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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?

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-...

[1] https://en.wikipedia.org/wiki/Wells_Fargo_account_fraud_scan...

[2] https://www.reuters.com/article/us-usa-usbancorp/u-s-bancorp...

[3] https://en.wikipedia.org/wiki/2011_UBS_rogue_trader_scandal

>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.

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.

It would be far easier to just implement IRAs and let people vote by deciding themselves where to invest.

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.)

As if giving the money to Wall Street to manage doesn't give them immense political power.

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.

>no democratic oversight of how Wells Fargo or Goldman Sachs uses or invests teachers pension funds.

Why should anyone have a say in where the money is invested except the pension fund itself?

And why isn't it the teacher's pension fund's responsibility? They can't even put their money in a bank that aligns with their investment philosophy, but you want them to run the money themselves??

>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].

A handful of examples doesn't negate centuries of of financial history. And I love how you state "allowed traders to exploit..." as if this has anything to do with banking ability. Is there an industry on the planet that doesn't have such examples? Perhaps we should run our own mines, develop our own social networks and produce our own cars locally, too? There are scandals everywhere you look.

>to decide what kinds of investments would be allowed and not.

Oh that would be brilliant. Most people don't even understand elementary finance. Even on this board, you can paste data from the financial reports and have it downvoted.

> 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-do...

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.

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_U...

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.

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

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.

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.

I walked away from commercial banking almost 2 decades ago and never regretted it once. Credit unions are great.

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.

> 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.

>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.)

> more expensive housing (larger, more luxurious) will be constructed first because it's more profitable

Is this even true? You can put eight little studios with shared bathrooms and kitchens in the same amount of space as one big luxury three bedroom, and you get more rent from eight $600 apartments than one $4000 one. The reason the cheap little apartments don't get built is that they're explicitly prohibited by zoning (or implicitly prohibited by things like per-unit parking requirements that destroy the economics).

> 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.

The problem is that this creates a massive discontinuity at the point where you go from "affordable housing" to market rate housing, and screws over anyone who can't get into "affordable housing" either because they're $200/year over the income threshold (even though still quite poor) or because the demand for "affordable housing" continues to outstrip the supply even for people who qualify for it. And the latter is necessarily the case until you actually build enough of it that it would cause market rate housing to become affordable anyway.

> 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

That's almost entirely due to regulations that restrict density. For example, strict parking space requirements sharply limit the number of units you can build in a given parcel. If you are required by law to only let 10 people live on a parcel that could comfortably house 80, you're going to have to maximise the amount of money you get from those 10 people.

Repeal the laws that force developers to focus on luxury housing, and you'll get less luxury housing. It's not rocket science, and it works well in areas which have done so.

1) Give the poor enough money that housing will be affordable.

2) Subsidise housing directly.

3) Change regulations so building affordable housing will be profitable.

There's nothing fancy or unusual about housing. The poor might struggle to afford food, so we give them money (eg, via EITC) so they can afford food, we give them food directly (in the form of vouchers, such as food stamps) so that they have food, and we use industrial policy to ensure that food will be cheap and available, so they can afford food.

This works pretty well! Food is very cheap in the US, to the extent that many people suggest we've gone too far and made it too cheap and available.

Note that at no point does "invest city pensions funds in a slush fund to make loans to people wanting to build artisanal dairies" come up, because that's actually not going to solve the problem.

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.

> 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.

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.

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.

You're talking about two different things. After 2008 The Feds bailed out the banks by having The Fed issue them loans and buying up their toxic assets. It's less likely that would happen with only an individual local bank.

By contrast, when a bank goes out of business, the FDIC covers most of the deposits. But that doesn't end the same way for the bank. And if the bank is the city, the question then becomes whether they have to e.g. sell all of their real estate holdings and other city assets, or allocate their revenues from taxes to covering deposits, before the FDIC has to cover them. Meanwhile all the cronies who got loans for buildings they can't afford would suddenly find the loans owned by somebody else who would be more inclined to foreclose on them if they don't make the payments etc.

How do you mean? I was only clarifying that "the Fed" means the Federal Reserve Bank, when the person I responded to originally mistook it to mean "the Feds," which is a much more ambiguous term, but generally means some federal regulatory body or the political branches of the federal government as a whole.

You're obviously correct though that the real motivation for a city owned licensed bank is to move pension liabilities and maybe some other assorted boondoggles from the city's balance sheet to the bank's balance sheet with the intention of strong-arming the Fed into acting as a backstop just as it did for commercial banks during the financial crisis.

>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.

> 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!

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.

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?

Currently people invest in real estate expect a certain% return and if it's lower than that they invest in the stock market(or real estate elsewhere).

Now imagine we tax half their profits. This would cause two things. Landlords would convert rental units to owner occupied. Because rental units will now have half the value of a rental unit as it would as owner occupied. Then all rental unit developers would stop building until the scarcity of rental units drove up the leasing cost to make being a landlord profitable again.

> Price controls for food: it'll work this time!

Very cheap food is working right now in the USA thanks to incredible subsidies, and it is flooding the world market with tons of cheap food.

Agriculture is hugely subsidized in the US, to the point that corn is so worthless it's cheap enough to add or inject into everything.

Meanwhile, the USDA manages supply through bulk buys via the Agricultural Marketing Service which it then dumps on schools, low end neighborhoods (Government Cheese being the most famous case of USDA food dumping), food banks, etc.

For a UK take on this see: http://www.harrowell.org.uk/blog/2013/02/23/the-simple-plan-...

The trick is that the local authorities are already paying 100% of the rent for a large category of people, so they might as well cut out the middleman, own the houses, and pay the statute-guaranteed money to themselves.