In announcing his candidacy last June, Iranian-born economist Farid A. Khavari, a Democratic candidate for governor of Florida, became the first candidate for public office to seriously promote the idea of a state-owned bank since the Great Depression when Minnesota’s radical Farmer-Labor Party — a party that held the governorship for eight consecutive years during the 1930’s— included such a plank in its platform.
Modeled after the powerful Non-Partisan League’s state-owned bank in North Dakota, the brainchild of failed farmer and ex-Socialist Party organizer Arthur C. Townley — a salty character who chewed on cellophane-wrapped cigars and is widely-credited with making his bank a reality in 1919 — the Farmer-Labor Party was never able to enact a similar state bank in neighboring Minnesota, even at the crest of its power.
While there have been sporadic attempts to popularize the concept of a state-owned bank in the years since the depression — Lane County Commissioner Jerry Rust briefly tried to make it a major issue during his 1982 campaign for governor of Oregon and the Peace & Freedom Party’s Maureen Smith of Aptos garnered an eye-popping 240,451 votes, or nearly 4 percent of the statewide total, on a public banking platform in her bid for California State Treasurer four years later — the idea has pretty much laid dormant as a political issue for the past seven or eight decades.
The 67-year-old Khavari, who holds a Ph.D. in economics from the University of Bremen, first seized on the idea of a state-owned bank in the spring of 2008 while writing Towards a Zero-Cost Economy — his ninth book. Anticipating the devastating financial meltdown that brought the country to its knees later that year — a crisis that he frankly didn’t think would happen for another twenty-four to thirty-six months — the economist-turned-politician began formulating his idea for a publicly-owned state bank.
Given his encyclopedic grasp of economics and the nation’s banking system, Khavari’s proposed state-owned bank is modeled after the nation’s commercial banks and — relying on the commonly accepted practice of “fractional reserve banking” — could provide fixed-rate mortgages at two percent and credit cards at six percent. The Bank of the State of Florida, he says, would also provide attractive rates on car loans and other consumer borrowing while offering CD’s yielding a 6 percent return.
The bank’s profits would help fund the state government, says Khavari, in much the same way that the Bank of North Dakota regularly contributes to that state’s budget. In the past decade, the nation’s only state-owned bank plowed nearly $300 million into North Dakota’s treasury.
Consequently, it’s one of the few states that doesn’t find itself in a fiscal crisis.
In 2009, North Dakota enjoyed a record $1.3 billion surplus, enabling the state legislature to shift more of the burden for funding education to the state while requiring local governments to cut property taxes by $295 million. In addition, individual taxpayers and businesses received about $100 million in income-tax reductions.
According to the Wall Street Journal, state lawmakers anticipate a $700 million budget surplus in June 2011, the end of its next budget cycle. With a jobless rate of only 4.4 percent, the state also boasts the lowest unemployment rate in the nation.
A similar state-owned bank, declares Khavari, could become the catalyst for an “economic miracle” in recession-ravaged Florida, a state that experienced 544,000 foreclosure filings in 2009. The bank, he insists, could be instrumental in providing the necessary capital to create jobs for more than a million out-of-work Floridians.
Khavari scoffs at his critics who believe his idea would put private banks out of business. “The era of commercial banking is over,” he told the Naples News. “If there were no bailouts, they would be out of business already.”
In the midst of the seemingly never-ending Great Recession, Khavari‘s bold idea is slowly gaining momentum. Moreover, his quest is no longer as lonely as it once was. It’s an idea that’s beginning to resonate, not only on the campaign trail but also in a handful of state legislatures across the country.
The idea might not be as radical as some people think.
In fact, two of the candidates espousing the idea have been Republicans, both of whom are self-described fiscal conservatives. The first was James Stivers in traditionally-conservative Idaho, who garnered 15.9 percent of the vote in a three-way race for a state Senate seat in his state‘s May 25 primary.
The other Republican is Gene Taliercio, a Rochester Hills businessman who is running for the State Senate in Michigan’s 12th district.
Patterned after Townley‘s longstanding bank in the Great Northern Plains, Taliercio envisions the Bank of Michigan as an economic development bank that would work closely with the state’s other financial institutions while providing residential loans for single family home purchases and new venture capital for businesses looking to expand.
According to Taliercio‘s website, nearly half of the bank’s profits would be designated to reducing the state’s debt burden while an equal amount would be placed in a trust fund modeled after Alaska’s oil fund established in 1976, shortly after oil from Alaska’s North Slope began flowing through the Trans-Alaska pipeline.
Taliercio isn’t the only candidate in Michigan clamoring for a bank owned by the taxpayers.
Lansing Mayor Virg Bernero, one of two candidates seeking the Democratic nomination to succeed term-limited Gov. Jennifer Granholm, proposed that Michigan — a state saddled with an unemployment rate of fourteen percent — should also follow North Dakota’s lead and create a state-owned bank that would operate like a traditional bank, making low-interest loans to businesses and college students.
A former state representative and state senator who’s positioned himself as a populist fighting for the little guy against House Speaker Andy Dillon in the state‘s August 3 primary, Bernero said that his proposed state bank could also alleviate Michigan’s foreclosure crisis by purchasing mortgage portfolios held by some of the state’s smaller banks.
Contending that commercial banks were hindering Michigan’s long-suffering economy because businesses and entrepreneurs couldn’t get adequate financing, Bernero unveiled his bold proposal in a press release this past March. “We can break the credit crunch and beat Wall Street at their own game by keeping our money right here in Michigan and investing it to retool our economy and create jobs,” he told the Detroit News.
Earlier this year, former Secretary of State Bill Bradbury also came out in favor of a state-owned bank during his unsuccessful bid for the Democratic nomination for governor of Oregon.
Angered that bailout-bloated bankers had hunkered down following the financial collapse, refusing to provide the capital desperately needed by small and medium-sized businesses to maintain operations or expand during this lengthy economic downturn, the 60-year-old Bradbury decided to make a relatively modest state-owned bank — one that would get money flowing through community banks — the centerpiece of his gubernatorial campaign.
He promised that it would be his highest priority, a solution that he could begin “implementing on my first day in office.”
Endorsed by former Vice President Al Gore, Bradbury polled more than 29 percent of the vote in Oregon‘s May 18 primary against immensely popular former Gov. John Kitzhaber.
Despite Bradbury’s loss in the primary, Oregonians may yet have an opportunity to support the idea of a state-owned bank in November if the 3,000-member Working Families Party has anything to say about it.
The Portland-based party, which plans to cross-nominate candidates this fall under the state’s new fusion law, favors capitalizing a publicly-owned bank that would partner with local banks and credit unions to help meet the financial needs of Oregon’s economy.
In Illinois, the Green Party’s Rich Whitney is also championing the idea of a state-owned bank. Whitney, who startled political observers four years ago by polling an eye-opening 361,336 votes, or 10.4 percent, against now-disgraced Gov. Rod Blagojevich and Republican state treasurer Judy Topinka, is one of at least three Green Party gubernatorial candidates calling for the creation of a state bank.
In an article in The Nation this past March, the Carbondale civil rights attorney said that “a state-owned bank could earn additional revenue for the state while at the same time help spur economic development in Illinois.”
Green Party candidates Howie Hawkins in New York and former financial analyst Laura Wells in California — a state hampered by a jobless rate of 12.6 percent and facing a staggering $19 billion budget shortfall — have also endorsed the idea of a state-owned bank in their respective campaigns.
A number of other candidates have also been sounding the trumpet, including businesswoman Rosa Scarcelli, one of four candidates seeking her party’s gubernatorial nomination in Maine. She polled 22 percent of the vote in Tuesday’s Democratic primary, about 16,000 votes behind state Senator Libby Mitchell, a 69-year-old Vassalboro lawyer and the only woman in Maine to ever serve as both Speaker of the House and president of the Senate.
Gaelen Brown, who is running for the state Senate as an independent in nearby Vermont, is also supporting the idea of a state bank.
State legislatures are also beginning to take a serious look at the possibility of creating state banks.
In March, Senate Democrats in Michigan proposed the creation of a Michigan Development Bank — similar to the one proposed by Mayor Bernero — to be financed by an economic development bond approved by the voters. If enacted, the bank would provide small business loans, low-interest credit cards for consumers, financial assistance to students and agricultural loans for struggling farmers in an effort to create jobs and stimulate the state’s sluggish economy.
Seattle Democrat Bob Hasegawa, a former Teamster official and longtime labor and social justice activist, introduced a similar bill in the Washington legislature in his role as vice chairman of the House finance committee.
With an eye toward boosting job creation in recession-battered Massachusetts, Therese Murray, a longtime lawmaker who presides over the state Senate, introduced legislation earlier this year to study the formation of a taxpayer-owned bank to free up credit and force banks and mortgage companies to do a better job in allowing homeowners to renegotiate their mortgages — a proposal that was immediately attacked by State Treasurer Timothy J. Cahill.
Cahill, who is currently running for governor as an independent, said it was a bad idea.
“Cahill is probably beholden to the commercial banking system or simply doesn’t understand economics,” Khavari told Uncovered Politics. “He obviously fails to understand that a state-owned bank has the potential to stimulate the demand side of the economy — an area in which the private banks have failed miserably.”
In the past, Cahill has been rapped by the Boston Globe and others in Massachusetts for failing to adequately identify the employers or occupations of nearly 4,000 donors in campaign filings with the state. He has also been heavily criticized for accepting large contributions from pension fund managers who get business from the Treasurer’s office.
According to attorney Ellen Brown, author of the widely-acclaimed Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free, similar bills have also been proposed in Illinois and Virginia and at least four other states — Hawaii, Missouri, New Mexico and Vermont — are entertaining proposals for state-owned banks.
Khavari, who remains a dark-horse contender in Florida’s Democratic primary against the party’s anointed candidate Alex Sink — the state’s chief financial officer and a former president of Bank of America’s Florida operations — is pleased that so many other candidates across the country have embraced the idea of state-owned banks. He’s also happy that several state legislatures are beginning to take the idea seriously.
“Its time has come,” he says.