• A state bank makes sense
    February 28,2014

    A state bank makes sense

    The 2008 financial meltdown revealed that there are serious systemic flaws in the system which continue to threaten our economic well-being. A growing number of Vermonters are advocating for the creation of a state partnership bank in the state as a way of mitigating some of these threats.

    Senate bill 204 would expand the Vermont Economic Development Authority to become a state bank and would start out by depositing 10 percent of Vermont’s unrestricted money into the state bank. The bank would be able to leverage this money by means available only to banks to bolster the economy of the state and cut down on the interest payments and fees that are presently paid to out-of-state financial institutions and other entities. The bank would not engage in retail banking and would not compete with community banks; it would work with community banks to maintain their viability and expand their ability to help create better economic outcomes for Vermonters by partnering with them in projects they would not be able to engage in on their own.

    Presently, large public projects are, to a large extent, funded by bonding and other private investment which requires the state to pay interest and fees that often do not get recycled into the local economy. Bond sales are managed by Wall Street firms, which seem to rig everything they can to further enrich themselves. In addition to the fees that they charge for this service, it is possible that they are rigging the process to divert funds that would otherwise be available to the state into their own pockets. While the cost of bonding is relatively cheap now, it will likely increase in the next few years if not sooner and the bond market could dry up. Creating a state bank now and growing it could put us in a position where we can substantially lessen the need to float bonds to fund large public projects.

    One of the many risks in the present system is the derivatives bubble. Global derivatives holdings are estimated at 20 times the entire gross world product. Many respected economists and financial experts are convinced that sooner or later this bubble will burst, and when it does, there will be widespread bank failures.

    The state deposits most of its “checkbook” funds in TD Bank. Its parent company has derivative contracts that are five times its total assets. The processes set up for dealing with failed banks have mechanisms by which counterparties in derivatives could get first dibs on retrieving their money. If TD Bank takes a big hit when the derivative bubble bursts, by the time it is Vermont’s turn to retrieve our money, all we could be left with is stock certificates in a new bank that is created by regulators out of the rubble. How many of our bills will we be able to pay with these stock certificates?

    I urge you to contact your state senators and members of the Senate Finance Committee and urge them to create a state partnership bank and vote for S.204.

    Gary Murphy

    South Ryegate

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