Using arguments similar to those advanced by Senator Raymond Lesniak, Democratic gubernatorial candidate James Johnson challenged the proposal to create a public bank in New Jersey that was put forward by Wall Street billionaire Philip D. Murphy.
A former Goldman Sachs partner, Murphy owns stock in many ‘too big to fail’ financial institutions and corporations that avoid paying US taxes by stashing profits in overseas accounts, but rather than doubting the honesty of his proposal, Johnson it would be impossible to create a public bank without top-to-bottom ethics reform in Trenton and he laid out five reasons why one would do more harm than good in New Jersey.
“After 11 credit downgrades, the emptying out of the school construction fund, the near collapse of our pensions, grossly underfunded public infrastructure, and catastrophic failures of core government functions like transportation, New Jersey taxpayers know that the last thing we need is another Wall Street gimmick. Murphy’s public bank is just one more bad idea that will be poorly executed at the expense of taxpayers,” said Johnson, who was Undersecretary of the Treasury during the Clinton administration.
Murphy wants to take $20 billion of government funds currently held in FDIC-insured accounts and start a state bank, which would not be protected by the federal government and would have political appointees make loan decisions with the taxpayer’s money.
“Phil Murphy’s public bank proposal is a misguided and vague idea that should not be taken seriously,” said Johnson. “While Murphy argues that a public bank would help our economy by saving taxpayer money and increasing investment, I, along with many policy experts, believe these expectations are false and that the bank would serve as a great danger to New Jersey taxpayers.”
Lesniak has spoken out against the idea, saying he would not want a Goldman Sachs executive involved in an entity that loans out public funds.
“There’s a damn good reason that North Dakota is the only state that has it — it’s a small state, rural. It’s a state that doesn’t have a history of political corruption,” Lesniak said.
“To me, this proposal alone disqualifies Phil Murphy from being governor of New Jersey,” Lesniak said. “He doesn’t understand New Jersey ain’t North Dakota.”
Johnson’s critique outlined these major objections:
- A Public Bank Would Actually Increase Risk To Taxpayers.Murphy’s bank would not be backed by the FDIC, but rather by “the full faith and credit of New Jersey.” The bank would lend taxpayer dollars used for operating expenses, employee salaries and other essential parts of government. If future Governors make poor fiscal decisions, government operations could be put at risk. And if New Jersey suffers more credit downgrades, taxpayers and residents with loans tied up in state bank funds would suffer the risk — not Murphy.
- Other States With Economies like NJ Have Concluded That It’s A Bad Idea. Murphy often cites Massachusetts as a model state, but even Massachusetts has concluded that a public bank is a bad idea, arguing that the “funds would be exposed to very high risk, the bank could require significant initial start-up capital and that the economies of North Dakota and Massachusetts were vastly different.“
- The Idea Has Not Been Thought Through. Murphy hasn’t even thought through the structure of the bank, including whether the Governor would oversee the bank, like he does in North Dakota. As recently as last week, when asked who would oversee the public bank, Murphy responded, “I haven’t thought about it, to be honest with you, as to whether the governor would sit on the board and oversee it.“
- A Public Bank Can Be Used for Political Purposes. A public bank, run by politicians and overseen by a Governor, is not immune to political pressures and can easily be directed away from its original intent. For example, the Bank of North Dakota most recently lent nearly $10 million to local law enforcement to fund their harsh responses to nonviolent protests near the Standing Rock Indian Reservation and Cannon Ball, North Dakota. Likewise, future New Jersey Governors could use the bank for his or her own political aims.
- Phil Murphy Was Already A Partner At Another Bank: Goldman Sachs. Goldman Sachs sold billions of dollars in securities shorting personal home mortgages. His bank bet against Americans and their dream of homeownership – and then made millions when Americans lost not only their financial security for the future, but also their homes. With the highest foreclosure rates in the country, New Jersey is still reeling from the 2008 housing market crash.
“Why should voters trust former Goldman Sachs executive Phil Murphy or Trenton with their money? The Wall Street approach is to throw money or take your money — we’ve seen the effects of that approach right here in New Jersey with our worst-in-the-nation foreclosure crisis. Furthermore, Trenton already oversees trust funds to build our schools, pensions, and highways. Clearly, the answer is not to give Trenton more control — and why would we when it has long been ripe with issues of political corruption and patronage? New Jersey doesn’t need a Governor who is interested in running another bank. We need a Governor who is committed to addressing the multifaceted aspects of rebuilding our economy and restoring trust in our government.”
Johnson is the only candidate in the race to propose comprehensive ethics reform in New Jersey. To address the self-serving politics of Trenton, as Governor, Johnson will eliminate no-bid contracts, enact strong rules against lobbying, implement a transparency pledge and permit only one public pension per official. Johnson’s full ethics proposal can be found here.
Murphy’s political opponents are not the only critics of his scheme.
“This is all kind of pie in the sky,” said Michael Affuso, executive vice president for the New Jersey Bankers Association, who questioned why Murphy is making it a cornerstone of his campaign. “Why is this the leading talking point? Never have I heard a clamoring for a state bank.”
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