Byrd: Learn from the Bank of North Dakota

BY MATTHEW BYRD | JULY 21, 2014 5:00 AM

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Those dedicated to the complete destruction of America’s grossly corrupt financial industries were treated to some good news this past month when Wells-Fargo, the largest bank in the state of Iowa by deposits, failed in its efforts to persuade a U.S. Appeals Court that the Federal Housing Authority didn’t have the standing to pursue a lawsuit over the bank’s allegedly fraudulent foreclosure practices. Those practices allegedly included “robo-signing” or producing forged “endorsements,” documents that prove lenders like Wells-Fargo own a mortgage and can therefore foreclose on homeowners whom they have no actual legal authority to foreclose on. Well-Fargo even allegedly created a 150-page manual to help its lawyers successfully implement practices such as “robo-signing” in order to evict struggling homeowners.

The second largest bank in Iowa by deposits, U.S. Bank, has also been embroiled in scandal, having recently being forced to pay $200 million in fines to the FHA for underwriting mortgages that it knew did not meet FHA requirements for solvency.

These are just some of the more milder entries on the list of offenses committed by American banks in recent years, a list that includes money laundering for Latin American drug cartels, municipal bond and energy market manipulation, rate-fixing, and bribing Chinese Communist Party officials to win investment contracting bids in the world’s second-largest economy.

While it’s easy to point out that American banks are gargantuan temples to graft, criminality, and fraud, it’s much harder to offer any solutions to divorce the central purpose of banks, providing access to capital for businesses and individuals and providing safekeeping for the assets of said businesses and individuals, from the abuses that naturally flow from multinational financial institutions. The answer may lie in one of Iowa’s Great Plains neighbors: North Dakota.

In 1919, North Dakota was in the midst of a societal crisis. As the former commissioner of New York City’s Department of Consumer Affairs Gretchen Dykstra explained in a New York Times Op-Ed, “Out-of-state bankers owned their mortgages, Minneapolis financiers and industrialists owned all the elevators and mills, the railroad tycoons controlled freight costs, and together, they thwarted competition for the state’s lucrative wheat market.”

In response the state created “the bank of North Dakota,” a state-owned institution that deposits tax revenue from the citizens of North Dakota and funnels it back into the state’s economy through loans to small community banks and individual North Dakotans. Specific programs include low-interest flood insurance for North Dakota homeowners, mortgage and student loans, and investing in local businesses to help, in the words of bank President Eric Hardmeyer, spur economic development in the state.

But it works. The state bank is running the biggest surplus of its 90-year history, and the state of North Dakota has largely avoided the economic pitfalls that have befallen the rest of the country, with the key being the fundamental differences in psychology between banking titans such as U.S. Bank and Wells Fargo and the state bank.

That bank is focused on enriching and safekeeping the economic fortunes of the citizens of North Dakota. Wells Fargo and U.S. Bank are trying to increase their profits by any means necessary, whether ethical and unethical, helpful or harmful to their customers.

It’s often argued that the lack of a profit motive in centralized banking (and socialist-esque economics in general) leads to corruption economic stagnation and ruination. Those looking at North Dakota see none of those things. Perhaps Iowa should open its eyes.

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