The question has been posed to me: what is the difference between a public bank and a credit union? It’s a good question, considering that, as one person recently expressed on social media “Madison is the credit union capitol of the world.” My response to him was that while credit unions provide many of the same services as banks, and sometimes better, they are limited in other ways.
A public bank, such as the one which has been servicing the state of North Dakota for nearly one hundred years — and may have helped save them from the fallout of the 2008 financial crisis, does business as the city or state in which it is located. This means that it’s authority is derived from the public trust, that it is able to access far greater resources than a credit union — or even some private banks — and that the revenue which it generates goes not into the hands of shareholders but to the municipality or region which it services.
Would a Bank of Madison compete with credit unions? No. Credit unions do an excellent job of serving their member-owners and of creating credit for small businesses. The public bank would go after bigger fish, namely commercial mortgages and municipal bonds trading. We will be able to offer large commercial interests within the city the option of removing their mortgages from private banks which, we have seen, are more than willing to mix them up in the derivatives market for quick payouts. Now, after the passage of the “Cromnibus bill” last December which further stripped the Dodd-Frank bill — passed after the crisis of 2008 in order to prevent a repeat crash — of its power, it is more urgent than ever that we act to insulate local businesses from the fluctuations of the market.
Retail mortgages and individuals’ mortgages are taken care of relatively well by credit unions and there is no reason that the public bank should reach into and alter already well-functioning institutions. Neither would we immediately begin lending money to stimulate or support the growth of small business, that can come later and with careful consideration of the rest of Madison’s lending-ecosystem. The opportunity would be available, however, for homeowners to show their civic spirit and move their mortgages if they so choose.
The public bank will be able to offer a lower interest rate for mortgages than the private banks and the money which we do collect will go towards paying down our debt. This will have a twofold benefit: it will allow us to slow down the continual rise of our property tax rate, which will in-turn stabilize rent prices. For those who haven’t noticed, rental prices have been rising steadily over the past few years and they are poised to continue their climb, especially if we do not decide quickly how we will guide the growth of business and high-end real estate. The clamoring of tech companies outside our door should give us a clue as to what some in our political scene have in mind for the future of Madison — and cities like San Antonio and San Francisco may offer a warning. Madison has recently landed on a number of “Best” place lists, and speculators are sure to take notice. Development is already booming, and if we aren’t careful we may feel the bust harder than other parts of the country which aren’t considered such hot areas for speculation. Tech companies and wealthy developers may not be worried, but those in Madison’s middle and working classes should be.
Another opportunity will be available to us once the public bank is up and running successfully for a few years: we will be able to create credit for our own development. This means loans to the city to fund infrastructure, loans which will not weigh us down with high compound-interest rates like those imposed by private banks. How nice it will be to go to the public bank and break ground on a new garage for our metro fleet (which would be necessary before talking about expanding our bus system and making room for rapid transit, which we badly need) in the same day, and knowing that the funding will not be borrowed money but interest gathered in the course of doing business! Let’s not forget that as an accredited and FDIC-insured institution a public bank is able to lend at a fractional reserve rate, effectively able to issue loans up to 10x it’s physical and digital holdings. What other innovations could we encourage with that kind of funding? Updating our energy grid to solar power, constructing publicly owned greenhouses in partnership with the county and school district, municipal broadband, you name it.
Nationally, politicians have been pushing states and municipalities towards bankruptcy so that it will be easier to press privatization upon an otherwise unwilling populace. We saw it with the “austerity” measures forced upon Greece and Ireland in 2006, and we would be remiss if we allowed it to happen here without doing everything we could to prevent it. New Jersey’s governor just moved to privatize their water. We do not have to go along with it. There is still time to determine our own economic fate, to take an active role in the creation of local businesses, and to decide the character of our own city. There is still time to choose a better future.