My neighbor Tony Piel, a former director and legal counsel of the World Health Organization, started out with Citibank. One of his assignments from its chairman, George Moore, was to set up a public/private development bank for Morocco.
Here Tony wonders if what was good enough for Morocco might not be good enough — better, actually — for the United States than leaving the economy in the hands of Wall Street’s sociopaths:
Now, some forty years later, back in the USA, we find the world’s most powerful nation in crisis and in desperate need of economic development and jobs. In my day in Citibank, we would have opened the valves of business and personal lending to solve the crisis. That’s what commercial banks are for. But today the five largest US banks (BofA, Citi, Morgan-Chase, Wells Fargo and PNC) having received tens of billions of dollars in bailouts for those “too big to fail,” and holding some 40 percent of all deposits and 48 percent of all bank assets, have cut back on small business lending by a full 53 percent. (Where are the George Moores of banking now?) Here’s the question: Should state-owned banks come to the rescue of Main Street?
We have a home-grown model to guide on, and to build on: the state-owned Bank of North Dakota (BND), established in 1919 to promote agriculture, commerce, industry and infrastructure development in North Dakota. The BND takes placements of North Dakota state and state agency funds, and acts as an economic development agency and “banker’s bank,” lending to and covering risks of private banks and businesses. It arranges low cost loans to farmers, students, and local enterprise. BND also makes a market in municipal bonds to promote and finance community development.
The BND has almost $ 4 billion in assets, a $ 2.67 billion loan portfolio, and over $ 50 million in profits for six straight years. Over the last ten years, the bank has funneled almost $ 300 million in profits to North Dakota’s state treasury. During the recent national credit crunch, when private banks ratcheted down their lending, BND’s business lending actually grew by 35 percent, and private sector jobs were increased throughout the state, outpacing the rest of the nation.
What’s the development bank secret? The answer: Regulated government service salaries. No fat cat bonuses. No kick-backs. No self-dealing. No double dipping. No excessive risk taking. No gambling with other people’s money. No bundled mortgages, no derivatives, no credit default swaps, and no currency speculation. No short-selling. Transparent accounting. Profits are returned to equity. The point of the enterprise is not self-interest. The point is economic development. That’s what a democratic state development bank is all about. That’s why Morocco succeeded. That’s why North Dakota succeeded. It’s difficult to argue with success.
The question is, could something like this work in Connecticut and other states? The answer, perhaps, is Why Not? The principal objection to such a state bank may be based on the false ideological premise that government and private enterprise are necessarily and irrevocably hostile opponents. The Moroccan experience suggests otherwise.
More pointedly, private banks may fear that they may lose some of their deposits and be forced to compete more actively with each other and with the state bank for lending opportunities. But perhaps competition is a good thing? Furthermore, when the economy recovers and further develops, the opportunity increases for all. There are more and bigger slices of a larger pie. It’s win-win for everyone.