A Response to the Philadelphia Citizen

Larry Platt doesn’t think much of Philly.  Extreme conservatives believe that people are greedy, selfish, and so stupid they will not do something of benefit to themselves if it might possibly benefit other people – like forming a public bank. He must hate living in this city of brotherly and sisterly love where our Quaker roots still inform a faith in everyone working together for the common good.  

We LOVE this city! The Philadelphia Public Banking Coalition is incredibly proud that Philly is looking to embrace a proven model of how to finance our best future. We represent faith groups, environmental advocates, cooperatives, and numerous other civic organizations. We are inspired by North Dakota’s wildly successful public bank and similar institutions all over the world where there are democratic governments. We are inspired by America’s first public bank founded in this city in 1750 that helped to make Ben Franklin’s Philadelphia strong, prosperous, and revolutionary.

Let’s look at Platt’s arguments, which are surely weakened with a full read of the proposed City Council bill. First, he believes a financial institution cannot regulate itself to benefit the public. While we cannot guarantee that wicked people will not try to take control of the new Philadelphia Public Financial Authority, checks and balances are baked into its design. The two boards are independent. The governing structure of the Authority places control in the hands of citizens who have provided long service to organizations in the pursuit of racial, economic, and environmental justice. Banking interests on the board are limited to local community banks, credit unions, and Community Development Financial Institutions. Board members are barred from making profit for themselves, charged instead with acting in the public interest. Thus, the bill targets the cronyism that Platt warns about by requiring appointment of citizen advocates, not politicians or friends of politicians, to the boards. Further, what checks and balances were there on Wall Street in 2008? Their bankers conned Philly into “credit default swaps” that sucked more than $250 million dollars out of our city to line their pockets with gigantic bonuses. We certainly could have used that money to fund our schools. What checks and balances stopped Wells Fargo from opening thousands of fraudulent bank accounts in the names of Philadelphia customers? The Authority will work with existing financial institutions like CDFIs until it is ready to form an entity with banking powers. It is incorrect and frankly, naive, to assume that private bankers are more righteous than those who can be hired and fired by us citizens.

Compare that with the kinds of banks in which the city now places its money and its trust. Wells Fargo has been fined billions of dollars for fraudulent behavior. Indeed, the city recently took Wells Fargo and other banks to federal court for cheating on interest rates, stealing hundreds of millions of our tax dollars. 

As Platt acknowledges, Councilmember Derek Green’s bill will make the financial authority subject to the city’s Ethics Code so that no one associated with it – officers, employees, or City officials – will be allowed to benefit from any authority action. Specifically, no person associated with the authority may be “financially interested in any… award, contract, decision, decree or judgment made by him [or her] in his [or her] official capacity, or by [the authority].” There are stiff penalties for violating ethics rules and they are strictly enforced.

Second, Larry Platt thinks the new entity is too risky and would endanger the city’s financial stability. Wrong. The authority will acquire insurance so that the full faith and credit of the City will not be at risk. Moreover, after the Dodd-Frank reforms, it’s not clear the big banks will be bailed out after their next crash. And there will be a next crash. Further, the City’s deposits are already far larger than what is protected by the FDIC. In other words, it is riskier for the City’s funds to be held by Wall Street banks than in a bank of our own. Yes, public banks have closed or failed in the past, but we defy Mr. Platt to show us any evidence that public banks have failed in any greater numbers than private ones. What happened to the thousands of institutions that used to occupy some of Philadelphia’s landmark architectural structures – PSFS? Germantown Savings Bank? The Second Bank of the United States? Just take a stroll through our historic districts and look up at the stone lintels. 

Platt’s accusation, in the subheading of his screed, is that Councilman Green wants to put Philadelphia taxpayers “in the banking business.” This is a gross misrepresentation designed to confuse. If all he means is that our city money would go into a well-regulated and federally insured authority owned by us, the taxpayers, instead of the Wall Street investors, then we the taxpayers are already “in the banking business.” But we are in that business as captives of the big banks that charge us astronomical fees to “borrow” our own money, cheat us, illegally redline our neighborhoods, finance projects that undermine our health and welfare, and pump our wealth into the pockets of shareholders instead of re-circulating it in our local economy. These are the same banks that ripped us off for hundreds of millions in 2008 and that now – bigger, less regulated, and more dangerous than ever – are poised to do it again.

Then there is the question of how well our current financial arrangements address issues of justice and equity. The City has also recently settled a suit against Wells Fargo for redlining our Black and brown neighborhoods, one of the most harmful financial practices ever perpetrated against racial minorities. For too long, systemic racism has robbed Black and brown families and communities of their ability to accumulate wealth.

Platt asks what problem we are trying to solve with the creation of a public bank. A public bank addresses so many issues, but let’s look only at the concrete measure of money. When we consider that about half the cost of projects that are funded by long-term bonds is made up of interest, the potential of a non-profit bank is striking. The debt of the Philadelphia School District, for example, totals $3.2 billion. To service that debt, the School District is slated to pay bondholders 9% of its budget, a staggering $293 million, in its current fiscal year. Interest payments amount to $147 million of that debt service load, or more than half the entire cost. A public bank chartered by the city could reduce these costs in two ways, by refinancing the existing debt and borrowing additional funds at much lower interest costs. Were the School District paying 2% – the rate at which the Bank of North Dakota lends for infrastructure – its annual interest payments would be $64 million rather than $147 million, a savings of $83 million. Of course, the School District would not be able to immediately refinance all of its bonded indebtedness at a lower rate for a variety of reasons. But it would be able to issue new bonds at that rate and deal with outstanding debt at a steady pace, thus increasing its borrowing power. The City of Philadelphia has a debt load structured not that differently from that of the School District and restructuring its debt would also free up tens of millions of dollars over time.

In evaluating the claim that the city cannot be trusted, it’s important to understand that the alternative to local, municipal control is privatization. The same argument that suggests the city cannot be trusted with its own money implies that it cannot be trusted with a fire department, a streets department, public libraries, and other essential services that can, theoretically, be a source of corruption. We take our chances with that possibility because the private sector is more than capable of corrupting such services itself and because it has no fundamental interest in fairness. We are responsible for building a system that makes equitable investments in our communities.

Platt is a great believer in privatization. But look at what privatization has done for our educational system. There are great private schools and universities you can attend if you go into debt for the rest of your life. Meanwhile, public schools that were once the envy of the world are shriveling. Wow. Look at what privatization has done for healthcare. There are medical miracles that are affordable only to union members and Saudi princes; the rest of us cannot afford life-saving insulin. Wow. Look at what private banks have done for our communities. Low-income people cannot afford bank accounts; private money guys would rather send them to payday lenders – which are extremely profitable financial entities. Why are our neighborhoods falling apart? Because homeowners could not borrow enough to fix their roofs. So, if you believe in transferring wealth from the 99.9% of folks on the bottom up to the 0.1% billionaires on the top, then you are a true advocate of privatization. We in the PPBC are for public banks for our public money for the public good.

Every alternative (and there are some good ones) that Platt raises for putting our public money to work for the public good – partnering with community banks, minority banks, CDFIs, or any of the non-profit funds and public benefit corporations he lists – would be impossible without the existence of some city authority or agency that had the mandate, staffing, expertise, and oversight to create those. Such an authority or agency would ideally be run by qualified individuals with experience in commercial banking, overseen by a board on which respected, grassroots community organizations were well represented. It would be under strict ethical constraints, be regularly audited by our City Controller, and would have a firm firewall between it and the political process. Oh, wait… that pretty much describes the Financial Authority that is currently being considered. Did Platt even read Councilmember Green’s proposal before launching his attack? 

Finally, let’s not ignore the subtext of Platt’s messaging, because that too is disturbing. Hypothetical questions like “do we want to entrust banking authority to a city that can’t even…” followed by a list of things the city struggles to do because it lacks the funds begs the question of WHY the city lacks the funds to do these things. This is all part of the mentality that seems to form the centerpiece of the right-wing agenda – defund the institutions charged with providing for the public good (such as schools and municipal services), cause them to fail, and then point to the failure as “proof” that they should be dismantled and privatized. At bottom, this is the logic of white supremacy, whether Platt consciously realizes it or not – dismantle the public sphere that should be providing services to all regardless of race, creed, or economic status and transfer the resources into the hands of private gatekeepers who can put a price on those services that only the already privileged can pay. The anti-democratic notion that ordinary people cannot be trusted to make decisions for their own benefit, that government by the people is doomed to endless corruption that cannot be remedied or safeguarded against also reeks of this same racism and elitism. When leveled at a city that is majority minority, whose City Council looks like the communities it represents, the animus behind it speaks for itself.

Let’s be more optimistic. Philadelphia is a great city, an innovative one, that believes in its ability to make a better life for its people through the creation of a financial institution that will serve our businesses, homeowners, students, and institutions to build a thriving local economy. A public bank is unique in its ability to bring money back to the city without raising taxes. Why are we paying interest to Wall Street banks so they can invest in sweatshops in China or prisons in Western PA? Why don’t we invest in ourselves instead?