16 ms·

Politically, I certainly see the appeal. From finance/economics point of view...I dunno. If I was cynical, I might say it seems like we're being asked why city

by Lazare 7y ago

Politically, I certainly see the appeal. From finance/economics point of view...I dunno. If I was cynical, I might say it seems like we're being asked why city funds should be parked in accounts making safe, legal, loans which are likely to paid back, when we could just let the amazing SF city government use the money as a slush fund to make loans to their pet causes and politically connected businesses. Phrased like that, it doesn't sound amazing! Or as the article puts it: > There’s been some suggestion that these types of banks would lend to entities that might not otherwise be creditworthy,” Beth Mills, a spokesperson for the California Banking Association, told CityLab. Yeah, and most of those suggestions are coming straight from the mouths of the proposals supporters. If you're struggling to find loans for your ambitious infrastructure project, is it... maybe... possibly... that the proposal doesn't make a ton of financial sense? What's your city's (or state's) track record on these projects? Would a neutral analyst fear that you're fudging the revenue estimates and lowballing the costs? What is the risk of overruns? Bluntly, how credit worthy is the project? > “Every politician is talking about affordable housing, but it would be so much more powerful if they had a bank that was financing affordable housing,” said Jacob. No doubt. But will building affordable housing be profitable? And if not, will the project be able to repay the loans? (Or if so, why are banks not willing to finance it?) There's a real "dog that didn't bark" feeling to this article, at least for me.

patio11 7y ago
I propose that if you want to run a bank you probably want sufficient facility with numbers to make projections about the future and sufficient probity to trust those projections even when they’re inconvenient, plus the integrity to not steal from the bank. Happily, there is a trivial work sample test of this for cities: are your city employee pensions fully funded?
- dluan 7y ago
  This implies bankers are good at banking - the same bankers who famously opened millions of ghost accounts for customers [0][1], laundered money [2], or let rogue traders exploit moral hazard [3]. Public banks would institute things like transparent charters that would be voted on by the citizens of the cities and communities - to decide what kinds of investments would be allowed and not. So you could divest say your teachers pension fund out of vehicles that fund ICE detention centers. [0] https://www.bloomberg.com/opinion/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts https://www.bloomberg.com/opinion/articles/2016-09-09/wells-... [1] https://en.wikipedia.org/wiki/Wells_Fargo_account_fraud_scandal https://en.wikipedia.org/wiki/Wells_Fargo_account_fraud_scan... [2] https://www.reuters.com/article/us-usa-usbancorp/u-s-bancorp-to-pay-613-million-for-money-laundering-violations-idUSKCN1FZ1YJ https://www.reuters.com/article/us-usa-usbancorp/u-s-bancorp... [3] https://en.wikipedia.org/wiki/2011_UBS_rogue_trader_scandal https://en.wikipedia.org/wiki/2011_UBS_rogue_trader_scandal
  - lotsofpulp 7y ago
    >that would be voted on by the citizens of the cities and communities - to decide what kinds of investments would be allowed and not That is a very rosy assumption given the track record of voters, especially in the US.
    - dluan 7y ago
      It’s better than the alternative which is no democratic oversight of how Wells Fargo or Goldman Sachs uses or invests teachers pension funds. It was just power we accidentally gave away without realizing we could take it back.
      - lotsofpulp 7y ago
        It would be far easier to just implement IRAs and let people vote by deciding themselves where to invest.
        fennecfoxen 7y ago
        Don't be absurd. We can't let people own their own retirement savings. We need to entrust that money to CALPERS, so that they can use our retirees' savings as a political cudgel, divesting from certain companies for ideological reasons, and buying board seats on others to exert their influence. The political machine doesn't just feed itself. It takes other peoples' money and abuse of the public trust to make the magic happen. (Worry not. If there's any shortfall from investing money politically, California taxpayers will make up for it.)
        guelo 7y ago
        As if giving the money to Wall Street to manage doesn't give them immense political power.
        lotsofpulp 7y ago
        Total stock market index funds are about as good as it gets right now, given the capacities of most people and their lack of interest in investing.
deleted 7y ago
[deleted]
jimbob45 7y ago
>But will building affordable housing be profitable? And if not, will the project be able to repay the loans? (Or if so, why are banks not willing to finance it?) That's my gripe. Nothing will stop the landlords from just jacking the prices. And if they don't, no one competent will run it since they can't make money. Really, the problem here is that critical industries should not be eligible for more than reasonable profit margins.
- nordsieck 7y ago
  > Nothing will stop the landlords from just jacking the prices. The only thing stopping landlords from "jacking the prices" is vacant supply. > Really, the problem here is that critical industries should not be eligible for more than reasonable profit margins. Price controls for food: it'll work this time!
  - jacobolus 7y ago
    You don’t need a price “control” per se. Just tax landlords’ profits progressively, with very steep top marginal rates. If it seems controversial to use that money for some other purpose, return the money as rent subsidies equally among all resident renters.
    - AnthonyMouse 7y ago
      Then all the high income property owners will trade their properties in your city for some other properties in some other city, the properties in your city will all be owned by the retirement funds of middle income people from all over the country who don't pay the high tax rates, and nothing about rents or real estate prices would meaningfully change. Also, to the extent that the tax was actually effective, it would reduce the incentive to build new housing and thereby raise housing costs. > If it seems controversial to use that money for some other purpose, return the money as rent subsidies equally among all resident renters. So you charge them money in tax and give it to the renter, what happens when they respond by raising the rent by that amount?
    - JamesBarney 7y ago
bsder 7y ago
I'm not a big fan of "Bank of Los Angeles/San Francisco/etc" but I would be a much bigger fan of "Bank of California". It should be geared toward serving as a bank, first, and an investment vehicle, second or minimally, and its records should be excruciatingly, painfully transparent. It also needs to serve as a backstop for those who find the current banking system too expensive or too exclusionary. Paycheck cashers are predatory vermin who need to be put out of business. I view disconnecting from Bank of America, Wells Fargo, and their ilk simply to be a bonus.
- kalleboo 7y ago
  In many countries the post office offers (or used to offer) banking services in a less commercial way than the private banks. Although now many countries have sold out/privatized their postal systems. https://en.wikipedia.org/wiki/Postal_savings_system https://en.wikipedia.org/wiki/Postal_savings_system
  - fennecfoxen 7y ago
    The postal savings systems are designed to help people get access to basic banking and bill-pay services. They may help expand access to these systems to those who might not otherwise have it. It is not the worst idea for a city to open one of these, though they would probably partner with an actual bank to help keep down technology and administrative expenses. Tellingly, postal savings systems are not designed as a way for the government to get money for projects that no sane lender would underwrite. The real purpose of the proposals we see here is to make the government less accountable to taxpayers and reality so they can underwrite their fantasy spending schemes with free money from their own bank. The endgame is the bank's inglorious failure, a federal bailout, and incoherent ramblings about how this is all the fault of the evil capitalists who hate poor people.
- clintonb 7y ago
  That’s essentially what a credit union is. The depositors are members/shareholders, so there is less focus on profiting from fees. Much of the profit comes from loans back to the members.
wisty 7y ago
More worrying, imagine if a city has some major economic downturn. A factory closes, an industry moves offshore, whatever. House prices in that city go down, not everyone pays their rates, and everyone is looking to the local government to keep the economy ticking along while they wait for new businesses to take advantage of falling wages. However, the local government bank has just written off a bunch of bad loans so the local government's credit rating has fallen off a cliff.
- UncleEntity 7y ago
  > However, the local government bank has just written off a bunch of bad loans so the local government's credit rating has fallen off a cliff. ...and, presumably, the Fed steps in and bails out the bank by buying up the bad loans. Seems, from a politician's point of view, a much better option than having the city go into bankruptcy when they can get a bunch of "loans" from the Fed to keep chugging along. Moral hazard be damned.
  - AnthonyMouse 7y ago
    That's assuming the Feds are going to do that. If they happen to be of the opposing political party at that time, good luck with that. Keep in mind that the bailouts after the 2008 housing crisis were across the whole economy. If that many major banks failed, it would have had a cascade effect, and that was the argument used to justify it. But one bank, in one city? That could fail without anybody saving it and the rest of the economy would barely notice. Though the people in that city sure would.
    - User23 7y ago
      To clarify, when grandparent wrote "Fed" he was referring to the Federal Reserve Bank, of which City-Run banks would be member banks. The Fed would be forced to prop them up or wind them down in an organized fashion in order to maintain the integrity of the payment system. Political considerations wouldn't really be a factor, and which party controlled the federal government wouldn't matter.
save_ferris 7y ago
> There’s been some suggestion that these types of banks would lend to entities that might not otherwise be creditworthy I don’t agree with this argument as this is already a huge problem in private and commercial banking. Loan approvals getting pushed through by bank execs for friends already happens quite a bit, especially in more economically depressed communities. For a more publicly relevant anecdote, the current president defaulted on a loan he received from the real estate arm of deutsche bank, sued the bank, and then opened an account in DB’s private banking division which gave him a loan to pay back the debt he owed to the real estate division.[0] The argument that public banks would somehow be less ethical than private banks, who’ve also been caught laundering money for cartels and terrorist organizations, is laughable. 0: https://www.nytimes.com/2019/03/18/business/deutsche-bank-donald-trump.html https://www.nytimes.com/2019/03/18/business/deutsche-bank-do...
- AnthonyMouse 7y ago
  That's a completely different kind of problem. A bank president who steals from the bank has committed a crime and should go to jail, but one instance of an amount of money which is very meaningful to one person is peanuts to the bank. By contrast, if you make net-loss transactions systemically as a matter of policy, your bank is going to go bust. Which is not going to please the depositors/taxpayers/FDIC.
  - save_ferris 7y ago
    I'm talking about POTUS, not the DB president. He's just one high-profile example of a bank lending to someone who wasn't creditworthy. Not to mention We're only 10 years past the worst financial scandal of a generation, which was caused precisely by underwriting mortgages for people who couldn't afford them. 465 banks failed in the US alone during this period[0], the exact scenario they claim that the public would fall into. The banks have absolutely no leg to stand on in terms of arguing that they alone can determine who should receive loans. They were the ones who blew up the economy 10 years ago and faced no consequences for it. 0: https://en.wikipedia.org/wiki/List_of_bank_failures_in_the_United_States_(2008%E2%80%93present)#2018 https://en.wikipedia.org/wiki/List_of_bank_failures_in_the_U...
opnitro 7y ago
Of course, the real question that needs to be asked is "if affordable housing isn't profitable, what do we do?" There are many things that we all want society to have that aren't profitable.
- AnthonyMouse 7y ago
  > Of course, the real question that needs to be asked is "if affordable housing isn't profitable, what do we do?" Right, and that's a good policy question. But once you answer it, you no longer need a politician-operated bank. For example, the main thing that makes affordable housing unprofitable is that artificial scarcity created by zoning rules puts the creation cost above the price threshold for what's considered affordable housing. So you have to fix that, but once you do, any ordinary bank will fund those now-profitable construction projects.
  - lsc 7y ago
    >For example, the main thing that makes affordable housing unprofitable is that artificial scarcity created by zoning rules puts the creation cost above the price threshold for what's considered affordable housing. So you have to fix that, but once you do, any ordinary bank will fund those now-profitable construction projects. So, I agree with this, of course, but there's still an argument for subsidizing the 'affordable' projects first. - this argument is that even in the above case (where, I agree, eventually cheap (compared to cost of construction) projects will be constructed,) more expensive housing (larger, more luxurious) will be constructed first because it's more profitable, and building companies and homeowners will do all they can to keep less expensive units out of the market as long as they can (I mean, builders will switch once they can't sell any more luxury units, but homeowners won't, and more homeowners means more anti-building pressure.) I think there's an argument to be made, in this case where the housing market has been so distorted for so long, for moving utilitarian, smaller-unit high-density construction projects to the front of the line. Luxury housing needs a lot less subsidies, but if you don't put something in to prevent your housing subsidies from going to luxury housing, your housing subsidies will go to luxury housing. (removing restrictions on density isn't a subsidy, you say? tell that to the people who's houses will be worth less if we build enough of the small condos to satisfy small condo demand. If we do build enough housing, the average Californian will lose a lot of money due to the decrease in real-estate prices. Sure, it's not a a government subsidy, but changing the rules so that one group gains and another loses is going to be opposed by the losers.)

by Lazare 7y ago

patio11 7y ago

I propose that if you want to run a bank you probably want sufficient facility with numbers to make projections about the future and sufficient probity to trust those projections even when they’re inconvenient, plus the integrity to not steal from the bank. Happily, there is a trivial work sample test of this for cities: are your city employee pensions fully funded?

dluan 7y ago
This implies bankers are good at banking - the same bankers who famously opened millions of ghost accounts for customers [0][1], laundered money [2], or let rogue traders exploit moral hazard [3]. Public banks would institute things like transparent charters that would be voted on by the citizens of the cities and communities - to decide what kinds of investments would be allowed and not. So you could divest say your teachers pension fund out of vehicles that fund ICE detention centers. [0] https://www.bloomberg.com/opinion/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts https://www.bloomberg.com/opinion/articles/2016-09-09/wells-... [1] https://en.wikipedia.org/wiki/Wells_Fargo_account_fraud_scandal https://en.wikipedia.org/wiki/Wells_Fargo_account_fraud_scan... [2] https://www.reuters.com/article/us-usa-usbancorp/u-s-bancorp-to-pay-613-million-for-money-laundering-violations-idUSKCN1FZ1YJ https://www.reuters.com/article/us-usa-usbancorp/u-s-bancorp... [3] https://en.wikipedia.org/wiki/2011_UBS_rogue_trader_scandal https://en.wikipedia.org/wiki/2011_UBS_rogue_trader_scandal
- lotsofpulp 7y ago
  >that would be voted on by the citizens of the cities and communities - to decide what kinds of investments would be allowed and not That is a very rosy assumption given the track record of voters, especially in the US.
  - dluan 7y ago
    It’s better than the alternative which is no democratic oversight of how Wells Fargo or Goldman Sachs uses or invests teachers pension funds. It was just power we accidentally gave away without realizing we could take it back.
    - lotsofpulp 7y ago
      It would be far easier to just implement IRAs and let people vote by deciding themselves where to invest.
      - fennecfoxen 7y ago
        Don't be absurd. We can't let people own their own retirement savings. We need to entrust that money to CALPERS, so that they can use our retirees' savings as a political cudgel, divesting from certain companies for ideological reasons, and buying board seats on others to exert their influence. The political machine doesn't just feed itself. It takes other peoples' money and abuse of the public trust to make the magic happen. (Worry not. If there's any shortfall from investing money politically, California taxpayers will make up for it.)
        guelo 7y ago
        As if giving the money to Wall Street to manage doesn't give them immense political power.
        lotsofpulp 7y ago
        Total stock market index funds are about as good as it gets right now, given the capacities of most people and their lack of interest in investing.

deleted 7y ago

[deleted]

jimbob45 7y ago

>But will building affordable housing be profitable? And if not, will the project be able to repay the loans? (Or if so, why are banks not willing to finance it?) That's my gripe. Nothing will stop the landlords from just jacking the prices. And if they don't, no one competent will run it since they can't make money. Really, the problem here is that critical industries should not be eligible for more than reasonable profit margins.

nordsieck 7y ago
> Nothing will stop the landlords from just jacking the prices. The only thing stopping landlords from "jacking the prices" is vacant supply. > Really, the problem here is that critical industries should not be eligible for more than reasonable profit margins. Price controls for food: it'll work this time!
- jacobolus 7y ago
  You don’t need a price “control” per se. Just tax landlords’ profits progressively, with very steep top marginal rates. If it seems controversial to use that money for some other purpose, return the money as rent subsidies equally among all resident renters.
  - AnthonyMouse 7y ago
    Then all the high income property owners will trade their properties in your city for some other properties in some other city, the properties in your city will all be owned by the retirement funds of middle income people from all over the country who don't pay the high tax rates, and nothing about rents or real estate prices would meaningfully change. Also, to the extent that the tax was actually effective, it would reduce the incentive to build new housing and thereby raise housing costs. > If it seems controversial to use that money for some other purpose, return the money as rent subsidies equally among all resident renters. So you charge them money in tax and give it to the renter, what happens when they respond by raising the rent by that amount?
  - JamesBarney 7y ago

bsder 7y ago

I'm not a big fan of "Bank of Los Angeles/San Francisco/etc" but I would be a much bigger fan of "Bank of California". It should be geared toward serving as a bank, first, and an investment vehicle, second or minimally, and its records should be excruciatingly, painfully transparent. It also needs to serve as a backstop for those who find the current banking system too expensive or too exclusionary. Paycheck cashers are predatory vermin who need to be put out of business. I view disconnecting from Bank of America, Wells Fargo, and their ilk simply to be a bonus.

kalleboo 7y ago
In many countries the post office offers (or used to offer) banking services in a less commercial way than the private banks. Although now many countries have sold out/privatized their postal systems. https://en.wikipedia.org/wiki/Postal_savings_system https://en.wikipedia.org/wiki/Postal_savings_system
- fennecfoxen 7y ago
  The postal savings systems are designed to help people get access to basic banking and bill-pay services. They may help expand access to these systems to those who might not otherwise have it. It is not the worst idea for a city to open one of these, though they would probably partner with an actual bank to help keep down technology and administrative expenses. Tellingly, postal savings systems are not designed as a way for the government to get money for projects that no sane lender would underwrite. The real purpose of the proposals we see here is to make the government less accountable to taxpayers and reality so they can underwrite their fantasy spending schemes with free money from their own bank. The endgame is the bank's inglorious failure, a federal bailout, and incoherent ramblings about how this is all the fault of the evil capitalists who hate poor people.
clintonb 7y ago
That’s essentially what a credit union is. The depositors are members/shareholders, so there is less focus on profiting from fees. Much of the profit comes from loans back to the members.

wisty 7y ago

More worrying, imagine if a city has some major economic downturn. A factory closes, an industry moves offshore, whatever. House prices in that city go down, not everyone pays their rates, and everyone is looking to the local government to keep the economy ticking along while they wait for new businesses to take advantage of falling wages. However, the local government bank has just written off a bunch of bad loans so the local government's credit rating has fallen off a cliff.

UncleEntity 7y ago
> However, the local government bank has just written off a bunch of bad loans so the local government's credit rating has fallen off a cliff. ...and, presumably, the Fed steps in and bails out the bank by buying up the bad loans. Seems, from a politician's point of view, a much better option than having the city go into bankruptcy when they can get a bunch of "loans" from the Fed to keep chugging along. Moral hazard be damned.
- AnthonyMouse 7y ago
  That's assuming the Feds are going to do that. If they happen to be of the opposing political party at that time, good luck with that. Keep in mind that the bailouts after the 2008 housing crisis were across the whole economy. If that many major banks failed, it would have had a cascade effect, and that was the argument used to justify it. But one bank, in one city? That could fail without anybody saving it and the rest of the economy would barely notice. Though the people in that city sure would.
  - User23 7y ago
    To clarify, when grandparent wrote "Fed" he was referring to the Federal Reserve Bank, of which City-Run banks would be member banks. The Fed would be forced to prop them up or wind them down in an organized fashion in order to maintain the integrity of the payment system. Political considerations wouldn't really be a factor, and which party controlled the federal government wouldn't matter.

save_ferris 7y ago

> There’s been some suggestion that these types of banks would lend to entities that might not otherwise be creditworthy I don’t agree with this argument as this is already a huge problem in private and commercial banking. Loan approvals getting pushed through by bank execs for friends already happens quite a bit, especially in more economically depressed communities. For a more publicly relevant anecdote, the current president defaulted on a loan he received from the real estate arm of deutsche bank, sued the bank, and then opened an account in DB’s private banking division which gave him a loan to pay back the debt he owed to the real estate division.[0] The argument that public banks would somehow be less ethical than private banks, who’ve also been caught laundering money for cartels and terrorist organizations, is laughable. 0: https://www.nytimes.com/2019/03/18/business/deutsche-bank-donald-trump.html https://www.nytimes.com/2019/03/18/business/deutsche-bank-do...

AnthonyMouse 7y ago
That's a completely different kind of problem. A bank president who steals from the bank has committed a crime and should go to jail, but one instance of an amount of money which is very meaningful to one person is peanuts to the bank. By contrast, if you make net-loss transactions systemically as a matter of policy, your bank is going to go bust. Which is not going to please the depositors/taxpayers/FDIC.
- save_ferris 7y ago
  I'm talking about POTUS, not the DB president. He's just one high-profile example of a bank lending to someone who wasn't creditworthy. Not to mention We're only 10 years past the worst financial scandal of a generation, which was caused precisely by underwriting mortgages for people who couldn't afford them. 465 banks failed in the US alone during this period[0], the exact scenario they claim that the public would fall into. The banks have absolutely no leg to stand on in terms of arguing that they alone can determine who should receive loans. They were the ones who blew up the economy 10 years ago and faced no consequences for it. 0: https://en.wikipedia.org/wiki/List_of_bank_failures_in_the_United_States_(2008%E2%80%93present)#2018 https://en.wikipedia.org/wiki/List_of_bank_failures_in_the_U...

opnitro 7y ago

Of course, the real question that needs to be asked is "if affordable housing isn't profitable, what do we do?" There are many things that we all want society to have that aren't profitable.

AnthonyMouse 7y ago
> Of course, the real question that needs to be asked is "if affordable housing isn't profitable, what do we do?" Right, and that's a good policy question. But once you answer it, you no longer need a politician-operated bank. For example, the main thing that makes affordable housing unprofitable is that artificial scarcity created by zoning rules puts the creation cost above the price threshold for what's considered affordable housing. So you have to fix that, but once you do, any ordinary bank will fund those now-profitable construction projects.
- lsc 7y ago
  >For example, the main thing that makes affordable housing unprofitable is that artificial scarcity created by zoning rules puts the creation cost above the price threshold for what's considered affordable housing. So you have to fix that, but once you do, any ordinary bank will fund those now-profitable construction projects. So, I agree with this, of course, but there's still an argument for subsidizing the 'affordable' projects first. - this argument is that even in the above case (where, I agree, eventually cheap (compared to cost of construction) projects will be constructed,) more expensive housing (larger, more luxurious) will be constructed first because it's more profitable, and building companies and homeowners will do all they can to keep less expensive units out of the market as long as they can (I mean, builders will switch once they can't sell any more luxury units, but homeowners won't, and more homeowners means more anti-building pressure.) I think there's an argument to be made, in this case where the housing market has been so distorted for so long, for moving utilitarian, smaller-unit high-density construction projects to the front of the line. Luxury housing needs a lot less subsidies, but if you don't put something in to prevent your housing subsidies from going to luxury housing, your housing subsidies will go to luxury housing. (removing restrictions on density isn't a subsidy, you say? tell that to the people who's houses will be worth less if we build enough of the small condos to satisfy small condo demand. If we do build enough housing, the average Californian will lose a lot of money due to the decrease in real-estate prices. Sure, it's not a a government subsidy, but changing the rules so that one group gains and another loses is going to be opposed by the losers.)