(MintPress) – The 2008 financial collapse wiped out more than $11 billion in personal wealth and led to the foreclosure of 10 million homes across the U.S. With few changes to financial oversight, citizen-led actions on the state and local levels are attempting to construct accountable alternatives to the vagaries of the Wall Street kleptocracy.
North Dakota, the only state with publicly owned banks, could hold the key to future financial reform in the U.S. Gripped by rampant Wall Street excess and speculation, Occupy Wall Street raised the prospect of creating a democratically controlled financial system for the 99 percent, a clear affront to the plutocratic composition of banking in the U.S. today.
For 94 years, North Dakota has had this very alternative: a centrally run state bank that has helped to grow the local economy through sensible, accountable investment.
North Dakota banks
As a solidly Republican state with a population of just 683,000, North Dakota may seem like an unlikely location to have a “people’s bank.” However, many residents, including conservative lawmakers, support the state bank as an alternative to the irresponsible lending practices of Wall Street.
The Bank of North Dakota was established in 1919 as a means to foster economic investment in the burgeoning agriculture sector. The push for the institution came from those in the disenfranchised agrarian sector who felt that big banks in New York could not understand the needs of poor farmers.
More importantly, the farmers collective demand established an important precedent of low interest lending to encourage the growth of farms and small businesses.
The bank’s establishment has also kept millions of public funds in state at an accountable, transparent institution. As a result, the state of North Dakota and state agencies are required to deposit their funds in the central bank. Local and city governments are not required to deposit their funds, but many choose to do so voluntarily.
Based in Bismarck, the Bank of North Dakota has mostly become a lending institution for businesses in the state rather than a bank where citizens hold accounts. This orientation has helped grow the state economy with local investment, even during times of deep economic recession across the U.S.
“We’re a fairly conservative lot up here in the upper Midwest and we didn’t do any subprime lending and we have the ability to get into the derivatives markets and put on swaps and callers and caps and credit default swaps and just chose not to do it, really chose a Warren Buffett mentality,” said Eric Hardmeyer, the Bank of North Dakota’s president.
Rather than sending bank investments to other states, or other countries, the Bank of North Dakota has helped to grow the local economy during a time when the rest of the U.S. is still suffering from the effects of the 2008 financial crisis.
Hardmeyer continued, saying: “We plow those deposits back into the state of North Dakota in the form of loans. We invest back into the state in economic development type of activities. We grow our state through that mechanism.”
Aided by a booming oil and gas industry, projects across the state have helped North Dakota have the lowest unemployment rate in the nation, a mere 3 percent. Other sectors including agriculture and food processing have fared well given the favorable lending practices of the state bank.
Where Wall Street is concerned only about profitability, the success of the state bank is largely determined by how well it can grow the local economy and create jobs for North Dakotans.
Because the other 49 states do not have state run banks, grassroots efforts to empower smaller credit unions and local banks have empowered thousands of citizen account holders in communities across the U.S.
Success of Move Our Money
Grassroots campaigns growing out of Occupy Wall Street have helped to move hundreds of millions of dollars from unaccountable big banks, namely Bank of America, JPMorgan Chase and Wells Fargo, to community banks and credit unions.
Working with “self-organized groups of individuals, community groups and congregations,” the Move Our Money campaign has facilitated the transfer of more than $565 million. The group has set a goal of transferring $1 billion.
The biggest single transfer came in May when the city of Buffalo, N.Y. decided to divest $45 million in city funds from JPMorgan Chase. The money was moved to First Niagara, a local bank, after pressure from citizens and local Occupy groups.
The divestment, compared to overall Chase holdings, may appear insignificant, but it is likely a harbinger of bigger divestments as individual and institutional divestments become more commonplace.
The need for legislative reform
Ultimately the financial calamity seen in 2008 can only be prevented by empowering the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) to oversee Wall Street transactions and prosecute those who violate the laws governing investment.
Despite abundant evidence showing fraudulent lending practices that caused the subprime mortgage crisis, few Wall Street executives have been tried for crimes related to the crisis.
William Black, an expert in white collar crime, commented in a recent Al Jazeera interview saying, “So the people who control the bank loot it, they get rich, the bank fails but the rich people walk away from the failure of the bank.”
By reviving the Banking Act of 1933 and increasing surveillance of the financial industry, President Barack Obama can promote regulatory oversight that has the potential to prevent another 2008 financial crisis.
The problem is not with a few corrupt bankers, or a single vilified enemy like the now infamous Bernie Madoff, it is with the system itself that allows reckless speculation to run rampant.
Wall Street serves a necessary function in helping to create wealth for American families. However, responsible investment must be the alternative to the highly speculative derivatives trading that led to tremendous losses in personal wealth.
While Wall Street may never resemble the responsible community minded approach of the Bank of North Dakota, new regulation is required to prevent the kind of fraud and criminal activity that took place in the leadup to the 2008 financial crisis.