Also serving the communities of De Luz, Rainbow, Camp Pendleton, Pala and Pauma

RE: 'Cash-starved states need to play the banking game' [Opinion, 3/12/09]

Putting California into the banking business so it can make very low interest loans to municipalities and credit-worthy citizens may sound like a good idea, but my experience indicates otherwise.

I lived for a number of years in a village in the canton (state) of Solothurn, Switzerland. The canton had its own bank that made loans to its citizens at low interest rates. All was well until the bank began losing money due to loan defaults. The loan losses forced the canton to raise additional capital by means of a significant tax increase. The canton’s citizens were shocked to discover that owning a bank is not risk-free. As you might suspect, the canton subsequently got out of the banking business.

Do we really want our state legislators, who can’t even figure out how to balance the budget, controlling a bank? One can easily imagine the political pressures to make loans to favored industries (green jobs!) or favored individuals (as in the Fannie and Freddie disaster).

And would the bank’s capital be provided by increased taxes or do we just float another bond issue? This is an idea that falls into the category “If it sounds too good to be true, it probably is.”

Gary Steres


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