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Green Light for City-Owned San Francisco Bank

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Posted on Aug 2, 2013
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By Ellen Brown, Web of Debt

This piece first appeared at Web of Debt.

When the Occupiers took an interest in moving San Francisco’s money into a city-owned bank in 2011, it was chiefly on principle, in sympathy with the nationwide Move Your Money campaign.  But recent scandals have transformed the move from a political statement into a matter of protecting the city’s deposits and reducing its debt burden. The chief roadblock to forming a municipal bank has been the concern that it was not allowed under state law, but a legal opinion issued by Deputy City Attorney Thomas J. Owen has now overcome that obstacle.

Establishing a city-owned San Francisco Bank is not a new idea. According to City Supervisor John Avalos, speaking at the Public Banking Institute conference in San Rafael in June, it has been on the table for over a decade. Recent interest was spurred by the Occupy movement, which adopted the proposal after Avalos presented it to an enthusiastic group of over 1000 protesters outside the Bank of America building in late 2011. David Weidner, writing in the Wall Street Journal in December of that year, called it “the boldest institutional stroke yet against banks targeted by the Occupy movement.” But Weidner conceded that:

Creating a municipal bank won’t be easy. California law forbids using taxpayer money to make private loans. That would have to be changed. Critics also argue that San Francisco could be putting taxpayer money at risk.

The law in question was California Government Code Section 23007, which prohibits a county from “giv[ing] or loan[ing] its credit to or in aid of any person or corporation.” The section has been interpreted as barring cities and counties from establishing municipal banks. But Deputy City Attorney Thomas J. Owen has now put that issue to rest in a written memorandum dated June 21, 2013, in which he states:

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1. A court would likely conclude that Section 23007 does not cover San Francisco because the City is a chartered city and county. Similarly, a court would likely conclude that Article XVI, section 6 of the State Constitution, which limits the power of the State Legislature to give or lend the credit of cities or counties, does not apply to the City. . . . [A] court would likely then determine that neither those laws nor the general limitations on expending City funds for a municipal purpose bar the City from establishing a municipal bank.

2. A court would likely conclude that the City may own stock in a municipal bank and spend City money to support the bank’s operation, if the City appropriated funds for that purpose and the operation of the bank served a legitimate municipal purpose.

A number of other California cities that have explored forming their own banks are also affected by this opinion. As of June 2008, 112 of California’s 478 cities are charter cities, including not only San Francisco but Los Angeles, Richmond, Oakland and Berkeley. A charter city is one governed by its own charter document rather than by local, state or national laws.

Which Is Riskier, a Public Bank or a Wall Street Bank?

That leaves the question whether a publicly-owned bank would put taxpayer money at risk. The Bank of North Dakota, the nation’s only state-owned bank, has posed no risk to depositors or the state’s taxpayers in nearly a century of successful operation. Further, in this latest recession it has helped the state achieve a nationwide low in unemployment (3.2%) and the only budget surplus in the country.

Meanwhile, the recent wave of bank scandals has shifted the focus to whether local governments can afford to risk keeping their funds in Wall Street banks. 

In making investment decisions, cities are required by state law to prioritize security, liquidity and yield, in that order. The city of San Francisco moves between $10 billion and $12 billion through 133 bank accounts in roughly 5 million transactions every year; and its deposits are held chiefly at three banks, Bank of America, Wells Fargo and Union Bank. The city pays $2.7 million for banking services, nearly two-thirds of which consist of transaction fees that smaller banks and credit unions would not impose.  But the city cannot use those smaller banks as depositories because the banks cannot afford the collateral necessary to protect deposits above $250,000, the FDIC insurance limit.

San Francisco and other cities and counties are losing more than just transaction fees to Wall Street. Weidner pointed to the $100 billion that the California pension funds lost as a result of Wall Street malfeasance in 2008; the foreclosures that have wrought havoc on communities and tax revenues; and the liar loans that have negatively impacted not only real estate values but the economy, employment and local and state budgets. Added to that, we now have the LIBOR and municipal debt auction riggings and the Cyprus bail-in threat.


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