money moves the world and banking moves money welcome to the public bank solution conversations about an emerging new american institution a 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  and welcome back hopefully at two the public bank solution i won't agree to a merits of the public bank institute and to your host here for this discussion about public banking our conversation here has ranged quite far  our previous episodes and today we're going to our guest is gary fluffed who his one of the real pioneers in creating and helping to create of the public banking movement in america up in vermont gary is  is a doctoral candidate almost is almost a doctor who focuses on the economic value of commonwealth now you've heard us talk with ed to vet owen with mark and elsie about the commonwealth how we consider the well being of the community not as just something monetary entity or or some figures and his work is also in the governance of sovereign wealth funds as a as a member of the faculty of the university of vermont he was involved in the community and international development a lecturer in applied economics renewable energy international development and public policy and has conducted numerous international development projects with students and other local partners when he was a research associate fellow at the good institute for ecological economics very got the job of being able to of having to analyze and to  evaluate what kind of an impact a state of vermont state bank would have on the economy and we saw a vestige of that in fact we with the study that was recently done here in new jersey by the hughes school of public who looked at the impact of a public bang for the state of new jersey she in fact quoted gary for on many of his metrics as you're looking at the impacts of what it means to have your own bank on local economies so his truthout the two thousand and thirteen report on the creation of a vermont state bank formed the basis for legislation which allocated thirty five million dollars of state funds for local investment now it turned out to not be a bank per se but it got the ball rolling in that direction and i think that's where we'll pick up our conversation as we welcome to our screen gary flintoff in brisbane how about this to australia hi sherry thanks a lot welcome and thank you for coming as as you know most of the united states we have about twenty twenty five or thirty different initiatives around the united states cities counties and states to create our own public bank one public bank existing in the us being the bank of north dakota well proven one hundred year old institution the most one of the most profitable banks in the country clearly a model worth replicating and yet in vermont when you brought these facts to the legislature they said we don't want a bank tell us what that story was like for from your perspective well we started ten years ago right after the publication of web of debt by alan brown and everyone and that's and the financial collapse everyone was you know angry with the banks so we got started on the idea of a public bank in vermont a state public bank and you know we did care remember it was a five or seven year effort but it took quite a while to get through the legislature because they wouldn't even study the idea and never mind it after working for you know seven years out we finally got this local investment bill and they allocated thirty five million dollars of the state's daily funds to this this loan fund that finances  renewable energy all the things that public bank have it's about gets one it's community loan fund it's renewable energy it's affordable housing and it's economic development and also paying down actually reducing the cost of student loans so it does all those things the one thing that they wouldn't do was give the was create it was give a bank a charter so we had that in there but the banking lobby managed to strip that out at the very end so we got everything but the you know ability to create credit which is what banks do but it's more of a revolving loan fund and it's you know strongly successful which is kind of funny because they they always say oh we can't don't trust us we can't be trusted to do a bank but then they go ahead and they do it very successfully so it's kind of funny as a revolving loan fund which i think that distinction for us carry the route a revolving loan fund like the development authority and so forth has a certain set fixed amount of money how is that different from a bank having to have a financial resources well the  has leverage so they can create credit where they don't have any funds on hand so they can basically double the amount of funds almost double the amount of funds that they have on deposit so they can they have more ability to create more credit than a revolving loan fund so they have they use leverage so they can they can create you know twice as much as they have on deposit basically loans well some of the development authority people and  programs leverage their credit without being a bank but they leverage it with private funds and other resources i mean that ok well well all of the all of the lending agencies we have lending agencies and they they basically borrow money in order to lend money so they borrow at one rate at a low rate and then they lend it out at a higher rate but this and that's exactly what this loan fund does the state treasurer loans them the money that is at a lower rate they lend it out at a higher rate but banks don't have to borrow the money they just have to pay a deposit as you know basically almost nothing and then they're able to use that money so it's essentially there they have two advantages their cost of credit is much lower at the cost of funds is much lower and they can and they can they can create more credit than what they have on hand which loan funds cannot do it's a one to one ratio from for a long fund's banks can create more than they have on hand considerably more to i mean there are a multiples of their capital limit that the right they do have very interesting as the the initiative in vermont was very colorful we had you had at one point vast majority of the town's same we want to have a bank and you had some legislative heroes who were bringing it forward for years and and do i understand even in that bill in the final bill that you had provisions for creating a depository bank for creating a bank yes and we had it was it's called ten percent because the daily amount of funds on an average is three hundred fifty million dollars so ten percent of that is thirty five million dollars and it was supposed to be a pilot project so if it was successful it would be expanded and that was in the bill to to to do you know study it and consider expanding it and also to evaluate whether the banking license we should go ahead with the banking license and the bank lobby managed to strip all of that out and just leave  percent funding for local investment which was you know great in itself but it didn't get didn't go as far as you know we'd like to see see it go eventually but that was the best we could do at the time and so the thirty the ten percent the thirty five billion dollars separate they call it a credit facility and so where was this money sitting before well prior to that it would be sitting in one of the big banks like t d bank north or people's bank which is which is owned by connecticut lives in connecticut it's a connecticut bank and then the and the biggest local bank since this happened the biggest local bank was merchants bank and that's that was bought out right out of state bank so basically the three biggest banks in vermont are all owned by out state you know out of state banks and so all the money would go into those banks and then they could spend it however they want and one of the things about t d bank people may know is that they were funded they were financing the code access pipeline which people weren't too happy about so those are the kind of things and that people didn't like their money being used for but so basically that thirty five million came out of those banks and went into local investment which which was to our credit  the local investment committee was set up by the treasurer and they determine the priorities through a meeting over a year that the treasurer set up as the priorities and they they chose really excellent priorities her her her choice was renewable energy but they also did as i mentioned paying down school loans affordable housing renewable energy and government buildings and an economic development fund but as far as going back to the town meetings there were like twenty one out of twenty three town meetings i mean just the amount of effort it took it took dozens of people over a period of seven years you know we testified we lobbied we one talked to different treasurers we talked to head of every agency when halls met then i sat in those meetings every week for a year and it was just and they went to look around to libraries educating people that we created like three yeah it's because you're up against the the most powerful lobby and the most powerful force i suppose and in politics and finance the bank yeah the masters of the universe there's there's that now you know and we have course would hasten to point out that we're talking about community banks and credit unions the people who live in the neighborhood these are highly valued participants in the issuance of credit in all these communities so but the concern is that the big banks continue to eat our lunch dinner and breakfast by having their hands in our in our in our lunch pail terrible metaphors but but that's that is the reality so all of that money was going to toronto or to connecticut was not seen in from out your study indicated that by having a bank you'd be able to leverage the money that would otherwise there would be on deposit in there in the state what kind of impact did your study show that vermont could realize in terms of jobs and new g d p or whatever did with the significant growth there was what if you spend it on public goods like state capital finance infrastructure things you would save one hundred million dollars in interest over over twenty years and that would that was kind of my favorite but then in terms of just in terms of just  loans for economic development we found that it would create about twenty five hundred new jobs and it would increase the grossed a product by a hundred and ninety million dollars and total output would be increased by about three hundred forty million and this is just from standard input output now it's using mult using the the multiplier effect you know every dollar spent in the state and this is something eunice alys around the country do all the time these  these these input output models using multipliers like that so that was the that was the impact that we that we reported to the state legislature through our report  the the vermont study was a breakthrough and it followed on studies that were done by de most and the center for state innovation also indicating the same thing of course the numbers that you gave us those those studies were done for washington state and oregon state your numbers were about vermont here in new jersey they multipliers were basically for every new billion dollars that you put into as new credit that would be available through the bank you'd be generating one point five to two million dollars in return to the state and then growth toward the gross domestic the state product and so forth that's racist and it's actually very similar because we figured out of three  hundred sixty million we could allocate two hundred sixty million dollars in loans and it would generate three hundred forty million in activity so that's about one point five so it's the same ratio you're talking about so you're saving on the cost of finance by lower cost of of capital but you're also paying yourself the interest was there also a red interest on it back yet the interest goes back to the status set of shareholders which of course is one thing that public banks always stuck infrastructure is in really bad shape for a minute has a d minus from the society of civil engineers and you get the exact amount let's see now that's not unlike here in new jersey we have a failing marks also of course that's fairly typical for the united states across the country our infrastructure has been abandoned because of a lack of a lack of funding and resources that's just our public infrastructure the private needs for housing are are mushrooming around the country we have millions of people who are homeless but then we have people who can afford homes so that they can't find them and that because they're not affordable the so i mean one of the kinds of solid investments that you're suggesting where you're investing into the real economy that you're not buying you're not speculating on foreign currencies or corporate bonds and all the sort of glamour growth of paper fancy paper we're talking about pouring it into the into the earth into the people those are that's what makes all the difference doesn't yeah well i was i was trying to look up the number i can't find it for the infrastructure but it's you know it's like millions of dollars we found forty forty billion dollars of unmet needs unmet capital needs in vermont and they have the other thing they have no more bonding capabilities so how are they going to pay for this that they they're not going to vote for a tax increase they can't issue anymore bonds so so what are they going to do they have nowhere to go so then they have forty billion dollars just in this tiny little state of vermont of unmet capital needs that the state has and they have a plant for example they have a plan for i think at the last plan was like by twenty thirty it was going to be eighty percent renewable energy it where are they going to get the money for that they have to repair ridges dams water systems and waste water and roads and bridges and that's now it costing them a lot for interest payments that's one hundred million dollars in savings if you just spend it on on these capital needs of the state never mind talking about the needs you mention which are like affordable housing school loans and the other things but the ten percent for a month program is basically funding all of those things it's very you know modest because it's it's a small amount of money but it's all it's it's all getting repaid at it you know it's all working out exactly the way it's supposed to and as i mentioned the it's going to a community loan fund renewable sorry efficiency  improvements on government buildings affordable housing a community loan trust some technomage development which you mentioned which was our regional plan was to turn the economic development agency into a bank and then the last thing was reducing the cost of school loans so those are the things it's going to and it could also like i say go to all of those interests trucks your needs and then you have that huge interest savings not to mention the money's coming back to the state instead of to shareholders yeah when you mentioned an important point that people may not be familiar with that that there is a debt limits limits to borrowing that the states right and it depends on your level of indebtedness and they have these reports which you have to forgive me i wrote this report about five years ago it's ok but they have they have these reports that say what's the limit of the bonding and when we looked it up it was like they were they were pressed right up against the limit so there was really no capacity based on the bond rating of the state to any further firing and that sets up the scenario continuous and unsustainable borrowing going into more and more and more expensive debt that they can't even do it because they think they're not they're not allowed to because they're beyond their they would wreck their bond rating they if they got more in debt so they can even more money so we're locked into a system of finance which only goes so deep for us even though we're the owners of all of the even though we have this enormous amount of equity and that should be pretty boundless checkbook in a lot of where that's what that's what north dakota does they they don't even use up the i c i think they use the full faith and credit of the state to back up their their loans but the  have taken over the creation of finance in the united in almost around the world thing they create the entire money supply through private loans so you can basically banks create ninety seven percent of the money supply and it's all  created through loans going for profit making goods so just think about right completely transforming that to issuing all of the entire money supply for public goods set of the entire money supply now goes to the top ten percent of the population in terms of interest payments because they're the creditors are in the bottom ninety bottom eighty percent are that are the debtors so it's a it's a way money gets basically transferred from the bottom eighty percent of the population to the top ten percent this is from margaret kennedy's work and thomas crites and eighty to ninety percent percentile is about breakeven but up bottom eighty percent basically pays interest but the top ten percent and that's because of the way our the entire money supplies made it through loans and so the banks have taken over the creation of the money supply which should never be a private function it should always be a public function now i don't happen to agree with the people who think we should give it to the treasury of the united states i think it should be completely decentralized through local public banks if they were issuing credit like the fed say for pole local public goods then you would have your money supply being created for the benefit of everyone instead of just for the benefit of shareholders which is how it works now but this is you know ellen's book documents this battle been going on for five hundred years and there's a lot of things you can say about andrew jackson but one of the things he said when he shut down the second bank of the united states he said you're a den of vipers and thieves and i'm going to shut you down and apparently on his deathbed he said that was the best thing ever did was shut down the second bank the united states well and we also don't want to forget about them the jacksons history you know the tussle with the bankers with the central bank has been going on in the united states since its start you know we're going to war well soon after he passed the federal reserve bank he said later on he regretted he said i've got just ruined the united states y michael hudson points out this is the this is the matrix of a neo feudalist situation as you were just saying you know it takes the money from the poor and keeps them down and feeds it to the top and of course many people thrive and increasingly fewer number of people thrive in that environment but the public bank initiative as a as a as an institution really gives us an opportunity to break free of that  should be a public function and public banks can start to move in that direction yeah as alan has pointed out alan brown that the direction should be the money should be considered a utility and of course it's been commodified and privatization schemes which have also extracted huge sums from the public in terms of assets and costs so maybe and i think as we've seen in the bank failures of recent years and also of the nefarious bank practices of the big banks that the public needs to be defended needs to defend its money as well as its power by having their own banks to serve in this in these ways yeah well you live in australia you had a public bank there for a number of years which i think was up ended early on in the early twentieth century well bank right which is now private bank and now private bank yes so this is a global phenomenon we're not alone here on the east coast or down under as as the case may be global it's global for sure yeah  you also are a an expert about community land trusts and i don't we don't have much time to talk about it but he has wanted to say would you describe briefly how and i'll show this graphic that you that you had which was about how the current arrangement is that private banks fund housing but then in a community land trust public banks can become the financier's for community developments along that line well like i said the t en percent for months actually doing that because one of the major recipients of their funding is the burlington community land trust and it's that the way it works now is seventy percent of bank loans are for mortgages so th real estate market which you know we saw in two thousand and eight was a bubble is financed by the banks and they are they won't work together there's a great book called the secret life of real estate and banking by actual andersen if you want to really get into it but an alternative system is to  banks to finance community land trust which basically take land out of the market and it's no longer subject to this rocketing you know value and it doesn't the profit goes back to the community rather than to the person who happens to live there so it's it creates permanently affordable housing it's the only mechanism where the house with the housing is affordable forever there is really no other mechanism because once you take the land out of the market then you get rid of all that speculation and the  stipulation of a community land trust for a resident or an owner is we're going to give you an incredible discount because you don't have to pay for the land because that's owned by the community organization you get a gigantic discount and all we ask in return is that you  don't keep the profit when you sell it you pass on the affordability to the next person that's essentially the essence of it and if you had these public banks financing community lantus you could create an alternative  finance and housing system system that would generate lots of affordable housing because right now it's you know not that easy to get financing for very thank you very much for describing that and for also for your reporting on this your experience and bringing about this very successful exercise in vermont that has a ways to go a little bit before killed becomes a bank but we're all working on it and i guess we will be patient thank you very much gary