Public bank bill puts state in its place – Orange County Register


California lawmakers have a ready-made solution for almost any problem, big or small: create a new government bureaucracy to administer a “historic” program. Yet after the establishment of the new agency, the state rarely feels inclined to analyze the performance of the program or resolve the unforeseen problems it has caused.

Examples of the failure of the California government bureaucracy abound. The most appalling recent scandal involves the state-run Department of Employment Development, which pays unemployment benefits. The agency has been months behind in resolving legitimate claims, even though it has paid up to $ 31 billion in fraudulent or inappropriate sums.

California’s public pension plans are in the hundreds of billions of dollars in debt. Instead of reforming them, the legislature created a state-run system (CalSavers) for private sector employees. As always, existing systems are immune to reform because political rather than financial considerations guide the management of government agencies and programs.

Now California lawmakers want to start a public banking system to solve a problem that could be solved in an easier way. Assembly Bill 1177 from Assembly Miguel Santiago, D-Los Angeles, would create the CalBank program to protect consumers “who do not have access to traditional banking services from predatory, discriminatory and expensive alternatives.” It would offer charge-free and penalty-free debit card accounts and services.

The wording of the bill highlights a legitimate problem. A quarter of California households do not have bank accounts and instead rely on expensive alternative services such as payday lenders and pawn shops. It is certainly true that “access to basic financial services, including demand deposits (checks) and savings accounts, is an essential element of financial stability”.

Yet many financial services are available to the poor without creating a new bureaucracy. Traditional banks and especially credit unions offer low cost banking options. For example, there are prepaid debit cards for those who cannot maintain a regular balance. The sub-bank problem can often be solved by telling people that a checking account is more profitable than money orders and check cashing services.

There are a lot of ideas to explore here, but a public banking option shouldn’t be on the table. In traditional private banking, companies have to make reasonable loans, otherwise they will not be repaid and lose money or fail. Of course, private banks have their share of problems – not the least of them is the government’s tendency to bail them out when they make stupid decisions. However, letting the government fully control a bank is a recipe for disaster.

Public banks allow “democratically chosen priorities – such as social justice, poverty reduction, reduction of carbon emissions, environmental clean-up or industrial policy – to play a greater role in the beneficiaries of the funds. ready, ”Jeff Spross wrote in a 2019 column in The Week. This is the fundamental problem with the concept of public banking.

Instead of making sound financial decisions, public banks can become a slush fund to divert taxpayer money to causes politicians prefer. Unsurprisingly, Kerry Jackson of the Pacific Research Institute recently explained on these pages that public banking systems are plagued by financial failures and mismanagement.

And don’t politicians already have enough of our money to turn to special causes? AB 1177 should be a no-starter, although we welcome discussions on improving banking services for low-income people. There are many market-based solutions that are better than setting up another non-accountable state agency.

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