Some—including Wall Street protesters—say relieving students of nearly a trillion dollars in loans will help the rest of us, too. Ellen Brown asks, could it really work?

By Ellen Brown

Among the demands of the Wall Street protesters is student debt forgiveness—a debt “jubilee.” Occupy Philly has a “Student Loan Jubilee Working Group,” and other groups are studying the issue.

Commentators say debt forgiveness is impossible.  Who would foot the bill?  But there is one deep pocket that could pull it off—the Federal Reserve.  In its first quantitative easing program (QE1), the Fed removed $1.3 trillion in toxic assets from the books of Wall Street banks.  For QE4, it could remove $1 trillion in toxic debt from the backs of millions of students.

The economy would be the better for it, as was shown by the G.I. Bill, which provided virtually free higher education for returning veterans, along with low-interest loans for housing and business. The G.I. Bill had a sevenfold return, making it one of the best investments Congress ever made.

There are arguments against a complete student debt write-off, including that it would reward private universities that are already charging too much, and it would unfairly exclude other forms of debt from relief.  But the point here is that it could be done, and it would represent a significant stimulus to the economy.

Toxic Student Debt: The Next “Black Swan”?

The Occupy Wall Street movement is heavily populated with students—many without jobs—groaning under the impossible load of student debts that have been excluded from the usual consumer protections.  A whole generation of young people has been seduced into debt peonage by the promise of better jobs if they invest in higher education, only to find that the jobs are not there when they graduate.  If the students default on their loans, lenders can now jack up interest rates and fees, garnish wages, and destroy credit ratings; and the debts can no longer be discharged in bankruptcy.

Total U.S. student debt has risen to $1 trillion—more than U.S. credit card debt.  Defaults are also rising; and with a very tight job market, the situation is expected to get worse.  The threat of massive student loan defaults requiring another taxpayer bailout has been called a systemic risk as serious as the bank failures that brought the U.S. economy to the brink of collapse in 2008.  To prevent a repeat of that disaster, we need to defuse the student debt time bomb before it blows.  But how?

The Federal Reserve could do it in the same way it defused the 2008 crisis: by aiming its fire hose of very-low-interest credit at the struggling student population.  Since September 2008, the Fed has made trillions of dollars available to financial institutions at a fraction of 1 percent interest; and in audits since then, we’ve seen that the Fed is capable of coming up with any amount of money required—accounting entries, available with the stroke of a computer key.

The Fed is not allowed to lend to individuals directly, but it can buy Treasury securities; and with the Student Aid and Fiscal Responsibility Act (SAFRA) of March 2010, the Treasury is now formally in the business of student lending.  The Fed can also buy asset-backed securities, including securitized student debt; and there is talk of another round of quantitative easing aimed at just that sort of asset.

The Market Wants More

When the Federal Reserve’s expected “QE3” turned into the tepid and ineffectual “Operation Twist,” the stock market reacted by plummeting.  To appease investors, Chairman Ben Bernanke then assured them that the Fed was “ready to do more.”  How much more and in what way wasn’t specified; but Alan Blinder, former Vice Chairman of the Federal Reserve Board of Governors, suggested some possibilities.  He wrote in the Wall Street Journal on September 28th:

“To maintain the size of its balance sheet, the Fed has been reinvesting the proceeds in Treasurys. But starting “now” (the Fed’s word), and continuing indefinitely, those proceeds will be reinvested in agency bonds and MBS instead. . . . A future round of quantitative easing (QE4?) that concentrates on private-sector securities like MBS, rather than on Treasurys, is now imaginable … Indeed, if we indulge ourselves in a bit of blue-sky thinking, we can even imagine the Fed doing QEs in corporate bonds, syndicated loans, consumer receivables and so forth.”

Syndicated consumer loans include asset-backed securities (ABS) of the sort purchased by the Fed through its Term Asset-backed Securities Loan Facility (TALF) created in November 2008. According to the Fed’s website, that includes securities backed by bundles of student loans.

Quantitative easing is a tool reserved for economic crises, and toxic student debt appears to be the next “black swan” on the horizon. Buying up a trillion dollars in student loans could be a nice stimulus package for the economy.

In July 2010, the  New York Fed posted a staff report titled “Shadow Banking,” showing that the money supply had shrunk by about $4 trillion since the 2008 credit crisis.  The shrinkage was hidden because it was not in the traditional banking system but was in the “shadow” banking system—an array of non-bank financial institutions including investment banks, hedge funds, money market funds, SIVs, conduits, and monoline insurers.  Adding back a trillion dollars in student aid could go a long way toward curing this shortfall.

What this could do for the economy was suggested by the G.I. Bill, which provided free technical training and educational support, along with government-subsidized loans and unemployment benefits, for nearly 16 million returning servicemen.  Economists have determined that for every 1944 dollar invested, the country received approximately $7 in return, through increased economic productivity, consumer spending, and tax revenues. The G.I. Bill not only made higher education accessible to all, but it created a nation of homeowners, new technology, new products, and new companies.

Eliminating, reducing, or deferring student loan debt will free up the budgets of millions of students, allowing them to spend more on goods and services, increasing demand and creating jobs, and adding to tax revenues.  As long as the money is spent on goods and services rather than on financial money-making-money schemes, the result will not be inflationary.  Retailers will just put in more orders for goods, causing producers to produce more and to hire more workers.  Supply will rise along with demand, keeping prices stable.  Overall prices will not increase until the country hits full employment, which is far from where we are today.

Interest-free Student Loans: Taking a Cue from Abroad

The government of New Zealand now offers zero percent loans to students, with repayment to be made from their income after they graduate; and so does the government of Australia.  The loans in the Australian Higher Education Loan Programme (or HELP) do not bear interest, but the government gets back more than it lends, because the principal is indexed to the Consumer Price Index (CPI), which goes up every year.  They are contingent loans, payable only if or when the borrower’s income reaches a certain level.

Assume, then, that the Fed bought up $1 trillion in U.S. student debt and waived the interest.  With a default rate even as high as 10 percent, it would get back $900 billion of this money.  The $100 billion difference is only one-seventh the bailout money authorized by Congress to rescue Wall Street banks; and if the Fed’s investment generated anything close to the returns from the G.I. Bill, its $100 billion outlay could produce a several-hundred-billion dollar return.

To prevent abuse of the system, colleges should be required to stay within certain well-defined parameters for providing affordable, high quality education; and students should also meet well-defined standards.  Properly monitored, a federal investment in higher education can be a win-win-win—good for the economy, the government, and the people.  A generous student loan program will create jobs, increase tax revenues, and give young people a fair shot at the American dream, a dream that has become a mirage for 99 percent of the population.

Ellen Brown is an attorney and president of the Public Banking Institute. In

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By Sarah Van Gelder

Young people locking arms, facing arrest on a cold, wet Seattle street—it could have been the WTO protests that rocked the city more than ten years ago. Only this time, Seattle is just one of dozens of places where the movement for the 99 percent is taking hold.

And, unlike the WTO protests—whose motivation was unclear to many Americans—the demonstrations now spreading virally from Wall Street immediately strike a chord: we all know that neither our economy nor our government is working for the benefit of the 99 percent.

Whatever issue you care to name, from childhood obesity (linked to agribusiness subsidies) to war (linked to the power of the military-industrial complex), from a watered-down health care bill (linked big Pharma and health insurance corporations), to a failing economy (which Wall Street and corporations have depleted in favor of global speculation), the power of the one percent is at the root of the problem. And the power of the 99 percent is key to the solution.

We’ve watched as urgent matters, like climate change, go unaddressed—in large part because powerful corporations fund think tanks, lobbyists, and Astroturf campaigns that spread confusion about the science and threaten the political fortunes of those who take leadership.

The #OccupyWallStreet movement is powerful because it is naming the source of the crisis—something that the political establishment had been unwilling to do.

The protests are giving the unemployed, the uninsured, the evicted, indebted students, homeless veterans, and would-be retirees a place to break out of their isolation. OccupyWallStreet shows that millions share their hardships and are standing up. Transforming shame, self-doubt, and isolation into solidarity unleashes enormous power.

But there’s more that makes OccupyWallStreet powerful. It is respectful, inclusive, and egalitarian. Protesters invite police to join them, noting that they, too, are part of the 99 percent. When Troy Davis was executed, a rally of supporters marched to lower Manhattan to a warm welcome by the OccupyWallStreet protesters. Even former tea party members have gotten involved.

The scene in Zuccotti Square is radically democratic – different teams have autonomy to manage food, sanitation, media, comfort, and other tasks necessary for a protracted stay. But no one directs the whole group. Instead, decisions are made by consensus at General Assemblies. Cornel West, Michael Moore, and other celebrities show up to speak, and their words are appreciated. But at the General Assemblies, each person who wishes to speak has a turn, and each one can help shape events.

I did not witness a single incident of violence in the three sites I visited: Zuccotti Park on Wall Street, McPherson Square in Washington, DC, and Westlake Plaza in Seattle. Nor have I read any accounts of protester violence. Only the police have resorted to violence, using pepper spray and, during arrests, bloodying the mostly young protesters.

Some have criticized the occupiers for failing to come up with a list of demands. But demands can be easily co-opted and endlessly debated.

Instead, OccupyWallStreet is holding out principles and values that are widely viewed as just—and this is already shifting the political debate. Just in the last few days, the president and vice president of the United States and the president of the Dallas Federal Reserve Bank all acknowledged that the protesters had a point.

Powerful movements build not on a laundry list of policy demands, but on principles and values. OccupyWallStreet has a moral force that speaks to the urgency of the times. The 99 percent, and our future descendants, are losing out in a world dominated by the 1 percent.

Powerful movements create their own spaces where they can shift the debate, and the culture, to one that better serves. That’s why showing up in person at the occupy sites is so critical to this movement’s success. In hundreds of communities around North America, people are showing up to make a statement and to listen to each other. They are also teaching one another to facilitate meetings, to take nonviolent direct action, to make their own media. They are taking care of each other, gathering food supplies, blankets, and clothes that can allow people to remain outdoors even as the weather gets wetter and colder. Like the uprisings of the Arab Spring, they are using social media, and getting out their own story, even when the corporate media chooses to distort or ignore their message. And they are growing. According to the Personal Democracy Forum, the numbers “liking” a Facebook Occupy site is growing at the rate of more than 25 percent per day.

The Occupy Wall Street movement, the clarity of their demand for change, and their growing power may be the most important news of our time.

Sarah van Gelder is co-founder and executive editor of

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How many times can a corporation break the law and continue to exist? Inside the fight to revoke Massey Energy’s corporate charter.

By Sarah Van Gelder

A majority of U.S. Supreme Court justices and some politicians like to refer to corporations as “persons.” Few actual people, though, could get away with years of lawless behavior resulting in injuries and deaths, and the destruction of entire communities and ways of life. To do that takes the protection of a corporate charter and a legal and regulatory system that has succumbed to concentrated money and power.

On Friday, two public interest groups asked the attorney general of Delaware to revoke the charter of Massey Energy, a company they call a criminal enterprise.

“Massey Energy operates outside the law,” says Lorelei Scarbro, who lives a few miles from the West Virginia’s Upper Big Branch mine, which is owned and operated by Massey Energy. Scarbro traveled to Delaware to speak in support of revoking the Massey charter. “The people of Appalachia are collateral damage; they believe it’s okay to wipe out a whole culture.”

An April 2010 disaster at the Upper Big Branch mine claimed the lives of 29 coal miners. The accident investigation, commissioned by West Virginia Governor Earl Ray Tomblin, pins the blame for the disaster squarely on Massey’s “total and catastrophic systemic failures … in the context of a culture in which wrongdoing became acceptable, where deviation became the norm.”

According to the report, Massey is also responsible for “incalculable damage to mountains, streams and air in the coalfields; creating health risks for coalfield residents by polluting streams, injecting slurry into the ground and failing to control coal waste dams and dust emissions from processing plants; using vast amounts of money to influence the political system; and battling government regulation regarding safety in the coal mines and environmental safeguards for communities.”

Massey is chartered in Delaware, which is known for its corporate-friendly policies, although the company has no operations there.

The two public interest groups, Appalachian Voices and Free Speech for People, cited the company’s long history of safety violations in asking the state attorney general to revoke Massey’s charter. They also pointed to the thousands of Clean Water Act violations resulting from the company’s mountaintop removal mining practices.

“I know people who have died. I know people raising family on poisoned water. We need the attorney general to know that atrocities are occurring on the ground on account of an outlaw corporation,” Scarbro said at a press conference on Friday. Scarbro is part of a family of coal miners going back three generations, and a leading spokesperson in a campaign to stop mountaintop removal mining on Coal River mountain and instead install a 328-megawatt wind farm on its ridges.

How has Massey been able to routinely ignore health and safety standards and environmental regulations?

“Many politicians were afraid to challenge Massey’s supremacy because of the company’s superb ongoing public relations campaign and because CEO Don Blankenship was willing to spend vast amounts of money to influence elections,” notes the report to Governor Tomblin. “In one well-documented instance, he used his resources to elect a relatively obscure judge to the state Supreme Court.”

“It is well established that the corporate charter is a privilege, not a right,” says Jeff Clements, co-founder of Free Speech for People. “Delaware, as with other states, reserves the right to revoke or forfeit state corporate charters when they are abused or misused, as in cases of repeated unlawful conduct.”

“The Massey Energy Company presents a classic case of a corporation whose charter should be revoked,” says Clements.

“We are strongly urging Attorney General [Beau] Biden to stand up to corporate power and say, at some point, corporations do not have the power to dismantle our democracy and to violate our laws willfully and systematically,” said Robert F. Kennedy, Jr., who has been part of the effort to decharter Massey.

Jason Miller, a representative for the Delaware Department of Justice, told YES! that the petition to revoke Massey Energy’s charter is “under review.”

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Big banks freeze out small business, but North Dakota’s state bank supports local jobs. The idea is catching on.

By Stacy Mitchell

One of the most significant, but least noticed, consequences of the rapid and dramatic consolidation of the banking industry over the last decade is how much it has hindered the U.S. economy’s ability to create jobs.

To begin to understand this, take a look at each end of the banking spectrum. On one end are the nation’s 6,900 small, locally owned, community banks. These institutions control $1.4 trillion in assets. That’s 11 percent of all bank assets. They currently have $257 billion in loans to small businesses and farms on their books.

On the other end, four giant banks — JP Morgan Chase, Bank of America, Citibank, and Wells Fargo — now command $5.4 trillion in assets, or 40 percent of the total. Given that they are nearly four times as large as all local banks combined, one might expect that they would have made four times the small-business loans, or about $1 trillion. In fact, these banks have a mere $85 billion in small-business and farm loans on their balance sheets.

Why do giant banks make so few small-business loans? Automation is the short answer. The only way these sprawling institutions can function efficiently is by taking a mass production approach to lending: Plug credit score, income, and appraisal into the computer—out comes the loan. That’s why the mortgage business was supposed to be so safe. The economic meltdown of 2007 shows that it’s actually very risky.

Small-business loans are not so easily mechanized. Each is a custom job, requiring human judgment to evaluate the risk associated with a particular entrepreneur, a particular business plan, and a particular market. Community banks excel at this. Their lending decisions are made locally, informed by face-to-face relationships with borrowers and an intimate understanding of their hometown economies. Big banks, whose decision-making is long-distance and dictated more by computer models than judgment, are pretty bad at it. So they don’t make many small-business loans.

It’s no wonder, then, that unemployment has been so persistent. Our financial system is top-heavy with big banks that are scaled to meet the needs of large multinational corporations. The Commerce Department estimates that U.S.-based multinationals have eliminated 3 million American jobs over the last decade. Meanwhile, small businesses, historically responsible for about two-thirds of new jobs, have found it harder and harder to obtain credit.

In short, we have a financial system that is mismatched to the economic needs of American communities. This mismatch will become more acute as we attempt to transition to a carbon-efficient economy, which, by its very nature, will be the domain of small-scale enterprises: local food producers, community-owned wind and solar electricity, neighborhood stores that provide goods within walking distance of homes, and so on. To take root, these businesses will need a robust array of community-based financial institutions capable of meeting their capital and credit needs.

What a State Bank Can Do for a State’s Economy

Lots of lending by banks is a measure of a healthy economy.
1. Lending in North Dakota is consistently higher than nearby states that are economically similar. One reason? The support that the State Bank of North Dakota offers local banks.
2 That’s also why North Dakota has nearly double the number of banks per 100,000 than its neighbors, and more than four times the national average.

State Partnership Banks

There’s no single solution to the thorny problem of how to restructure our financial system, but one of the most promising strategies involves creating state-owned banks that can bolster the lending capacity of local banks, helping them grow and multiply.

North Dakota is the only state, so far, that has a publicly owned bank. Founded in 1919, the Bank of North Dakota (BND) was a populist response to dynamics similar to those we face today. The state’s struggling farmers, tired of being at the mercy of powerful out-of-state financial interests that controlled the availability and cost of credit, decided they needed a bank better aligned with their own interests.

BND is wholly owned by the state, which deposits all of its money, except pension funds, with the bank. BND does not compete with local banks; it does not solicit retail banking business and has no branch offices or ATMs.

Instead, BND partners with local banks to expand their lending capacity. Much of BND’s $2.8 billion loan portfolio consists of “participation loans.” These are business loans originated by local banks, which then invite BND to finance a portion of the loan (and share part of the risk). This enables local banks to make more loans and maintain more diverse portfolios.

Thanks largely to BND, North Dakota has a more robust community banking network than any other state. It has 35 percent more local banks per capita than South Dakota and four times as many as the U.S. average. Small local banks account for 60 percent of deposits in North Dakota, compared to only 16 percent nationally.

Over the last decade, lending by North Dakota’s local banks has averaged about $12,000 per capita (plus about $2,400 in participation lending by BND), compared to just $3,000 for community banks nationally. BND has also enabled local banks to maintain a higher loan-to-asset ratio than their counterparts in other states, which means they devote more of their assets to productive lending, rather than safer holdings like U.S. securities.

Although BND has some loan programs that accept a higher risk or lower return to meet specific economic objectives, such as its Beginning Entrepreneur Loan Guarantee Program, the vast majority of its lending decisions are made on a for-profit basis. It participates only in loans that make economic sense. As a result, BND has pumped $300 million in profit into the state’s general fund over the last decade. (In a state like Illinois that has a population of 13 million, the equivalent return would be about $6 billion.)

Inspired by the North Dakota model, activists and small-business owners in more than a dozen states, including Oregon, Maine, Massachusetts, Montana, and Washington, backed bills this year to create state-owned banks. Although none of these bills passed on the first round, they did pick up a remarkable amount of support from lawmakers, given how unfamiliar most people, including most local bankers, are with BND.

To help educate lawmakers and counter misinformation put out by big-bank lobbyists, the Center for State Innovation has produced several reports analyzing how a public bank would function in various states. Its analysis of Oregon, for example, concluded that a state bank would help local banks expand lending by $1.3 billion, leading to 5,391 new small-business jobs in its first three to five years.

Many of these states, and others, are likely to take up the state bank idea again in the coming months. Although opponents like to suggest that these proposals would simply create yet another (unnecessary) state loan fund, the real power of a state bank lies not so much in its own lending, but rather in its capacity to support local banks and remake the financial landscape to better meet the needs of small businesses and communities.

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North Dakota has had the nation’s lowest unemployment ever since the economy tanked. What’s its secret?

by Ellen Brown

In an article in The New York Times on August 19th titled “The North Dakota Miracle,” Catherine Rampell writes:

Forget the Texas Miracle. Let’s instead take a look at North Dakota, which has the lowest unemployment rate and the fastest job growth rate in the country.

According to new data released by the Bureau of Labor Statistics today, North Dakota had an unemployment rate of just 3.3 percent in July—that’s just over a third of the national rate (9.1 percent), and about a quarter of the rate of the state with the highest joblessness (Nevada, at 12.9 percent).

North Dakota has had the lowest unemployment in the country (or was tied for the lowest unemployment rate in the country) every single month since July 2008.

Its healthy job market is also reflected in its payroll growth numbers. . . . [Y]ear over year, its payrolls grew by 5.2 percent. Texas came in second, with an increase of 2.6 percent.

Why is North Dakota doing so well? For one of the same reasons that Texas has been doing well: oil.

Oil is certainly a factor, but it is not what has put North Dakota over the top. Alaska has roughly the same population as North Dakota and produces nearly twice as much oil, yet unemployment in Alaska is running at 7.7 percent. Montana, South Dakota, and Wyoming have all benefited from a boom in energy prices, with Montana and Wyoming extracting much more gas than North Dakota has. The Bakken oil field stretches across Montana as well as North Dakota, with the greatest Bakken oil production coming from Elm Coulee Oil Field in Montana. Yet Montana’s unemployment rate, like Alaska’s, is 7.7 percent.

A number of other mineral-rich states were initially not affected by the economic downturn, but they lost revenues with the later decline in oil prices. North Dakota is the only state to be in continuous budget surplus since the banking crisis of 2008. Its balance sheet is so strong that it recently reduced individual income taxes and property taxes by a combined $400 million, and is debating further cuts. It also has thelowest foreclosure rate and lowest credit card default rate in the country, and it has had NO bank failures in at least the last decade.

If its secret isn’t oil, what is so unique about the state? North Dakota has one thing that no other state has: its own state-owned bank.

Access to credit is the enabling factor that has fostered both a boom in oil and record profits from agriculture in North Dakota. The Bank of North Dakota (BND) does not compete with local banks but partners with them, helping with capital and liquidity requirements. It participates in loans, provides guarantees, and acts as a sort of mini-Fed for the state. In 2010, according to the BND’s annual report:

The Bank provided Secured and Unsecured Federal Fund Lines to 95 financial institutions with combined lines of over $318 million for 2010. Federal Fund sales averaged over $13 million per day, peaking at $36 million in June.

The BND also has a loan program called Flex PACE, which allows a local community to provide assistance to borrowers in areas of jobs retention, technology creation, retail, small business, and essential community services. In 2010, according to the BND annual report:

The need for Flex PACE funding was substantial, growing by 62 percent to help finance essential community services as energy development spiked in western North Dakota. Commercial bank participation loans grew to 64 percent of the entire $1.022 billion portfolio.

The BND’s revenues have also been a major boost to the state budget. It has contributed over $300 million in revenues over the last decade to state coffers, a substantial sum for a state with a population less than one-tenth the size of Los Angeles County. According to a study by the Center for State Innovation, from 2007 to 2009 the BND added nearly as much money to the state’s general fund as oil and gas tax revenues did (oil and gas revenues added $71 million while the Bank of North Dakota returned $60 million). Over a 15-year period, according to other data, the BND has contributed more to the state budget than oil taxes have.\

North Dakota’s money and banking reserves are being kept within the state and invested there. The BND’s loan portfolio shows a steady uninterrupted increase in North Dakota lending programs since 2006.

According to the annual BND report:

Financially, 2010 was our strongest year ever. Profits increased by nearly $4 million to $61.9 million during our seventh consecutive year of record profits. Earnings were fueled by a strong and growing deposit base, brought about by a surging energy and agricultural economy. We ended the year with the highest capital level in our history at just over $325 million. The Bank returned a healthy 19 percent ROE, which represents the state’s return on its investment.

A 19 percent return on equity! How many states are getting that sort of return on their Wall Street investments?

Timothy Canova is Professor of International Economic Law at Chapman University School of Law in Orange, California. In a June 2011 paper called “The Public Option: The Case for Parallel Public Banking Institutions,” he compares North Dakota’s financial situation to California’s. He writes of North Dakota and its state-owned bank:

The state deposits its tax revenues in the Bank, which in turn ensures that a high portion of state funds are invested in the state economy. In addition, the Bank is able to remit a portion of its earnings back to the state treasury . . . . Thanks in part to these institutional arrangements, North Dakota is the only state that has been in continuous budget surplus since before the financial crisis and it has the lowest unemployment rate in the country.

He then compares the dire situation in California:

In contrast, California is the largest state economy in the nation, yet without a state-owned bank, is unable to steer hundreds of billions of dollars in state revenues into productive investment within the state. Instead, California deposits its many billions in tax revenues in large private banks which often lend the funds out-of-state, invest them in speculative trading strategies (including derivative bets against the state’s own bonds), and do not remit any of their earnings back to the state treasury. Meanwhile, California suffers from constrained private credit conditions, high unemployment levels well above the national average, and the stagnation of state and local tax receipts. The state’s only response has been to stumble from one budget crisis to another for the past three years, with each round of spending cuts further weakening its economy, tax base, and credit rating.

Not all states have oil, of course (and it’s hardly a sustainable basis for an economy), but all could learn from the state-owned bank that allows North Dakota to capitalize on its resources to full advantage. States that deposit their revenues and invest their capital in large Wall Street banks are giving this economic opportunity away.

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by David Korten

Like many Americans, I grew up believing that conservative values were about local control and personal responsibility for family, community, and nature. It seemed curious to me that the political alliance that drove a rollback of the Roosevelt-era policies that created the American middle class called itself conservative and dismissed its liberal opponents as un-American.

Eventually, however, I discovered that the termconservative harkens back to a day when conservatives were monarchists who considered democracy a threat to social order and the seas were ruled by buccaneers and privateers. That was a clarifying moment.

Buccaneer is a colorful name for the pirates of old who pursued personal fortune with rules of their own making. They were, in their time, an iconic expression of “free market” capitalism.

Privateers were buccaneers to whom a king granted legal immunity and safe harbor in return for a share of the booty. Their charge was to extract physical wealth from foreign lands and peoples by whatever means—including the execution of rulers and the slaughter and enslavement of native inhabitants.

Hernán Cortés claimed the Mexican empire of Montezuma for Spain. Hernando de Soto made his initial mark trading slaves in Central America and later allied with Francisco Pizarro to take control of the Inca empire based in Peru.

Some privateers operated powerful naval forces. In 1671, Sir Henry Morgan (yes, appreciative British kings granted favored privateers with titles of nobility in recognition of their service) launched an assault on Panama City with thirty-six ships and nearly two thousand brigands, defeating a large Spanish force and looting the city as it burned to the ground.

Eventually, the ruling monarchs turned from swashbuckling adventurers and chartered pirates to chartered corporations as their favored instruments of colonial expansion, administration, and pillage. The sale of public shares enabled a single firm to amass virtually unlimited financial capital and assured the continuity of the enterprise beyond the death of its founders. Limited liability absolved the owners of personal liability for the firm’s losses or misdeeds.

Corporations chartered by the British Crown established several of the earliest colonial settlements in what later became the United States and populated them with bonded laborers—many involuntarily transported from England—to work their properties. The importation of slaves from Africa followed.

The East India Company (chartered in 1600) was the primary instrument of Britain’s colonization of India, a country the company ruled until 1784 much as if it were a private estate. In the early 1800s, the East India Company established a thriving business exporting tea from China, paying for its purchases with illegal opium.

The Dutch East India Company (chartered in 1602) established its sovereignty over what is now Indonesia and reduced the local people to poverty by displacing them from their lands to grow spices for sale in Europe.

It is no exaggeration to characterize these forerunners of contemporary publicly traded limited liability corporations as, in effect, legally sanctioned and protected crime syndicates with private armies and navies backed by a mandate from their home governments to extort tribute, expropriate land and other wealth, monopolize markets, trade slaves, deal drugs, and profit from financial scams.

Wall Street hedge fund managers, day traders, currency traders, and other unlicensed phantom-wealth speculators are the independent, unlicensed buccaneers of our day. Wall Street banks are modern day commissioned privateers who ply a similar trade with state backing and safe harbor. The economy is their ocean. Publicly traded corporations serve as their favored vessels of plunder, financial leverage is their favored weapon, and the state is their servant-guardian.

As with the buccaneers and privateers of days past, Wall Street’s major players find it more profitable to expropriate the wealth of others than to find honest jobs producing goods and services beneficial to their communities. They walk away with their fees, commissions, and bonus packages and leave it to others to pick up the costs of federal bailouts, gyrating economic cycles, collapsing environmental systems, broken families, shattered communities, and the export of jobs along with the manufacturing, technology, and research capacities that go with them.

They seek self-enrichment by plundering wealth they had no part in creating, enjoy substantial legal immunity, and acknowledge no duty or accountability other than to themselves. Legal or not, taking the property of another through deception, fraud, and expropriation is theft. Only tyrannies guarantee the liberty of the few to plunder the wealth of the many.

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David Korten (livingeconomiesforum.org) is the author of Agenda for a New Economy, The Great Turning: From Empire to Earth Community, and the international best seller When Corporations Rule the World. He is board chair of YES! Magazine and co-chair of the New Economy Working Group. This Agenda for a New Economy blog series is co-sponsored by CSRwire.com and YesMagazine.org based on excerpts from Agenda for a New Economy, 2nd edition.

The ideas presented here are developed in greater detail in Agenda for a New Economy available from the YES! Magazine web store — where there are 3 WAYS TO GET THE BOOK and a 22% discount!

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• Agenda for a New Economy available from the YES! Magazine web store.

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• 10 Common Sense Principles for a New Economy
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• The Illusion of Money
  Real wealth or phantom assets? David Korten explores the difference between the kind of wealth that makes life better and the phantom wealth created by financial speculation.

This work is licensed under a Creative Commons License

An answer to state budget woes that doesn’t need to involve sacrificing workers’ rights.

by Ellen Brown

Public sector worker sitting in a bar: “They’re trying to take away our pensions.”
Private sector worker: “What’s a pension?”

As states struggle to meet their budgets, public pensions are on the chopping block, but they needn’t be. States can keep their pension funds intact while leveraging them into many times their worth in loans, just as Wall Street banks do. They can do this by forming their own public banks, following the lead of North Dakota — a state that currently has a budget surplus.

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Wisconsin Governor Scott Walker, whose recently proposed bill to gut benefits, wages, and bargaining rights for unionized public workers inspired weeks of protests in Madison, has justified the move as necessary for balancing the state’s budget. But is it? 

After three weeks of demonstrations in Wisconsin, protesters report no plans to back down. Fourteen Wisconsin Democratic lawmakers—who left the state so that a quorum to vote on the bill could not be reached—said Friday that they are not deterred by threats of possible arrest and of 1,500 layoffs if they don’t return to work. President Obama has charged Wisconsin’s Governor Scott Walker with attempting to bust the unions. But Walker’s defense is:

“We’re broke. Like nearly every state across the country, we don’t have any more money.”

Broke Unless You Count the $67 Billion Pension Fund . . .

That’s what he says, but according to Wisconsin’s 2010 CAFR (Comprehensive Annual Financial Report) [pdf], the state has $67 billion in pension and other employee benefit trust funds, invested mainly in stocks and debt securities drawing a modest return.

A recent study by the Pew Center for the States showed that Wisconsin’s pension fund is almost fully funded, meaning it can meet its commitments for years to come without drawing on outside sources. It requires a contribution of only $645 million annually to meet pension payouts. Zach Carter, writing in the Huffington Post, notes that the pension program could save another $195 million annually just by cutting out its Wall Street investment managers and managing the funds in-house.

The governor is evidently eying the state’s pension fund, not because the state cannot afford the pension program, but because he sees it as a potential source of revenue for programs that are not fully funded. This tactic, however, is not going down well with state employees.

Fortunately, there is another alternative. Wisconsin could draw down the fund by the small amount needed to meet pension obligations, and put the bulk of the remaining money to work creating jobs, helping local businesses, and increasing tax revenues for the state. It could do this by forming its own bank, following the lead of North Dakota, the only state to have its own bank—and the only state to escape the credit crisis.

This could be done without spending the pension fund money or lending it. The funds would just be shifted from one form of investment to another (equity in a bank). When a bank makes a loan, neither the bank’s own capital nor its customers’ demand deposits are actually lent to borrowers. As observed on the Dallas Federal Reserve’s website, “Banks actually create money when they lend it.” They simply extend accounting-entry bank credit, which is extinguished when the loan is repaid. Creating this sort of credit-money is a privilege available only to banks—but states can tap into that privilege by owning a bank.

How North Dakota Escaped the Credit Crunch

The state-owned Bank of North Dakota (BND) has allowed North Dakota to maintain its economic sovereignty, a conservative states-rights ideal. The BND was established in 1919 in response to a wave of farm foreclosures by out-of-state Wall Street banks. Today, the state not only has no debt, but it recently boasted its largest-ever budget surplus. The BND helps to fund not only local government but local businesses and local banks, by partnering with the banks to provide the funds to support small business lending.

The BND is also a boon to the state treasury, having contributed over $300 million to state coffers in the past decade, a notable achievement for a state with a population less than one-tenth the size of Los Angeles County. In 2008, the BND returned a 26 percent dividend to the state. In comparison, California’s public pension funds are down more than $100 billion—that’s billion with a “b”—or close to half the funds’ holdings, following the Wall Street debacle of 2008. It was, in fact, the 2008 bank collapse rather than overpaid public employees that caused the crisis that shrank state revenues and prompted the budget cuts in the first place.

Seven States Are Now Considering Setting Up Public Banks

Faced with federal inaction and growing local budget crises, an increasing number of states are exploring the possibility of setting up their own state-owned banks, following the North Dakota model. On January 11, 2011, a bill to establish a state-owned bank was introduced in the Oregon State legislature; on January 13, a similar bill was introduced in Washington State; on January 20, a bill for a state bank was filed in Massachusetts (following a 2010 bill that had lapsed); and on February 4, a bill was introduced in the Maryland legislature for a feasibility study looking into the possibilities. They join Illinois, Virginia, and Hawaii, which introduced similar bills in 2010, bringing the total number of states with such bills to seven.

If Governor Walker wanted to explore this possibility for his state, he could drop in on the Center for State Innovation(CSI), which is located down the street in his capital city of Madison, Wisconsin. The CSI has done detailed cost/benefit analyses of the Oregon and Washington state bank initiatives, which show substantial projected benefits based on the BND precedent. See reports here and here.

For Washington State, with an economy not much larger than Wisconsin’s, the CSI report estimates that after an initial start-up period, establishing a state-owned bank would create new or retained jobs of between 7,400 and 10,700 a year at small businesses alone, while at the same time returning a profit to the state.

A Bank of Wisconsin Could Generate “Bank Credit” Many Times the Size of the Budget Deficit

Economists looking at the CSI reports have called their conclusions conservative. The CSI made its projections without relying on state pension funds for bank capital, although it acknowledged that this could be a potential source of capitalization.

If the Bank of Wisconsin were to use state pension funds, it could have a capitalization of more than $57 billion—nearly as large as that of Goldman Sachs. At an 8 percent capital requirement, $8 in capital can support $100 in loans, or a potential lending capacity of over $500 billion. The bank would need deposits to clear the checks, but the credit-generating potential could still be huge.

Banks can create all the bank credit they want, limitedonly by (a) the availability of creditworthy borrowers, (b) the lending limits imposed by bank capital requirements, and (c) the availability of “liquidity” to clear outgoing checks. Liquidity can be acquired either from the deposits of the bank’s own customers or by borrowing from other banks or the money market. If borrowed, the cost of funds is a factor; but at today’s very low Fed funds rate of 0.2 percent, that cost is minimal. Again, however, only banks can tap into these very low rates. States are reduced to borrowing at about 5 percent—unless they own their own banks, or, better yet, unless they are banks. The BND is set up as “North Dakota doing business as the Bank of North Dakota.”

That means that technically, all of North Dakota’s assets are the assets of the bank. The BND also has its deposit needs covered. It has a massive deposit base, since all of the state’s revenues are deposited in the bank by law. The bank also takes other deposits, but the bulk of its deposits are government funds. The BND is careful not to compete with local banks for consumer deposits, which account for less than 2 percent of the total. The BND reports that it has deposits of $2.7 billion and outstanding loans of $2.6 billion. With a population of 647,000, that works out to about $4,000 per capita in deposits, backing roughly the same amount in loans.

Wisconsin has a population that is nine times the size of North Dakota’s. Other factors being equal, Wisconsin might be able to amass over $24 billion in deposits and generate an equivalent sum in loans—over six times the deficit complained of by the state’s governor. That lending capacity could be used for many purposes, depending on the will of the legislature and state law. Possibilities include (a) partnering with local banks, as in the North Dakota model, strengthening their capital bases to allow credit to flow to small businesses and homeowners, where it is sorely needed today; (b) funding infrastructure virtually interest-free (since the state would own the bank and would get back any interest paid out); and (c) refinancing state deficits nearly interest-free.

Why Give Wisconsin’s Enormous Credit-generating Power Away?

The budget woes of Wisconsin and other states were caused not by overspending on employee benefits, but by a credit crisis on Wall Street. The “cure” is to get credit flowing again in the local economy, and this can be done by using state assets to capitalize state-owned banks.

Against the modest cost of establishing a publicly owned bank, state legislators need to weigh the much greater costs of the alternatives—slashing essential public services, laying off workers, raising taxes on constituents who are already over-taxed, and selling off public assets. Given the cost of continuing business as usual, states can hardly afford not to consider the public bank option. When state and local governments invest their capital in out-of-state money center banks and deposit their revenues there, they are giving their enormous credit-generating power away to Wall Street.

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Ellen Brown wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Ellen is an attorney and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are webofdebt.com and ellenbrown.com.

Interested?

• Visit PublicBankingInstitute.org for more information on the movement for publicly-owned banks.
• Wisconsin: First Stop in an American Uprising?
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• 7 Ways to Transform Banking
  Each of us can help build a resilient financial system that will serve real people in real communities.

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There was plenty of disappointment and hardship this year. But the year also brought opportunities for transformation.

by Sarah van Gelder

It was a tough year. The economy continued its so-called jobless recovery with Wall Street anticipating another year of record bonuses while most Americans struggle to get work and hold on to their homes. The wars in Iraq and Afghanistan continued, and spilled over into Pakistan and Yemen, and more American soldiers died by suicide than fighting in Afghanistan. And it was a year of big disasters, some of them indicators of the growing climate crisis.

World leaders, under the sway of powerful corporations and banks, have been unable to confront our most pressing challenges, and one crisis follows another.

Nonetheless, events from 2010 also contain the seeds of transformation. None of the following stories is enough on its own to change the momentum. But if we the people build and strengthen social movements, each of of these stories points to a piece of the solution.

1. Climate Crisis Response Takes a New Direction. After the failure of Copenhagen, Bolivia hosted a gathering of indigenous people, climate activists, and grassroots leaders from the global South—those left out of the UN-sponsored talks. Their solution to the climate crisis is based on a new recognition of the rights of Mother Earth. Gone are notions of trading the right to pollute (which gives a whole new meaning to the term “toxic assets”). Instead, life has rights, and we can learn ways to live a good life that doesn’t require degrading our home.

The official climate agreement that came out of Cancún was weak and disappointing, although it did represent a continued commitment to work to address the challenge. But the peoples’ mobilizations, and the solutions born in Cochabamba, continue to energize thousands.

Meanwhile, Californians voted to uphold their ambitious climate law, despite millions spent by oil companies to rescind the measure in November’s election. And cities—Seattle, for one—are moving ahead with their own plans to reduce, and even zero-out, their climate emissions.

2. Wikileaks Lifts the Veil. The release of secret documents by Wikileaks has lifted the veil on U.S. government actions around the world. While the insights themselves don’t change anything, they do offer grist for a national dialogue on our role in the world—especially at a time when our federal budget crisis may require scaling back on our hundreds of foreign military bases, our protracted overseas wars, and our budget-busting weapons programs. Likewise, the traumas inflicted on civilian populations and on our own military are spurring fresh thinking. We now have data points for a bracing, reality-based conversation on the future of war—the kind of conversation that makes democracy a living reality.

3. Momentum is Building for the Abolition of Nuclear Weapons. The ratification of the START Treaty is an important step in the right direction. And the National Council of Churches, the U.S. Conference of Catholic Bishops, the U.S. Conference of Mayors, and others from across the political spectrum have joined UN Secretary-General Ban Ki-moon in calling for an even more ambitious goal: the end of nuclear weapons.

4. Resilience is the New Watchword. As familiar sources of security erode, people are rebuilding their communities to be green and resilient. Detroit, a city abandoned by industry and many of its former residents, now has over 1,000 community gardens, a six-block-long public market with some 250 independent vendors, and a growing support network among small businesses. Around the country, faith groups and others are forming Common Security Clubs to help members weather the recession and consider more life-sustaining economic models. Communities are becoming Transition Towns as a means to prepare for breakdowns in society that may result from any combination of the triple crises of climate change, an end to cheap fossil fuels, and an economy on the skids.

5. Health Care—Still in Play. The passage of the Obama health care package seemed to lock us into a reform package that maintains the expensive and bureaucratic role of private insurance and props up the mega-profits of the pharmaceuticals industry. But the story is not over. The decision by U.S. District Judge Henry Hudson to strike down the individual mandate in the health care reform may begin unraveling the new health care system.

As insurance premiums continue their steep climb, some are advocating expansion of Medicare to cover more people—or everyone. Thom Hartmann points out this could be done with a simple majority vote in Congress—expanding Medicare to everyone was what its founders had in mind in the first place, he says.

Vermont is exploring instituting a statewide single-payer healthcare system. The United States may wind up following Canada’s path to universal coverage, which began when the province of Saskatchewan made the switch to single-payer health care, and the rest of Canada, seeing the many benefits, followed suit.

6. Corporate Power Challenged. Small businesses are distancing themselves from the Chamber of Commerce, which promotes the interests of mega-corporations over Main Street businesses. And there are more direct confrontations to corporate power. The citizens of Pittsburgh, Penn., passed a law prohibiting natural gas “fracking,” and declaring that the rights of people and nature supersede the rights of corporations. Other towns and cities are adopting similar laws. The biggest challenge will be undoing the damage of the Citizens United decision, which opened the floodgates to wealthy special interests to spend what they like on elections. Groups around the country are gearing up to take on the issue, with a constitutional amendment just one of the potential fixes.

7. A local economy movement is taking off as it becomes clear that the corporate economy is a net drain on our well-being, the environment, communities, and even jobs. A “Move Your Money” campaign inspired thousands to close their accounts with predatory big banks, and instead, to open accounts at credit unions and locally owned banks. Schools, hospitals, local retailers, and families are increasingly demanding local food. Farmers markets are spreading. Independent, local stores have huge cachet as people look local for a sense of community. And the experience of one state with a budget surplus and very low unemployment is capturing the imagination of other states—North Dakota’s state bank is creating a buzz.

8. Cooperatives Make a Comeback. A new model for local, just, and green job creation is gaining national attention. Leaders in Cleveland, Ohio, created worker-owned cooperatives with some of the strongest, local institutions (a hospital and university) promising to be their customers. The result: formerly low-income workers now own shares in their workplace and earn family-supporting wages. They can plan for their families’ futures, knowing that their jobs can be counted on not to flee the country. The model is spreading, and people now talk about how to bring “the Cleveland model” to their cities.

9. A Turn Away from Homophobia. The revoking of Don’t Ask, Don’t Tell is just the most dramatic sign that the country has turned away from homophobia. A widespread anti-bullying campaign sparked by the suicide of Rutgers freshman Tyler Clementi led to an “It Gets Better” campaign with videos created by celebrities and others.

10. Social Movements Still Our Best Hope. Thousands gathered in Detroit in June for the second US Social Forum, an event that galvanized grassroots social movements from across the United States. In Toronto, the meeting of the G20 was greeted by thousands of protesters, many of whom were subjected to police beatings and gassing. The Cancún climate talks brought caravans of farmer/activists and global justice activists as well as greens to press for a meaningful response to the climate crisis. Social movements are alive and well, even though they are disparaged or ignored by the corporate media, which choose to instead shower attention on the well-funded Tea Party. And movement leaders are connecting the dots between Wall Street’s plunder, growing poverty, and the climate crisis, and setting priorities instead for people and the planet.

The turbulence of our lives is increasing, spurred by the crises in the economy and the environment, growing inequality and debt, military overreach, deferred peacetime investments, and species extinctions. Turbulent times are also times when rigid belief systems and institutions are shaken, and change is more possible. Not automatic, and definitely not easy, but possible. The question of our time is how we use these openings to work for a better world for all life.

This work is licensed under a Creative Commons License

Sarah van Gelder is co-founder and executive editor of YES! Magazine, a national, independent media organization that fuses powerful ideas with practical actions for a just and sustainable world. Sarah is executive editor of YES!

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Published in Yes! November 16, 2010. Reprinted with permission.

A historic new ordinance bans natural gas drilling while elevating community decision making and the rights of nature over the “rights” associated with corporate personhood.

by Mari Margil, Ben Price

In a historic vote, the City of Pittsburgh today adopted a first-in-the-nation ordinance banning corporations from natural gas drilling in the city.

Faced with the potential for drilling—and the controversial new practice known as “fracking” or hydraulic fracturing—within city limits, the Pittsburgh City Council unanimously said “no.” Fracking means injecting water laced with sand and toxic chemicals underground to create deep ground explosions that release the gas. It’s a technique first tried in Texas, and which is now being used in Pennsylvania, where the Marcellus Shale geological formation, a source of natural gas, is buried over a mile down. The Marcellus Shale stretches from New York, through Pennsylvania, into Ohio and West Virginia.

Fracking has been demonstrated to be a threat to surface and groundwater, and has been blamed for fatal explosions, the contamination of drinking water, rivers, and streams. Because it disturbs rock that’s laced not only with methane, but with carcinogens like benzene and radioactive ores like uranium, forcing the mix to the surface adds to the dangers.

Pittsburgh sits atop the Marcellus Shale and corporations have already purchased leases to drill there, including under area parks and cemeteries.

The ordinance sponsor, Pittsburgh Councilman Doug Shields, led the charge to ban drilling, and was later joined by five co-sponsors. During the months leading up to today’s vote, Shields passionately advocated for the ordinance, saying that the city is “not a colony of the state and will not sit quietly by as our city gets drilled.” He sees this fight as about far more than drilling, saying “It’s about our authority as a community to decide, not corporations deciding for us.”

Drafted by the Community Environmental Legal Defense Fund (CELDF), Pittsburgh’s ordinance elevates the rights of people, the community, and nature over corporate “rights” and challenges the authority of the state to pre-empt community decision-making.

As natural gas drilling expands across Pennsylvania, there’s been a debate among opponents offracking over the best course to take. Some are arguing for “responsible drilling” and severance taxes; others want to “zone out” drilling from residential areas or around schools.

Advocates and communities are finding, however, that calling on corporations to be more accountable, without changing the powers and authorities corporations have been given by state and federal government, means asking them to take voluntary steps. Even communities that adopt zoning restrictions requiring drilling pads to be located away from homes or schools find that because the drilling is horizontal, its impact still reaches into those places they are trying to protect.

Meanwhile, hopes that the state—either the legislature or the Pennsylvania Department of Environmental Protection—will help, have been similarly dashed. The state was recently found to be paying thousands of dollars to a private contractor to investigate citizens advocating against drilling. Meanwhile, hundreds of thousands of industry dollars went to candidates in the recent elections. Those monies helped elect candidates who will ensure that drilling proceeds without interference from citizens across the region. Further, the state continues to issue permits to corporations to drill despite growing community opposition.

Corporations, empowered with constitutional privileges conferred upon them by the courts, have long worked hand-in-hand with elected officials and government agencies at the state and federal level to pave the way for drilling. They’ve been successful in exempting natural gas drilling andfracking from federal regulations and they’ve put in place state laws pre-empting municipalities from taking any steps to reign in the industry.

Communities like Pittsburgh are coming to the conclusion that it’s up to them to stop practices they disagree with. Their efforts are not just about stopping the drilling, but about who gets to make decisions for the community—corporations empowered by the state, or people and their communities.

As Councilman Shields stated after the vote, “This ordinance recognizes and secures expanded civil rights for the people of Pittsburgh, and it prohibits activities which would violate those rights. It protects the authority of the people of Pittsburgh to pass this ordinance by undoing corporate privileges that place the rights of the people of Pittsburgh at the mercy of gas corporations.”

Provisions in the ordinance eliminate corporate “personhood” rights within the city for corporations seeking to drill, and remove the ability of corporations to wield the Commerce and Contracts Clauses of the U.S. Constitution to override community decision-making.

In addition, with adoption of the ordinance, Pittsburgh became the first city in the U.S. to recognize legally binding rights of nature.

By recognizing the rights of nature, Pittsburgh is effectively protecting ecosystems and natural communities within the city from efforts by corporations to drill there—and by other levels of government to authorize that drilling. Residents of Pittsburgh are empowered by the ordinance to enforce those rights on behalf of threatened ecosystems.

The ordinance now goes to Mayor Luke Ravenstahl for signature. Representatives of drilling companies have indicated they may challenge the ban in court.

The Pittsburgh City Council is now reaching out to other communities facing drilling, encouraging them to take similar steps including adoption of local laws that challenge state and corporate disregard for the consent of the governed, and join in the fight for community rights.

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Mari Margil and Ben Price wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Mari is the associate director and Ben is projects director of the Community Environmental Legal Defense Fund, a nonprofit, public interest law firm providing legal services to communities facing threats to their local environment, agriculture, economy, and quality of life.

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This work is licensed under a Creative Commons License

Licking, Pennsylvania defies state law by banning corporations from dumping fracking wastewater.

by Mari Margil, Ben Price

In Pennsylvania—a central target for natural gas drilling and the controversial drilling practice known as horizontal hydraulic fracturing, or “fracking”—local communities don’t have the legal authority to keep unwanted drilling from happening.

As fracking’s impacts on water safety make headlines and public resistance to drilling grows, some towns have tried to use land use zoning to keep drilling companies out—but they can’t use zoning laws to stop an activity the state has declared legal. (At best, they can zone where the corporations site their drill pads. But since drilling is not vertical but horizontal, there’s no way to contain its impact on a community’s water and environment.)

Taking local control

One small community in western Pennsylvania wanted more say over what happens within its borders. Licking Township, population 500, chose to defy state law with its own local ordinance, banning corporations from dumping fracking wastewater within its borders. Licking sits atop the Marcellus Shale, a geological formation that contains large and mostly untapped natural gas reserves. On Oct. 12, 2010, the Licking Township Board of Supervisors voted unanimously to ban corporations from dumping fracking wastewater within the township.

“When it comes to land use issues and the preservation of important resources, the local community is best suited to set priorities as they feel impacts most acutely,” said Mik Robertson, chairman of the Licking Township Supervisors.

Pennsylvania’s preferential laws for drilling companies are not unique. For years, the drilling industry has worked closely with government to pave the way for widespread drilling, eliminating regulatory barriers that may stand in its way. The so-called “Halliburton Loophole” was inserted into the federal Safe Drinking Water Act to exempt companies drilling for natural gas, including those drilling in the Marcellus Shale (which extends from New York to West Virginia) from having to comply. Corporations have also been exempted from a host of other laws and regulations, and states have enacted laws pre-empting municipalities from taking steps to reign in the industry.

The residents of Licking felt that they should be the ones to decide what happens in their township. “People have the right to determine what is suitable for their community, as they are most directly affected by intended or unintended consequences of resource extraction,” said Robertson.

The dangers of fracking

The residents of Licking aren’t alone in their concerns about fracking. Across the Appalachian highlands, residents worried about the health effects of fracking have been calling on their elected officials to protect them. In New York, a citizen movement convinced the state Senate to place a 9-month moratorium on the practice while its safety is evaluated. However, the moratorium is only temporary and has not been voted into state law.

Fracking involves pumping water laced with sand and a cocktail of chemicals underground to fracture the shale rock and release the natural gas. In the process, thousands of gallons of toxic wastewater are produced and can contaminate waterways and drinking water.  Natural gas wells are often driven through aquifers.

The impacts from drilling can include exploding wells, groundwater contamination, and fish kills. Recently, the Pennsylvania Department of Agriculture quarantined cattle believed to have drunk from a frack wastewater spill.  Their milk was no longer considered safe to drink.

A new study by researchers at the University of Buffalo found that fracking also releases uranium trapped in the rock, raising additional health concerns.

Collateral damage includes lost property value, drying up of mortgage loans for prospective home buyers, and the threatened loss of organic certification for farmers. And it’s not only rural communities feeling the pressure. In Pittsburgh and Buffalo (both of which straddle the Marcellus), gas extraction corporations have quietly signed leases with landowners to drill under the surface.

A new direction

Drafted with the help of Community Environmental Legal Defense Fund (CELDF), the “Licking Township Community Water Rights and Self-Government Ordinance” is the first of its kind in the nation.

The City of Pittsburgh is also considering a CELDF-drafted ordinance, which is scheduled for a vote on November 16. With an expected veto-proof majority of City Council members in favor, that ordinance would impose an outright ban on gas drilling by corporations within city limits. Communities across the Marcellus Shale region, including Lehman Township in eastern Pennsylvania, are also considering CELDF ordinances that would ban corporations from drilling or from extracting water to use in drilling.

In addition to banning corporate disposal of frack wastewater, Licking Township’s ordinance asserts the right to local self-government and the community’s right to a healthy environment and to clean water. In adopting the ordinance, Licking joins more than a dozen other communities in legally recognizing the rights of nature and subordinating corporate constitutional rights to the rights of human and natural communities.

By recognizing the rights of nature, Licking is effectively protecting ecosystems and natural communities within the township from efforts by corporations to drill there—or by higher levels of governments to authorize that drilling. Residents of the community are empowered by the ordinance to enforce those rights on behalf of threatened ecosystems.

By prohibiting the introduction of frack wastewater into the Township’s environment, Licking’s new law effectively blocks hydro-fracturing. Critics of the ordinance claim that, by denying corporations that violate its prohibitions the civil rights protections conferred on them by the courts, the ordinance goes too far.

Robertson responds to these charges, saying, “People have rights, like the gifts of nature. People have rights to property. Property does not have rights. Corporations are property.”

Corporations may sue to overturn the ordinance, with the argument that it violates their corporate constitutional rights. Such a lawsuit would finally raise imperative questions about whose rights trump whose: Do the court-endowed privileges of corporations override the inalienable rights of the people and ecosystems of Licking Township, nullifying their claim to have a legal right to their health, safety, and welfare? Or does the community have the right to make critical decisions to protect its well-being—and that of the ecosystems upon which it depends?

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