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...