Time for the Washington State Treasurer to Stop Gambling on Wall Street…and Start Supporting the Safety of Public Banking

According to the Washington State Treasurer, Jim McIntire, economic recovery is just around the corner. Herbert Hoover said exactly the same thing in 1932 – just months before nearly every private bank in America went broke due to their excessive gambling on Wall Street. As State Treasurer, Jim manages about $70 billion in pension funds from about 15 different accounts. Much of this $70 billion Jim gambles on Wall Street buying up everything from Mortgage Backed Securities to Monsanto to foreign corporations that make money off Chinese sweat shops. Below is a table with how Jim did from July 1 2012 to July 1 2013 (the latest available annual report).

Jim was elected State Treasurer in November 2008 and took office on January 1, 2009. Jim was re-elected in 2012. So far, the first five years have been a rough ride for Jim. In 2009, according to the Washington State Investment Board, Jim lost 22.8%. In 2010, Jim made 13.2%. In 2011, Jim made 21.1%. In 2012, Jim only made 1.4%. Then in the first half of 2013 (the latest information available), Jim made 13.7%. The average for Jim’s first five years has been about 5% per year. This is despite the Federal Reserve juicing the Wall Street punch bowl with trillions of dollars of “Quantitative Easing” courtesy of the US tax payers.

Jim also manages about 13.5 billion in non-pension funds. His return on investment for that 13.5 billion was less than one percent. This dismal performance was during the “good times” of a rapidly rising stock market. Sadly, back in January 2014, the Federal Reserve began to gradually remove the punch bowl from the drunk speculators on Wall Street. The punch bowl is scheduled to be removed completely later this summer. When this happens, things on Wall Street are likely to get pretty ugly. To understand just how ugly, take a long serious look at the following chart which compares the New York Stock Exchange Margin Debt to the S & P 500 for the past 20 years.

Note that the August 2000 Crash was preceded 5 months earlier by a spike and collapse of Margin Debt (debt used to buy stocks on margin or with only some money down). The October 2007 Crash was preceded 3 months earlier by a spike and crash of margin debt. In February, 2014, right after the Federal Reserve Punch Bowl started to be taken away, Margin Debt again peaked and has declined for the past 3 months. In short, margin debt has been one of the best predictors of a market crash a few months later. Below is another look at a similar chart going back to 1980.

Using Margin Credit as a signal, it looks like a stock market crash is imminent. If the State Treasurer continues to gamble like he did in 2009, he could lose 20% or more of our $70 billion in retirement funds. This would be a loss of $14 billion or more. Below is a summary of where Jim has our pension funds invested.

Note the billions of dollars Jim has invested in foreign governments and foreign corporations. Jim is not only outsourcing our jobs to sweat shops in China, he is also outsourcing our retirement funds to corporations in China! There are other much safer options. First, Jim could immediately move all State funds to inflation linked Treasury Bills. Second, and equally important Jim could drop his false claim that public banking is “dangerous” and join with the Washington Public Bank Coalition in building a public bank here in Washington State. After all, if Jim can invest in sweat shops in China, why can’t he invest that same money creating jobs here in Washington State?

The public Bank of North Dakota has done much better than Jim with their State investments and they did it without risking everything on a Wall Street throw of the dice. For example, in 2012, when Jim McIntire made only 1.4% on $60 billion, the public Bank of North Dakota BND) made 17.1%.

Currently, Washington State has a record $18.7 billion in debt. In the 5 years Jim has been in office, our legislature has been forced to pay an average of $800 million per year ($4 billion) in interest payments to Wall Street banks just because Jim refuses to support a public bank.

Washington State General Obligation Bonds Principal and Interest 2005 – 2013

This is $4 billion robbed from the General fund and given to Wall Street bankers. Had Jim agreed to support a public bank in 2009, we could have used this money instead to hire an additional 8,000 teachers per year. We also have about $20 billion in outstanding school construction bonds and another $20 billion in outstanding transportation bonds. If we financed our own bonds, like they do in North Dakota, we could have saved $12 billion just in interest payments in the past five years. This would give us billions of additional dollars to build roads, build schools and hire teachers. And we would not have to worry about losing our shirts in the next Wall Street Crash.

There will not be an Economic Recovery until we stop giving all of our money to Wall Street Big Banks and Billionaires
The Wall Street controlled media made a big deal out the fact that 200,000 jobs were created in May 2014 – returning the total number of jobs to what they were 6 years ago. As the following chart shows, during the 2008 Crash, we lost 8 million jobs.

So we are back nationally to 138 million jobs – which are the jobs we had when the Great Recession started. But how many people graduated from high school and college in the past 6 years? No mention was made about the fact that 8 million young adults graduated from high school and college in the past 6 years expanding the labor force by 8 million and thus there are 8 million more unemployed people than there were 6 years ago. No mention was made about the fact that the Labor Force participation rate is at an all time low with barely half the people in the US even having a job. No mention was made about the fact that the average hours worked has fallen to 34 hours per week and thus for every person with a full time 40 hour per week job someone is currently working only 28 hours per week for $8 bucks an hour – or less than $12,000 per year at a time when the average rent is approaching $1,000 per month. No mention of the fact that college student loan debt has now exceeded $1.2 trillion or that the unemployment rate among young adults is now over 50%.

Here is the Labor Force Participation rate based on the BLS Household Survey. Does this look like economic recovery to you?

What about the “recovery” of the housing market?

Home prices have stabilized. But 50% of all home purchases are now due to predatory Wall Street speculators like Blackrock coming in and paying cash for foreclosed homes. And who owns Blackrock? That would be the same big banks that caused the economic crash and them forced people out of their homes in the first place. Where did the big banks get all of the money to pay cash to buy up these homes? That would be from us, the US tax payers! Our tax dollars are being used to drive families out of their homes and prop up the big banks and Wall Street speculators. Did I mention that Jim McIntire has also invested in Blackrock? So both State and federal tax dollars are being used to prop up this ugly business.

Since 2007, more than 10 million people have been driven out of their homes after they lost their jobs and could no longer make their mortgage payments. Nearly all of these homes wound up in the shadow inventory of the big banks whose gambling had caused the crash. The banks then sold these homes in bulk at discounted prices to a group called Blackstone through a subsidiary called Invitation Homes. In a single day, Blackstone bought 1,400 homes in Atlanta. In total, Blackstone has spent $7.5 billion buying up homes all over the US. Below is a map of the foreclosed homes Blackstone now owns in Phoenix Arizona.

As for regular home buyers, mortgage origination loans are at a 14 year low. This is despite the fact that according to the US census, 15 million homes are not occupied. This at a time when millions of families and millions of children are sleeping in the back seat of the family car. The number of vacant homes in the US and in Washington State have skyrocketed by more than 40% since 2000.

Why are we at risk of a stock market crash?
There are two main “structural” problems with our economy. The first is an extreme concentration of wealth and power. Wealth is more concentrated than at any time since 1929.

The second problem which is related to the concentration of wealth problem is “money velocity.” Money velocity is a measure of how quickly one dollar moves through the economy. The problem is that billionaires sit on money rather than spending it. This leads to a lack of money circulation in the economy. Since money is the blood of our economy, when it does not circulate, then the economy has a heart attack which we call a stock market crash.

As you can see, there has been no recovery in the velocity of the money supply. In fact, it is now at a 50 year low. Instead of circulating in the economy, all of the trillions of dollars in QE simply went to the billionaires and big banks who used the money to create an artificial bubble in the stock market. It is simply a matter of time until the entire house of cards comes crashing down. There is no economic recovery. As long as we allow our country to be run by big banks and billionaires, there is only economic misery. The time is now for the Washington State Treasurer to stop gambling on Wall Street… and start supporting the safety of our own public bank. We could create tens of thousands of jobs simply by keeping our money working here in Washington State rather than lining the pockets of Wall Street Hedge Fund managers.

I am currently running for the Washington State legislature. I helped draft the bill to create a public bank in Washington State. If elected, I will introduce a bill to start a public bank in Washington State and prohibit the State Treasurer from recklessly gambling state funds on Wall Street.

David Spring M. Ed.
springforschools@aol.com

David Spring is a leader of the Washington Public Bank Coalition and a candidate for the Washington State House of Representatives for the 5^th Legislative District in East King County. To learn more about his campaign, go to http://springforhouse.org/

To learn more about the Washington Public Bank Coalition, go to http://www.washingtonpublicbankcoalition.org/

To learn more about the national public bank and how you can start a public bank in your state, go to Public Bank Institute, http://publicbankinginstitute.org/

Originally published at PublicBankingInstitute.org