I was asked to take a look at Phil Murphy’s “state bank” idea. So I did and here are my thoughts.

The general idea is that the State would create a bank that would service the State of NJ and then make loans to municipalities and possibly special classes of citizens, like students, at favorable terms.

I had three initial thoughts

• By charging lower rates than commercial banks for the same amount of risk, taxpayers will bear the cost
• What problem is this idea trying to solve?
• Why would NJ, in 2017, model anything after North Dakota, in 1919 (as apples and oranges a banking environment as you can possibly get)?

I read the Politico article about this which was fairly in depth and came away even more confused.

It seems that the Murphy campaign is struggling to figure out how it can protect a State Bank from political corruption.   That’s good, because it would seem that a State controlled bank would be like a sandbox for malfeasance of one type or another.   You can just hear the back room bargains now for funding of this or that local infrastructure project in return for some sort of favor.

Meanwhile, the question that is NOT adequately addressed is “what problem are we fixing?”   The answer can NOT be that commercial banks are charging too much.   If that were the case then there are plenty of other banks that would charge citizens less if it were possible.  A State bank could only charge less if it were subsidized by taxpayers, which is exactly what will have to happen.   The public can be easily duped on this note because not many people understand the relationship between risk and cost.    Basically, a State bank could charge lower interest on loans if taxpayers guarantee the loans.   If loans go bad, it’s not the bank who takes the loss, it’s the taxpayer.

Presumably, we DO have a problem with corruption in our use of banking services.  Why wouldn’t we?  NJ politicians have found ways to corrupt all types of government contracting.   While a Public Bank could address this corruption, it seems like we would be simply shifting the corruption from one place to another.

We do a lot of dumb things in NJ.  As an example Trenton used public money ($65M in state and local funds) to build a publicly owned hotel back in 2000.   This happened because private money didn’t think there was a good business case for the hotel.   And there wasn’t.  So taxpayers were left holding the bag when the hotel went bankrupt.   This is what happens when we let politicians with big chunks of public money make investment decisions.   A New Jersey Public Bank would fund a field day for politically motivated bad investments.

Murphy’s public bank proposal garners praise and skepticism