From: AlterNet
by Ellen Brown
Public banks, on the other hand, pose no problem with the Constitution.
May 18, 2014
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The movement to break away from Wall Street and form publicly-owned banks continues to gain
momentum. But enthusiasts are deterred by claims that a state-owned bank
would violate constitutional prohibitions against “lending the credit
of the state.”
California’s constitution is typical. It states in Section 17: “The
State shall not in any manner loan its credit, nor shall it subscribe
to, or be interested in the stock of any company, association, or
corporation . . . .”
The language sounds prohibitive, but what does it mean? Hundreds of
state and local government entities extend the credit of the state.
State agencies make student loans, small business loans, and farm loans.
State infrastructure banks explicitly leverage the credit of the state.
Legally, state and local governments are extending their credit to
private banks every time they deposit their revenues in those banks.
When money is deposited, it becomes the property of the bank by law. The depositor becomes a creditor with an IOU or promise to be repaid. The state or local government has thus lent its money to the bank.
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