A Stakeholders’ Case for Public Banking and a Public Cannabis Bank in California

by Matt Stannard and Marc Armstrong
Commonomics USA
Presented to Cannabis Banking Working Group, Los Angeles, California, August 10, 2017

As our organization, Commonomics USA, is concerned with policies that prioritize the commons, we talk a lot about stakeholders. Stakeholders are also an appropriate place to start in this meeting, because neither a Cannabis Banking Working Group nor a special session on public banking would exist but for strong public demands: for a policy of legal recreational cannabis, for financial protection and security for the MRB industry, and, as we’re seeing throughout California, for public banks.

 

 

When viewed from the lens of stakeholder needs, the question becomes what banking system creates security, predictability, opportunity, and sustainability for the primary stakeholders in California’s transition to a new cannabis economy. Those stakeholders are (1) California residents, who voted to regulate rather than prohibit recreational cannabis, but want to be free of crimes, including financial crimes, associated with marijuana-related finance and commerce; and (2), California marijuana-related businesses, of whom many cities are paying special attention to businesses emerging from communities historically victimized by the war on drugs.  In Commonomics USA’s experience, publicly-owned and maintained systems often do a better job meeting those particular needs–security, predictability, opportunity, and sustainability–than privately-owned systems, for the greatest number of stakeholders, and especially for disadvantaged stakeholders.

California needs a solution to the cannabis banking conundrum by January 2018. As statements to the Working Group have established, private banks are reluctant to “touch” cannabis money absent a prior “first touch” by the State of California. Although it is unclear whether the federal Department of Justice has the resources or political capital to hinder commerce in states that have legalized recreational cannabis, and experts have told this Working Group that the Cole Memorandum and FinCEN guidelines might “prove to be more resilient” than many suppose, federal prohibition is vexing, particularly with respect to financial transactions for MRB money, and especially against the backdrop of a DOJ led by a vocal critic of recreational marijuana.

The legal and policy context for these problems is ambiguous and unpredictable. The federal government has not explicitly asserted that states cannot set different controlled substance schedules and policies. As legal scholars have pointed out, certain provisions of the CSA seem to anticipate this. Moreover, the United States Supreme Court declined to hear an objection to state-level legalization from other states. Meanwhile, the state of California collects taxes and fees from California MRBs now and will continue to do so no matter how this Working Group answers the banking questions. The federal government, through the Department of Justice and Department of Treasury, has not seriously questioned the tax and fee revenue from California MRBs and there has not been a distinction between tax and fee revenues from medical and recreational cannabis .

This raises interesting philosophical questions: When the state government touches that money, what is the legal basis for it being clean enough to be deposited in a bank? Is the state compromising its fiduciary responsibilities by assuming that these monies are not at risk of seizure? Is mixing tax receipts between different industries merely perpetuating the obfuscation and lack of transparency of an underground economy? We ask these questions because we believe that the legal basis for the state’s ability to legitimize cannabis money needs to be built and made explicit.The federal government has jurisdiction over interstate commerce, but California needs to develop the legal and policy framework for in-state commerce of a product that is federally illegal and, in the case of recreational cannabis, potentially the target of federal hostility. A public bank solution will allow California the opportunity to express the first iteration of the terms of any such answer–by asking the administration and the Federal Reserve banks whether the policy objectives of federal financial crimes and drug laundering laws favor a centralized state bank in the driver’s seat, or a continuation of the decentralized, ad hoc, and often surreptitious practices of cash collection and quirky experiments by small private banks.

Rather than looking at this as a cannabis problem, this is really a banking problem–a problem of the inability/unwillingness of the private banking sector to address both a segment of the population and a pressing social need. That’s a familiar situation for those of us in the banking and public policy world–particularly those of us interested in public banks. In fact, as California stands at the precipice of a cannabis banking crises, it is also immersed in two other banking crises, slow-burning problems that hurt the state’s communities and its economy. The first is the economic toll that big private banks have taken on the state. California’s state and local treasuries have suffered greatly under the interest rates and fees charged by big banks, the costs of financing infrastructure and development, and the reluctance of private finance to fund the kinds of development Californians need. Capital appreciation bonds saddling school districts with interest charges that dwarf the size of the principle are probably the most egregious, but the results are the same: costly public financing, lack of access to financing for public sector goods, and a cynical sense that we can no longer afford to fund good ideas.

The second banking crisis is the unavailability of basic banking services to so many Californians. According to the 2015 FDIC National Survey of Unbanked and Underbanked Households, almost 900,000 residents of the state lack basic banking services, and thousands more — over 19% of households — are “underbanked,” meaning they subsist financially with short-term and very expensive services. Lack of access to affordable services contributes to financial precariousness and insecurity, which is harmful to the individuals, families, and communities affected, and a barrier to sustainable economic security across the state.

So privately owned banks seem to trip over a number of market failures, of which cannabis revenue is one. The reasons may be different–in the case of cannabis revenue, a heavy-handed federal government–but the common denominator is that the tendency to view banking as merely a business opportunity rather than a public utility has meant and will continue to mean that huge populations are unserved, and huge public needs unmet.

But the State of California stands in a unique position to take on these challenges. California is the sixth largest economy in the world. Policy-wise, it has pushed itself ahead of the federal government and much of the rest of the nation on policies from post-carbon energy to family leave, from struggling to forge a universal health insurance system to protecting immigrant communities. New government-owned, nonprofit JPAs are being formed to produce renewable energy. One might say California is forging a new economy. We think a new economy needs a new bank–a bank of its very own, that leverages the power of banking based on deliberative policy objectives rather than using profit and loss as a starting point for financial policymaking.

After studying public banks and public banking campaigns for many years, and listening intently to the discussions in these Cannabis Banking Working Group meetings, as well as several divestment and public banking meetings across the state, we offer this four-stage proposal as a starting point for discussion.

The first phase would be the drafting and legislative enabling of a public bank: The Department of Business Oversight would define a Public Bank Charter for a depository bank serving the unmet banking needs of the California public. California’s legislature would pass the enabling laws to support and protect this bank license. In this phase, the state would develop a business plan as part of its application to the Federal Reserve Bank of San Francisco for a master account number. We believe that this phase can begin immediately and, as a matter of fiduciary responsibility, would lower the risk of the subsequent phases. Should the Federal Reserve Bank of San Francisco grant the master account to this public bank without a fight, the landscape dramatically changes.

The first phase also includes capitalization. Many possibilities exist for capitalizing the bank, including debt or equity financing, issuing corporate bond and pension funds with the cannabis industry or the general public stepping forward to participate; or even constrained common stock in the fashion of the ownership of the Green Bay Packers.

In the second phase, the state bank creates depository services for MRBs and the unbanked and underbanked. Limited commercial account services could include demand deposit account services, cash concentration services, depository reporting, and automated payroll deposits for employees. Core, low-cost, retail banking services for the un- and under-banked market could include simple transactional and savings accounts, automated payroll deposit, peer-to-peer money transfer, international remittances, and debit cards. Low-cost methods used to access bank accounts could include online devices, existing ATM/Kiosks, and mobile phones.

In the third phase, the bank develops its capacity for risk management, compliance automation, and payment automation. The objective would be to lower the cost of compliance by using analytics and monitoring software to provide important reports using automated procedures and monitoring products. This Working Group has already heard about these capabilities from other participants. These products will provide greater transparency to the financial system. These participants have also mentioned payment automation capabilities, and we recommend that this phase includes this important technology. This can be done with an app that would complete payment transactions between cannabis consumers and cannabis businesses with an account at the public bank. If necessary or desirable, it could avoid the VISA, MasterCard and American Express network and transfer funds from the buyer’s California bank account to the seller’s account in the public bank.

In the fourth phase, the bank provides credit, lowering the cost of public financing, using public credit instead of taxpayer money or municipal bonds for the construction of schools, toll bridges, water and sewer systems, and a sustainable post-carbon energy system. Many additional public goods require financing and have huge social and economic payoffs, from affordable housing loan programs (including loans directed to public employees), that help people live in the same communities where they work, to loans for cooperative startups. The bank could also use its public credit to provide lower costs to wage earners saddled with student loan debt, helping a demographic that has, by many measures, gotten a raw deal in California.

There are four main benefits that a public bank can provide:

  1. Satisfies unmet market needs. In the event of market failures, when private banks are not able to meet the needs of the banking market, a public bank is able to be used to fill in the gaps, to provide deposit account and credit services where there are none.
  2. Cost savings. A public bank has a lower cost of doing business (no bonuses, no extreme salaries, no dividends, etc.) that can be passed on to borrowers, whether students, businesses or municipalities.
  3. Economic sovereignty. A public bank is a democratic approach to public finance, involving both the public and other stakeholders in the loan portfolio decisions.
  4. Counter Cyclicality. A public bank’s equity is not publicly traded on a stock market and is not subject to the same changes in valuation in as rapid a pace as we saw in 2008 and 2009 stock market, where some banks lost upwards to 80% of their equity. Because of this, public banks have the ability to continue to make loans precisely when private banks are terminating lines of credit, ending loan programs, and not accepting deposits.

Some folks, including a public official or two, are tired of public banking advocates bringing up the Bank of North Dakota. So we will only bring it up to explain that there are many roads to banking democracy This proposal, as presented, does not suggest transposing the BND model onto the State of California. It isn’t a proposal to use California’s assets to capitalize the Bank or to seek partnership with or underwriting of the private banking industry. In the wake of natural disasters, BND has the ability to make bridge loans to businesses and homeowners before they are reimbursed by FEMA and suspend mortgage and student loan monthly payments. In 2015, BND obtained more than $2.5 billion in public deposits through pledging services for private banks, in addition to providing $679 million of liquidity through BND’s secured and unsecured federal funds lines. Our proposal doesn’t preclude any of that, but it doesn’t require any of that.

The process outlined in our proposal should occur in tandem with the ongoing effort to relax federal law, consistent with the recommendations of Erwin Chemerinsky, Jolene Forman, Allen Hopper, and Sam Kamin, in their UCLA Law Review article “Cooperative Federalism and Marijuana Regulation.” Passage of the SAFE Act, a robust reaffirmation or strengthening of Cole-style and FinCEN guidelines, all as part of the ongoing effort to reach out to rational federal policymakers–who we believe really do outnumber the louder and less reasonable voices in Washington. California is likely to make that request to the federal government anyway. But doing so having created a public bank in the world’s sixth largest economy, a bank committed to financial oversight of cannabis banking as a matter of public policy, creates a very different context for the dialogue between the federal government and the states concerning cannabis.

Similarly, if it is to find any “banking”-based solution to MRB revenue’s federal illegality, California will inevitably have to face the question of obtaining a Master Account Number from the Federal Reserve Bank of San Francisco. Why not, then, have the State of California itself, on behalf of a state-owned bank with unprecedented control over the cannabis economy, make that application?

Most people in this room understand the general case for public utilities meeting unmet market needs and, specifically, public banking doing the same. As movements in Oakland, here in L.A., and in other parts of the state suggest, there is widespread support for exploring public banking in California. But the reason we’re having this conversation, here with the Cannabis Banking Working Group, is that this is a “try or die” moment for the cannabis banking question. Some entity or collection of entities must inevitably dialogue with the sources of current federal complications concerning cannabis banking. From a stakeholders’ perspective, we believe it makes a lot of sense for that entity to be the State of California–affirming the decisions the people of the state have made, owning those decisions.

This is a chess game, with economic sovereignty being the big win for California. Understanding the possible moves that the federal government can make is critical. We assume, for instance, that recreational cannabis tax revenue can be collected and placed in one of the state’s accounts in a private bank. What if, in the Attorney General’s quest to disallow recreational use of cannabis, this regulation is changed to disallow this recreational cannabis tax revenue from being legally deposited in private banks? California can collect the tax, but it’ll end up with the same banking issue now experienced by MRB’s. There will be yet another run on pickle barrels, only this time the state will be buying them.

What is needed is a body of state law that creates a Public Bank Charter (or license), defines “municipal affairs” for state charter cities, sets standards for in-state commerce of recreational cannabis, and protects Californians so that they may conduct safe economic transactions in the currency medium of choice.

A public bank can then be created in order to act as the organizational bulwark, protecting California’s interests by meeting unmet market needs and issuing deposit accounts to MRBs and the unbanked, efficiently handling the federally mandated compliance issues, automating payments (including tax payments), and making California’s economic sovereignty a reality.

A public bank acting as a necessary public utility that provides banking services to MRBs, to the unbanked and underbanked, and for lower cost infrastructure and commercial financing, can help California use its status as a global economic power, and its huge economies of scale, to create the appropriate financial infrastructure necessary for this undertaking. The decision to create such a bank as a solution to the cannabis conundrum would send an unprecedented signal to the world that California is stepping into a new cannabis economy and a banking economy that meets the needs of all Californians, businesses no matter the industry, and municipalities.

Matt Stannard is policy director of Commonomics USA. Marc Armstrong is president of Commonomics USA. 

Cannabis and Public Banking: the Upcoming California Treasurer’s Meeting, and Me

by Matt Stannard

I will give a public presentation to California Treasurer John Chiang and his Cannabis Banking Working Group on August 10 in Los Angeles. The meeting will be held at the Sheraton Gateway Hotel on Century Blvd. It will start at 9:30 a.m. and is expected to go until 1:30 or 2:00 p.m. The meeting is open to the public and is expected to be webcast live. My colleague Marc Armstrong, president of Commonomics USA, will join me at the table for questions and answers following my presentation to the Working Group.

Given the scope of the question–whether the State of California should open a public bank–and the fact that the State Treasurer has called this meeting solely to discuss public banking, we could easily call this the “biggest” official meeting about public banking, ever. Its scope is unprecedented and the event itself is a “surprise,” originally not part of the series of Working Group meetings and added only after the Working Group heard several public comments on public banking at its previous meetings.

John Chiang’s staff informed us that other presenters for the August 10 meeting include Gwen Hallsmith of Global Community Solutions, Auburn University Professor James Barth, Colorado Bankers Association president Don Childers, and former Massachusetts Bank Commissioner David Cotney. We expect that some of these participants will be arguing against public banking, but the format of the hearing is not adversarial.

MRB banking has been on the radar of the public banking movement before, but many of our earlier assumptions were naïve concerning how cleanly a state-only cannabis economy could break free of federal banking oversight. After extensively researching that oversight, the team at Commonomics USA determined that, while not a magic bullet (there are no magic bullets on this question), a public bank would be a strong candidate for containment and management of legal risk, and serve as a conduit of states’ independent approaches to cannabis policy and the multibillion dollar windfalls of recreational legalization.

The heavy-handed rhetoric of the current United States Department of Justice and its Attorney General threatening pushback against California and other states is a significant departure from the imperfect but significant attempts by the previous administration to work with states. The Cole Memo, currently under review, and the FinCEN guidelines both provided some degree of predictability concerning the federal government’s Controlled Substance Act enforcement priorities. Licensing a public bank with robust monitoring and compliance resources, as the “first touch” for state MRB revenue, would be a responsible, good-faith gesture amidst current federal unpredictability.

We believe the State of California, or a charter city in California, should create a public bank that will provide accounts to marijuana-related businesses (MRBs) with top-level monitoring security, and legal compliance. Such a bank can also provide accessible services to California’s unbanked and underbanked residents, and provide credit for public projects and services to lower the cost of public financing and meet the structural and service needs of Californians, reducing the state’s reliance on both Wall Street and the federal government. California should immediately create and submit a business plan to the Federal Reserve of San Francisco in application for a Master Account Number.

Given the Federal Reserve Bank of Kansas City’s recent reluctance to provide an account number to a small, private credit union in Colorado that intended to serve MRBs (a case we at Commonomics USA have been following very closely), there will be legal challenges and some resistance to overcome to make this happen. Our position is to embrace that challenge and fight for a public bank, whether that means convincing the Federal Reserve, convincing the courts, or changing the laws.

As Marc said to me recently, “a central argument of ours is that, when it comes to the cannabis market, the people have spoken and it’s up to elected officials not to do what the DOJ is doing, but to make the market as transparent and accountable as possible, with individuals and legal organizations acting responsibly and above-board. Enough with the intrigue, innuendo, threats and dangers to public safety. Time for an open market that has readily enforceable standards and with deposit accounts for every licensed MRB.” And–if the people of California want it–a public bank to utilize MRB revenue for public goods.

We hope for a strong public presence in support of public banking at the August 10 hearing, both inside and outside of the venue and in the coming days will make information available on local organizing efforts.

Matt Stannard is Policy Director at Commonomics USA. 

Public Banks and Credit Unions: What’s the Difference?

by Marc Armstrong

Anything that takes control from Wall Street banks is viewed by many as a positive development. Public banks, credit unions, and, to some extent, the new fintech firms all do this: they change the competitive landscape and provide a variety of services that appear to compete with traditional banks. Two of these players, public banks (of which the Bank of North Dakota is presently the only one in the United States) and credit unions, are considered by some to be in the same space, but they are actually quite different. This post will map out some of the key similarities and differences.

Public banks are government owned entities that act in a not-for-profit capacity to finance public goods, with their earnings passed back to the people in the form of lower interest rates on loans or government dividends. Public banks have many measures of democratic control, such as a more participatory form of governance. But since low interest rates on loans and local control are also the hallmarks of credit unions, what are the differences between public banks and credit unions?

The main difference is distinct and important: Thanks to the banking lobby, federal law prohibits credit unions from making commercial loans that exceed 12.25% of their total assets. This is a significant limitation that keeps credit unions out of the core business of banks: issuing credit. Of course credit unions can make consumer loans and mortgages, but this focus on member loans, savings, and other consumer-oriented services places them in the same market as most retail banks.

publicbankingworksPublic banks, on the other hand, are in decidedly different markets: commercial lending and public finance. They can ignore the retail sector entirely and have laser-like focus on generating credit to fund commercial and infrastructure loans. Because there is no need to provide costly retail banking services, an already crowded market in many areas of the country, public banks can be the engine for a state or city’s economic development program by providing affordable loans. Anyone who supports a good idea like renewable energy, worker-owned cooperatives, or effective public transit systems knows that very often the roadblock for each is always the same — lack of money. Without taxpayer funding many of these ideas die or the implementation gets postponed. But with low cost credit, available through a public bank, many of these good ideas can get funded. A credit union does not have the lending capacity of a public bank to fund these kind of loans, many of which run into the hundreds of millions of dollars.

There are other differences. Public banks are owned by government entities, while credit unions are owned by their members, who are the depositors, and with whom credit unions work collaboratively to share resources for convenience and savings. CU Service Centers and the CO-op ATM Network are two examples of this cooperation, something that a public bank as we normally conceive it would not consider (although new forms of public banking are always possible).

Both government-owned public banks and cooperatively-owned credit unions are ways to create more democratic approaches to banking. While their differences are significant, they both move in the same general direction, returning banking to our communities and sharing in the many benefits that come from localized control of banking.

Marc Armstrong is the president of Commonomics USA and co-founded the Public Banking Institute.

What We’re Doing in Laramie

by Matt Stannard

Members of the Laramie Ecovillage Group, myself included, are in the process of creating an intentional, ecologically sustainable, income-sharing community near Laramie, Wyoming. If you share our values (cooperative culture, non-hierarchical economic communalism, deliberative democracy, commitment to personal and spiritual growth), you might consider reaching out to us and join us in committing our lives to a world beyond capitalism.

We consider our effort to be revolutionary in scope. All of us in the group are, in ways both different and similar, economic refugees. All of us are committed to both reducing the adverse impact humans have on the environment, and practicing a personal, radically intimate (while deeply respectful of personal security and space) localized socialism that we believe is conducive to a widespread transformation of economic and political systems. We share the belief that personal and social change ought to be complimentary, and reject the idea that we must choose between mass political change and local community building as “first priorities.”

We are committed to income-sharing because economic insecurity has killed those we love and has whittled away at our own lives. Our community will share in both debits and rewards, and we will practice carefully-planned scaling of costs and community enterprises to take advantage of the basic principles of economic cooperation. We are already forming one cooperative business enterprise and will facilitate more, aided by the plentitude of information about cooperative management from a variety of values-compatible sources.

Presently, we are exploring many land acquisition options, from community land trusts to cooperative or private purchase. We are looking at several pieces of land and have so far received one offer from a seller. Our group includes legal professionals and experienced intentional community consultants–and several people who have previously lived in intentional communities.

Next weekend, we are hosting a retreat, with around ten guests coming from outside of Laramie, for people interested enough in this project to spend the weekend with us discussing cooperative culture and economics, income-sharing, ecological sustainable community, and how people live communally.

If, in the course of reading this, you have found yourself feeling that this is something you’d like to do, if it has spoken to your deep sense that a community like this is possible, necessary, and a place where you would thrive, you should get in touch with us. Joining would follow a careful and conscientious process and a mutual decision between you and the community. You would need to be committed to becoming a better, more cooperative person always, and doing what you are capable of doing to contribute. It’s definitely not for everyone, but it could very well be for you.

What we’re doing isn’t unique. There are thousands of intentional communities, including many income-sharing communities. But we know what we’re doing will make a difference for our membership, and we hope it will help shape a world that desperately needs this kind of re-shaping.

Matt Stannard is policy director at Commonomics USA and a founding member of the Laramie Ecovillage Group.

Paris Agreement Discord Highlights Need for Community-Based Climate Action

by Ma’ikwe Ludwig

“Another world is not only possible, she is on her way. On a quiet day, I can hear her breathing.”
― Arundhati Roy

Today is an important day to listen for that breathing, which can be hard to hear over the justifiably angry buzz that just erupted thanks to President Trump’s pending decision to pull the US out of the Paris Climate Agreement.

And well it should be buzzing: this is a terrible idea. Paris got us a half step down the road of doing what we need to do around climate . . .  not nearly enough, but some tangible progress; pulling us out will be two steps backward as whatever delicate trust was built in that process is dashed on the rocks of Trump’s ego.

The buzz is heavy on depression and panic, both of which are completely understandable responses. Without a real change in how we think about the climate crisis, it does indeed look and feel like the final nail in our collective coffin.

I’ve been tracking climate issues since 1987, and at this point, I’m no longer surprised by the capacity for large governmental bodies to sink their heads in the sand while simultaneously blaming others. (Notably, those “others” are usually poor and brown-skinned. China has been the favorite scapegoat for the last decade, conveniently ignoring that their emissions and other pollution numbers include a significant amount of the manufacturing of the cheap and convenient crap we Americans seem to relish).

20 years ago, I started to pursue a completely different track on environmental and social issues alike: deeply grassroots organizing of the structures and habits of our lives, largely in the form of residential intentional communities. And in doing so, I’ve found a viable option that requires nothing of politicians, a tactic that seems more and more practical and needed every day.

What if Americans could get their consumption and emissions down to about 10% of our current average? The answer is that it would be huge. By my best estimates, 10% is about what we need to be doing if we want to be “sustainable”. On top of that, we also need to start massive carbon sequestration projects, such as tree planting and biochar initiatives.

At least one group of Americans are doing just that: residents of Dancing Rabbit Ecovillage in Missouri. I profile Dancing Rabbit and a number of other community projects in my new book, Together Resilient: Building Community in the Age of Climate Disruption, which focuses on climate solutions that are already technologically viable and effective to reduce emissions, and that are available to all of us right now.

These communities hold potential keys to several of our worst problems: not only climate disruption, but also social isolation, massive income inequalities and other social injustices can be worked on in these deliberate pockets of social, economic and ecological experimentation. The ability to live on less (less dollars, less stuff and less stress) is one of the primary benefits of collectively self-determined, cooperation-based communities.

The pockets of creative solution making are literally everywhere. The Communities Directory lists over 1,300 intentional communities, most of them in North America. Not all of them have incredible carbon stats, but all of them that have been studied have notably better carbon stats. Like the Paris talks, they represent significant steps in the direction we need to go in, even if their potential is not yet fully realized. Unlike the Paris talks, they don’t just evaporate at the whim of politicians.

So to my friends out there who are feeling the cold creeping of increasingly likely disaster, I say this: take heart, and take things into your own hands. Let’s stop waiting for politicians who are deeply in debt to the fossil fuel industry and who can’t think outside of the capitalism box to suddenly see the light. Instead, let’s do this together.

Ma’ikwe Ludwig is a long-time sustainability and cultural change advocate, focused on intentional communities, and the intersection of economic and ecological justice. She is currently executive director at Commonomics USA and previously served in that role at the Center for Sustainable and Cooperative Culture at Dancing Rabbit Ecovillage. 

Poverty and Moral Judgment

How can it be said that anyone deserves their poverty?

What we call “character flaws” are the result of a complex combination of environmental, neurological and cultural factors, plus whatever agency we actually have in dealing with those. To say that anyone deserves poverty isn’t just an unwarranted moral judgment nobody has the right to make, but also an unscientific judgment that misunderstands how humans function.

And, the decisions made by powerful financial actors contextualize where a person making “bad choices” will ultimately land. For example, absent the LIBOR banking scandal, tens of thousands of home foreclosures in Baltimore would not have occurred, even though in the micro-political universe of those individual foreclosures, one could assign any number of individual causal chains as the “reasons” for the foreclosures (X didn’t work hard enough; Y had a drinking problem, etc.).

Even if you say “well, that person had a bad rap in life and they nevertheless overcame their bad luck,” whether X overcomes that bad luck is determined by the very same combination of internal and external factors that landed X in a bad situation in the first place.

Perhaps “economic determinism” (if it’s wholistic; dialectical if you will) is the most compassionate, ethically respectful, and epistemologically justified paradigm there is. Understanding the interplay of these factors can help us build systems that will maximize agency and collectively plan ways to account for all the external factors.

Matt Stannard is policy director at Commonomics USA.

Carrier: Workers as ‘Theatrical Props’

With the number of circus acts and sideshows associated with the incoming presidential administration, it’s easy for even significant events to slip through the cracks. But the Real Estate Tycoon’s silly spectacle  of cutting a corporate welfare deal with the Carrier company to relocate only 1000 jobs instead of 2000 has titillated the New York Times and also generated a slew of criticism (of varying levels of coherence) from free marketers. Bernie Sanders’s analysis is far more useful–he rightly points out that these kinds of deals incentivize bad behavior by corporations–but I’m even more interested in how the workers themselves are empowered or disempowered by bourgeois political posturing.

So it was refreshing to see the Institute for Public Accuracy digging deeper and finding critical voices speaking about the way workers are always used as props in the framing of these stunts and stories.

“Firms like Carrier in effect use jobs as a hostage to get a ransom payment from the government,” Morton Marcus, a retired Indiana University economist, told IPA. Marcus goes on to explain that this framework is what allows corporations to offer public goods to policymakers that can have negative long-term consequences.

It happens all the time. A firm says they’re interested in building a new factory, in expanding. They ask: what can you do for us? So, the local government gives them tax relief, gives them other incentives — building roads, sewers, water system for the firm. Governments used to ease the tax burden on their own citizens by taxing firms, but this tax ‘relief’ for firms is being done in the name of jobs. So, a firm leaves a polluting residue, contaminates the water supply, with the locals, decades from now, forced to deal with the consequences.

Tim Lewandowski of Workers’ Project, Inc. in Fort Wayne, Indiana, says workers are never actually involved in these discussions, guaranteeing that their interests (which correspond to most community members’ interests) are never truly represented.

Here in Indiana, Mike Pence made a living attacking workers. But doesn’t matter if it’s a big ‘trade deal’ or a local tax abatement — any kind of economic development involves a government entity and corporation, supposedly working to save jobs. That’s going on all the time. Yet, workers are always excluded from those discussions, at best they’re theatrical props. But if workers aren’t involved in really making the deal, it ends up being more show than go. A big part of the problem is that deals like this are all self-reporting — something Donald Trump is familiar with. They can say they’re going to have X number of jobs at such-and-such a wage, but who’s checking? We almost have a Soviet system, where it’s a handshake and a fantasy economy, simply for photo-ops.

In politically bargaining these particular jobs, both the corporations and the strongman-showman-president-elect are benefitting from the work the workers already did in winning the benefits associated with the jobs. Lewandowski explains: “The jobs Carrier has been threatening to move are good jobs and they’re good jobs because the workers bargained for those jobs for years and made them good. We’re actually drowning in jobs — if you want to work lousy hours, for lousy pay and be disrespected.”

Imagine a world where elected officials had to bargain with the workers themselves.

By the way, the Institute for Public Accuracy is amazing for the depth they open up in their press releases. Support them here–it’s tax-deductable.

Oakland Passes Public Banking Resolution, Reaffirms Oakland As Sanctuary City

OAKLAND, CA – Tonight Oakland City Council unanimously passed Councilmember Kaplan’s Resolution calling for the City Administrator to look into the process of establishing a public bank for the City of Oakland.

Please click here to read the Resolution and accompanying Memo

The Resolution, co-sponsored by Councilmembers Kaplan, Kalb, and Guillen, directs the City Administrator to look into the scope and cost of conducting a feasibility study for public banking in Oakland and possibly the larger region. It also directs City Staff to solicit input from community stakeholders about the feasibility study, including suggestions of potential contractors and funding sources; and makes it clear that the study should cover the legality and feasibility of banking the cannabis industry.

The Resolution generated support from Councilmembers and community members alike. Matt Hummel, Chair of the Oakland Cannabis Regulatory Commission, reported that the commission fully supports the idea of a public bank for Oakland because of its potential benefits for the cannabis industry. Oakland activist Susan Harman said: “As Councilmember Kaplan recently returned from Standing Rock, it is important to note that Chase is one of the funders of the Dakota Access Pipeline. This is just another reason why Oakland should create a public bank – so the City can divest from its relationship with Chase.”

“I was thrilled to see the outpouring of support for public banking,” Councilmember Kaplan says. “Creating our own institutions is a beautiful example of how we can strengthen our community at the local level, and continue to build a more just and inclusive society, even in the face of troubling signs at the Federal level.”

The Oakland City Council also voted to reaffirm that Oakland will remain a Sanctuary City for immigrants, despite President-elect Donald Trump’s threat to cut federal funding to cities that do so. The Resolution prohibits the Oakland Police Department from enforcing Federal civil immigration laws and from using city monies, resources or personnel to investigate, question, detect or apprehend persons whose only violation is or may be a civil violation of immigration law.

The resolution also urges California to become a Sanctuary State.

“I am proud to be part of a City that stands up for justice for all,” Kaplan says, “especially now that the rights of so many are under attack.” Councilmember Kaplan also urged California Assemblymember Rob Bonta to take similar steps at the state level and ask California to identify itself as a Sanctuary State.

Kaplan added, “The most repeated teaching in the Bible is ‘Do not oppress the stranger, for you were strangers in the land of Egypt’ – we have a moral responsibility to protect everyone in our community, including those who are targeted for attack and discrimination.”

Source: Sheng Thao, Chief of Staff for Councilmember At-Large Kaplan

Why Wells Fargo is about to s*** the bed on forced arbitration

by Matt Stannard

“What is the robbing of a bank,” Bertolt Brecht’s character Macheath asks in Threepenny Opera, compared “to the founding of a bank?” What harm can an individual bank robber do, compared to what a bank–particularly a large one–can do?

Banks can do more damage than other big institutions, because financial asymmetry is the core of private banking. Banking for profit makes no sense without it. And because financial asymmetry results in awful consequences for the weaker party, successful banking for profit requires legal asymmetry too. Boilerplate and adhesion contracts can be effective tools for securing that asymmetry.

But history tells us that asymmetry only gets you so far. That’s why, in spite of Wells Fargo having had some early initial success using an arbitration clause to defer the legal consequences of unambiguous fraud, I’m predicting that the ploy has run its course–that not only will courts stop buying it, but that its continued deployment, successful or not, will sink the bank’s effort to clean up its public image.

If you aren’t abreast of this: Wells Fargo was recently caught having opened 2 million fake accounts in their customers’ names. The bank was fined a paltry $185 million, fired 5,300 of its employees, and tossed $5 million back to its customers. Now the bank wants a federal court to dismiss a class-action lawsuit by customers so defrauded, and their motion argues that customers gave up the right to sue for anything when agreeing to the arbitration clause contained in the bank’s complex and dickish customer agreements. In other words, Wells Fargo argues that when customers signed up for their non-fraudulent accounts, they gave up the right to sue for things like having their signatures forged in the opening of fraudulent accounts. What’s more, that argument has already worked for the bank: Among other instances, last year Wells Fargo got Ninth Circuit Court Judge Vince Chhabria to buy it in September 2015, also in a case arising from the bank opening up additional accounts for customers without permission (after this year’s settlement over the 2 million fraudulent accounts, that case was reopened and joined with a similar suit being filed in that district).

Michael Hiltzik’s LA Times piece is the best reading on this absurd, semi-successful legal strategy. I like the article because Hiltzik is sensitive to both the ethics and optics of Wells Fargo’s incredibly condescending attitude towards its customers:.

Nothing demonstrates that more than the bank’s insistence on forcing the victims of its vast fake-account scam into binding arbitration, a system in which customers are at an overwhelming disadvantage . . . the San Francisco-based bank has succeeded in getting several judges to toss fraud lawsuits over the bogus accounts by asserting that, even though the accounts are fake, they stem from legitimate accounts the victims opened, in which they agreed to submit any future disputes with the bank to an arbitrator . . . [to get] a flavor of just how abusive the Wells Fargo arbitration strategy is . . . [California resident Shahriar] Jabbari had opened savings and checking accounts with the bank in 2011, but within two years discovered that he had seven more that he hadn’t authorized. Soon enough, he was getting dunning notices from collection agencies for unpaid fees on those accounts, some of which had been opened with manifestly forged signatures or even no signatures at all. [Kaylee] Heffelfinger’s experience was similar. She opened a checking and a savings account with Wells Fargo in March 2012, the lawsuit says. Wells employees started opening bogus accounts in her name even before that, starting in January. She ended up with seven accounts, some opened with forged signatures and fake Social Security numbers. Wells Fargo demanded in its defense that the case go to arbitration, noting that its arbitration clause was exceedingly broad: Anyone who became a Wells Fargo customer was agreeing to boilerplate in their customer agreements that covered any dispute with the bank whatsoever, including “claims based on broken promises or contracts, torts, or other wrongful actions.”

Wells Fargo’s legal argument isolates the singular decision to open an initial account (which requires agreeing to arbitration) and goes on to argue that the fraudulent opening of an additional account is covered by the same arbitration clause. It’s pretty outrageous that any court anywhere has allowed this to happen, deferring to a membrane of an argument that carries such awful policy implications and whose outcome can only be inequity to any individual plaintiff. The continued use of the already abusive tactic of forced arbitration to dodge fraudulent behavior threatens to unravel the entire shaky regime of forced arbitration altogether, either via regulatory changes or a quick dip in its litigatory success rate. Even if such regulations spark lengthy court battles of their own, that’s money the banks have to spend on legal fees while their public ethos sinks to lower lows. 

That’s why I think Zane Christensen, the Utah attorney representing plaintiffs in the class action at federal court in Utah, is correct in asserting that the tactic has run its course and that courts will soon see the horrendous implications of allowing it. If judges have gone along with it thus far, they’ve done so for two reasons: (1) a desire for “judicial economy” that often overrides concerns for justice, and (2) the classism of many judges, their unwillingness or inability to see the asymmetry between big banks and ordinary people as a question of equity under law. Irrespective of that, I think the jig is up.

I could be wrong. It may be that nothing can truly convince these particular business entities to behave. After all, banks still racially redline certain areas (Wells Fargo has to pay $2.5 million to 1000 African-American and Latino residents in Baltimore for doing so in 2012), making mortgages and automobile loans inaccessible or abusively expensive to people of color. One bank has even been caught reverse redlining–disproportionately giving people of color increased access to their s***ty deals in order to charge them higher interest rates and fees. Perhaps, like the President-Elect, big private banks will just keep running around doing really repugnant, often racist, always classist things, everybody gets outraged, but nobody’s able to stop them.

But I think I’m right. There’s a lot of political anger floating freely about these days–residual frustration from the elections and a growing sense that materially powerful entities truly can get away with anything–and I wouldn’t want to be a big bank right now. With sufficient financial clout, cities can even step in where the feds refuse to go. Los Angeles just dumped Wells Fargo over consumer abuse. The L.A. city council also asked “the city attorney’s office to draft an ordinance that would amend the city’s responsible banking ordinance to include more protections for whistle-blowers who report suspected illegal bank activity to authorities.” That’s a big deal because, although Santa Cruz County’s decision last year to dump five criminal banks carried a lot of symbolic value, L.A. carries considerably more financial weight. It’s even more important because if enough cities and counties got together, they really could disempower big banks–culminating, as Saqib Bhatti of the Roosevelt Institute hopes, in the creation of municipal public banks, providing even further incentive for private financial institutions to actually change their terms and practices.

If I’m wrong, and Wells Fargo continues to prevail by arguing that fraud is covered by a boilerplate arbitration clause, I promise to open an account there in your name.

Matt Stannard is policy director at Commonomics USA and previously served on the Public Banking Institute’s board of directors.

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