By: David Dayen, The New Republic. David talks to Dave Jette of Public Bank LA and Walt McRee of the Public Banking Institute on finance moving from blind profit to solving actual public needs. The Ultimate Cash Crop – How a pot crisis restarted a conversation about public banking in America.
In January, days after Californians were first allowed to buy recreational marijuana in the state, Attorney General Jeff Sessions issued a memo to federal prosecutors instructing them not to shy away from enforcing federal pot laws. “Marijuana is a dangerous drug,” Sessions wrote. “Marijuana activity is a serious crime.”
The memo, which overturned the official stance of Barack Obama’s Department of Justice on the issue, added confusion to an already puzzling situation. Under the Controlled Substances Act, marijuana is an illegal drug at the federal level, with possession and distribution prohibited. But it has been approved in numerous states for medical and recreational use. That creates problems for businesses regulated at the federal level, particularly banks. If financial institutions take deposits from marijuana businesses, they could face federal prosecution for facilitating criminal conduct. Though smaller banks and credit unions were beginning, under Obama, to take deposits more frequently from the dispensaries, growers, distributors, and other ancillary businesses that have sprung up across the United States in recent years to service its almost $10 billion marijuana industry, the Trump administration’s hard-line stance may now give them pause.
For California, this is a serious problem. Without financial services, its marijuana growers and retailers would face difficulties getting small business loans. Some have no choice but to operate solely in cash, paying their taxes with sacks of bills. This also sidelines billions of drug dollars currently just sitting in safes that banks could use to finance loans or mortgages. So in late January, California State Treasurer John Chiang and Attorney General Xavier Becerra commissioned a feasibility study on chartering a state bank to take deposits from pot businesses. That public bank could theoretically guarantee deposits from the pot industry without utilizing any federal financial processes Sessions could target.
But public banking can do more than just warehouse pot dollars. The model is fairly simple: A public bank takes deposits from city and state tax revenues, giving it a capital base of potentially tens of billions of dollars. Then it could leverage those deposits to make loans for local public works projects, small businesses, affordable housing, or student loans. The idea originated in the United States during the Progressive Era, as reformers sought democratic solutions to the problems caused by the rapid industrialization, monopolies, and political corruption of the 1890s through the 1920s. Dormant for almost a century, the concept was resurrected after the Great Recession in 2008—floated as a way to check the Wall Street banks that had plunged the American economy into chaos and to fuel economic development with affordable loans at the local level rather than from Wall Street financiers. But more than anything, public banking is about regaining democratic control. America is the richest country in the world; public banking advocates want to put that wealth to work on behalf of the people who created it.
Continue reading on The New Republic.
