State Banks Could Solve Financial Crisis

State Banks Could Solve Financial Crisis

State Banks Could Solve Financial Crisis

Forget big bailouts. The fed should finance non-profit state banks like the Bank of North Dakota–no profit means no reason for bankers to misbehave–to get real money to real people in the real economy.


Is enough ever enough? At last count Paulson, Bernanke, Geithner et al. had dumped $45 billion into Citigroup, plus promising to pay off $249 billion worth of Citi’s rotten investments if need be.

To keep this famously ill-managed, organizational monstrosity afloat, yet more billions may be required. As the Washington Post‘s Steven Pearlstein writes, “The rationale for saving Citi is that with $3 trillion in assets, more than 300,000 employees and operations in more than 100 countries, this was a bank that was too big and too connected with the rest of the financial system to be allowed to fail. The question now is whether an institution of that size and scope is also too big to succeed.”

Unless Citigroup is broken up–which, given the tenuous condition of the financial system, no one dares discuss in public–this organization is not going to resume making loans. As a bank, Citigroup is in a vegetative state, unable to perform its economic functions.

All told, the US government has committed almost $239 billion to 101 banks and financial institutions to save them from going under so that they can again make the loans that make the economy spin at something faster than poverty level. The commitment of such a huge fortune has not achieved the goal of getting the banks lending again.

So the Federal Reserve Board has come forth with two more programs intended to get loans flowing. These will dump or pump or push another $800 billion into the clogged arteries of the nation’s financial system, if indeed the nation still has one. The mind reels, boggles, spins or goes blank at these numbers.

Regardless of how much money is poured into these institutions, it always turns out that they are more in the red than they said they were, or than they thought they were. In either case, trying to make them solvent and ready to make loans again is somewhat like trying to fill up a bathtub without a stopper in the drain.

It does not help that much of the public has come to believe bankers are lying swine. Every new bailout to keep the banks afloat arouses public suspicion, not to say anger. People in straitened circumstances, out of work or fearing they soon will be, people whose life savings have been decimated are nursing a growing resentment at the unfathomably rich treatment accorded these organizations and the pampered, often incompetent, almost always excessively greedy executives who run them.

The general anger and indignation must also play a part in the banks’ inability to come back from the financial graveyard, even with the assistance of endless golden intravenous feedings. Maybe it’s time to try something new. Maybe it’s time for state governments–with federal help–to start some new banks with clean balance sheets that can begin lending on the day they open their doors. There is precedent for this.

There is the Bank of North Dakota. The BND was established by the state of North Dakota, which owns it, in 1919. The reason for its existence is that the farmers and small businessmen of the state were confounded by the same impossibility to secure loans back then that has frozen the nation in place in 2008. The banks were not lending, so the state started a bank which did lend and does to this day. It is making student loans and other kinds of loans that are unavailable elsewhere.

The bank is the depository institution for the State of North Dakota’s funds and it also accepts deposits from ordinary people and businesses. Since it is a socialistic institution, not intended to make a profit, it does not have a motive to misbehave, as our private enterprise banks have done.

Any state can start its own bank using the funds it has deposited in private banks. That comes to many billions, and withdrawing so much money at one time could be all that is needed to send any number of banks into death throes. So the switchover would have to be carried out gradually with the federal government, which is so free and easy with its cash, supplying the startup money.

Socialism, as we have been taught, is a wicked thing, but North Dakota has dabbled in it for nigh onto ninety years and seems to have survived in good health. North Dakotans appear to be as patriotic and liberty-loving as Americans in the other states, even with their collectivist bank.

If every state had its own bank and something approaching a parallel financial structure, that might keep the private banks closer to the straight and narrow. If a dollop of socialism is more than most can stand, it’s up to them to think up something else or the rest of our taxpaying lives will be spent watching the government give our money to Citigroup.

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