
Starting a Bank Is a British Town’s Solution to Funding Cuts - JumpCrisscross
https://www.bloomberg.com/news/articles/2017-05-30/short-of-funds-and-long-on-dreams-a-british-town-starts-a-bank?em_pos=small&ref=headline&nl_art=4
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ThrustVectoring
This makes a lot of economic sense to me. Governments can capture some
positive externalities through their ability to impose taxes on the catchment
area of those activities. There's therefore some things that make sense for
governments to do but not private actors - infrastructure is a great example
of this.

For loans, there's some that would make sense for governments but not private
banks. Suppose a dollar of this loan has an expected value of 99 cents for the
bank, while generating $2 worth of taxable economic activity at a 10% rate.
Private banks would lose a penny, municipal governments would make 19 cents.

It does leave two big questions. First is how big this class of loans actually
is in practice. If there's not much there, the overhead of running it through
government doesn't make sense. Second is how to keep incentives aligned and
un-corrupted. I'm pretty worried that "drive economic development" will become
a pretext for "give handouts to friends and political supporters".

~~~
turc1656
" _For loans, there 's some that would make sense for governments but not
private banks. Suppose a dollar of this loan has an expected value of 99 cents
for the bank, while generating $2 worth of taxable economic activity at a 10%
rate. Private banks would lose a penny, municipal governments would make 19
cents._"

While technically true, this is misleading. The numbers are still the same
whether or not the government runs the bank. The private bank would lose 1
cent, as you mentioned, but no matter what the government is still getting the
$2 in taxable revenue resulting in 20 cents to the government at the 10% rate.

Then you also need to factor in that banks have operating costs. In the case
where the government gets both the tax revenue and profits (or losses) of the
loan, this means that the only way for the government to make this work is if
the government can run the bank more efficiently than the private bank would
be run. Or, at least equal. Otherwise, the additional operating cost is a net
loss to society from the inefficiency.

I don't know about you, but I would never, ever count on the government
running anything more efficiently than the private sector. This is a bad idea.

~~~
fiter
> While technically true, this is misleading. The numbers are still the same
> whether or not the government runs the bank. The private bank would lose 1
> cent, as you mentioned, but no matter what the government is still getting
> the $2 in taxable revenue resulting in 20 cents to the government at the 10%
> rate.

This doesn't seem misleading at all: in your scenario, the private bank would
not lend so the government would not be able to collect tax revenue.

> I don't know about you, but I would never, ever count on the government
> running anything more efficiently than the private sector. This is a bad
> idea.

Why? What is the inherent quality of the government run enterprise compared to
the privately run enterprise that makes the former less efficient?

~~~
turc1656
" _Why? What is the inherent quality of the government run enterprise compared
to the privately run enterprise that makes the former less efficient?_ "

Because there is far less motivation to be efficient and well-run. The
government can, for the most part, determine its revenue by the tax rate. How
efficient would a private sector company be if they could mandate how much
money was going to be guaranteed to them from their customers as a matter of
law?

Also, when government agencies that are supposed to be self-sufficient lose
money, they just get subsidized instead of shut down. Take a look at the USPS
for a perfect example. It loses billions of dollars every year, and has for
quite some time. No private sector company would survive that when it goes on
for as long as it has with the USPS.

~~~
csdreamer7
USPS has several laws affecting it's profitability due to battles in Congress
that simply a small government would not have (or be able to sustain).

One is being required to over pay it's pensions to shore up the deficit other
federal agencies have not made to the federal pension. Another is a
requirement to serve mail all 5 working business days regardless of how rural
a location it is. USPS actually delivers foreign letters, that can contain
small items below cost, as do all nations mail systems due to international
treaty. Congress has also has placed limits on how much USPS can raise the
cost of a stamp.

And then there is the USPS union battles.

There are plenty of small government agencies that run very well simply
because private enterprise has been uninterested or incompetent. Chattanooga
TN's utility provider can match Google Fiber on $70 gigabit internet.

~~~
turc1656
I realize you didn't intend this, but as I read what you wrote I can't help
but take it as supporting my claim. What you said about the USPS is a perfect
example of why the government frequently does a terrible job running
operations like this. None of that (except the union battles) would exist if
it weren't for government nonsense.

I would be curious to see the details on Chattanooga's ability to provide
those lines for comparable cost. My guess is that they get tax breaks that
Google doesn't and/or don't have to pay for something else that Google has to
- i.e. the land to run the lines. I would be utterly shocked if they didn't
have some advantage that existed purely as a result of them being a government
agency and were able to compete with Google. Because if they have any
advantage, it's not really a fair competition.

~~~
csdreamer7
I don't think you see my point. There is a reason why I wrote "due to battles
in Congress that simply a small government would not have (or be able to
sustain)."

Mandates, turf battles, happen in large corporations as well as government.
Chiefdoms, out of touch executives, in large corporations are as common as
partisan battles in Congress.

Small governments, like small businesses can operate with a certain quickness
and laser focus that larger organizations do not operate under. Which was a
point of the article, large banks were ignoring small business lending in
these small towns.

> I would be utterly shocked if they didn't have some advantage that existed
> purely as a result of them being a government agency

I believe you shall be shocked. The state of Tennessee actually barred them
from extending service to other towns because Comcast lobbied/bribed the
state.

The reason they put in fiber is because the locally owned power municipality
needed the fiber to monitor for down lines. The municipality claimed the cost
savings for having employees drive around every time the power was cut paid
for itself in a few years. The fiber broadband itself is a profit center.

------
tagawa
In a similar vein, there's an enjoyable documentary called Bank of Dave about
a British millionaire trying to create a small bank in his home town. The
first part's here: [https://youtube.com/watch?v=0fIGZOe-
Oa0](https://youtube.com/watch?v=0fIGZOe-Oa0)

