Time to try Bernero's bank idea?

Banks being stingy with small business loans are choking off America's economic recovery, argues blogger Matt Yglesias at his new home at slate.com. He is reporting on new research that purports to show that small businesses that just want to do business and need some bank money for investment have been hurt disproportionately during the recent budget crisis.

Now, let's set our Wayback Machine to 2010 and the Michigan gubernatorial campaign. Democratic candidate Virg Bernero tried to hinge a good part of his bid on the idea of Michigan working around stingy banks with a bank of its own.

Here's how Bernero's idea was described in a Center for Michigan story on crazy and creative ideas in the 2010 campaign (Bernero's idea was considered "creative," not "crazy"):

"1. State bank. Bernero, a Democrat running for governor, and Senate Democrats want Michigan to charter a state-owned bank to provide loans to small businesses and farmers, as well as low-interest credit cards for consumers. This is modeled on the Bank of North Dakota, a state-owned bank that has generated about $300 million for its state treasury this decade. The idea is that it’s a win-win for citizens and the state alike. Many consumers and small business owners continue to be victims of the credit crunch and could get access to funds. The state could make money off the interest. While economists don’t think this is a magic bullet for Michigan’s budget woes, it could be part of a solution."

Obviously, this description was aimed at the state revenue side of the equation -- whether a state bank would make money. But would not the concept also affect the dynamic described in Yglesias' piece?

If this concept works for North Dakota, is there a specific policy or technical reason why Michigan should NOT try it?

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John Q. Public
Wed, 01/11/2012 - 2:14am
If it were properly run, I think this is a great opportunity for government to cure a market failure. The degree of confidence I have that it would be properly run is somewhere in the low single digits--it's possible, but I like the odds I get in Powerball better.
David Olmstead
Thu, 01/12/2012 - 11:09am
There may well be a State constutional prohibition on the State getting into the banking business in this way.