Handouts to accompany slideshow Return to Prosperity

1. 3/19/14
1
Presented by:
To:
Date:
Scott Baker, NY State Coordinator,
Public Banking Institute
SSBAKER305@YAHOO.COM
Occupy: Alternate Banking Group
March 23, 2014
1. The Budget Problem
2. Why A Public Bank?
3. What Can Be Done
The Budget Problem
“We don’t have the money!”
An all too familiar refrain.
Options have been limited to:
• Cut spending
• Raise taxes
• Sell off public assets
This argument is getting old!
This presentation is in three parts.

2. 3/19/14
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The Budget Problem
Federal Option is off the table.
Wall Street Journal, January 8, 2011:
“We have no expectation or intention to get
involved in state and local finance,” Mr.
Bernanke said in testimony before the Senate
Budget Committee. The states, he said later,
“should not expect loans from the Fed.“
In January 2009, President Obama said the Fed might
bail out hard-hit state and municipal governments. But
the Fed says they are on their own.
The Budget Problem
Federal Option is off the table
NO RESCUE
FOR YOU!
$191B would
Rescue all the
states…
$16T has gone to
the banks - 2012
audit of the
Federal Reserve
The Budget Problem
“We don’t have the money!”
Solutions have been limited to:
• Cutting spending
• Raising taxes
• Selling off public assets
No federal rescue.
But now, there’s a new option:
• Invest in our own citizens
The public can own its own bank!
Actually, the Federal Reserve CANNOT legally
involve itself in buying up state, municipal, or
city debt, even if it wanted to.
$16T, based on summer 2012 audit of the Federal
Reserve, revealed by Senator Bernie Sanders,
among others.
…Or, $29T if revolving loans are counted,
according to L. Randall Wray of the University of
Missouri – these loans have never been repaid,
just rolled over - http://www.huffingtonpost.com/
l-randall-wray/bernankes-obfuscation-
con_b_1147291.html

3. 3/19/14
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Why A Bank?
Community banks
Dividends
(Interest)
Which system is more risky?
Don’t forget community banks! In North Dakota, which has
the country’s only State Bank, there hasn’t been a bank
failure in over 20 years. Nationwide, there have been over
500 bank failures just since 2000 (FDIC).
For a city-based Public Bank, substitute “City” for “State”
and add Community Banks in between City Bank and City
Projects.
Source: Center for the Study of Innovation report on State
Bank possibilities in Washington State.
The Public Banking Story is also a Community Bank story.
Notice how lending by North Dakota’s community banks has
pulled away from that of otherwise comparable states, even
during the crisis years!
It’s not just oil & gas:
Fracking did not significantly increase production in North
Dakota until 2005, and loans per capita were higher than
comparable states well before then.
From the Center for State Innovation - State Bank
Legislative Guide, pg. 59:
“It seems likely that larger, mostly out of state, banks were
the big loan generators for the oil and gas exploration
companies as they ramped up operations in the state; thus
the effect on smaller, in-state banks (the Bank of North
Dakota’s target partners) was minimal….CSI analysis shows
that banks in North Dakota reduced lending 33%-45% less
than comparable states, and we believe that this is in no
small part due to the stabilizing effects of its state bank.”
I’m going to approach Public Banking a bit differently
today, by looking at community banking first…

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A typical Systemically
Important Financial
Institution (SIFI) like JP
Morgan has just a 31%
Loan to Asset ratio – less
than ½ of ND’s community
banks. SIFIs don’t make
most of their money by
making loans!
The States with the Most Community Banks Generally
have the fewest Foreclosures…and Vice Versa
Foreclosure Rates for the U.S.
January 2014
U.S.: 1 in every 1058
Worst 5 States:
Florida: 1 in every 346
Nevada: 1 in every 533
Maryland: 1 in every 543
Illinois: 1 in every 603
New Jersey: 1 in every 619
Best 5 States:
North Dakota: 1 in 106,489
Vermont: 1 in 26,854
Mississippi: 1 in 13,851
Nebraska: 1 in 12,654
Montana: 1 in 10,698
Banks with low levels of loans to asset ratios, like
JPMorgan Chase & Co., where loans are 31% of assets,
have more diversified sources of revenue, including
from investment banking, asset management, and
derivatives.
Source: http://www.valueline.com/Tools/
Educational_Articles/Stocks/
Getting_To_Know_A_Bank_With_Financial_Ratios.aspx
The TBTF banks are called Systemically Important
Financial Institutions by the Fed and the FSB, but
“important” to whom, and for what reasons???
Again, the Public Banking case is the Community Bank case.
States with low community bank per capita ratios, like
California, Florida, Nevada, and to a somewhat lesser
extent, New York (mollified somewhat because of the
unique nature of New York City), all had high foreclosure
rates. States with lots of community banks per capita, like
South Dakota, Minnesota, and most especially, North
Dakota, the only state with a Public Bank, had low
foreclosure rates.
None of the 5 worst states have more than 47% (Illinois)
community banks.
None of the 5 best states have less than 45% (Mississippi)
community banks.
But North Dakota has 4X lower foreclosure rate than the
next best state, Vermont. It also has the most community
banks per capita (81%), and a State Public Bank! The best of
both worlds!
Sources: U.S. Real Estate Trends & Market Info - http://
www.realtytrac.com/statsandtrends/foreclosuretrends

5. 3/19/14
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Small Banks are Disappearing
Common definition: Total assets < $1 billion
The Big Banks get Bigger…but do not increase
their Percentage of Loans to the Community
Small Banks’ Share of Assets Continues to Decline
 The largest 25 domestically chartered
banks in the country control about
two-thirds of all the assets held by
domestically chartered banks.
 There were 2,118 U.S. banks with less
than $100 million of assets at Sept.
30, 2013, down from more than
3,000 at the end of 2008 - FDIC
"Fifteen years ago, the assets of the six largest banks in this
country totaled 17 percent of GDP…The assets of the six
largest banks in the United States today total 63 percent of
GDP.” Senator Sherrod Brown on Sunday, April 25th, 2010 in
an interview on ABC’s "This Week.”
OK, small banks are good for the community. So, how
have they been faring?
Small banks have consolidated and disappeared due to
regulations, acquisitions, and (some) economies of
scale, but mostly bankruptcies.
Source: FDIC Report -
community_banking_by_the_numbers_clean-1.pdf
The Loan to Asset Ratio is only getting worse for the Big
Banks, even while they soak up more and more assets.
What is all that money good for?
The number of small banks has continued to plummet
since 2009.
A recent American Banker article called the community
bank model “not sustainable” - http://
www.americanbanker.com/bankthink/what-small-banks-
can-learn-from-the-us-postal-service-1066302-1.html
Sources: http://seekingalpha.com/article/310644-while-
small-banks-disappear-big-banks-get-bigger
http://finance.fortune.cnn.com/2013/09/13/too-big-to-
fail-banks/
http://www.americanbanker.com/issues/179_35/ranks-
of-tiny-banks-shrinking-as-challenges-
mount-1065734-1.html

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And what do these Big Banks do with the Bulk of their Assets?
The biggest banks are
now even bigger than
ever.
Are they still Too Big To
Fail…or will they actually
Fail next time?
The operations of the TBTF
banks have been compared to
a Casino, but this is unfair…
to Casinos! In a Casino, you
have consistent rules, and if
you go bust, you don’t get
bailed out, you get thrown out.
New option: Create a state-owned bank
North Dakota owns its own bank –
and therefore it creates its own credit.
As a result, North Dakota’s options are to:
• Expand public services
• Lower taxes
• Increase their bank’s capital, to make even
more credit available to the people of North Dakota
No need for a federal rescue.
From the Office of the Comptroller of the Currency:
Just in case you have forgotten what kinds of things the TBTF
banks are speculating upon…Note the multi-trillion dollar
notional value of derivatives of the top 9 banks trading in that
space. Don’t forget to add 6 zeros. The Total Credit Exposure
to Capital of the Big 5 banks is greater than 100%. Even with
hedging, assuming it is working – a bad assumption in the last
crisis – it would only take a 5% default in such a large portfolio
of derivatives to completely wipe out the Large Banking
sector.
Source: Office of the Comptroller of the Currency, 3 qtr, 2013
report:
http://www.occ.treas.gov/topics/capital-markets/financial-
markets/trading/derivatives/dq313.pdf
The TOTAL size of the Derivatives market? As high as $1.2
Quadrillion: http://www.dailyfinance.com/2010/06/09/risk-
quadrillion-derivatives-market-gdp/
Think about this the next time a large commercial bank says
there’s no need for a State Bank because they have
“everything under control.” Where do you think the state’s
money is safer?
Does anyone still believe the TBTF Money Center Banks (SIFIs)
are a safe place to store the public’s money? (A show of
hands)
If the current system is systemically dangerous,
what can we do?

7. 3/19/14
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The North Dakota experience:
• State-owned bank established 1919
• State budget surpluses 2008-2009
• Lowest unemployment in U.S.
• Lowest foreclosure rate
• The most local banks per capita
• No bank failures in over 20 years*
• Bank funds economic growth, from Main Street
to high tech to oil production
* Proper risk analysis should include more than that for the Public Bank itself.
North Dakota has had no bank failures in over 20 years, while there were 517
bank failures through the end of Sept, 2013 nationwide since 2000, says the
cash-strapped FDIC, which has to pick up the pieces.
Why a Public Bank?
Profit the People
• The Bank of North Dakota (BND) earns 20+% annual
return on equity by investing within the state.
• BND’s profits ($300M over 10 years) go to the state
treasury, reducing tax burdens while supporting
public services.
Why are our tax dollars supporting Wall Street?
Why not invest in-state? For education? Higher
education? Renewable energy? Tech startups?
Infrastructure?
Rating and Staffing: Learning from the
Bank of North Dakota
• Standard & Poor's (S&P) maintained Bank of North
Dakota's (BND) credit ratings in its latest review of the
Bank released July 23, 2013. Its long-term issuer credit
rating remained "AA-" and its short-term issuer credit
rating to "A-1+”
• What about “key man” risk? What is the risk of key
executives leaving and what does that portend for the
safety of the bank? Maybe this is an over-rated fear.
While Jamie Dimon makes millions running JP
Morgan Chase, the president of the Bank of North
Dakota – a Civil Servant - earns about $300 thousand
a year. Which is the safer, better-run bank?
JP Morgan recently paid over $20 billion in fines for
multiple Civil violations (not criminal…so far). The
BND has never been found guilty of securities or
bank fraud.
What are we paying for?
It’s not just an oil & gas story:
Other similar states, like Alaska, have oil too, but also more
than double the unemployment – Alaska’s unemployment in
2012 was 7.1%, North Dakota’s was 3.1%
North Dakota’s oil/gas boom started in 2005.
In the 1990s, with crude oil and farm prices continuing to fall,
the state's chamber of commerce, the Greater North Dakota
Association, undertook a statewide effort of town meetings
and planning sessions to create a strategy to improve North
Dakota's future. The state was actually LOSING per capita
income until they set up an aggressive BND-sponsored
development program in the 1990s -- and it worked:
In 1991 the state legislature passed a $21 million budget for
economic development for the period 1991 to 1993. This
amount was four times larger than any previous development
budget (Department of Economic Development & Finance).
The funds came from earnings of the state-owned Bank of
North Dakota. This economic development legislative
package was a set of policies and programs that was known
as “Growing North Dakota" (Patrie).
Sources: http://banknd.nd.gov/about_BND/
prairie_public_history_of_BND/growing_north_dakota.html
Definition of 'Return On Equity - ROE'
The amount of net income returned as a percentage of shareholders
equity. Return on equity measures a corporation's profitability by
revealing how much profit a company generates with the money
shareholders have invested.
ROE is expressed as a percentage and calculated as:
Return on Equity = Net Income/Shareholder's Equity
Shareholders, in the case of the Bank of North Dakota, are the taxpayers,
since they are where almost all of the deposits come from, in the form of
taxes.
Read more: http://www.investopedia.com/terms/r/
returnonequity.asp#ixzz2CxwjEqGw
California is alone at the bottom at A-minus and is the only state to
dip to the worst possible rating, BBB, during a recent 11-year
period. That happened in 2003, during a state budget crisis so
severe that then-Gov. Gray Davis was recalled. The highest rating
California achieved during the period, A-plus, came in 2006, at the
height of a speculative housing boom that then went bust.
New York State has a AA to AAA rating on its debt, about what the
Bank of North Dakota has for itself.
Additional questions: Are ratings agencies reliable? What was their
record during the crisis? When they were giving California an A-
plus rating in 2006, did they predict they would lower it to A-minus
just a few years (2012) later? If not, can we believe anything they
say?
Read more here: http://blogs.sacbee.com/
capitolalertlatest/2012/07/california-has-nations-worst-credit-rating-
pew-study-finds.html
Sources: http://www.motherjones.com/mojo/2014/01/jpmorgan-jamie-
dimon-raise-regulators, http://banknd.nd.gov/
financials_and_compliance/credit_rating.html, http://www.fdic.gov/
bank/individual/failed/banklist.html

8. 3/19/14
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Why a Public Bank?
Invest in Our Own Citizens
Meanwhile, public pension funds in most states have lost
billions of dollars.
What if these funds were used to own a state bank?
And invested in their own citizens, as North Dakota does?
What are Our Assets Right Now?
Check the Comprehensive Annual Financial Reports…
 $164 billion in NY State Net Assets Restricted for Pensions and
other Purposes (March, 2013 CAFR)
 $139 Billion in NY City Net Assets Restricted for Benefits
Payments (June, 2013 CAFR)
 There are 10s of billions in other liquid funds too
What if 10% of these liquid funds were reallocated to a Public Bank?*
OK, these assets are not quite a Money Tree, but they
are money that can be loaned into the community,
often with higher expectations of return than
investments on Wall Street.
Remember: it is not under-funding that hurts pension
fund reliability, it is under-performance and volatility.
* By comparison, the Bank of North Dakota has only $6.4B in assets.
Other Municipalities are Investigating
Alternate Investment strategies
 22 States* are considering some form
of State Banking Legislation – and
many municipalities are too. Many of
these proposals look to fund a Public
Bank with State and city funds.
• By law, all taxes from North Dakota and
the Chickasaw Indian Nation Banc2 in
Oklahoma, go first to these regions’
Public Banks.
• Philadelphia, PA is considering a Public
Bank.
Existing Public Banks in Green:
North Dakota: Bank of North Dakota
Oklahoma: Chickasaw-owned Bank2 of Oklahoma City.
Is it a better local fiscal solution to reallocate some
existing funds into a Public Bank?
* http://www.nytimes.com/roomfordebate/2013/10/01/should-states-operate-public-banks/many-states-see-the-potential-of-
public-banking - citing the National Conference of State Legislatures (NCSL)
These rainy day and pension funds – detailed in CAFRs – total 10s
of trillions, nationwide. They could be partly invested in Public
Banks, eliminating the need to float a bond to form a bank, adding
even more debt.
The assets of pension funds swing wildly due to market gyrations.
In New York State alone, the pension fund has gone from $156
billion (2007) to just $110 billion a year later (2008), and then back
to where it started - $153 billion, at the end of 2011 - all while
pensioners required only $4.5 - $8.9 billion, net of contributions.
It’s the investments that cause havoc, not the demands for outlays!
Sources: http://www.osc.state.ny.us/finance/index.htm, http://
comptroller.nyc.gov/reports/comprehensive-annual-financial-
reports/
The Vermont Chapter of the Public Banking Institute has made
progress:
Vermont’s Senate Bill 204 would expand the Vermont Economic
Development Authority (VEDA) to become a state bank and would
start out by depositing 10% of Vermont’s unrestricted money into
the state bank. The bank would be able to
leverage this money by means available only to banks to bolster
the economy of the state and cut down on the interest payments
and fees that are presently paid to out-of-state financial
institutions and other entities.
The bank would not engage in retail banking and would not
compete with community banks; it would work with community
banks to maintain their viability and expand their ability to help
create better economic outcomes for Vermonters by partnering
with them in projects they would not be able to engage in on their
own. In a show of direct democracy that also exposed the
citizenry's desire for a more localized and responsible banking
system, fifteen of nineteen towns passed the resolution during
'Town Meeting Day'— an annual event in which voters choose local
officials, approve municipal budgets, and make their voices heard
on a number of measures.
Sources: Detroit is Not Broke: http://
www.opednews.com/articles/Detroit-is-Not-Broke-by-Scott-
Baker-130805-986.html
See also the article and video about funding a Public Bank for
Philadelphia here:
http://www.opednews.com/Diary/Using-Existing-
Government-by-Scott-Baker-Banking-Crisis_Banks_Public-
Banking_Public-Banks-140119-408.html

9. 3/19/14
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Why a Public Bank?
Free up Funds
• Banks have unlimited low-interest credit
lines with the Fed
• States and municipal governments have
no credit line with the Fed
So they must create large “rainy day funds”—
public money that sits, earning little interest.
Why a Public Bank?
Level the Playing Field
Federal law and the banking system give banks huge
advantages and place states at a financial disadvantage.
• Banks borrow at rates as low as 0.2% (overnight Fed
funds rate) to 1.27% (6-month CD)
• States borrow at much higher rates
Our state is paying too much for credit.
• Banks face new regulatory & compliance issues with
Dodd-Frank. A State Public Bank could help community
banks comply.
Why a Public Bank?
Control Rising Credit Costs
• States are now hit with lower credit ratings,
making borrowing even more expensive
• A year ago, California was rated BBB, barely
higher than bankrupt Greece
What is OUR state’s credit rating?
New York’s rating is AA+ to AA– (2013)
There is $71 billion in a single California Treasury “rainy day
fund” alone (http://www.huffingtonpost.com/ellen-brown/
the-mysterious-cafrs-how_b_585011.html) that could be
invested in a state bank, creating opportunities and jobs.
How bad is it?: In 2012, California had a $17 billion deficit,
owed the federal government $14 billion, and owed the
California public school system $10 billion. Bloomberg:
California and its localities have paid out 8.9% this year
(2012), according to S&P data.
States with poor credit can pay as much as 9% for money
they borrow, all while the commercial banks that hold the
State’s tax revenues, invest everywhere BUT the State – e.g.
overseas, in risky bonds (some below investment grade),
even in shorts and options!
Also, Dodd-Frank has, ironically, made life harder for
community banks and easier for the Largest Banks. Dodd-
Frank Law has made the process of mortgage origination
much more complex and costly for community banks.
These banks approached the BND about helping with this
process which the BND has agreed to provide. The result is
that the community banks can make mortgage loans
without having to absorb the added costs and burdens
required by the Dodd-Frank law. If not for this assistance,
some of these banks might have stopped doing mortgages.

10. 3/19/14
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Why a Public Bank?
Urgent Need: Affordable Credit
What about municipal governments?
Don’t they borrow by issuing bonds?
Yes, at “market rates”— but these rates are being
driven up, increasing the cost of money.
The issue is not just available credit, but affordable
credit.
What Can Be
Done?
What Can Be Done
Today, state and local governments are:
• Investing their capital (pension funds), and
• Depositing their tax revenues (our money!)
on Wall Street
Translation: They are handing over their huge
credit generating power to the same big banks that
got us into this mess in the first place.
They are investing in Wall Street, not Main Street.
Does this make sense to you?
Usury –
In law, the crime of charging an unlawfully high rate of
interest.
In Old English law, the taking of any compensation
whatsoever was termed usury.
With the expansion of trade in the 13th century, the
demand for credit increased, necessitating a modification
in the definition of the term.
In 1545 England fixed a legal maximum interest, a practice
later followed by other Western nations. Generally,
anything above 8% has historically been considered
usury….and states like California are paying 8.9%!

11. 3/19/14
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What Can Be Done
Banking in the Public Interest
Deposits begin the creation of credit in a bank.
This credit is an asset of the bank.
If a state deposits funds in a Wall Street bank, it
is giving away its power to create credit.
This credit rightfully belongs to the public,
not to private banks.
Our state and cities should be managing that
credit in a public bank—serving the public
interest by investing in our own Main Street.
What Can Be Done
Invest in Main Street Through a Public Bank
• Keeps our tax money working within the
state, city, or borough
• Keeps our credit from leaving the state, city,
or borough
• Strengthens our community banks
• Demonstrates that our elected officials are
working for us and not for Wall Street
• Helps our communities return to prosperity in
a nonpartisan way
Recap: Solution Choices
• Raise taxes
• Cut services
• Sell assets
• Invest in our own citizens by creating
a public bank
There are no other choices.
Will we continue having our tax payments
sent to Wall Street banks?
What Can Be Done
There are other choices at the Federal level, but
states are limited by:
1. Being constitutionally obligated to balance their
budgets every year
2. Being unable to “coin Money” under Article 1,
Section 8, as the Federal Government can.
We could easily create a Public Bank of Manhattan,
or Brooklyn, or…. It could be larger than the Bank of
North Dakota.

12. 3/19/14
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What Can Be Done
Next Steps
Refine and pass a resolution: “Return to
prosperity by forming a state-owned bank.”
Tell your state representative that keeping tax
revenues in our state is vital—an urgent need.
Find “natural allies” to speak with one voice
for public banking in the public interest.
Natural Allies
• Community leaders whose budgets are being gutted by the state
• Enlightened legislators
• Enlightened Media & Reporters
• Public employees and unions faced with state and city budget
cuts: teachers, firefighters, construction workers, etc.
• Community bankers wanting to originate loans
• Unemployed and under-employed people
• Small business owners burdened by high credit card APRs to pay
for inventory
• Activist groups like Occupy Alt.banking
Research, Approach, Petition (RAP)
 R - Join online groups:
https://groups.google.com/forum/#!forum/public-banking (219 members) and
https://groups.google.com/forum/?hl=en#!forum/pbivolunteers (141 members)
https://www.facebook.com/groups/publicbanking/ (236 members)
 R - Download this slideshow: http://www.slideshare.net/ScottOnTheSpot/return-to-prosperity
and http://www.slideshare.net/ScottOnTheSpot/return-to-prosperity-6-slides-per-page
 R - Begin a study of benefits of a Public Bank in your community, city, state, compare funding
alternatives and current investments (will require experts!).
 A - Hold a Press Conference or public event: https://vimeo.com/68244964
 A - Cultivate the Press: “What North Dakota’s Public Bank Does for Small Businesses”
http://boss.blogs.nytimes.com/2014/03/13/what-north-dokotas-public-bank-does-for-small-businesses/
 P - Demand that your Assembly Member, City Council member, State Senator, support Public
Banking. 10 co-sponsors already support the Sandy Galef bill, above. Get them to sign the
Resolution in favor of the bill in the Files section of this Facebook page:
https://www.facebook.com/groups/publicbanking/
 P - Sign onto the petition to support a State Public Bank - study bill A01696 - and gather
more signatures:
http://www.change.org/petitions/support-a-public-state-bank-for-new-york-state
A thousand signatures hand-delivered in each district would make a big difference!
What else can be done…?

13. 3/19/14
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Approach Members of the Banking Committee
to Co-Sponsor the Galef Bill: A01696
New York State Assembly Banking Committee:
http://assembly.state.ny.us/comm/?sec=mem&id=4
Chair: Annette Robinson
Members: Peter Abbate; Jr. Joseph Borelli; Karim Camara; Brian
Curran; Patricia Fahy; Andrew Garbarino; Mark Gjonaj; Michael
Kearns; Micah Kellner; William Magee; Nicole Malliotakis;
Michael Miller Walter Mosley; N. Nick Perry; Andrew Raia; Robert
Rodriguez; Gabriela Rosa; Sean Ryan; William Scarborough; Luis
Sepúlveda; Aravella Simotas; Dan Stec; Claudia Tenney;
Raymond Walter; Harvey Weisenberg; David Weprin
All Co-Sponsors: O'Donnell; Steck; Rosenthal; Mosley; Skartados; Quart;
Buchwald; Gottfried; Jacobs; Mayer
Approached in Red Agreed to Co-Sponsor in Green
How will the members in Red react when a
thousand-signature petition is presented to
them? Will they turn Green?