Thanks for Your Input, Governor Christie.
Days after Phil Murphy’s call for a publicly-owned Bank of New Jersey sent shockwaves across state and national media, the proposal received an unexpected favor: Governor Chris Christie attacked it, saying the bank itself would eventually need to be bailed out and invoking the common trope that government bureaucrats shouldn’t be running the banks.
Murphy, a Democrat and the only declared candidate for New Jersey governor (the election is next year), quickly had his campaign team respond: “Given Chris Christie’s nine credit downgrades, lagging economic growth, budget shortfalls built on putting politics before families, broken promises, and subservience to Donald Trump, we’ll consider the source.”
When fallen governors attack you with stale anti-regulatory arguments, you’re probably on the right side of history. But Murphy could also have responded by mentioning Christie’s addiction to toxic debt and gargantuan secret fees paid to Wall Street firms to mismanage the state’s pension funds – the very kind of financial apocalypse public banks aim to solve. Under Christie, the state’s pension fund management fees went from $141 million in 2010 to $600 million in 2014. That’s about $1.6 million per day. In 2015, they’d grown to a staggering $720 million.
New Jersey has long been a testing ground for nearby Wall Street’s extractive banking practices. Like Pennsylvania and New York itself, New Jersey communities are besieged by city and county debt and fees. Public banks would serve most governmental financial needs, managing money in ways that would meet the three most important criteria for how banks should handle public money: minimizing risk exposure, ensuring liquidity and optimizing earnings. Wall Street has failed miserably at the first two, offsetting any success that would otherwise come of the third. Wall Street exposes governments to devastating risk and fails to lend adequate credit even in good times. Cities and people have died, schools closed, bridges crumbled, as a result.
Against this backdrop, and smoldering New Jersey political and economic realities, Murphy called Christie’s economic thinking “outdated,” and “a zero-sum economy where some are able to succeed only because others have been left by the wayside.” New Jersey, he said, should establish a North Dakota-style public bank, providing low-interest financing to small businesses, college students, and local governments.
Class Traitors and Public Banks
Murphy, a former Goldman Sachs executive, has jumped from the predatory ship and joined the ranks of the robbed and maltreated. Like Robin Hood, he’s a rogue nobleman, but unlike Robin Hood, who merely redistributed wealth, Murphy knows a public bank will create wealth from the ground up.
Why would a former Goldman Sachs executive embrace public banking? It’s not unprecedented: Nomi Prins, a biting critic of Wall Street and a fan of public banking, served in upper management at both Goldman Sachs and Bear Sterns before deciding they needed to be destroyed. Like the colonial elite who became enmeshed in debts to Britain and so joined the American Revolution, some members of the ruling class are jumping ship, a phenomenon I’ve discussed with economist Richard Wolff a couple of times. Wolff told me he thinks Murphy “knows what shenanigans go on in big banks and investment houses like Goldman,” but that “as a Democrat, he cannot attack pensioners the way other, especially Republican governors have,” and that a public bank would, among other things, be “less politically costly” than letting pension plans burn.
Ellen Brown, author of Web of Debt and The Public Bank Solution and co-founder of the Public Banking Institute, told me that while she couldn’t guess Murphy’s motives, she was happy he crossed over to the other side. “Our biggest hurdle has always been that legislators don’t understand how banking works,” she said. “They don’t understand that banks don’t lend their deposits but actually create deposits when they make loans, and that they’re wasting a huge opportunity by giving their revenues away to Wall Street to leverage for that purpose. It takes a banker to understand why states should have their own banks!”
Of course, in order to truly jump off the finance capital ship, that banker also needs to know the difference between just and unjust economics. Otherwise, their corruptibility will bleed into the public banks they create or manage. Murphy has a progressive Democrats’ grasp of economic justice. He calls for an expanded earned income tax credit and $15 minimum wage, and investment in rail infrastructure. These are good beginnings, but if Murphy wants to walk even further from GoldmanThink, he could follow the lead of another east coast candidate, Joshua Harris, running for Mayor of Baltimore on a revolutionary economic platform, also based around public banking, but even more appropriate to 21st century economic realities than the Democratic Party’s economic platform.
Because once you no longer think predatory finance is good, and realize that money is a tool rather than the whole toolbox, the entirety of economics changes.