Seventeen US states have now
introduced bills for state-owned banks, and others
are in the works. Hawaii's innovative state bank
bill addresses the foreclosure mess. County-owned
banks are being proposed that would tackle the
housing crisis by exercising the right of eminent
domain on abandoned and foreclosed properties.
Arizona has a bill that would do this for
homeowners who are current in their payments but
underwater, allowing them to refinance at fair
market value.
The long-awaited settlement
between 49 state attorneys general and the big
five "robo-signing" banks is proving to be a major
disappointment before it has even been signed,
sealed and court approved. Robo-signing involves
employees signing mortgage-related papers with
names not their own, under titles they did not
really have, attesting to the veracity of
documents they had not really reviewed. Critics
maintain that the bankers responsible for
the housing crisis and
the jobs crisis will again be buying their way out
of jail, and the curtain will again drop on the
scene of the crime.
We may not be able to
beat the banks, but we don't have to play their
game. We can take our marbles and go home. The
Move Your Money campaign has already prompted more
than 600,000 consumers to move their funds out of
Wall Street banks into local banks, and there are
much larger pools that could be pulled out in the
form of state revenues.
States generally
deposit their revenues and invest their capital
with large Wall Street banks, which use those
hefty sums to speculate, invest abroad, and buy up
the local banks that service our communities and
local economies. The states receive a modest
interest, and Wall Street lends the money back at
much higher interest.
Rhode Island is a
case in point. In an article titled "Where Are R I
Revenues Being Invested? Not Locally", Kyle Hence
wrote in ecoRI News on January 26:
According to a December Treasury
report, only 10% of Rhode Island's short-term
investments reside in truly local in-state
banks, namely Washington Trust and BankRI.
Meanwhile, 40% of these investments were placed
with foreign-owned banks, including a
British-government owned bank under
investigation by the European Union.
Further, millions have been invested by
Rhode Island in a fund created by a global
buyout firm . . . . From 2008 to mid-2010, the
fund lost 10% of its value - more than $2
million. ... Three of four of Rhode Island's
representatives in Washington, DC, count [this
fund] amongst their top 25 political campaign
donors . ...
Hence asks:
Are Rhode Islanders and the state
economy being served well here? Is it not time
for the state to more fully invest directly in
Rhode Island, either through local banks more
deeply rooted in the community or through the
creation of a new state-owned
bank?
Hence observes that state-owned
banks are "[o]ne emerging solution being widely
considered nationwide ... Since the onset of the
economic collapse about five years ago, 16 states
have studied or explored creating state-owned
banks, according to a recent Associated Press
report."
Make that 17 states, including
three joining the list of states introducing state
bank bills in 2012: Idaho (a bill for a
feasibility study), New Hampshire (a bill for a
bank), and Vermont (introducing THREE bills - one
for a state bank study, one for a state currency,
and one for a state voucher/warrant system). With
North Dakota, which has had its own bank for
nearly a century, that makes 18 states that have
introduced bills in one form or another - 36% of
US states. [1]
Other recent state bank
developments were in Virginia, Hawaii, Washington
State, and California, all of which have upgraded
from bills to study the feasibility of a
state-owned bank to bills to actually establish a
bank. The most recent, California's new bill, was
introduced on Friday, February 24.
All of
these bills point to the Bank of North Dakota as
their model. Kyle Hence notes that North Dakota
has maintained a thriving economy throughout the
current recession:
One of the reasons, some say, is the
Bank of North Dakota, which was formed in 1919
and is the only state-owned or public bank in
the United States. All state revenues flow into
the Bank of North Dakota and back out into the
state in the form of loans.
Since 2008,
while servicing student, agricultural and energy
- including wind - sector loans within North
Dakota, every dollar of profit by the bank,
which has added up to tens of millions, flows
back into state coffers and directly supports
the needs of the state in ways private banks do
not.
Publicly owned banks
and the housing crisis A novel approach is
taken in the new Hawaii bill: it proposes a
program to deal with the housing crisis and the
widespread problem of breaks in the chain of title
due to robo-signing, faulty assignments, and MERS
- an acronym for Mortgage Electronic Registration
Systems, Inc. [2]
According to a February
10 report on the bill from the Hawaii House
Committees on Economic Revitalization and Business
& Housing:
The purpose of this measure is to
establish the bank of the State of Hawaii in
order to develop a program to acquire
residential property in situations where the
mortgagor is an owner-occupant who has defaulted
on a mortgage or been denied a mortgage loan
modification and the mortgagee is a securitized
trust that cannot adequately demonstrate that it
is a holder in due course.
The bill
provides that in cases of foreclosure in which the
mortgagee cannot prove its right to foreclose or
to collect on the mortgage, foreclosure shall be
stayed and the bank of the State of Hawaii may
offer to buy the property from the owner-occupant
for a sum not exceeding 75% of the principal
balance due on the mortgage loan. The bank of the
State of Hawaii can then rent or sell the property
back to the owner-occupant at a fair price on
reasonable terms.
Arizona Senate Bill
1451, which just passed the Senate Banking
Committee 6 to 0, would do something similar for
homeowners who are current on their payments but
whose mortgages are underwater (exceeding the
property's current fair market value). Martin
Andelman calls the bill a "revolutionary approach
to revitalizing the state's increasingly
water-logged housing market, which has left over
500,000 of Arizona's homeowners in a hopelessly
immobile state". [3]
The bill would
establish an Arizona Housing Finance Reform
Authority to refinance the mortgages of Arizona
homeowners who owe more than their homes are
currently worth. The existing mortgage would be
replaced with a new mortgage from the authority in
an amount up to 125% of the home's current fair
market value. The existing lender would get paid
101% of the home's fair market value, and would
get a non-interest-bearing note called a "loss
recapture certificate" covering a portion of any
underwater amounts, to be paid over time.
The capital to refinance the mortgages
would come from floating revenue bonds, and
payment on the bonds would come solely from monies
paid by the homeowner-borrowers. An Arizona Home
Insurance Fund would create a cash reserve of up
to 20% of the bond and would be used to insure
against losses. The bill would thus cost the state
nothing.
Critics of the Arizona bill
maintain that it shifts losses from collapsed
property values onto banks and investors,
violating the law of contracts; and critics of the
Hawaii bill maintain that the state bank could
wind up having paid more than market value for a
slew of underwater homes.
An option that
would avoid both of these objections is one
suggested by Michael Sauvante of the Commonwealth
Group, the state or county could exercise its
right of eminent domain on blighted, foreclosed
and abandoned properties. [4]
It could
offer to pay fair market value to anyone who could
prove title (something that with today's defective
title records normally can't be done), then
dispose of the property through a publicly-owned
land bank as equity and fairness dictates.
If a bank or trust could prove title, the
claimant would get fair market value, which would
be no less than it would have gotten at an
auction; and if it could not prove title, it
legally would have no claim to the property.
Investors who could prove actual monetary damages
would still have an unsecured claim in equity
against the mortgagors for any sums owed.
Rhode Island next? As the
housing crisis lingers on with little sign of
relief from the Feds, innovative state and local
solutions like these are gaining adherents in
other states; and one of them is Rhode Island,
which is in serious need of relief. According to
The Pew Center on the States, "The country's
smallest state . ... was one of the first states
to fall into the recession because of the housing
crisis and may be one of the last to emerge."
Rhode Islanders are proud of having been
first in a number of more positive achievements,
including being the first of the 13 original
colonies to declare independence from British
rule. A state bank presentation was made to the
president of the Rhode Island Senate and other key
leaders earlier this month that was reportedly
well received.
Proponents have ambitions
of making Rhode Island the first state in this
century to move its money out of Wall Street into
its own state bank, one owned and operated by the
people for the people.
Notes 1. For states and
text of bills, see here. 2.
For more on this problem, see here.
3. See here 4.
For earlier discussion on this, see here.
Ellen Brown is an attorney and
president of the Public Banking Institute, PublicBankingInstitute.org.
In Web of Debt, her latest of 11 books, she
shows how a private cartel has usurped the power
to create money from the people themselves, and
how we the people can get it back. Her websites
are WebofDebt.com and
EllenBrown.com.
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