Virg Bernero, the mayor of Lansing and a leading candidate for the Democratic nomination for governor, has an interesting idea. He would like Michigan to start a state-owned bank that could help stimulate the economy and make low-interest loans.
He put it this way, "We can break the credit crunch and beat Wall Street at their own game by keeping our money right here in Michigan and investing it to retool our economy and create jobs."
Apparently, the Bank of Michigan, if that’s what it would be called, would be set up in a way so as not to compete with other private and independent community banks.
Instead, his idea is that it would partner with them, and serve as what he called a "financial backstop" for their loans, though how that would work is not clear.
Bernero has said he thinks a Bank of Michigan could offer low-interest student loans and perhaps help ease the foreclosure crisis by buying up mortgage portfolios held by smaller banks.
Now while I talk to economists and have read a great deal of economic theory, I would be the first to admit that I am in no way an expert on banking. But I have some questions. Bernero is basing his concept largely on a model that now exists in North Dakota.
There, the state-owned Bank of North Dakota has existed for ninety-one years, functioning today largely as an economic development agency and an entity that helps private banks finance large projects. And it returns a nice profit to the state, averaging $30 million a year. This all sounds very good, except...
Michigan is not North Dakota. We have 10 million people; they have 640,000, far less than the population of Macomb County. Our economy is vastly different. We would need to make sure we had safeguards in place to protect the taxpayers before establishing such a bank.
My primary worry is not Susie Sophomore defaulting on her Bank of Michigan student loan. I’m more worried about a state-owned bank guaranteeing a private bank’s loans to something like Enron, leaving us taxpayers holding the bag. But I don’t want to sound too negative.
Michigan has been suffering not only from a bad economy, but from a lack of new ideas and a reluctance to try anything new.
Virgil Bernero is proposing an idea which bears examining. Frankly, what we should be doing with ideas like this is trying to find ways to make them work, rather than looking for reasons not to try.
Incidentally, it may be time to give Bernero himself a more serious look. When he jumped into the governor’s race a few weeks ago, political reporters all but openly laughed at him.
They labeled him a chronic campaigner who starts running for the next office the minute he wins the last one. His record indicates there’s some truth in that, and he did promise during last year’s mayoral race that if elected, he would not run for governor.
But today he’s one of the top two Democratic contenders. During the New Deal, FDR said his philosophy was simple. He would try something, and if that didn’t work, he would try something else.
For the next few years, that is exactly the philosophy anyone governing Michigan may need to have.
As long as we're finally looking at ideas from other states, I really believe we should look at Iowa's Title insurance program. We could make buying and refinancing homes much more affordable and still generate a nice revenue stream for the state.
Posted by: Dan | March 12, 2010 at 11:15 AM