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In contrast, BND is a public bank, 100% owned by the state, operating in the public interest and those of the state. It "avoids rivalry with private banks by partnering with them." Local banks do most lending. "The BND then comes in to participate in the loan, share risk, buy down the interest rate and buy up loans, thereby freeing up banks to lend more. (One of its functions) is to provide a secondary market for real estate loans, which it buys from local banks. Its residential loan portfolio is now $500 to $600 billion" in a state with around 700,000 people and thriving.

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Its function in the property market helped it "avoid the credit crisis that afflicted Wall Street when the secondary market for loans collapsed in late 2007 and helped it reduce its foreclosure rate....(Its other services) include guarantees for entrepreneurial startups and student loans, the purchase of municipal bonds from public institutions, and a well-funded disaster loan program." When the state didn't meet its budget "a few years ago, the BND met the shortfall."

In sum, state-owned banks have "enormous advantages over smaller private institutions....Their asset bases are not marred by oversized salaries and bonuses, they have no shareholders" demanding high returns, and they don't speculate in derivatives or other high-risk investments. As a result, BND is healthy with a 25% return on equity, paying "a hefty dividend to the state projected at over $60 million in 2009" and well over five times that amount in the last decade, so it begs the question why other states don't operate the same way. If enough of their residents demanded it, they might and not suffer the way nearly all of them are today, two notably - California and Michigan.

California - A State in Crisis

Conditions are so bad that rumors suggest a future bankruptcy that would be unprecedented if it happens, but a more likely worst case scenario would be default. Either way is the same if on all state obligations, and in 1975, New York city was on the brink with its lawyers at the State Supreme Court filing a bankruptcy petition on October 17 and police cars standing by to serve papers on the city's chief creditors, the banks.

At the last moment, it was withdrawn after the United Federation of Teachers used union retirement funds to back city loans and saved the day. At the time, few knew the danger or what it meant. Today many states face the same bind with California most significant because of its size. As a nation, it would rank 8th economically in the world, so a default would affect the entire country, and perhaps other states would follow.