Post edited 7:07 pm – October 22, 2010 by wspademan

Carol Lewis said:

Can you provide an example of how this would redistribute wealth?

Access to capital is a sort of wealth. It also leads to more material wealth by financing new businesses, local ownership, energy saving measures, and infrastructure improvements. Low-income/poor communities normally have far less access to capital than wealthy communities — even in the Common Good Bank system.

More for the poor. By requiring communities to invest in other community divisions, with an eye to serving the greater good, we encourage all communities (wealthy or poor) to assist others by applying a tenth of their capital wherever it will make the most difference — typically in less wealthy communities. Since a tenth of a wealthy community's capital is likely to be much more than a tenth of a low-income/poor community's capital, the overall result will be a substantial increase in access to capital for low-income/poor communities.

No profits at the expense of the poor. At the same time, the restriction that the interest rate must not exceed the rate of inflation ensures that wealthier communities will not be drawing money out of less wealthy communities.

No downside. Community Development Financial Institutions (CDFIs) must invest mostly in low-income communities. Conventional banks typically invest more than half of their lending capital speculatively outside their service area (playing the stock market, for example). So, in the Common Good Bank system, allowing communities to invest 90% of their funds in their own community is a big improvement. Requiring 10% to be invested in other community divisions makes Common Good Banks a bit more like CDFIs without any significant downside for wealthier communities.