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Guest Post: The Giant Banks Are ALREADY State-Sponsored … So Why Not Create Public Banks to at Least Share the Gains, Help Out Main Street, and Grow Our Local Economies?

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Economist Steve Keen writes today:

Neoclassical economists do not understand how money is created by the private banking system—despite decades of empirical research to the contrary, they continue to cling to the textbook vision of banks as mere intermediaries between savers and borrowers.

This is bizarre, since as long as 4 decades ago, the actual situation was put very simply by the then Senior Vice President, Federal Reserve Bank of New York, Alan Holmes. Holmes explained why the then faddish Monetarist policy of controlling inflation by controlling the growth of Base Money had failed, saying that it suffered from “a naive assumption” that:

The banking system only expands loans after the [Federal Reserve] System (or market factors) have put reserves in the banking system. In the real world, banks extend credit, creating deposits in the process, and look for the reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand; over time, its influence can obviously be felt. (Alan R. Holmes, 1969, p. 73; emphasis added)

Indeed, as I’ve previously documented the fact that loan demand precedes deposits:


How Is Credit Created?

I pointed out in September:

As PhD economist Steve Keen pointed out recently, 2 Nobel-prize winning economists have shown that the assumption that reserves are created from excess deposits is not true:

The model of money creation that Obama’s economic advisers have sold him was shown to be empirically false over three decades ago.

The first economist to establish this was the American Post Keynesian economist Basil Moore, but similar results were found by two of the staunchest neoclassical economists, Nobel Prize winners Kydland and Prescott in a 1990 paper Real Facts and a Monetary Myth.

Looking at the timing of economic variables, they found that credit money was created about 4 periods before government money. However, the “money multiplier” model argues that government money is created first to bolster bank reserves, and then credit money is created afterwards by the process of banks lending out their increased reserves.

Kydland and Prescott observed at the end of their paper that:

Introducing money and credit into growth theory in a way that accounts for the cyclical behavior of monetary as well as real aggregates is an important open problem in economics.

In other words, if the conventional view that excess reserves (stemming either from customer deposits or government infusions of money) lead to increased lending were correct, then Kydland and Prescott would have found that credit is extended by the banks (i.e. loaned out to customers) after the banks received infusions of money from the government. Instead, they found that the extension of credit preceded the receipt of government monies.

Keen explained in an interview Friday that 25 years of research shows that creation of debt by banks precedes creation of government money, and that debt money is created first and precedes creation of credit money.

As Mish has previously noted:

Conventional wisdom regarding the money multiplier is wrong. Australian economist Steve Keen notes that in a debt based society, expansion of credit comes first and reserves come later.

This angle of the banking system has actually been discussed for many years by leading experts:

“[Banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.”
- 1960s Chicago Federal Reserve Bank booklet entitled “Modern Money Mechanics”

“The process by which banks create money is so simple that the mind is repelled.”
- Economist John Kenneth Galbraith

“[W]hen a bank makes a loan, it simply adds to the borrower’s 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 in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.
- Robert B. Anderson, Secretary of the Treasury under Eisenhower, in an interview reported in the August 31, 1959 issue of U.S. News and World Report

“Do private banks issue money today? Yes. Although banks no longer have the right to issue bank notes, they can create money in the form of bank deposits when they lend money to businesses, or buy securities. . . . The important thing to remember is that when banks lend money they don’t necessarily take it from anyone else to lend. Thus they ‘create’ it.”
-Congressman Wright Patman

Indeed, the Fed is pushing to eliminate all reserve requirements. If banks can lend without having any reserves, then agreeing to extend credit obviously comes before having the reserves.

And the German central bank has publicly confirmed this as well.

We Don’t Need the Giant Banks To Do It

If private banks can create credit out of thin air – without actually having excess reserves – then the government could do so as well. In other words, if banks don’t need to have extra money lying around before they can make loans, then states and local governments don’t either.

The Revolutionary War (and civil war) were actually financed by the government’s issuance of credit. Ben Franklin, Thomas Paine and Thomas Jefferson believed that public – as opposed to private – creation of credit was key to American freedom and prosperity.

Indeed, North Dakota has had its own public bank since the Great Depression, which has helped that state maintain one of the lowest unemployment rates and lowest debt levels in the nation.

Moreover, as the Congressional Research Service confirms, the government has been loaning vast sums to the biggest banks at practically no interest, and then borrowing the money back from the banks at much higher interest.

Why do we need to spend huge sums of money to have the banks loans our own money back to us?

Indeed, a new report from Demos – a non-partisan public policy organization – in conjunction with the Center for State Innovation, issued a report in April looking at the potential for “partnership banks” across the country, including 11 states already considering such legislation.

The study found:

Across the country, states are considering proposals to move general revenue deposits out of the Wall Street banks that dominate the banking business today, and use them to capitalize a new local public structure with a mission to grow the local economy. A “Main Street Partnership Bank” would be modeled on the nearly 100-year-old public Bank of North Dakota (BND). This public policy innovation—also known as a Public Bank or State Bank—could contribute to the health of local community banks, state budgets and small business job growth in an era of rapid banking concentration, budget deficits and disinvestment on Main Street.

Partnership Banks can raise revenue for states without raising taxes, and increase loans to small businesses precisely when Wall Street banks have cut back on lending and raised public borrowing costs. A Partnership Bank would act as a “banker’s bank” to in-state community banks and provide the state government with both banking services at fair terms and an annual multi-million dollar dividend.

If modeled on the successful Bank of North Dakota, Partnership Banks in other states would:

  • Create new jobs and spur economic growth. Partnership Banks are participation lenders, meaning they partner—never compete—with local banks to drive lending through local banks to small businesses. If Washington State had a fully-operational Partnership Bank capitalized at $100 million during the Great Recession, it would have supported $2.6 billion in new lending and helped to create 8,212 new small business jobs. A proposed Oregon bank could help community banks expand lending by $1.3 billion and help small business create 5,391 new Oregon jobs in its first three to five years. All of this would be accom- plished at a profit, which Partnership Banks should share with the state.
  • Generate new revenues for states directly, through annual bank dividend payments, and indirectly by creating jobs and spurring local economic growth…
  • Lower debt costs for local governments. Like the Bank of North Dakota, Partnership Banks can get access to low-cost funds from the regional Federal Home Loan Banks. The banks can pass savings on to local governments when they buy debt for infrastructure investments. The banks can also provide Letters of Credit for tax-exempt bonds at lower interest rates.
  • Strengthen local banks even out credit cycles, and preserve real competition in local credit markets. There have been no bank failures in North Dakota during the financial crisis. BND’s charter is clear that its goal is to “be helpful to and to assist in the development of [North Dakota banks]… and not, in any manner, to destroy or to be harmful to existing financial institutions.” By purchasing local bank stock, partnering with them on large loans and providing other sup- port, Partnership Banks would strengthen small banks in an era when federal policy encourages bank consolidation.
  • Build up small businesses. Surveys by the Main Street Alliance in Oregon and Washington show at least 75 percent support among small business owners. In markets increasingly dominated by large corporations and the banks that fund them, Partnership Banks would increase lending capabilities at the smaller banks that provide the majority of small business loans in America.

These various proposals would “move general revenue deposits out of the Wall Street banks that dominate the banking business today, and use them to capitalize a new local public structure with a mission to grow the local economy.”

Let’s Give the Giant Banks Some Competition

Some people are understandably skeptical of state banks. Specifically, they don’t trust state politicians to exercise fiscal constraint, or they think that states with their own public banks would spend money on frivolous projects.

I understand and respect both concerns.

But as financial writer Yves Smith notes, state banks – even if imperfect – would at least give some competition to the too big to fails which have driven our economy into a ditch, and which are state-supported anyway:

The most important potential use of this type of bank in our era could again be to level the playing field with powerful interests, in this case, the TBTF banks.

***

But consider another very useful a state bank could play (although existing in state banks would fight it tooth and nail). The Bank of North Dakota is a wholesale bank, so the lack of the costly retail branch infrastructure is one of the reasons its results are as good as they are.

But another role a state bank could play would be to apply pressure to banks in that state. For instance, one of the most important planks lost in the Consumer Financial Protection Bureau was the requirement that banks offer “plain vanilla” products, such as a simple mortgage and a low fee, low interest credit card.

In states where the TBTF banks are not very well liked and not as influential (which generally means states west of the Mississippi which lack major bank headquarters or regional operations, like Citibank’s credit card processing center in South Dakota), a state bank could serve as a wholesaler of plain vanilla products to smaller banks (or alternatively help fund a common platform to scale up existing plain vanilla products offered by credit unions so as to make them more economically attractive to other banks in state). There is no question the consumer demand exists; the trick is how to make the product for smaller banks, who would not doubt separately find it a good hook for attracting deposits from bigger banks.

I find the state bank concept intriguing, because it has the potential to operate in bank-as-utility mode, which is really all banks ought to be. And in that mode, they could apply a lot of useful pressure on nominally private banks which pay their staff and top brass handsome pay at taxpayer expense.

Before readers argue that this is tantamount to socialism, that would be better than what we have now. As we noted in an earlier post “Why Do We Keep Indulging the Fiction That Banks Are Private Enterprises?“:

Big finance has an unlimited credit line with governments around the globe. “Most subsidized industry in the world” is inadequate to describe this relationship. Banks are now in the permanent role of looters, as described in the classic Akerlof/Romer paper. They run highly leveraged operations, extract compensation based on questionable accounting and officially-subsidized risk-taking, and dump their losses on the public at large.

***

The usual narrative, “privatized gains and socialized losses” is insufficient to describe the dynamic at work. The banking industry falsely depicts markets, and by extension, its incumbents as a bastion of capitalism. The blatant manipulations of the equity markets shows that financial activity, which used to be recognized as valuable because it supported commercial activity, is whenever possible being subverted to industry rent-seeking. And worse, these activities are state supported.

Consider Fannie and Freddie pre-conservatorship. They were at least branded more accurately as “government sponsored enterprises” and “agencies” making their public/private role explicit. Yet they were over time allowed more and more latitude to act as private enterprises, particularly as far as employee pay was concerned. We know how that movie ended…

So, the reality is that banks can no longer meaningfully be called private enterprises, yet no one in the media will challenge this fiction. And pointing out in a more direct manner that banks should not be considered capitalist ventures would also penetrate the dubious defenses of their need for lavish pay. Why should government-backed businesses run hedge funds or engage in high risk trading, or for that matter, be permitted to offer lucrative products that are valuable because they allow customers to engage in questionable activities, like regulatory arbitrage? The sort of markets that serve a public purpose should be reasonably efficient and transparent, which implies low margins for intermediaries.

Right now, we have much of the banking sector operating so as to privatize gains and socialize losses. We might as well socialize the gains, as North Dakota does. Even if this idea took hold in only a handful of states, the trend could lead to a change in the perception that big financial interests always and ever have the upper hand and thus lead to a change in the negotiating dynamics in policy and regulatory circles.

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37 comments

  1. tyaresun

    I would prefer a private banks that have government guarentees and operate like public utilities. They also run the financial infrastructure so that the gov’t cannot be blackmailed in supporting non-public utility banks in times of crisis.

    Everything else operates on free market principles and is allowed to fail if it takes on excessive risks.

    1. U$A _★_★_★_★_★_★_★★_★_★_★_★_★_ 1ST


      government guarentees and operate like public utilities. They also run the financial infrastructure so that the gov’t cannot be blackmailed in supporting non-public utility banks in times of crisis.

      Everything else operates on free market

      ~~tyaresun~

      I’m wit chew tyaresun. Me an’ U all the way. Does TreasuryDirect.Gov operate like public utility? Provide government guarantee? U B Judge! One thing for sure, “If TreasuryDirect.Gov would also auction and provide non-competitive-bid bonds at longer term denominations, we could put our money into 99 year bonds for our great great grandchildren who will need the fat interest rates of extra long bonds. Offshore bond markets would have better profits from their extra-long-bond-derivatives. Mom and Pop business ventures would have better business models with extra-fat-interest-of-extra-long-bonds as contingency for slow business years. Mom/Pop bonds could be sold on secondary market when need arises. Best of all our fearless leaders in Washington would have bond money locked in for melt-down-years when interest rates could rise. 99 years will span the duration of many business cycles. When our rulers want to stimulant the economy with universal tax holiday for couple of years, no problem. No problemissimo!”

      You are my people, Populace. Support your UST, US Treasury, My People.

      Be all that you can be UST!

      Grazia!

      Mahalo
      !

  2. SD

    In a strange and sick twist of irony – at least to me – the California Employment Development Department (aka unemployment office) just notified me that in the very near future, they will be issuing Bank of America debit cards instead of checks.

    Why should Bank of America enjoy liquidity on the backs of the unemployed?

  3. F. Beard

    Whoever does it, private banks or public banks, so-called “credit” creation steals purchasing power from non-borrowers and lends it to borrowers. And who shall determine who is worthy to borrow that stolen purchasing power?

    Forget credit. It is a centuries old con that we can get richer by stealing from each other. But how well has that worked out?

    Money can be created ethically. Government deficit spending is one means and there are various ethical private money forms too such as manufacturer’s coupons, common stock, futures contracts and who knows what else the private sector might invent.

  4. Dan

    This, like many other good suggestions would take leadership to do the right thing for the populace and back away from the bank “trough”.

    1. ajax

      It would be interesting to know what public laws of
      North Dakota (if any) govern the functioning of the
      public bank of North Dakota.

      Having clear codification in a state law of a public
      bank’s mission (and charter or “constitution”) will tend
      to limit discretionary powers (who names the directors,
      etc. ?). With too little mandated by law, the discretionary
      powers may be too great and lead to co-option or corruption.

      With too much mandated by law, and too little
      discretionary powers, the legal creature will tend to
      be bureaucratized and suffer from red-tape syndrome.

      Two goals to enshrine in law (in the particular, i.e.
      in explicit details) would be “boring bank” and
      a focus on transparency, in my opinion.

  5. robert

    As a taxpayer and shareholder of Citi, backstop participant for the big banks, and shareholder of Fannie/Freddie, my returns over the past decade basically suck. So why are the salaries 6 times the average manufacturing worker again? Oh, I see. Management takes my capital, lever up, pays themselves a bonus and gives the shareholder nothing – all government guaranteed. wall street unionized?

  6. Cedric Regula

    And Euro banks created dollar money loans first, then found dollar reserves at our Federal Reserve!!!!!

    MMTers better get the news out. I don’t want to have to wait another 50 years to find out how things work.

    1. Susan Truxes

      I thought the reason we gave, and are still giving, the Euros money was because they bought our TBTFs’ CDOs squared and then quickly realized they had been had because there were no mortgages backing the investment and demanded to be relieved of the crappy investments. I think it was suppressed news and still is. The one article I found way back 4 years ago said the Euros threatened to “never do business” with any of our big banks again. When I later saw news pieces about a town in Sweden that bought some of our “investments” which immediately went south, the coverage led me to believe that the little town just ate the loss. So it would be nice to hear the real story.

      1. Cedric Regula

        I don’t think there is only one true story.

        True, they were pissed about our CDOs. But the Fed emergency lending, only recently revealed under duress to be 3.3 trillion, was both direct loans to euro banks and also currency swaps to other central banks, who all of the sudden had huge dollar demand from their domestic banks, and they can police disbursement better than the Fed. We then found out (we meaning us outsiders to the cool kids in global finance) that being a reserve currency, foreign banks make dollar denominated loans in other foreign countries all the time. And borrowers liked borrowing in dollars because it had been falling like a rock vs the euro thru most of the aughts. But then there was the “credit crunch” when banks all of a sudden didn’t want to roll over loans to short term borrowers and were also not willing to lend to other banks. So there was probably a scramble to deleverage by banks and banking customers by liquidating euro assets and trying to buy dollars with euros to pay off dollar debt. I don’t really know, I’m just making this up, but the World Bank finally said that’s sort of what happened.

        I just saw a zero hedge post last week somehow claiming that 600B of QE2 went there too. I didn’t ponder the details of the post long enough to make sense of it. It was rather convoluted.

        But now we will have a chance to be pissed at our banks doing biz with Europe. It’s coming out that US banks wrote $120B of CDS insurance on Greece, Portugal, and Ireland sovereign bonds held mostly by France and Germany banks.

        I don’t know the total for Belgium, Spain, Italy, Albania, Hungary, Bosnia, Somalia, Yemen, Bahrain, Iraq, Iran, Lichtenstein, Czechoslovakia, Soviet Union, etc…ect…yet.

      2. decora

        One of the biggest CDO dealers was Deutschebank (German). You can see BNP Paribas, UBS, RBS, and various other European banks all over the prospectus sheets of the CDOs. Europe never had Glass-Steagal – as we clamor for Citigroups breakup, we have no power over Deutschebank, which would simply take over their business unless we put restrictions on foreign bank ownership.

        Some of the first lawsuits over CDOs (early 2000s) were against European banks.

        There were many stories about Narvik, Norway, but IIRC the ‘Armani Suit’ salesman who sold the CDO to that town were European, even if the CDO did come from Europe.

        http://en.wikipedia.org/wiki/Terra_Securities_scandal

  7. steelhead23

    Ah, music to my ears. I have a suggestion that I believe avoids the fear many have of public ownership giving governments too much power, and the the current system’s socialization of losses. Simply require that any depository institution that wishes to offer federal guarantees (e.g. FDIC) be organized as a not-for-profit entity. This minimizes government intrusion in the marketplace, while ensuring strong competition to for-profit banking. I believe the federal government might also have to limit executive pay to minimize the risk of having to pay out on its guarantees, but I leave that to others who wish to develop this concept further.

    For-profit credit creation is a menace to society and should be abolished.

    1. F. Beard

      For-profit credit creation is a menace to society and should be abolished. steelhead23

      Chances are the scoundrels will just move INTO government to be in charge of the credit creation process.

      It is credit itself that should be abolished and by “credit”, I mean that process whereby credit is extended in other people’s goods and services, not one’s own. In other words, counterfeit credit should be abolished.

  8. Birch

    For those who are interested in this but don’t know, Ellen Brown has been working on promoting public banking for a while. She has set up an institute to promote the idea:

    publicbankinginstitute.org

    This idea is not a thorough fix to the fundamentally userer-designed system, but Ellen argues that it would make a significant improvement, has a possibility of actually coming to pass without all-out revolution; and as suggested above, by eroding the absolute power of the big banks a bit it would be a step toward real changes in the future.

    1. JasonRines

      The future is Peer-to-Peer lending and Digital Government. The Bankers may have conquered the world in the name of interconnectedness by exacerbating evolutionary boom and busts. None of are perfect so mankind won’t go in a straight line.

      However, now that we are all interconnected and dependent on one another now in a broad sense of the term, we may as well all enjoy the reality of it and not be so shy at looking in the mirror.

      One of the Rockefellers lamented the creation of the Internet. He probably realizes as I do that this invention accelerated evolution. Now matter how hard elites, regional Kings and there Kingmakers attempt to remain using the 3D pyramid model of management, they only accelerate the evolutionary process. So peeps, when we rise up pissed every day at the attempt and pressure of widening control, realize the end of darkness is in sight and a new dawn will begin.

      I am all for P2P management technologies. Reduces the cost structure and widens the participation rate. Keen was sharp bring up the Theory of Reflexivity lately.

  9. Four Twenty Kafka

    I don’t have the time, but let me briefly point out noticeable blather from this hastily assembled tripe:

    “Consider Fannie and Freddie pre-conservatorship. They were at least branded more accurately as “government sponsored enterprises” and “agencies” making their public/private role explicit”
    When would this be, pre-2000? How does just saying something make a public/private role clear?

    Speaking of ‘fronts’ or ‘retail frauds’, here’s a crap nugget – “so the lack of the costly retail branch infrastructure is one of the reasons its results are as good as they are. ”

    Bullshit, I can name a couple of Banks that were being robbed by their own management, and retail expansion was part of the theft.

    Some of the things that Banks did, which are listed here, should have resulted in some kind of military action – airstrikes perhaps, if we alledge that our Defense/Military establishment exists to protect us from “threats”.

    Instead it was Banks/Information Companies that were working for the former, so that we could finance our horrific overseas adventures, and widespread fucking of millions of Americans.

    1. decora

      “How does just saying something make a public/private role clear?”

      because Goldman Sachs, Morgan Stanley, JP Morgan, Citigroup, etc, had ‘implicit government guarantees’, but nobody ever mentioned it. Especially after the Conitnental Illinois bailout of the 1980s, where the phrase ‘too big to fail’ was actually coined.

      Fannie and Freddie had ‘implicit government guarantees’, and some people continually mentioned it – Fannie and Freddies lobbyists and lawyers found these people and ‘cut them off at the knees’, if I remember the phrase correctly from Bethany McLean and Joe Nocera’s book “All the Devils are Here”.

      (Fun fact, the continental illinois bailout was caused in part by the failure of Penn Square Bank of Oklahoma City which gave out all kinds of bad loans for oil-and-gas leases, using shoddy reports on how much oil was in the ground, etc)

  10. MyLessThanPrimeBeef

    Wasn’t there a joke about the contest between God and the Devil? I think it was from Valissa.

    I believe it goes like this.

    God: I created the world out of thin air.

    Devil: Yeah, but I did better. I created money out of thin air.

  11. MyLessThanPrimeBeef

    Question. Just curious.

    If the money is not taken out of anyone’s deposit in order for a bank to make a loan, why do they want my deposit?

    1. Carla

      This is my guess: because even though they don’t really need it, they’re never going to leave a dollar on the table.

      We (the people) have been dumb enough to believe the banks’ con job all these years. It’s all a myth. There is no There there.

      “Money as Debt” plus “Inside Job” will take people a long way toward understanding this mess.

    2. Cedric Regula

      Because if they go to the Fed Discount Window, that is interpreted by Wall Street that the bank is in trouble.

      Then salesmen of competing firms call up the borrowing banks’ clients, tell them their bank is going under, and try and steal the clients. But this is an ineffective sales strategy when all banks are melting down and are running to the Fed.

      The Kosher way is to do repos with other banks. But you are supposed to have collateral, which is a different thing than money, of course.

      But what’s the difference, really. It’s all money creation in the end. Even the collateral. It’s all good.

    3. MyLessThanPrimeBeef

      My own more sinster view is that banks are out there to destroy toaster retailers.

      They just pretend to want deposits.

    4. scharfy

      It is a slightly cheaper form of reserves vs the interbank market. But mainly they want customers to write loans to.

      Loan origination is where the money is. Not checking fees. Just a a cost of doing business.

  12. eric

    If the private sector cannot properly run these banks in our corporatism system, why would believe that the government would succeed? We could stop giving state “ownership” help to private banks, propping them up and simply allow weak ones to fail….Forced debt to equity conversions for their bond holders rather than tax payer bailouts sounds about right.

  13. Susan Truxes

    State Banks are a great idea. I know both California and Illinois are working on a plan to do a state bank. And apparently 11 others. Every state should do this. Pretty soon we would take so much business away from the TBTFs that they would shrink. That will be fun to watch, no? And in the process each state can earn a bit of interest and spend it on anything from bridges to schools. Whatever they want. I’m going to go check out publicbankinginstitute.org. Thanks Birch.

  14. charles 2

    Ah ! Exactly what the General de Gaulle did in 1945 and Mitterand in 1981 in France.
    This being said, one shouldn’t underestimate the institutional resistance of big banking institutions. Think for instance of Societe Generale which was nationalized twice, and yet became a derivatives behemoth after that !

    The only real way to bring bankers into the fold is to ban maturity transformation for every corporation with a leverage higher to, say, three : Every asset must be matched with a liability (collateralized if needs be) of similar or higher maturity and every off balance sheet instrument must be brought back on the balance sheet (for instance, a fx forward must be accounted as a fx spot, a deposit, and a loan collateralized by this deposit). It will guarantee that the benefit of money creation accrues only for the benefit of the Public, as it should.

    1. wunsacon

      >> ban maturity transformation for every corporation with a leverage higher to, say, three :

      Good idea.

      Cut down the leverage and require higher capital reserves.

  15. wunsacon

    The government should print its own money without this fiction of it being “backed” by debt. But, please do not make loans to consumers. Eventually, it’ll end worse than Fannie/Freddie/AIG combined.

  16. David Smith

    Wholesale state corporate credit unions have been around for decades. They’re owned by their members — retail level credit unions.

  17. flow5

    “In the real world, banks extend credit, creating deposits in the process, and look for the reserves later”

    That’s called pegging the FFR. That’s the Central Bank’s operational problem (which has existed ever since 1965). Prior to that (from 1951-1965), Martin targeted free reserves. But we should have learned that the money supply can never be managed by any attempt to control the cost of credit (in Greenspan’s era esp.).

  18. decora

    one main opponent I see here is the ‘not quite too big to fail but still really really big’ multi-state banks. your ‘single state private bank’ model would make them go nuts – they are already upset about dodd frank.

  19. spragus

    Yves,
    Washington Blog has done some good stuff in the past. The first half of this article on monetary theory is fine. The second half is circumspect. Spreading into State run banks shows lack of rigor.
    The article proposes State run banks levered 26 times. And for this hyperlevered status, they will lend out loans based on job creation of $200-300K per job. That’s hardly a low tech loan. Probably more likely one to Cargill or Koch, both of whom are in need of funding for expansion.

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