print pageCommon Good Bank will be much better for us than state-owned banks.
Bank of North Dakota
Yes, The Bank of North Dakota is a vast improvement over our national banking system in the United States. There are two reasons why it is an improvement:
- North Dakota’s bank is owned by the state, so all profits go to the public. The Federal Reserve banks are privately owned, so all profits go to private investors.
- North Dakota’s economic decisions are controlled at the state level, where decisions can be more responsive to local needs. The Federal Reserve system acts at the national level.
However, decisions at the state level are still far removed from the concerns of individual communities. Most individuals have very little say in those decisions. State governments, like federal governments, tend to cater to big business — to the detriment of small business, communities, families, individuals, and the planet. Money influences the decision-makers.
Common Good Bank is not just about who gets the profits. Yes, the profits go to the wider community, just as in state-owned banks. But Common Good Bank will be different from conventional banks in two additional ways:
- Who is in control – Common Good Bank will empower communities to take democratic control of their own destiny – deciding by direct democracy what gets funded and therefore what gets done in their community and in the wider world.
- What is the bank’s mission – Common Good Bank will be committed to economic justice and sustainability, putting people and planet first. By contrast the Bank of North Dakota’s mission is “to encourage and promote agriculture, commerce and industry in North Dakota”. This is the sort of mission we can expect from state banks. According to Wikipedia:
“Though initially conceived by Non-Partisan League populists as a credit union-style institution to free the farmers of the state from predatory lenders, the Bank’s functions were largely neutered by the time of its inception by the business-backed Independent Voters Association. The recall of NPL Governor Lynn Frazier effectively ended the initial plan, with BND taking a more conservative central banking role in state finance.” (en.wikipedia.org/wiki/Bank_of_north_dakota)
Another question:
Do we need both? If Common Good Bank gives each community, in effect, its own virtual democratic bank, then is state-level or national-level banking useful?
Yes and no:
- Diversity: We want there to be more than one formally chartered bank like Common Good Bank, so that different regions can evolve differently, according to their needs. This will also provide something analogous to biodiversity — letting us learn from each other and giving us security in case one of the chartered banks gets legislated out of existence (individual communities can then shift to a different formal parent Common Good-type bank).
- Interaction: Financial interaction between community-level banks is important. The check-clearing function of national-level and state-level banks can be handled by each formally chartered Common Good-type bank. Several community banks together can fund large-scale cooperative projects such as regional energy production, agricultural processing plants, and telecommunications cooperatives. We do not need a separate, state-controlled financial intermediary for either sort of cooperation.
There is no need for a state- or national-level bank in a Common Good Bank system, other than the chartered Common Good-type banks themselves.
Final question:
Okay, suppose tye Common Good Bank system is better, isn’t it ALSO okay to promote a nationally-owned bank (as Stephen Zarlenga proposes) or state-owned banks (as Ellen Brown proposes)?
Yes. Anything that is substantially better than what we have now is worth working for. If you can get your state legislature to create a state-owned bank (or if you can get the American Monetary Act through Congress) before Common Good Bank is up and running, go for it!
Unfortunately, all you can do toward that goal is advocate. The rest is out of your hands. The power to make those decisions lies with our representatives in government. The gears of government turn very slowly and reluctantly, except when lubricated by big business and the implicit promise of campaign contributions.
In any case, government-controlled banks would leave us still without much say in the destiny of our communities and the world — we will still need the Common Good Bank system.
In Massachusetts, where I live, a state-owned bank would require a change to the constitution. So it looks much more promising to go after what we really want: community-based, democratic economics for the common good. The Common Good Bank model does not depend on convincing legislators to do something that big business opposes. It does not depend on society achieving a higher level of consciousness. It is something we can do for ourselves right now.
Common Good Bank will allow all of us to be actively involved in guiding the course of human events. Ultimately, anything short of that is just not good enough.
5 Comments
CGB should be a state chartered bank owned by its depositors and investors. It should have a cooperative agreement with another bank to do the transactions until such time as CGB can afford its own “back room”. This is the plan and it’s a good one.
The great hole in the plan is that banks loan money, not invest in shares. Most L3C’s (low profit, limited liability company) need at least 50% equity to get the other 50% as a loan for start-ups and grow-ups. This hole is not the bank’s fault because the regulations so limit banks to loans.
In addition to the CGB, we need a way to raise equity funds and provide liquidity for those investors and companies for which the equity investments are made in L3C enterprises. Such a plan exists at the theory level and general design stage. Under development is “Small Business Investment Exchange” (SBIE) ( http://sbic.wetpaint.com ). Both CGB and SBIE should co-evolve.
A good funding plan involves securities and a good pitch. It also helps to follow a successfully implemented plan. Such a successfully implemented plan exists and has been operational for about a year. That plan was created by Cooperative Fund of New England, know as the Cooperative Capital Fund of New England. The prospectus is online ( http://cooperativefund.org/files/CCF%20PROSPECTUS.pdf ) and much of the descriptive materials is also online.
The prospectus describes two instruments: First Loss Money Notes which are subordinated to Capital Notes. I suggest we take a very careful look at this funding system. I recommend we utilize the funding approach of CFNE for CGB. I plan to use it for SBIE. Here’s the summary of CCF:
Overview
The Cooperative Capital Fund of New England, Inc. is conducting this offering and is referred to throughout this prospectus as “CCF” or “we” or “us.” We are offering Social Capital Notes and First Loss Money Notes. The Social Capital Notes will be senior to the First Loss Money Notes. The principal of and accrued, but unpaid, interest, if any, on the Social Capital Notes will be repaid in full before any payment of interest on the First Loss Money Notes is made. The Social Capital Notes and First Loss Money Notes, which we refer to collectively as the “Notes,” are unsecured, nonrecourse obligations of CCF. Proceeds raised from the sale of Social Capital Notes will be held in escrow until proceeds received from the sale of First Loss Money Notes total at least 15% of the Social Capital Notes proceeds. Together the proceeds received from the sale of the Social Capital Notes and the First Loss Money Notes constitute the Investment Fund (the “Fund”). The Fund will be invested in eligible cooperative organizations as described elsewhere in this prospectus, and the cash flow from those investments will be used to repay the Notes.
CCF aims to raise $1,000,000 through the sale of Social Capital Notes to a maximum of $1,500,000, and a minimum of $60,000 through the sale of First Loss Money Notes to a maximum of $500,000. In the aggregate between the two classes, the minimum to be raised is $460,000. First Loss Money Notes must equal or exc be used to repay the Social Capital Notes first and then First Loss Money Notes. It is anticipated that the Social Capital Notes will be repaid within eleven years, with half of the repayment occurring within 7.5 years. The Social Capital Notes and First Loss Money Notes can earn interest at a rate of 0 to 5% annually, which rate will be chosen by the investor at the time of subscription. Interest on the Social Capital Notes will be paid in April of the spring of the following year based on the weighted average balance outstanding of all Notes. At this writing the first loss money collected totals $170,000.
All funds raised will be held in escrow until we raise the $460,000 aggregate minimum in Social Capital Notes and First Loss Money Notes, including at least $60,000 in First Loss Money Notes. No interest will be paid on the First Loss Money Notes until all Social Capital Notes are repaid with interest. The offering will continue for up to 24 months (at CCF’s discretion) from the launch date, and must during that time reach its minimum funding level of Social Capital Notes and First Loss Money Notes. If the minimum funding levels are not reached by December 13, 2009, the offering will be terminated, and the principal sum of the Notes will be refunded to the investors along with pro-rata interest earned on the escrow account.
Earnings on the escrow account may be more or less than the pre-selected interest rate of the Notes.
First Loss Money Notes will be repaid only after all Social Capital Notes are repaid with interest, and will bear any losses CCF experiences that cannot be covered through a loan loss reserve, which is estimated at 18% of invested assets over the life of the Fund. The loan loss reserve is built through the spread between CCF’s investments income (estimated at 11%) and CCF’s costs of funds (estimated at 3%), and CCF’s direct costs to operate which will vary depending upon the size of the Fund and subsidization by the Cooperative Fund of New England. Once all Notes have been repaid with interest, the surplus, if any, from investments made with proceed from the Notes will be used to fund subsequent, separate funds for capitalizing cooperative organizations. The Notes are non-recourse obligations of CCF that constitute a participation in the Fund, and that will be repaid based on the performance of the investments made with the Fund. CCF may have multiple funds in the future. Each fund will be independent, funded by separate notes and be invested in separate assets.
http://cooperativefund.org/files/CCF%20PROSPECTUS.pdf
Regards,
Jim Miller
Ellen Brown: “I think only a publicly-owned bank can afford to take those risks. Publicly-owned banks would be GOOD for the other banks in the community. You’re going to need that ready source of funds!”
Publicly owned bank government style? You mean like the publicly owned land that we are supposed to have access to? A statist answer to banking can not be sustainable. It inherently gives control over the flow of economic energy to state employed bureaucrats who have the inherent monopoly on “moral” violence. This is a BAD situation as now we have to contend with bankers with guns
. Megalomaniac greed artists are bad enough with just the purse strings. So if there is any sort of real risk, as in bodily harm possible, then we must admit that any group who contends they have the moral authority and claim the monopoly of institutionalized violence is the real danger.
Ellen Brown said: “My concern is just that the Common Good Bank is too risky … The idea is to invest in small startup businesses that can’t get loans from banks now, right?”
Common Good Bank communities WILL probably want to invest in some small startup businesses that other banks view as too risky. But the Common Good Bank idea is more about who makes those decisions than about which specific loans to grant. The loans still have to be sound and, on average, make a reliable small profit. We believe that by setting priorities at the community level and by funding things that the community has decided it wants and needs, Common Good Bank loans can be LESS risky than ordinary banks (and less risky than loans made by a far-away state-owned bank). But of course this remains to be proven.
Whether or not we have state-owned banks, we will still need Common Good-type banks. Corporations influence state governments just as they influence national governments. Do we want to continue allowing a small group of multi-millionaires to make all the important decisions, for their own enrichment? Or do we want a say in what gets funded in our communities and in the wider world? Most people still choose the first. It’s time to step up to the plate, rally our friends and neighbors, and put our faith and money in a Common Good Bank system, while it is still possible.
My concern is just that the Common Good Bank is too risky for the investors, and since it’s a non-profit they don’t have much upside so it will be hard to attract them. The idea is to invest in small startup businesses that can’t get loans from banks now, right? Those are very risky businesses, particularly in this climate.
That’s why we favor a state-owned bank: it has the deepest of pockets. California has $200 billion in assets that it owns, that I know of; probably more than that. It has the power to tax, so it is extremely unlikely to go bankrupt. And it can afford to carry projects for years and years; it can take the long-range view and do what’s best for the local economy without worrying about short-term profits and survival. It can serve the role of the “shadow lenders” who have gone away, taking loans off the books of the banks and making room for more.
The Bank of North Dakota does that. There are good viable models, my favorite being the Commonwealth Bank of Australia, which was a publicly-owned central bank AND commercial bank for 80 years, funding projects by issuing its own credit, and lending to homeowners at very low interest, “keeping the other banks honest.” The Bank of North Dakota works in Partnership with the small and local banks to fund the economy of the state.This enables the credit to be available for small/medium businesses, renewable energy, small farms/ag, etc.with the result being a thriving state….
I think only a publicly-owned bank can afford to take those risks. Publicly-owned banks would be GOOD for the other banks in the community. You’re going to need that ready source of funds!
Wonderfully put. What seems to me so crucial is the abdication of sovereignty inherent in advocating for the American Monetary Act and for State Banks. If we know how both the state governments and the national governments are controlled and for whose benefit, and see that in terms of sovereignty then it is obvious that we the people are not sovereign. We can assume our sovereignty as members of a local depositors association. We can exercise our sovereignty through the direct democracy process designed into the Common Good Bank! We can create a local community that serves the people and, as William pointed out, we can collaborate with all the other depositors associations to create a society that serves the people.
The shift in consciousness needed for State Banks or the American Monetary Act would anyway need to be fostered at the community level, so why not get some hands on practice being sovereign in Common Good Bank depositor associations? Common Good Bank depositor associations can advocate for State Banks and the American Monetary Act! The direct democracy design could create a sense of sovereignty such that the depositors association community could demonstrate governance of the people, by the people, for the people.
As a reminder, Masschusetts voters passed the Clean Elections Law with a super majority (more than 67%) and the legislature refused to fund it, and the courts proved powerless to enforce it!
Even if the Common Good Bank never gets a charter, the understanding of money inherent in the design of the Common Good Bank would allow us to work around that problem in many different ways and still achieve our goal of issuing the currency to fund what we the people consider good and necessary for our well being!
John G Root Jr