that we make the distinction between community banks credit unions and the wall street financial cartel private capital cartel remembering that all of these businesses have as their bottom line a profit making a profit now community bankers make a profit in the process of feeding credit to the local community and small business loans and all of that the wall street banks are not giving loans like that that's not really where they're making their money is it round the world i mean they're making very small percentages of actual investment well i'm banks are because the interest rates have dropped so low which happened because after the two thousand and eight banking crisis where the government had to bail out the banks and then they doubled th largest source of profits in banking these days is fees yeah so we can eliminate there was a study of mice and do this it showed that the city of los angeles pays more for me just the fees to wall street banks no municipalities in addition to the citizens but the municipalities and the state prioritize pain off their debts because they want to state viable in the marketplace so once again they're trapped by market pressures and the control of markets to behave and to pay up so that they can get more money and go more and more in debt whereas now the public banking model reverses that debt and taxes how does  work well i mean you know instead of having to borrow more money you borrow from yourself right now right you know you're generating credit one of our historical ideals was during during the great depression where we had the government had had no money the banks were going bankrupt and what roosevelt did was just generate credit for all these small businesses all across the country and rebuilt the country and how did they do it they did it through their own the reconstruction finance corporation which he tried to get the federal reserve to do it and they couldn't get that bill passed so they just used this reconstruction finance corporation which had been set up under over q issue loans to like everybody in state that these are called self funding loans so they're the type of loans that will pay back so you put the money out there f rebuilt the entire country and funded world war two and came away with a profit for the government so it's all there actually was credit or debt but it all got paid back because these are self funding runs these are  and i forget what the reserve requirement was been any way so every time you would pull in one dollar's worth of gold you had to pull in four dollars worth of paper money  so so you are now new jersey even though we've got the you know budgetary challenges it's not broke there's and so with the question you mentioned earlier we are where do we get the money where we actually have assets that that become good fall into a new available category how does that work how would the new jersey fund a public back or could it well it's very very similar to what roosevelt that you like you've got the workers you've got the materials the only thing you're missing is this medium getting the money to them so what you want to do is turn your future productivity into something you spend today and that's basically what a bank does a bank california so you could start with a billion dollar bank so let's say you had a billion dollars so that and maybe in the infrastructure bank you take your billion dollars and normally you would lend it out wait for it to come back lend it out it can't wait for it to come back but if you use that billion dollars as capital for your bank you can lend ten times that amount because you use that for the temper soon capital requirement you can lend ten billion dollars in loans and each of those loans is going to generate interest so you made a lot more money on the loans you need you need the deposit to back the loans but you've got to deposit the state have a lot of money that you've deposited somewhere else so you can just pull those deposits back or in the state of california for example are treasures that i think has seventy four billion dollars in assets and earnings sirrah point five percent that an average of three or four percent still under the market student loans for example the bank in north dakota makes student loans that are about one percent below them are say infrastructural and fifty percent it's better defense of the type of loan but i think their average loan with three percent or three between three or four percent yes so let's say you're making seven times three ranking twenty one percent on your money instead of small state with only seven hundred thousand enough population for like the people of essex county they have a seven point three billion dollar bank and they have returned about a billion dollars or created of earned a billion dollars out of operations half of which they've given back to the state now that's an interesting variation because local governments and state governments look would like to have some other source of capital decide taxes and here in new jersey it's a really sore subject people are taxed when there are very uncomfortable with it this actually reverse is that trend because the bank makes profits as it lends money and that is of course one of the the big assets well how  bill murphy mentioned or through their local banks magnet and then being direct loans in kind of profit they specifically do not compete they make a point and they are competing with the local banks and what they do is they help with capitalization they help with liquid so the local bank goes out there finds the loan let's say it's for some local development that they don't have enough money for you know i mean they're not big enough to handle this loan and then the state bank will come in and provide capital and liquid should welcome the state bank idea because it actually expands their capability to serve new sectors or important sectors of lending that they wouldn't otherwise because of say risk  affordable housing might be one such example student lending is another small businesses and you know we talk about north dakota a lot and some people here will say well we're not north dakota man this is new jersey it's a you know and but the point it really doesn't matter in the instance of how finances work the bank works like a bank here or in north dakota the practices that have been set up by north dakota have been so successful that in that industry where here in new jersey where we've seen the decline of local backing banking institutions community banks disappearing as if they as as all around the country in north dakota they have more they have six times the number community banks and credit unions of any other place in the country and these banks produce more loans per capita larger loans more much more return for their business then than anywhere else and in terms of lending to small businesses they were they gave four hundred thirty four percent more loans than the national average to small businesses now in new jersey we have twenty twenty one thousand and more small businesses that's where people get jobs and this is where they're where the growth of the local economy yes so it would seem to make sense well when we get this back you know that's it when people get it t i mean it was you know it was doing well right up until twenty fourteen and then all of a sudden oil plummeted down to it was whatever hundred dollars federal down to thirty dollars a barrel and forty one i think at one point  being coming more and more profitable hitting every year hitting making reference record profits while the state itself is suffering it wasn't just the oil but apparently agriculture went way down and all their big their big industries went down and then they would have had a serious crunch but instead of having to have these very expensive rainy day funds they can just tap out the banks and it's harder for next extra dividend it's like a rating to a friend i know in california after two thousand and eight the governor or the state cut way back i and services laid off and lay people have teachers related off etc and then on we finally got back on our feet instead of rehiring those teachers putting the services back that were cut back they said of we need to put the money into a rainy day fund for the next crisis which everybody notices or everybody suspects another crisis will be coming because using them for the services that people think they're getting when they pay their tax and then sort of an pay as you go thing and then if they have a problem they say yeah it illustrates and we'll wrap up this section because we're going to come back we're going to be doing another section about betting banking on new jersey creating a state bank here with alan but to just wrapping that up to it to say that having a state bank gives the kind of flexibility to financial managers into the state that is really unheard of and deeply desired by by government managers and of course we use the example in north dakota of the great flood the wiped out grant from the force north dakota the state bank in north dakota was right there with the emergency right across the river another big town grand forks minneapolis minnesota didn't have a state bank they lost five times as many people a population and didn't recover because they had to go to new york to get their money so the stability in the insulation that comes by having your own state robust state financial institution is an engine that allows the state to do new things and we'll talk about some of them in the next section of that to that we can't  but most importantly to be prepared and ready and independent as a strong but natural entity called new jersey that can really doesn't have to rely on new york wall street or anybody else to be able to stabilize and and buil