bank-notes

2007-02-09T13:52:00.000-08:00

I feel a little lost with this. Funny --it's been hard to work on it. Well, pull myself up by the bootstraps, darlin. Get out that self discipline! I get kind of overwhelmed with the final cut, the narrative, keeping track of it all. Stop thinking. I think the narrative is tripping me up. I should just work with the footage I have. Voila.

Saturday, I want to log the Orange footage. It's been good to work on that one.

Saturday, I also hope to edit the bank film. Ben will you help me render the bank stationery? Just cobble together what I have. Dont worry about the meta narrative. okay? Whew. And one more thing: meditate first.

What might I do anyway? I keep wanting to be dazzling and get all stuck in the disparities between my desire (oh, auteur!), my vision, my skills, my footage. I would like to have a rough rough cut before Goddard, if possible.

Should I try to send Bernard the rough cut on Saturday?

I know, i was getting all perfectionist about the transitions between clips. I internalize Ben doing it better. He is more patient. I guess I need to meditate a lot. I think he wants me to need him to edit this...it gets all mind warped in my head. Sorry bb! I know it's mine, but i still struggle with it.

Ben is talking with me.

2007-02-06T20:23:00.000-08:00

I logged Martin today -and now I feel like I don't feel like being on the internet. I maybe should crawl into bed. The film is a lot of work; I can doubt it. It is an important story. Maybe I doubt doing video-work. Oy. Doubt. I think --I could do this as a cartoon! Stop. I have to learn final cut better -I'm a little afraid of it. Daunted, annoyed by it.

Martin basically says banks are not big players. But I see this as part of a bigger series on economics.

That is all -recall, I am also studying the precept of non-lying.

xo

2007-01-27T16:55:00.000-08:00

Sniffly but happy Saturday 8 pm

Okay, started editing the footage, and this is fun and good to craft the story line WITH the footage in "hand." Ya know, not theorize, but have my hands in it.

This is what has evolved:

for a rough rough rough cut, I think I will not narrate/ voice over this, but maybe have the story come together through emails/ phone messages, and me reflecting at key junctures in person. Have the narration be in present.

Im not sure how to start. Oh, I could read from the first blog entry showing the bank statements. Maybe get footage of that text? I need B's help with the Bank statements.

so get footage and capture of: BLOG, ME READING THAT
SEE ABOUT GETTING NEWS AUDIO CLIPS, CREATIVE COMM
READ EMAILS TO FRO NEIL P.
AUDIO OF ME CALLING LESLIE AT TDBN BACK -CLARIFY,
COULD WE DO INTER. OFF CAMERA?
HOW TO RENDER?
CALL NEIL, TAPE
RESEARCH, WRITE THE INFO ABOUT BANKS I WANT TO OFFER
REVIEW BL AND BLOG

I may need to get headlines of gramm leach bliley. Or audio news. That could be the soundtrack. News clips TD sign in place of Fleet sign?

so, cobbling together the soundtrack (maybe this could also be an audio piece) with the following to start: the blog entry, [my footage -feel self conscious vieotaping my bank, could add some voice over pretend it's from then], email to branch, email response from her, leslie voice mail, call leslie?, email to/ from neil, call neil? me talking to myself in car.

can b. help me with what is kosher?

blog again --wanting to talk to people. i need some transition to the interviewees. could insert cliff/ spade talking about no idea where banks put money.

or will i do how do banks work? not sure how i'll do that.

2007-01-24T06:31:00.002-08:00

I need to call TD BN to see about an interview there in Portland. What are my questions? I sent an email last night. I think I'll call now.

I previously wrote: QUESTIONS: WHERE IS THIS INVESTED? IS THIS TRANSPARENT? IS THERE SPECULATION? WHAT REGULATIONS? WHAT SAY TO THE IDEA THAT BANKS ARE FUNDAMENTALLY AT ODDS WITH DEMOCRACY? And can you defend banking --why is commercial banking good for a culture? Is it just good for stockholders and management and employees or is it good for economy and society as a whole?

I would insert their perspective into the early blurb.

Should I do an interview with someone at union bank in Boston? Is there a small bank CEO who would be willing to talk to me? Should I interview the man at the FC CDC? The impact of banks! Maybe Al's friend at Greenfield Savings or Greenfield Coop?

I'm calling now public affairs leslie roberts second transfer corp communications. I left a message! Very mature I think.

**

I'd like to get more footage to capture as I start to play with my mosaic. I'd like to get footage of the vines on banks. The Amherst branch of TDBN. Can I find other banks with things growing? What about the streetcorners?

**

I need to reply to the Toronto guy. Talking with B. made me realize I need to clarify my intentions for that interview with the majority owner of TD BN.

Freewrite on that:

Dear Neil P,

Thanks so much for your response.

I have contacted TD Banknorth in Portland, Maine, for an interview. I am waiting to hear back from them.

I also would like to interview someone at TD Bank Financial Group.

To help you direct me to the appropriate person, here are some of the questions I would like to ask:

I am trying to understand the relationship between TD Banknorth and TD Bank Financial Group. I'm not yet clear about what rights/privileges come with having majority ownership. How is a subsidary (like TD Banknorth) affected by its parent company?

Another way of asking this is: What does it mean to the average person with a bank account when their bank gets bought by a larger financial group? Is there any change in their bank's practices in terms of lending/ investment? Specifically, did TD Bank Financial Group's purchase of majority stocks affect the workings of TD Banknorth and if it is possible to explain how, this would be great.

The overall premise of this film is that I'm looking for a bank where I can open my account and using this as a point of entry for understanding how banks work and what the implications are of opening an account in one place over another. One of the issues that comes up is when one's bank is bought by a larger bank. What are the implications of this for the depositer?

Thanks,

At 02:07 PM 1/23/2007, you wrote:

Ms. W:
Thanks for your request for an interview.

It's important to point out that your request seems to blur the lines
between TD Banknorth and TD Bank Financial Group (TDBFG).

TD Banknorth is a majority owned subsidiary of TDBFG and operates approx.
600 branches in New England and the mid-Atlantic states. If your interest
lies there you should contact TD Banknorth directly. www.tdbanknorth.com

The Toronto-Dominion Bank and its subsidiaries are collectively known as TD
Bank Financial Group. TD Bank Financial Group serves more than 14 million
customers in four key businesses operating in a number of locations in key
financial centres around the globe: Canadian Personal and Commercial
Banking including TD Canada Trust; Wealth Management including TD
Waterhouse and an investment in TD Ameritrade; Wholesale Banking, including
TD Securities; and U.S. Personal and Commercial Banking through TD
Banknorth. TD Bank Financial Group also ranks among the world's leading
on-line financial services firms, with more than 4.5 million on-line
customers. TD Bank Financial Group had CDN$392.9 billion in assets, as of
October 31, 2006. The Toronto-Dominion Bank trades on the Toronto and New
York Stock Exchanges under the symbol "TD".

To ensure I can put you in touch with the appropriate person I really do
need some more details.

Regards,

What am I really wanting to know? What are the implications when my bank gets bought? What changes? for the depositer? for the stock holders? For the amount of people hired/ fired? What are the implications? for the economy? Is money lent/ invested in different ways? Should I also ask an economist this? Maybe two with opposing views? Why does a big company want to buy a bank? Banks make a lot of money. What don't I get?

Anyway, I sent my email.

**

I got the D and S Real World Banking book. So, some notes on that follow. Later, I am going to email D and S and see if it is possible to get a copy of the new version.
I'd love to post a link to this movie on their website.

**

Idea: I'd like to show or say that it's scary to talk to a corporation like TD FG B of whatever, it feels masculine, scary to me. Mysterious, I feel intimidated. It feels so diferent to interact with a cdcu. That feeling matters. Can I articulate why? This is about having a relationship, bearing witness, wanting to connect to the fuel, the blood, the fluid that enables one's life. One's time. Making it visible. Talking to it. Having a relationship with it. Holding it.

Can affect be a part of how we think about the economy we want? That is a valid argument, too. How do I know what's a good economy? People who have academic positions say balance free trade with government protection. What is the econmoy I want? Do I have to know my vision of a good economy to decide my bank account? To decide all my ways of living and exchanging money?

2007-01-22T17:37:00.000-08:00

I captured Spade and his cat; yahoo. (Good name for a cat.) And I started to sketch out the footage I will use in the first section. I did this without checking my old notes, so I'll see if the thinking is similar as before. (or not.)

For my first rough cut.

Scene 1: I am going to insert footage of the sign of my bank branch (maybe retake this in Amherst tomorrow.) I need to learn how to insert the scanned images of bank stationery into final cut.

I'll do my narration over that? I could grab my writing from early in this blog.

Scene 2: What is wrong with banks?

I'll snip together:

caroline: Ya try to be local!
cliff: banks leave community
spade: no idea where banks put your money
islam: all banks predatory, not permissible
mark: 4, 5: all banks have connection to fringe, may have to recapture that
mark 6
french guy from money?
caroline predatory lending
spade money is power
speak in defense of banks -small banks. big banks. who can speak on behalf of them?

COULD I INSERT INTERVIEW FROM TD BN? QUESTIONS: WHERE IS THIS INVESTED? IS THIS TRANSPARENT? IS THERE SPECULATION? WHAT REGULATIONS? WHAT SAY TO THE IDEA THAT BANKS ARE FUNDAMENTALLY AT ODDS WITH DEMOCRACY?

scene 3: how do banks work?

i need to explain fractional reserve, not sure what visuals yet.

GET FOOTAGE OF THE DEVELOPMENT FUNDED BY HAMPDEN BANK

martin m i think. I NEED TO GET THE OLD CAMERA OPEN.

scene 4: where should i move my account?

to be filled in; TRIP TO NORTH CAROLINA

scene 5: drops in the bucket

how do i make this research matter?

scene 6: interest

2007-01-20T16:38:00.001-08:00

I really like on prelinger how the flashing old texts about banks look. If you search for baking,i mean banking they blink on. Really nice.

2007-01-20T16:17:00.000-08:00

redemption -final section?

Redemption can mean the payment of an obligation, as in a government's payment of the value of its bonds. In this sense, redemption can mean the payment of any formal obligation incurred by any business or institution. wikipedia

Redemption is a religious concept referring to forgiveness or absolution for past sins and protection from eternal damnation. Redemption is common in many world religions and all Abrahamic Religions, especially in Christianity and Islam. In Christianity redemption is synonymous with salvation.

2007-01-20T15:47:00.000-08:00

Yow. I think Ive been avoiding this a little. I have captured all the footage except for Common Good bank stuff --which maybe I'll capture tonight? I have scanned lots of stuff from Bank statements. I got a hard drive. So I have made some progress.

I should look at Prelinger. And see what the captures look like all together. Keep it simple.

Can I sketch this out more?

1. sound: my bank got bought. play with that song.

cobble quilt footage: bank statements, prelinger, td, gramm leach bliley headline, is there footage of fleet center becoming td center? my footsteps on cement, on grass. me walking in front of bank

narration piece:

2. things to know about banks: play with that song.

cobble footage: martin mayer? who else? the french guy. redlining, predatory lending
footage with td people.

narration

3. where should i move my account?

footage of five college, as if the building is the holder of the money this fluid substance, of electronic data.

common good/ cdcus

intervweave interviews --put people from nedap in again. me signing my money to self help. footage of self help?

song cdcu

narration: met with small bank owner preferred not to be filmed.

4. drops in the bucket

footage: my chart of info SCAN --union meeting, convincing others to put money into cdcus or other options.

film drops of water -rain.

5. interest

islamic interview.

how shall i end this?

prefer to give out some money to friends no interest loans; interest...

2007-01-12T10:19:00.000-08:00

My Bank Got Bought.

I reread my narrative thread from two days ago and I'm down with that. Meaning I can work with it. That is good. So now what?

I am reviewing my footage (I have learned to capture.) And so that really is the next step now. Seeing what I have and then to play around with it. And THEN go grab new footage. Okay. That is simple.

2007-01-10T09:57:00.000-08:00

A morsel from Art and Fear: "Talent is a snare and a delusion."

I'm going to spend two hours on this film today.

I really should capture footage onto a hardrive but I dont know how to.

What other footage should I get? I'm not sure.

I could watch prelinger stuff about banks.

I can think about the narrative structure:

Titles: eyes wide open. Bank-Notes. My Bank Got Bought.

my bank got bought. first it was bay bank and then bank of boston then fleet then bank of america. so i moved my account across the street to a bank, i dont even remember what is was called but it had the word massachusetts in it, so I figured it was local, but it promptly became banknorth which became TD banknorth. One day soon after the TD appeared on my bank statement stationery, i took five minutes to look up TD on the internet. that simple two letter prefix. a whole other world! (show newspaper of TD Toronto Dominion.)

i felt so suspicious, like someone was scamming me. i was trying to use a small bank -and even that got bought out. a small bank seemed more trustworthy, committed to the community, a smaller entity and so i could know it more easily. my instinct was to prefer small, local, even though i still knew nothing about how banks worked, or precisely why it would be important to support a small bank.

i had my money in a checking account with no interest. it wasnt much money. but i didnt want interest all these years if i didnt know where the interest came from. but even if im not getting interest, it dawned on me that the bank is using my deposits to make more money for itself. im complicit even if im not getting the interest. im lending them fodder to do more of what they do. and i dont know what this is!

there is a wise saying. "only connect." to connect to a world as mystifying and invisible as the financial industry take some time. so i made some time:

how do banks work? what impact do they have on the landscape, on economic opportunity and division of wealth and resources? what does it mean to MAKE money? where does money or profit come from --isnt there a law that energy and matter cant be created, only transfered? what is the transfer when profit gets created? the profit that pays my interest whether in a bank or mutual fund? where do i move my account? i have heard of credit unions, what are they? this whole finance industry freaks me out --a bunch of people playing a game i dont understand but it affects the landscape, literally the alteration of land around me. the work and everyday lives of so many people.

I started on a journey to understand banks and to decide where I could open my bank account and feel okay about it. i had a feeling banks would be a point of entry for understanding the logic of this strange thing we call the economy.

What happens when one opens ones eyes, connects to invisible things. money circulation is invisible. can we make it visible? audible? can we connect to it.

If you could make a bank audible what would it sound like? a song!

1. some things you should know about banks: they were started a certain date; they use fractional reserve. they are all wrapped up in the government. there are different kinds of banks. commerical banks have stockholders. banks have subcomponents. big banks like TD banknorth make lots of money. how? how do they make their money. who profits from this? who owns stocks of bank north? where is this info available?

my fave facts about banks: they create money. most money.
they do a lot of currency trading.
they are at total odds with democracy.
they consolidated the finance industry.
how do small banks make their money? how do big banks make their money?
why is it important to support small banks?
big banks are often involved in subprime industry
part of profiting from huge credit problem.
can i interview someone at td in toronto??
banks are yucky.

2. where should i open my account? i heard about a homegrown alternative: common good bank. its not ready yet so i moved my money to cu and cdcu. i liked the cu but i really liked the cdcu.

go to nc. and footage from cliff

so i moved my acocunt.

so what?

drop in the bucket.

3. a song about all the money in the world. does my little acocunt what fraction of the world's money am i putting in the cdcu? what frcation of the worlds money is in all cdcus? im wondering how meaningful this kind of work is, given the huge amounts of money in commercial banks. is this worth doing? how is one to make a difference if one tries to speak and use the language of money and doesnt have access to a lot. i convinced others...is this significant? i convinced my union and im working on others. move your money to cdcus. you there, you should too. the list for cdcus

get cdcu to say it is worthwhile, even small amounts.

5. but then there is the ethical issue, raised by islamic finance and others. what does it mean to make money from money. is this the source of ever expanding economy? is my interest, my bank account, my interest making me complicit and even responsible for environmental destruction? for global warming?

who can help me with this one? where does interest come from?

my boyfriend b. who is helping me make this film, i wanted him to move him account to cdcu. he has no interest in his money market account. i became greedy. you could get 5%! but he prefers no or little interest. he is right. on what ground do we deserve money made from money?
something for nothing. but we do pay the price, we just dont see the price unless we connect.

**

next steps: LA times article on Gates foundation; how do banks help; detail clarify distill the problems with banks; learn how to capture footage; see about visiting the boston fed, read over the blog.

2007-01-08T19:51:00.000-08:00

I'm hoping to make a movie about banks now, pulling together the research from last year. I get stuck as I try to craft a narrative. I'll endlessly revise, etc, thinking how should it start? What should it cover? So, I need a structure and deadline so I pull something together rather than generating multiple never ending drafts.

Filmwise:
Ask B. for help putting the footage into the hard-drive and selecting specific portions. Can I use B's hard-drive? I'll need to use a camera, too.
Set up computer for use.
Learn how to edit on final cut.
Learn how to do animation.
Borrow the MCTV camera and take footage of my feet.
Write some text.
Maybe an interview?
Shall I go to NC?

Creatively:
Read Art and Fear to quiet the fears.
Make up little ditties.
Play around to find the style and maybe even the narrative.
Be patient as I try to figure out the narrative.

Research:
Simmel
Bernard L.
Prag. friend in NYC
Other sources?

Structurally:
Between Jan 9-Feb 17 can I make a rough cut?
And then polish it in March until March 21?
And then it has to be done.
Whatever it is.

Content:
What is my point? Is this about how to relate to money? Money --the feeling of it. How to construct my character? Where is the love in this?

I'd like the film to cover 1. how banks work: undemocratically creating money and dictating how the world looks, literally and making money by lending deposits 2. how cool cdcu's are 3. how much money is in cdcus versus how much is in big banks 4. wondering how meaningful this kind of work is, given the huge amounts of money in commercial banks. is this worth doing? how is one to make a difference if one tries to speak and use the language of money and doesnt have access to a lot. 5. what does it mean to make money from money. is this the source of ever expanding economy? is my interest, my bank account, my interest making me complicit and even responsible for environmental destruction?

I'd like the style to be multimedia --sound, song, puppets, text, interviews.

so, a possible film outline? hmm, i dont recall the footage I have, that will be relevant.

2006-06-27T12:57:00.001-07:00

Return

I'm crafting this bank-research into a narrative and feeling a little overwhelmed. Here is a try:

I find out that my bank got bought --and this happens after my prior bank was bought out a few times. Im wary. I want to understand banks --seems the names are always changing. i have some time --want to decide the best place to put my money...and so my research starts.

Bank Consolidation:

Turns out lots of banks are consolidated for a few reasons: first is the legislation of Gramm Leach Bliley. Also there is the changing nature of global finance, which puts pressure on banks to be big, given that more money is in hedge funds.

Bad Bank Behavior:

Banks are acting very badly --doing subprime loans...they feel pressure. Is this pressure for real? They seem to be very profitable.

Undemocratic Nature of Commercial Banks:

Banks have a huge conflict with democracy --they create money. What percent of money is created by banks? by hedge funds? by fed? money creation is a big deal. can i better explain and understand the impact of that?

Where does Bank Money get Invested?

Where is my money put anyway? they keep 10% in bank assets liquid, but the rest goes where? Can i find this out? what specifically does my money go towards?

There is legislation called CRA --what is this, is it enforced?

The Issue of Interest...
Whats up with interest anyway?

So now what?
So, what are my options?

Local bank --where does your money go? What are the rates?

CDCU, self help?

franklin co credit union

wainwright

ice

Common Good

Mondragon...

I got my union on board...

but all this is limited --what do we need to do? can banks be a vehicle for change? talk to NEDAP. What kind of legislation do we need?

Review info scrolled:

reasons to not support commercial banks

worst banks

organizations/ websites

where you can put your money

legislation we need

2006-03-15T12:32:00.000-08:00

Such a long time without posting!

I've been organizing all the previous entries and seeing if I can craft a narrative from it all.

And I've been reading.

Here are some notes from a very engaging read: Ugly Americans: The True Story of the Ivy League Cowboys who Raided the Asian Markets for Millions (2004) Harper Perennial, by Ben Mezrich.

The book helps me understand the culture of high finance (especially in Asia); arbitrage; hedge funds; hedge fund practices; tracker funds; the relation between high finance and gangs/ mob.

Arbitrage is likened to buying a bunch of hamburgers cheap at one story and selling them at another store, where the price is higher, for more. But the trick is that others will do the same, and, assuming yuo want to make money, you dont want to saturate the market...Im not sure how one does this with stock market prices. From whom is one buying and to whom is one selling? Are you selling to different people than you are buying from? How much does the analogy hold?

"A hedge fund is a private investment vehicle...It's kind of like a mutual fund only it's pretty much unregulated and open only to private investors of the fund's choice....[the hedge fund] can do arbitrage...or [it] can buy and sell currencies, equities...a string of bagel shops..." The payment is 20% of the profits the fund earns plus 2% of the principle. (p. 82)"At the moment most hedge funds focus on arbitrage and shorting opportunties...pciking out losers, finding companies that are on their way down, betting against them, then helping them along. In short selling, "instead of betting that a company's stock would go up, you were betting it would go down..." somehow you actively expose the faults.

I dont precisely understand what Nick Leeson from Barings did. He was buying and selling futures in the Nikkei. And he was doing it in HUGE amounts, like 25% of the whole Nikkea market. I dont understand how one does this without having the money at hand, which he didnt. page 123: "Leeson's bet was simple...Futures pegged to the Nikkei 225 index. The Nikkei moves up, he wins. Down, he loses. Specifically, he had a ten billion dolar position in the NIkkei and if the market went below 19,000 points, Barings was toast." Jan 17, 1995 there was a Japanese earthquake and Leeson lost his bet. The Nikkei fell.

Ways the hedge fund described in the book made money: page 168: "An Arbitrage scheme involving Indonesian municipal bonds that had already earned 3 million dollars (for the hedge fund); a short selling position in yhr Singapore based textile firm that was hugely overvalues; and a quick 'in and out' trade deal involving a South Korean hardware chain, which was expanding its chain into Vietnam..." They were also "derivitive prop traders." What does this mean exactly?

p 185: "Privately run hedge funds...were rapidly outpacing mutual funds and the bankrolls of investment banks, and this made a lot of people extremely nervous because of the fund's secretive nature. ...On the norm, hedge funds charged an annual fee of between 1-1.5 percent of assets plus 20% profits...As rivate investment funds for the very rich, we're not legally allowed to advertise. We're not even allowed to put our company name on the building directory."

195: "We all know how tracker funds work...They're like a mutual fund but tied to an index, like the Dow Jones or the Nikkei. Usually a tracker fund contains a small number of shares from every stock in the index, so that it exactly mimics the index's progress. If the Dow Jones goes up ten percent, the Dow tracker goes up ten percent. It basically gives people a way of investing in an index without buying every stock on their own." ok

The Hang Seng is the Hong Kong stock index. The government created the H.S. tracker fund to help its economy. Its one of the biggest tracker funds in the world. The H.K. government runs the fund with the help of US investment advisors. They make sure it stays equal to the H.S. index.

There was a start up company, like a Yahoo search engine company, that was expected to enter to Hang Seng Index. It was merging with something in the tracker fund. So it was going to raise the value of the tracker fund. But they needed the Hang Seng to mirror the whole market. If the tracker fund was buying a bunch of the start up company's stock, the company stock would go up. (Why would this push the price up?) They learned that the co. founder was going to sell his stocks directly to the tracker fund. So this would make the price go down? Why? "M shorted one hundred million dollars of [the startup stock.] While everyone else...was buying up shares, M.had taken an enormous short position. The position had been easy to acquire, because of all the buynig from other banks and hedge funds..." Then the startup stock fell...

Then M "guessed that the Nikkei was going to change massively. He knew that at least a dozen huge tech companies were going to be added to the index, and fifteen dinosaur co.s were going to be removed. He knew that there would be a massive rush of buying on one side and selling on the other. He knew it was going to happen fast...and all at once...The announcement came Sunday afternoon. On Monday am, the Nikkei had dipped 7.5%. the companies being removed from the index were down 20%. The tech stocks being added to the index were also down, around 2%, because of the pressure from the Friday collapse of the US tech market and the uncertainty of what was going on with the Nikkei. M. began buying, eventually putting 400 million into tech stocks while shorting 400 million shares of Nikkei futures at the same time. On Tuesday he put another 200 million into the stocks, shorting the same in Nikkei futures. On Wed. another 200 million. On Friday he put a final 200 million making his total 1 billion in the tech stocks, with 1 billion Nikkei futures shorted. M. had leveraged the fund to the max...

Three minutes before closing...selling the tech stocks at their highs, buying the Nikkei futures back at the lows, unloading everything, every share, every bet...
That afternoon wall street had made 3 billion on the restructuring of the Nikkei, world markets as a whole had made over 4 billion. M had made 500 million."

Japanese gangs using Am. hedge funds because no regulations...to sell short other Japanese companies...

Questions I still have:
How have compueters affected this finance thing? Did it exist before?
What does it mean to take a short position?
Exactly how does that story of teh tech stocks and futures work --I dont understand how that made money.
What happens to stock money --when the government or a person buys a bunch of stock, where does that money go --to the company? I dont understand the logic.
What is a derivative prop trader? What are they trading?
When one deals in futures --what is the structure where one trades? Is there a separate institutional structure/place where futures are bet...
How are futures related to derivatives?
Does the futures/ derivatives/ arbitrage market have any regulations?
How exactly does one do arbitrage?
Is arbitrage related to currency trading?
How much of the world money supply is in hedge funds?
How important is it to understand all this stuff?
(How does that old Smithy statistic about 60 times more transactions happening in currency rather than in traded goods relate to all this?)
Are there really no hedge fund regulations?
What damage have hedge funds done, precisely?
What if any good have they done?
Can banks have hedge funds (I doubt it...is this why they passed Gramm Leach Bliley --to still compete?)
What exactly is a mutual fund and what regulations govern those?

2006-02-18T12:03:00.000-08:00

Where can banks invest/ give loans?

I sent an email to the Office of Thrift Supervision:

Can you tell me what kinds of regulations there are regarding where my commercial bank can offer loans/ investments?

Are there regulations preventing currency speculation, for instance?

Im trying to understand rules surrounding where the bank money can go.

If you dont know, can you direct me to a department that does?

2006-02-11T18:35:00.000-08:00

A Moment of Synthesis

As mentioned earlier, I would like to visually diagram this research and info.

What are the categories:

Regulations/ Rules/ supervisory bodies
(Fed, BIS, Office of Thrift, cra, fdic...)

Bank assets and liabilities...
(stats about bank profits...what is done with bank assets-complicity,
experiences of those affected by banks...good and bad)

Notable Facts

Recommendations at the various levels...regulatory and within bank and support for alternatives

2006-02-11T18:26:00.000-08:00

It seems there is room for....

A website in the US about banks --why banks need to be reformed...calling for a specific set of policies, an advocacy/ educational/ even art project. That could be fun --an NGO about banking, finance, actually intervening and advocating and offering excellent explanation and alternatives.

An interesting model of such a website: bankwatch.org --feels grounded and thoughtful, credible. They are connected to brettonwoodsproject.org

2006-02-11T18:16:00.000-08:00

How big the financial industry is....

from UFE:

How Did Finance Capital Gain Ascendancy Over Industrial Capital?

1. This summarizes an excellent article by Walden Bello, "Architectural blueprints, development models, and political strategies," Focus on Trade Number 34, April 1999

This pre-eminence of the financial sector is related to the crisis of dwindling growth or deflation which as increasingly overtaken the real sectors of the global economy. This crisis has its roots in overcapacity or under-consumption, which today marks global industries from automobile to energy to capital goods. Diminishing, if not vanishing, returns in industry has led to capital being shifted from the real economy to squeezing "value" out of already created value in the financial sector.

The result is essentially a game of "global arbitrage," where capital moves from one capital market to another, seeking to turn profits from the exploitation of the imperfections of globalised markets by taking advantage of interest-rate differentials, targeting gaps between nominal currency values and "real" currency values, and short-selling in stocks, that is, borrowing shares to artificially inflate share values then selling. Not surprisingly, volatility, being central to global finance, has become as well the driving force of the global capitalist system as a whole.

... since differences in exchange rates, interest rates, and stock prices are much less among the more integrated Northern markets, movements of capital have been much more volatile between the capital markets of the North [and] the so-called "Big Emerging Markets" of the South and Asia. Thus... the crises of the last few years have been concentrated in the emerging markets. Since late 1994, we have had Mexican financial crisis, the "Tequila Effect" of this crisis in Latin America, the Asian crash, the Russian collapse, the unravelling of the Brazilian real, and the spinoff of the Brazilian crisis on the rest of Latin America.

... finance capital operates... "in a realm close to anarchy." That deregulation at the national level has not been replaced by reregulation at the international level is because finance capital has accumulated tremendous political power over the last two decades.

2. Here is a more historical answer from economist Susan Mesner:

By the 1960s, the US was no longer a leader in world trade but still unquestionably the leader in financial markets. It was to our advantage to arrange the rules of the game so as to keep the position. The response of financial and corporate leaders to postwar restrictions was to seek ways to expand activities while avoiding constraints, so there was a real push to liberalize and deregulate financial institutions beginning in the 1970s. The Eurodollar market was created in the late 1950s because of 1) growth in world trade, 2) desire to elude financial regulations, 3) political considerations, i.e., Soviets' need to hold dollars offshore during Cold War. The system mushroomed in the 1960s as a result of new US restrictions on capital outflows and banking regs. When the gold window was closed in the early 70s, the price of currency became market determined, which marked the collapse of the Bretton Woods era. It's worth noting that in 1973 there was an international effort to give the IMF the power to force states to cooperate in controlling financial movements--it was an ambitious proposal backed by twenty major countries, and ultimately blocked by the US. Financial and corporate leaders saw where the advantages were early on.

Also see Robert Brenner, "The Economics of Global Turbulence," New Left Review 229.

3. And here are some FACTS ON THE GROWTH AND ASCENDANCY OF FINANCIAL CAPITAL:

CHIPS, the Clearing House Interbank Payment System, owned by 11 big NY banks, ties together 142 banks and does 150,000 transactions a day, $2 billion a minute, about $1 trillion a day, half the electronic transfers in the world. Financial assets have been growing at 2.5 times the rate of GDP since 1980. $35 trillion in financial assets were traded globally in 1992 (twice the GDP of the 23 richest industrial countries). The biggest financial market is exchange of currency: 60 times world trade in manufactured goods, $1.3 trillion a day. So volatile that 66% [of the transactions?] hold money less than seven days, only 1% as long as a year. International capital disciplines states. It's not just buying politicians, it's withdrawing money from countries when they adopt unfriendly policies. 1994: investors decided Mexico was unstable and withdrew billions, destroyed the peso, in less than three days. A few 1000 transnational money managers make the decisions. More typically, bondholders can dump holdings, drive up interest rates, and slow economic growth. ("Globalization and the technological transformation of capital," Jerry Harris, Race and Class 40:2/3, pp 21-35)

Question: Why did finance capital gain power over manufacturing capital, which had more power 1945-1970 than it has now? Because the state stepped back from the role of coordinating the economy, and financial markets took over? Because the early 70s saw a crisis in profits/ the rate of profit? Because expansion halted, OPEC extracted a huge amount of capital, and recycled it to banks to invest? Because when states abandoned Keynesianism, mass demand started to erode, huge pools of wealth started to concentrate, and those became available to banks & other financial institutions to invest? Cause or effect?

2006-02-11T18:09:00.000-08:00

More about the financial industry that profits from the poor

There is a book called Merchants of Misery: How Corporate America Profits from Poverty, published by Common Courage Press

As reviewed by Anitra Freeman:

"Check cashing outlets. Pawn shops. Used car lots advertising "No credit? No problem!" Familiar sights in Seattle, or in any city of any size. Often a welcome sight: when you have a disability check but no checking account, or the check's run out and you need to turn some of your belongings in storage, that you can't use, into money that you can use.

Reading Merchants of Misery gives a different perspective on these services. This book is a collection of articles by national-level journalists for such publications as U.S. News & World Report, the Wall Street Journal, the New York Times, Barron's, and other major newspapers and magazines...

The articles collected cover the uses and abuses of the "fringe economy" through banking, check cashing outlets, pawn shops, home repair rip-offs, car loans, insurance, low-income rental housing, rent-to-own plans, trade school scams, and - woven through it all - politics.

Businesses that target the "fringe economy" make $200 to $300 billion a year off of the marginalized - the poor, the working-class, and often the minorities - who can't get loans from traditional institutions. And yet, many of the traditional institutions that deny service to the poor - by not placing banks in working-class neighborhoods, by refusing mortgages in minority neighborhoods , etc. - these same institutions own a majority of the businesses that profit from the poor, through the nontraditional market."

Later, this review shares a story from the book about how racism works its way into financial services:

"Joseph Boyce, a black editor at the Wall Street Journal, wrote in 1992 about trying to sell his house in Atlanta. When white appraisers came in, Boyce's family was present. The appraisers set the value of the house at just over $70,000. Before a second set of appraisers came in, Boyce removed all his family photos and had his secretary and her son, who are white, be there instead of his own family. The second time around, the house appraised $12,500 higher."

2006-02-11T17:22:00.000-08:00

Citigroup, JP Morgan Chase and Bank of America. These are the biggest banking players. I should research the claims that they are dangerous and harmful entities.

Citigroup

From a group called citiaction: Citigroup is "comprised of Citibank, investment house Salomon Smith Barney and Traveler’s Insurance...with operations and customers in 134 countries around the world.

From a partnership with Maxxam Corporation to destroy the California Redwoods, to helping the World Bank and Exxon-Mobil build an oil pipeline through the rainforests of Africa, Citigroup profits from environmental devastation...From mining the Amazon rainforest to the displacement of millions for China’s massive Three Gorges Dam, Citigroup is underwriting the deal...

Sounds like they gave loans to Enron, too.

JP Morgan

Bank of America

2006-02-11T16:42:00.000-08:00

Oh my --Wal Mart has an application at the FDIC to create a WalMart Bank.

Smithy mentions somewhere --perhaps in episode 2-- a couple of facts I want to review related to the money lending power of big corporations; she specifically mentions GM. As I recall, almost a half of GM's profits come from their loan department!

(It's in Episode 9, the one about Jack Welch, who is/was a long time CEO of GE -not GM: "GE Capital [is] the largest non-bank financial institution in the world and almost half of the modern GE...")This goes on the list I will make of REMARKABLE FACTS from this research.

Another point Smithy makes is that only a 1/5 of investments come from banks these days. The rest come from individuals and hedge funds? Here it is, from episode 3:

"As income and wealth gaps have widened few people have more money, and the majority of the people are getting less. Many of those that have accumulated lots of the money go looking for lots of places to invest it, or gamble with it, so that it will make more. This has lead to an explosion in non-bank financial institutions and the use of corporate bonds in lending. Neither mechanism "creates money out of thin air" because the players don’t have a banking license. But because the players have accumulated so much of the existing money they can become financiers themselves by lending out the piles of dough they’ve accumulated. Thus, according to Martin Mayer in the book "The Fed", only one fifth of commercial and industrial financing now comes from the banks. The rest comes from people and non-bank institutions that have accumulated lots of the existing money."

She adds: "This has several implications. First the Fed’s powers over the market is more limited because there are so many non-bank financiers, so the Fed has to do whatever it can to please these non-bank markets and keep their confidence in the whole financial system alive. By necessity this means always pleasing the people that already have lots of money. Second, banks go looking all over the place for new people and entities to lend to since the domestic non-bank corporations abandoned them. This search has been a big part of banks overseas lending adventures and the phenomenal growth in lending to the sub-prime domestic markets over the past decade. The sub-prime market is people with bad credit histories, which often correlates with low income. This loan market has grown 300% from about 75 billion in 1993 to over 300 billion by 2000, according to the Wall Street Journal. Previously the banks wouldn’t touch this market with a ten-foot pole, but in their never-ending search for new borrowers, especially at high yields, this has become a huge growth area."

There is so much info in Smithy --I get new info each time I listen or read her material!

But back to the WalMart Bank idea. Im going to google this.

Very interesting! According to CNN (in early January 2006): In July 2005, the world's largest retailer filed an application with the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation to operate an industrial bank. The company said the bank would be narrowly focused on processing the company's credit, debit and electronic check payments which could save the company millions of dollars in fees that Wal-Mart (Research) currently pays out to other banking institutions."

1,700 people have sent the FDIC letters of opposition...Opponents say: "They may be able to bring prices down until they monopolize an area," he said. "But once they have such a concentration and there is no other business to counterbalance Wal-Mart, they will be able to price however they want."

Another site said Walmart wanted to be able to cash checks for people and sell money orders --my sense is that these are things that poor people tend to use more. You have to pay money to cash a check, at least $3. What are the experiences of poor people with banks --do they tend to not open accounts? It bugs me greatly that Walmart wants to get in on the business of screwing poor people even more --charging them for cashing their checks.

from Jan 26, 2006 WSJ: "Bentonville, Ark.-based Wal-Mart Stores Inc. is trying to obtain a state banking charter in Utah that would be a back-office processing center, handling debit-card, credit-card, and electronic check-transfer payments by customers, the company said. Wal-Mart is looking to establish the bank through the same exemption in banking laws that Greenspan has publicly opposed.

Noting that corporations escape the regulatory scrutiny of bank holding companies, which are managed by the Fed. Greenspan urged Congress to close the loophole because it provides the corporate bank owners with a competitive advantage over other financial institutions.

The Federal Deposit Insurance Corp. must rule on the superstore's application for the proposed bank. It has received more than 1,500 comments in the past six months on the issue. The FDIC has said it will wait for a full board, including a new chairman, before voting."

I also learned: "other companies, from Nordstrom (JWN ) to General Motors (GM ), have bank and thrift charters or hybrid Federal Deposit Insurance Corp.-insured industrial loan companies (ILCS) in tow..." So some companies are also sort-of banks...scary.

Finally, news from a Business Week article from Jan 2005:

"Clearly, Wal-Mart is on the move. Over the past three years, the giant has steadily built alliances with financial-service providers, such as MoneyGram International (MGI ) and SunTrust Banks (STI ), enabling it to offer services such as bargain-priced money orders and wire transfers. It has bank branches operated by partners in nearly 1,000 of its massive supercenters. And it has stepped up the pace. SunTrust is experimenting with nearly 45 in-store bank branches co-branded as "Wal-Mart Money Center by SunTrust," with plans to expand to about 100 of them by early 2006.

Already, Wal-Mart customers are reaping the benefit. They can cash payroll checks for just $3, transfer money to Mexico for $9.46, and buy a money order for 46 cents. Some competitors charge twice as much. These are mostly high-margin, highly fragmented businesses in which the poor and immigrants are sometimes at the mercy of unscrupulous operators. "Traditionally, nonbank vendors of financial services have charged an arm and a leg," says David Robertson, publisher of The Nilson Report, a newsletter about credit and debit cards. Adds Gary Stibel of New England Consulting Group in Westport, Conn.: "Wal-Mart is giving people in lower-income brackets opportunities in financial services they never had before."

Financial services could open a rich new vein of profits for Wal-Mart as it seeks to remain a growth company. By one rival's estimate, the market for services that Wal-Mart already offers is worth about $5 billion a year in fees, leaving plenty of room for it to slash prices while making a profit. As it has with other goods, Wal-Mart will slowly "collapse the price umbrella," squeezing check cashers and wire-transfer leader Western Union Financial Services (FDC ), predicts Robert G. Markey Jr., consultant Bain & Co.'s director for financial services.

For the time being, though, the basic services it offers represent little more than a rounding error for the $287 billion goliath. Wal-Mart doesn't break out results for the unit, lumping them into the company's "other income," which totaled $2.1 billion in the first three quarters of the last fiscal year. That was up 31% but amounted to just 1% of total revenues. Still, there's huge potential for growth. Says banking consultant Bert Ely of Ely & Co. in Alexandria, Va.: "They're developing, in customers' minds, a link between Wal-Mart and going to the bank. That has powerful long-term implications."

PERFECT FIT FOR UNDERDOGS
Not all financial-service suppliers are willing to ride this tiger. Jane J. Thompson, president of Wal-Mart Financial Services, concedes that "some of the leaders in the industry don't want to hurt their margins and don't want to work with us." But MoneyGram, with a market share of around 1% in global money transfers, is a distant No. 2 to Western Union, which has 12%. For such players, Wal-Mart promises huge volumes of business through its 3,100 U.S. stores and more than 100 million customer visits a week. As the underdog, MoneyGram was already cost-conscious and focused on growth, not on protecting margins -- a perfect partner for Wal-Mart, says MoneyGram Vice-President Daniel J. O'Malley. And it can't hurt to learn how Wal-Mart does business, notes SunTrust Executive Vice-President Christopher T. Holmes, especially if Wal-Mart achieves full-fledged banking status.

Could Wal-Mart really become a bank? First it would have to take on current prohibitions on combining banking and commerce. The laws were designed to prevent a big player such as Wal-Mart from denying credit to competitors or shifting losses from its retail business to an insured bank. But many expect Wal-Mart to overcome those rules. Ronald K. Ence, vice-president of Independent Community Bankers of America, says Wal-Mart lobbied last year to expand the banklike powers of the ILCs. A bill that passed the House, but not the Senate, in 2004 would have allowed unlimited interstate banking, but only for those with at least 85% of their business in financial services.

Wal-Mart denies any such lobbying. It tried to buy a savings bank in Oklahoma in 1999, only to be blocked by the Gramm-Leach-Bliley Act, which overhauled federal banking law. And the California legislature halted Wal-Mart's plan in 2002 to buy a small ILC.

Yet if Wal-Mart were to gain full banking status, it would be able to offer everything from checking and savings accounts to mortgages, car loans, and even small-business loans at prices that rivals could be hard put to match, let alone beat. "There's no question, they want to have a nationwide financial-services network. If they do, there's no doubt in my mind they'll be able to do to community banks the same thing they've done to the local grocery store and the local hardware store and the local clothing store," says the community banker group's Ence.

Wal-Mart insists its financial plans don't depend on owning a bank or a thrift. "Our strategy is what you see," says Wal-Mart's Thompson, who was once executive vice-president of Sears, Roebuck & Co.'s (S ) credit business. The services Wal-Mart offers are aimed squarely at its core, lower-income customers and employees. Many are among the estimated 56 million American adults who don't have a bank account. "Helping the underserved customer gets right at what we like to be known for," says Thompson, who joined Wal-Mart in May, 2002. More important than the unit's profits, she says, is that these services bring customers into stores more often.

She seems to have learned from Sears's ill-fated effort in the 1980s to create a financial supermarket with its Allstate (ALL ) insurance, Dean Witter brokerage, and Coldwell Banker Real Estate units. Sears lost focus on its core business and found that many customers didn't want to buy mutual funds or insurance from the same place that sold them appliances. "My whole thing is about starting with the customer," says Thompson, who joined Sears in 1988 and took over its credit operation in 1993.

BEING SMART BY BEING WARY
Even though Wal-Mart may be following a gradual approach to avoid Sears' mistakes, it occasionally hints at bigger ambitions. On its Web site, Wal-Mart describes itself as "a trusted name in financial services." In stores, it's slapping its powerful brand on the money centers operating in them.

So far big rivals say Wal-Mart isn't hurting them. 7-Eleven (SE ), which offers check-cashing, money orders, and the like through 1,000 electronic store kiosks, says it's focused on convenience, not offering the lowest price. Likewise, Eric C. Norrington, a spokesman for Ace Cash Express Inc. (AACE ), the nation's biggest check-cashing chain, says Wal-Mart hasn't affected his company's pricing or growth. "Wal-Mart has validated the importance of this market segment. That's attention we welcome," he says.

But as toy retailers, grocers, and even jewelers have painfully discovered, complacency in the face of Wal-Mart can be suicidal. Given the giant's long interest in the financial arena, technological savvy, cheap capital, and instant national reach, small and midsize banks, in particular, are right to be paranoid. Even big ones should be wary. "The mistake would be to stick your head in the sand and try to convince yourself that Wal-Mart is not a factor," says Bain's Markey. For no matter what the obstacles, Wal-Mart seems determined to be a force in finance."

2006-02-09T09:56:00.000-08:00

Wizards 7: Water Cycle versus the Money Cycle

2006-02-08T13:17:00.000-08:00

How can I get this book?

Organizing Access to Capital: Advocacy and the Democratization of Financial Institutions edited by Gregory D. Squires

I especially want to read this chapter to get more info on the community reinvestment act: "Community Reinvestment in a Globalizing World: To Hold Banks Accountable, from the Bronx to Buenos Aires, Beijing, and Basel" – Matthew Lee

Between 1993 and 2000 the share of single-family home purchase mortgage loans going to low- and moderate-income borrowers increased from 19 percent to 29 percent. According to the National Community Reinvestment Coalition, the share of loans going to black households increased from 3.8 percent to 6.6 percent, while the Hispanic share increased from 4.0 percent to 6.9 percent.

Homeownership rates are at all-time high levels. In the first quarter of 2001 the national homeownership rate rose to 67.4 percent. The Joint Center for Housing Studies found that African American homeownership climbed to 47.6 percent and the Hispanic homeownership rate reached 46.3 percent. In central cities the homeownership rate reached a record high of 51.2 percent in 2000, according to the U.S. Department of Housing and Urban Development. All of these figures were the highest in the nation’s history. Though much remains to be done, clearly there has been progress in recent years.

I learned there is a proposed Community Reinvestment Modernization Act of 2001 (HR 865) introduced by Rep. Tom Barrett (D-WI) and Luis Gutierrez (D-IL) that broadens application of CRA beyond federally chartered depository institutions, increases data disclosure requirements and strengthens oversight responsibilities of appropriate authorities.

"The proposed legislation was inspired by two trends. First, the continuing disparities in wealth, homeownership and access to financial services between economically distressed, predominantly nonwhite central cities and more prosperous, disproportionately white, outlying urban and suburban communities. Second, the continuing consolidation within and among financial services industries that was reinforced by the Financial Services Modernization Act permitting banks, insurers and securities firms to enter into each others’ businesses in ways that had previously been prohibited by federal law.

To address these trends, the bill would enhance access to financial services for citizens of all economic circumstances and in all geographic areas; enhance the ability of financial institutions to meet the credit needs of all communities; and ensure that community reinvestment keeps pace with affiliations that are occurring in the financial services marketplace."

2006-02-08T13:00:00.000-08:00

Safety and Soundness: The Office of Thrift Supervision

The man who is starting Common Good Bank mentioned that US banks are regulated by the Office of Thrift Supervision (OTS),which I learned "is the primary regulator of all federally chartered and many state-chartered thrift institutions, which include savings banks and savings and loan associations. OTS was established as a bureau of the U.S. Department of the Treasury on August 9, 1989, and has four regional offices located in Jersey City, Atlanta, Dallas, and San Francisco. OTS is funded by assessments and fees levied on the institutions it regulates."

I will try to print the Examination Handbook, "a comprehensive handbook that combines safety and soundness and compliance guidance." I'm hoping that will clearly explain things like where a bank can invest (i.e. can it do currency speculation), what constitutes a "safe and sound" bank, what a bank has to do to satisfy the Community Reinvestment Act, how much it needs to invest locally...

I am also downloading the 24 page text of the CRA, available at this link.

2006-02-07T12:11:00.000-08:00

Common Good Bank: Wow.

There is so much to report from my interview.

I'll write in answers to the questions from the interview.

The idea of starting the bank: He describes this in an article he wrote for a local newsletter, writing, "How did I get into this? Twenty-five years ago I grew weary of ineffectual political campaigns and lackluster leaders. It struck me that our government is so persistently bad, we might have to simply start an alternative government dedicated to the common good, and start ruling. "Hey, kids, let's start our own country!" It was a daydream, a whim, a passing fancy." Twenty years later, he worked with people in his town to create an informal alternative economic system, but found in time that is was a lot of paperwork, a bit confusing, and disconnected from the real world. So they decided to start a real savings banks.

The organizational structure: everyone who is a member can vote (there is a proxy voting system, where a member can let another member vote for them and there is also instant run-off voting); the members elect 7 board of directors --volunteers who are kind of like elders, making sure the bank follows its charter/ mission to create social good. This Board hires (and can fire) the paid 7 Board of Supervisors, who in turn hire the CEO (general manager) and assistant manager and other personell. This gives the bank the best of "both worlds" --commercial banking, which has a paid board, and credit unions, which have a voluntary board.

What kinds of questions can members vote on as a group --they can bring up questions, or vote on questions posed by the elders or supervisors; they can, if I understand correctly, vote on the kinds of investment policies the bank should have. Members will, though, be kept out of the nitty gritty --on the assumption that too many cooks in the kitchen ruins the stew.

Common Good will be FDIC --all Massachusetts banks are required.

The starting a bank description in "Banking Basics" is correct; William is currently filing the paperwork to get the bank liscense, and he is negotiating to see if the amount needed to start the bank can be 2 million rather than 8 million.

William explained to me that banks don't separate loans and investments --they are all called assets. He also said they sell bundles of mortgages. There is nothing productive about this, we agreed. It's good to remember that a socially responsible bank or economy would be productive. How do we define productive--actually producing something of value that is tangible, aside from money, or a service that produces well being in another. Interesting to see how it's complicated to define productive.

I have to re-listen to the audio recording I made, but I think that members can choose to be investors, and also there can be investors who are not members. I think there are only a small number that can be non local.

What inspired him: Mondragon, Ithaca Hours, alternative currencies, Gandhi, some of his friends.

The salary of a commerical bank CEO is at least 100,000-120,000; the CEO of a credit union is paid more like 50,000.

There are regulations for banks about what they invest in. I'm going to find this on the web.

Here is how he describes the benefits of the bank in his essay: "Based on initial survey results, our annual financial benefit to the community is projected to be as much as $120,000 by the end of the first year. This could be extra funding for education, social services, the arts, economic development, or food pantries.
Benefits to individuals will include better rates on deposits, better rates on loans, lower fees, affordable stock options with a planned return of prime minus 1.5% (currently about 5.5%), rebates from local merchants (typically 5 or 10 percent), and a local debit/credit card for purchases and cash withdrawals in every nearby town.Benefits to local businesses will include a focus on small business lending, incentives to buy local, funding for economic development, negotiable credit lines, 24/7 advertising, and local debit/credit cards with no fees and immediate deposit to the merchant's account, processed by touch-tone phone."

I'll listen to the audio and see if there is anything I can add.

I'd like to be able to diagram how this bank is different from a creditunion/ commercial bank, just as he diagrams that.

2006-02-05T10:34:00.000-08:00

On Tuesday, I will meet with the founder of a very cool sounding bank-to-be called Common Good.

I should try to tape record this.

Questions specifically about Common Good:

I'm curious to hear how he came up with the idea of starting a bank. What made him choose a bank as a way of creating a better world? I think democracy means a lot to him.

I'd like to understand the organizational structure more, including what kinds of decisions the members will be making. (He has outlined a direct democracy voting system I'll describe more on Tuesday.)

What does/ will Common Good offer that a credit union doesnt? (What are his thoughts about what's good/ limited about credit unions?)

Will there be a board?

Will it be FDIC? What's entailed in that?

Ive read one thing about the process of starting a bank --Iis this close to your process--and where are you in the process?

What are various bank liscences --is there a community bank liscence? What kind will CG go for?

What kind of investment opportunities will the bank have?

Will there be shareholders? stock?

What is meant by merchant tithing? A local credit card?

Are there some banks that have inspired him? Mondragon credit union?

And some more general questions about banks:

Does he know the salary of most commercial bank and credit union CEOs? Does the Board of a commercial bank get paid? How do they get selected?

I'd like to show him my emerging diagram of banks, what comes in, what goes out, how a bank is affected to the whole world of global financial transactions, to the Fed, currency rates...and see if he includes anything else.)

Are there regulations about what banks can invest in? Does he understand how currency stuff works --do banks engage in currency speculation, how does currency speculation work.

What about his thoughts on something like Wainwright? What does he think of the term socially responsible?

2006-02-05T09:39:00.000-08:00

I'm really excited to spend a lot of time with Smithy's first "Wizards of Money" episode, called "How Money is Created."

Some highlights of this episode:

2006-02-05T09:28:00.000-08:00

Thoughts after interviewing Miette and Ivy

I'd like to present this material for different ages. First, I'll write up the narrative I'm researching here with an all-ages audience, primarily adults, in mind. I think the guiding narrative will be: where shall I desposit my money?

Then, I'll simplify it even more. I just read Langston Hughes' book Black Misery --short sentences next to pictures, describing intimate details about a black child's experience. I'd like something with one or two sentences per page with pictures. That will be fun to distill.

There could also be one that is more of a chapter book, along the lines of Miette's request --a mystery about money (something about a robbery or about an alternative currency, the disappearance of money...) that young characters solve.

There is also the idea of a kid's book, with photos, solely about Common Good, or something based on that, a promising alternative that highlights the problems in the current banking system. Or a kid's book about something in Argentina related to barter and alternative currencies.

However I go with it, I need the research I am doing now.

2006-02-03T12:00:00.000-08:00

Making some calls…

Today’s task is to call various banks (Banknorth, Wainwright, Franklin First, Santa Cruz Community Credit Union.) I’m asking them:

“I want to open an account, and I’m researching various banks/ credit unions. Can you tell me where the bank deposits are invested? What percent of the bank assets are given out as loans, and what percent are invested? Who decides where to invest the money?”

First, Wainwright: 1-888-428-BANK

The automated voice speaks Spanish and then English during the opening message. Plus, some salsa-ish music while you wait.

I was transferred to George’s office –George is in charge of investment relations.

George’s assistant answered my question about who decides where the bank should invest: the decisions are made by the president, chairman, chief financial officer, and George who does investment relations.

The assistant on the phone didn’t know where the money was invested or what percent of the total investments/ loans was to cool non-profits (they list a ton on their website…) but she suggested that I suggested I look at annual report, and the 10Q, both on their website. She is sending me a bunch of info, too.

Second, Franklin First Credit Union: 413-774-6700

The person who answered the phone said, “Martha, the CEO can answer that. She’s at a meeting.” I was able to leave a message on the CEO’s voicemail. I mentioned in my message that I recently met with one of the Board members. I also said I’d try her back if I didn’t hear from her.

The CEO Martha called me back a few hours after I left my message! I love that. She said that Franklin First invests in other credit unions and banks. They aren’t allowed to invest in mutual funds. She said they don’t have time to research where the other credit unions or banks invest their money…She invited me to call her back.

Me: Of the amount that is invested by the credit union, what % in credit unions, what % in banks?

Martha: A small percent is invested in other credit unions; the majority in banks. (She added something about credit unions not having rates listed…I should ask her about this again.)

Me: I assume in banks it goes into CD…

Martha: In both credit unions and in banks it goes into CD’s.

Me: You have to keep same fractional reserve as banks?

Martha: She wasn’t certain if it was the same…but they do have a fractional reserve requirement.

Me: Why do credit unions have tax-exempt status?

Martha: Credit unions formed at a time when [lower-income] people got money from loan sharks. To avoid the usury rates of the loan sharks, the people formed coops. The government felt it was the right thing to make these coops tax exempt since the credit unions were people helping themselves…

She recommended I look at the Massachusetts League of Credit Unions website.

Third, Banknorth, the Northampton branch.

The woman who answered said something about the Banknorth investment group making the bank’s investing decisions. And then she said he is based in her branch. And I said, “The investment group is a man? He is based there?” She said, “Actually he’s the western region rep; he comes to this office every once in a while.” She was a little unclear. Turns out he’s based in Pittsfield. His name is S. Morantz. 413 748 8278

I feel a little nervous calling him –funny, how easily I feel intimidated by a big bank. I noticed I worried he’d be angry with me, try to demean me for asking these questions. I didn’t have this feeling calling the other places.

Steve called me back a few hours later, too. Amazing. He was just as gruff and demeaning as I expected. And, as I suspected the woman who gave me his number misunderstood my question. Steve is trained as a broker and helps people invest their own money. He doesn’t help the bank invest its assets. Clearly, not many people call to ask where the bank invests its assets.

He didn’t know the answers to my questions but managed to avoid ever actually saying he didn’t know.

I asked where the Banknorth assets were invested. He said, “Restrictions are heavy. It’s not like Banknorth invests in Google.”

He said the bank tries to lend money to people. There are federal rules about needing to lend to low income people and to small businesses, and Steve thought Banknorth was chartered as a community bank. He said the bank sells its mortgages to other banks or mortgage companies. He kept saying there are rules. The bank most of all wants your money in checking so that it doesn’t have to pay interest. (Oy, that’s where my money is now at Banknorth. They do invest the checking account money. A while back, I had convinced myself that if I kept it in checking where I get no interest, they weren’t actually investing it and thus I was less complicit in a system I didn’t understand.) I asked if he had a guess about what percentage of the bank assets go towards lending, what percent towards investment. He said they try to lend, but I don’t think he knew.

I asked, “Who makes the investment decisions for the bank?” He said, “There is an investment committee. There’s not a lot of latitude given the investment regulations which are there so banks don’t speculate.”

Drawing on my Smithy research, I said, “I thought there weren’t that many regulations. I was actually wondering if banks did speculate on international currencies…”

Steve: “Well, speculating means lots of things. It’s different from hedging. Hedging is not speculation.” [So banks hedge?]

That’s the gist of what I learned from him.

He had asked why I wanted to know this. I said I was looking to open an account and wanted to be in the most ethical bank I could find. He said something sarcastic like good luck, it’s not an ethical system. But he also sincerely added that credit unions or small community banks would keep money local, though they would have fewer services.

Fourth, Santa Cruz Community Development Bank 831-425-7708

I love this place. They are a CDCU –I asked the man who answered the phone how being a CDCU is different from being a regular CU. He said the CDCI focuses on community development. Though other credit unions give business loans (and not all do, actually –Franklin First doesn’t) the Santa Cruz Community Credit Union has special loans and does outreach to low income and other underserved people. They are a nonprofit committed to social and economic justice.

This man put me on hold and asked the Director of Finance my questions. He came back on the line and said they try to make as many loans as possible for their members. Any excess is invested in other credit unions or in Federal Home Loan Bank. The Board of Directors, all members, decide precisely where to invest the excess.
What does it mean for credit unions to invest in each other? I’d like to understand that better.

2006-02-02T09:04:00.000-08:00

I’m on the Coop Development website (www.cdf.coop) –they have links to credit union-related things. I’m trying to understand the different credit union associations.

1. Credit Union National Association (CUNA) “is the premier national trade association serving credit unions. Ninety percent of America's credit unions are affiliated with CUNA.”

2. CUNA MUTUAL GROUP “is the leading provider of financial services to credit unions and their members worldwide, offering lending, protection, financial, employee and member solutions through strategic partnerships, technological innovations and multiple service channels. The mutual insurers of the CUNA Mutual Group are owned by their policyholders and operate to serve their best interests.”

3. The National Association of Federal Credit Unions (NAFCU): “The National Association of Federal Credit Unions is a respected and influential trade association that exclusively represents the interests of federal credit unions before the federal government and the public. Membership in NAFCU is direct; there are no state or local leagues, chapters or affiliations standing between NAFCU members and the NAFCU headquarters in Arlington, VA…NAFCU provides its members with representation, information, education, and assistance to meet the challenges that cooperative financial institutions face in today's economic environment. The association stands as a national forum for the federal credit union community where new ideas, issues, concerns and trends can be identified, discussed, resolved.”

It seems NAFCU is focused on federal, as opposed to state, credit unions and on various kinds of legislation to protect federal credit unions. In the 1970’s they won the creation of federal share insurance for federal credit unions (the National Credit Union Share Insurance Fund). Since then, these have been their accomplishments:

a separate federal regulator (the National Credit Union Administration);

a central bank for liquidity purposes (the Central Liquidity Facility);

expanded powers for credit unions (including mortgage lending, share drafts, and variable-rate accounts);

expanded fields of membership, so more consumers could be served by credit unions;

a lessened regulatory burden on credit unions;

preservation of federal credit unions.

**

I learned some things from the CUNA website about the struggle over whether credit unions should be tax exempt (which they currently are, at least on the federal level):

“The House Ways & Means Committee, chaired by Congressman Bill Thomas (CA-22) held an oversight hearing on the credit union tax-exempt status on November 3, 2005. Regulatory agencies & academic witnesses, as well as industry representatives testified. This included not only CUNA and another credit union trade association, but also witnesses from the American Bankers Association, America’s Community Banks, and the Independent Community Bankers Association. Chairman Bill Thomas closed the hearing by stating that he would not try to subject credit unions to federal taxation. On November 17, 2005, CUNA submitted a follow up letter that addressed some of the banker attacks in the hearing that required a more detailed response.

Chairman Thomas did put credit unions on notice that he expected greater “transparency, accountability and verifiability,” particularly in regard to such issues as the filing of Form 990s (and the compensation disclosures therein) for all credit unions and in measuring credit union service to people of modest means. On this latter point he was critical of the NCUA and the movement for not having a more precise definition of modest means. He made it clear that while in the 1930s that term may have applied to a broad middle class that lacked access to affordable financial services, today he believes modest means encompasses service to those with low-income, women and minorities. He is in favor of a data collection and reporting mechanism, whether CRA or otherwise, to measure credit union service to these groups, and he believes the movement should support this as a means of verifying that our tax-exempt status continues to be deserved. Structural arguments for the tax exemption are secondary in the Chairman’s estimation.

Chairman Thomas was critical of the NCUA for what he called its unwillingness to recognize the benefit of data collection that provides the transparency and accountability that he says a tax- preferred movement like credit unions ought to have. Near the hearing’s conclusion he said of the NCUA: “I am concerned that an agency that is supposed to be a regulator is an enabler.”

No legislation has been introduced in the 109th Congress on the federal tax-exempt status of credit unions. However, CUNA continues to be on guard against any Congressional legislation that would seek to tax credit unions as a means of offsetting the cost of tax relief, deficit reduction, or hurricane cleanup. Such taxation would end up in a net loss of revenue to the federal treasury as well as hurt hurricane victims.”

Im wondering: On what grounds did credit unions get tax-exempt status? What is the history of that?

2006-02-01T18:06:00.000-08:00

What comes to mind when you hear the word bank?

Ivy (age 5): Ummmm. A bank is kind of like a river hang... or where you get money from.

Miette (age 8): Money and bars [in front of the teller.]

Ivy: A bank is kind of like a salt air; there's a hot dog sale and sometimes people hang out by the bank there. A hot dog sale is kind of like a playground. Grass and seaweed in the boat in water and the whale and the lantern and the sailship and pirate and crocodile and whale. HEEEELLLLPP!

When were you last in a bank?

Miette: Last month.

Have you ever robbed a bank?

Miette: No

Ivy: What is robbed bank mean?

Is there anything you'd like to learn about banks?

Miette: How much money does it collect in a week? How many people go to the bank in a day?

Ivy: A bank is sort of like a zoo, with a swamp nearby. I've been to a zoo bank.

Miette: This is boring. That's why Ivy is attacking me.

How could banks not be boring?

Miette: If it were fiction, and there were kids solving a mystery and in the process learning about banks.
It could be called The Bank Robbers.

Great idea! What would they learn about banks in the story?

Miette: How many people come to the bank. How many men come to the bank -- how many men with brown hair, how many women with yellow hair. How much money does the bank collect? They'd know everyone in town and the robbery would be committed by someone in town.

[I told them the story of the recent huge Brazilian bank robbery, in which some people opened a flower/landscape store across the street from a big bank. Everyday the people in the flower store drive off with a truck full of soil. One Monday, the bankers returned to the bank after a weekend and discovered they had been robbed. None of the door or window alarms had gone off. The robbers had dug a tunnel from the flower shop to the bank vault. Turns out the flower shopkeepers were the robbers! They had been carting off the soil from the tunnel! After the robbery, the flower shop closed down --the shopkeepers werent seen again.

Miette was captivated. We agreed that the story could be loosely based on that real robbery.]

Would you read this story about banks?

Ivy: I want to play Candyland.

**

Addendum

Here’s the actual BBC news account of what happened in the Brazilian bank robbery:

8/8/05
'Record' bank robbery in Brazil

Thieves in Brazil have stolen up to $65m (£36m) after tunnelling into a bank in what police say could be the country's biggest bank heist. The thieves dug a 200m (656ft) tunnel into the bank from a nearby house in the northern city of Fortaleza. Neighbours said between six and 10 men worked at the house, rented in the name of a company making artificial turf. The theft happened over the weekend, but was not discovered until Monday morning because the bank was closed. Neighbours reported seeing vanloads of material being removed each day.

"It's something you see in the movies... They dug a tunnel that goes underneath two [city] blocks. They've been digging for three months," investigator Francisco Queiroga told the Reuters news agency.
The Banco Central said the robbers opened five containers with 50 real ($22) bills.
The value of the stolen bank notes has not been determined. However, police sources said the heist may have yielded as much as 150m reals, which would make it the biggest bank robbery in Brazil's history.

2006-01-31T14:11:00.000-08:00

CDCUs, Democratic Monetary Policy, and New Thoughts on the Socially Responsible Finance Industry...

I heard back from the National Federation of Community Development Credit Unions Communications Officer who gave me the complete list of CDCUs.

Turns out there is one CDCU in Massachusetts, and it's in Winthrop.

To recap for myself, all the CDCUs are members of the National Federation of Community Development Credit Unions. Im curious --what are the costs/ benefits of joining this Federation and thus becoming a CDCU? All CDCUs can be CDFIs but only about 80 of the 225 CDCUs have become CDFIs. What added costs/ benefits come with being a CDCU CDFI?

One point of confusion --in an earlier entry I discovered that there is a South End CDFI in Boston. Why isnt this mentioned in the NationalFederation list?

I want to understand all this because CDCUs and CDFIs sound really promising to me now as a relatively ethical place to have an account. I'll send another email to the National Federation of Community Development Credit Unions Communications Officer!

Today I also made some discoveries while listening to another episode of "Wizards of Money," this one about
democratizing the monetary system. A couple of things stay with me: first, Smithy explains how the national monetary system is not democratic right now. For one thing, banks are one source of creating money --not literally, but in the form of credit/loans. Banks are not democratic organizations where the public gets to decide who we think should get a loan. Rather, the banks get a lot of power to decide this. THANK YOU. I needed this reminder. I have overlooked this, but deep down knew there was something fundamentally problematic about commercial banks. Commerical banks are in conflict with democratically decided development. And they makes their loan decisions almost entirely based on the rate of profit that will translate into earnings for their stockholders, which will ensure that the bank survives, and gets more power to decide loans, and so on.

Smithy also says the Fed creates new money; I don't understand this process yet --I will try to soon-- but I do understand that the Fed is also not a democratic organization. I'll need to review more about how people get appointed to the Fed to clarify exactly how the Fed is undemocratic. But this is key stuff for understanding the fundamental problems with our monetary system: that fact that it is not democratic.

Smithy looks at alternative, or complementary, currencies (such as one in San Francisco called Bread dollars) to see a model of an actually existing democratic monetary system. I had always been charmed by alternative currency projects, but I had not realized that they provide an important model of a democratic monetary system. They are democratic in that every person who has signed onto the currency has one vote --for instance, if the Bread dollars organizers suggest making a bread dollars loan or want to introduce more Bread dollars into circulation. They even aim for consensus, modifying decisions until everyone agrees. (Recall the wisdom of crowds...)

And so, this helps me clarify my suspicion of the term socially responsible investment. Interesting that while reviewing the definition of that term earlier this week I said I kind of liked the definition...I was forgetting that for me, socially responsible means democratic -that everyone can participate in the decisions that affect all of us. I believe in democracy as a spiritual and political good --perhaps the one I care most about right now. Socially responsible investing is NOT about making investment decisions and economic development more democratic. It's a way of lessening certain forms of exploitation and abuse BUT IT SO EASILY DISTRACTS, EVEN ME, FROM THE FUNDAMENTAL PROBLEMS OF AN UNDEMOCRATIC MONETARY SYSTEM. Whew. I prefer what is called socially responsible investing to other kinds of investing, but I want a still more radical term, like democratic monetary system, to ground us and guide the changes we ask for.

So, now I have to clarify the ways in which the national (and international) dominant monetary system is not democratic. And what it would mean/ look like if it were democratic!

This gets to the crux of how capitalism and democracy can (or can't) coexist--something I'm still exploring.

2006-01-29T12:08:00.000-08:00

What is meant by the term financial industry?

I want to see banks within a broader context of the whole financial industry. What kinds of businesses are part of the financial industry?

Here is some helpful info from Wikipedia: "[commerical] banks, investment banks, insurance companies, credit card companies and stock brokerages, are examples of the types of firms comprising the industry, which provides a variety of money and investment and related services. Financial services is the largest industry (or industry category) in the world, in terms of earnings; as of 2004, the industry represents 20% of the market capitalization of the S&P 500." To put that in context, the computer hardware & software industry represents 15.30% and the healthcare industry represents 13.40% of market capitilization (a term I don't really understand yet.)

The Gramm Leach Bliley Act of the late 1990s, which I'll write more about later, made it possible for companies to combine financial services. Before this act passed, a commercial bank had to be separate from an investment bank which had to be separate from an insurance agency, etc. Now they can be housed under one business --under the rubric of financial services.

What percent of the financial services industry is commercial banking? I have a feeling it's a small part of this whole system of money lending...How can I find this out?

Here are some more helpful definitions from Wikipedia: "A commercial bank is what is commonly considered a 'bank'. The term 'commercial' is used to distinguish it from an 'investment bank', a type of financial services entity which, instead of lending money directly to a business, helps businesses raise money from other firms in the form of bonds (debt) or stock (equity)."

More: "Investment banks...underwrite debt and equity, assist company deals (advisory services, underwriting and advisory fees), and restructure debt into structured finance products." Where do investment banks get their money?

Another interested fact: "Citigroup is the largest issuer of bank cards, with 150 million cards issued at the end of 2004." Note to self: don't get a Citigroup credit card. Wouldnt it be super cool to create a socially responsible credit card company? How do credit card companies work? What would a socially responsible one look like --man, that would be cool. Charge a whole lot less interest --saying it is ethically incorrect to charge high interest. What is the typical credit card interest rate these days, and how does that compare to a bank loan interest rate?

Under investment services there are a whole bunch of words I don't yet understand:

"Asset management, [which] is the term usually given to describe companies which run mutual funds."

"Custody services and securities processing is a kind of 'back-office' administration for financial services. Assets under custody in the world was estimated to $65 trillion at the end of 2004..."

"Insurance brokers shop for insurance (generally corporate property and casualty insurance) on behalf of customers."

"Stock brokers assist people in investing, online only companies are called 'discount brokerages', companies with a branch presence are called 'full service brokerages' or 'private client services."

Surely subprime lending businesses are considered part of the financial services industry. What category do they fit under?

One way I can get a better sense of financial services is to look at the Citigroup products webpage and see what services they offer:

Banking (accounts and loans like mortgages)/ credit card/ investing and asset management/ bill payment services (they can collect fees on this)/ services for small businesses (brokerage stuff, trade, and other things)/ investment banking services (all these global words like global futures)/ assets management/ funds and securities (?)/ and treasury and cash management (?)

Whew! And I'm sure there is more, since they probably own other financial services companies not listed explicitly on the Citigroup site.

Incidentally, Citigroup is the second largest financial service companies in the world. The largest is Mizuho Holdings, Inc. (based in Japan), and the third largest is Deutsche Bank (operating in Europe, Asia, and the US.)

One other bit of info, not precisely related to the financial services industry, for developing my financial services literacy, specifically about bank profit making--this is from a web page entitled, "The Banking Industry."

Turns out fees are a safer way for banks to make money (than going with the ups and downs of the interest rate.) So, "many bank financial statements will break up the revenue figures into fee-based (or non interest) and non-fee (interest) generated revenue."

2006-01-28T18:43:00.000-08:00

What is meant by the term socially responsible lending/ investing?

I was told that the "socially responsible" investing community has clear definitions of what they mean by this term. According the Social Investment Forum website, socially responsible investing means: "Integrating personal values and societal concerns with investment decisions...SRI considers both the investor's financial needs and an investments impact on society. With SRI, you can put your money to work to build a better tomorrow while earning competitive returns today....How does it work? Three key SRI strategies have evolved over the years: Screening, Shareholder Advocacy, Community Investment and Social Venture Capital."

Screening means the investor assesses whether a company has a good enough record in areas like employee relations, environmental and social impact, human rights...What information do they use to make these decisions?

Shareholder advocacy means that an investor goes to shareholder meetings of a company and voices praise or concern over aspects of the company. They threaten to pull out their investment if the company refuses to address a concern (for instance, about the number of women and people of color on the Board, or about labor issues, or environmental abuses.)

Community investment means offering money, at low interest rates, to community groups (often via a community development financial institution which brokers such deals) who do work on things like land trusts, permanently affordable housing, small business loans to people who have low incomes.

How do I feel about this definition of socially responsible investing?It's not so bad. Community investing seems cool, as least from what I learned in my ICE research. I wonder what percent of a socially responsible mutual fund goes towards community investment.

Shareholder activism seems interesting --again, I wonder how much the socially responsible mutual funds engage in this. Do they ever pull out of a company? What impact has shareholder activism had?

Screening is the one that feels most vague to me --and that I feel most suspicious of. I mean, these screened companies may pay workers more than minimum wage and the company may not torture anyone or dump pollutants. But they are probably hierarchical and patriarchal and, well, do they produce anything that I really respect? They are surely using a lot of resources; people use a lot of energy to get to the workplace. It might help me to look at a list of companies in a socially responsible mutual fund to get a better sense of what companies are considered kosher.

Incidentally, I located a CDFI bank and a CDFI credit union in Massachusetts.

OneUnited Bank
133 Federal Street, 8th Floor
Boston, MA 02110-1703(617) 457-4415

South End Federal Credit Union
100 West Dedham St.
Boston, MA 02118-1601(617) 247-1673

Im still trying to locate a list of CDCUs in Massachusetts and the rest of the country --funny, there is no list on the National Community Development Credit Unions website, or at least not one I can find.

2006-01-28T13:46:00.000-08:00

Recap -where shall I move my account?

Back to the central impetus for this blog --What shall I do with my account at Banknorth? I made a grid the other day comparing several options:

staying at Banknorth;
moving my money to a socially responsible bank like Wainwright in Boston (not convenient, but still
curious)
moving my money to the local credit union;
seeing if there is a community development credit union nearby;
considering the future possibility of Common Good Bank, which I'll talk about later --a cool sounding bank-to- be.

I'm comparing these options according to:

convenience (things like ATM availability and fees);
the interest rate they offer on a year-long CD;
the organizational structure -including the way they decide how to invest their assets;
the ways they make their earnings --including the percent of the investments and loans that are "socially
responsible"

Here is what I am leaning towards now: opening a checking account at the local credit union. But I am reluctant to open a CD/savings account there (or even in Wainwright Bank) without knowing more about where they invest their assets. (Of course, even my checking account deposits may be invested by them...) So I could put my savings elsewhere: for instance, investing in a community development financial institution like ICE, described previously. That way I'd know that the money is being invested entirely in low income housing and land trust projects. The CDFI is not insured --am I willing to take that risk? Ooh, maybe I could open a savings account in the Santa Cruz CDFI CDCU...it would be insured! But I'm not a resident!

2006-01-27T12:28:00.000-08:00

Subprime

The prime rate, according to Wikipedia, is the “interest rate charged by lenders to borrowers who they consider most creditworthy.”

The Wall Street Journal defines the prime rate as, "The base rate on corporate loans posted by at least 75% of the nation's 30 largest banks."

So does this mean that corporations are the most creditworthy borrowers? If so, why?

Subprime rate, then, is the interest rate charged by lenders to borrowers they consider not so creditworthy. How much above the prime interest rate is considered to be the subprime rate?

According to the Fair Housing and Equal Opportunity website , subprime loans "carry a higher rate of interest than prime loans to compensate for increased credit risk.”

According to the same government source, “Studies reveal that even in upper-income African-American neighborhoods one is one-and-a-half times as likely to have a subprime loan than persons in low-income white neighborhoods. In neighborhoods where Hispanics comprise at least 80 percent of the population, they were 1.5 times as likely than the nation as a whole to have a subprime mortgage loan.”

HUD has a 2002 study that looks at “ lending practices in the sub-prime mortgage market and the current and potential role of Fannie Mae and Freddie Mac…” But I’m not yet able to open this pdf file.

I dont think all subprime lending is considered predatory lending, but certainly all predatory lending is subprime.

It sounds like someone would opt for a subprime mortgage or loan if they have a bad credit history, can't document their income (illegal immigrants?), or want to borrow more money than most institutions would give them, based on their current assets.

What are the different ways a company can do predatory lending?

The Center for Responsible Lending has a list:

Excessive Fees on a loan (Approx 5% of the loan amount; for a non predatory loan, the fee is more like 1%)

Abusive Prepayment Penalties (Most predatory loans require that the borrower pay six months of interest as a penalty if they refinance or change the loan before three years pass. Yet, because the loan is at such a bad rate, people want to refinance earlier...)

Kickbacks to Brokers (Yield Spread Premiums) (I dont understand this one)

Loan Flipping (The lender convinces the borrower to refinance a loan and charges a refinancing fee, without making the loan any better.)

Unnecessary Products (Lenders add on unnecessary insurance.)

Mandatory Arbitration (Ouch --the borrowers sign something saying they won't "seek legal remedies in a court if they find that their home is threatened by loans with illegal or abusive terms.")

Steering & Targeting (Predatory lenders somehow convince a large number of borrowers to accept subprime mortgages and loans, even though the borrowers are eligible for regular loans. The lenders can be agressive and even lie. "Fannie Mae has estimated that up to half of borrowers with subprime mortgages could have qualified for loans with better terms.")

The Center for Responsible Lending says: "Between 1994 and 2004, subprime mortgage lending grew from $35 billion to $530 billion. " According to an LA Times article, "These loans have been the fastest-growing segment of the mortgage market and now account for an estimated 20% of all such lending."

Wow, this is a big deal. Who are some corporations/ companies that have been known for predatory lending?

Household Finance, now owned by HSBC Holding (ACORN won a settlement from Household in 2002, for $484-million.)

Wells Fargo (ACORN has a law suit against them now on behalf of 3,000 borrowers.)

Ameriquest (This week, 1.21.06, Ameriquest is paying a $325 million settlement --many borrowers get about $700 each--because of its predatory lending practices.) The company has to change its practices. Turns out the head of this company, who donates lots of money to Bush, is now Ambassador to the Netherlands. HIs appointment was delayed while this case was being deliberated. They should refuse him in the Netherlands!

Associates First Capital, acquired by Citigroup, paid a $215 million settlement to the Federal Trade Commission, on behalf of consumers, in 2002.

I'm sure there are others.

What kind of activism is there around predatory lending?

Aside from the ACORN lawsuits, the Center for Responsible Lending endorses state legislation, like that in North Carolina since 1999, that makes it illegal for a lender to charge excessive fees on loans, to have long pre-payment penalties, to make kickbacks to brokers, and to prevent borrowers from taking the lender to court.

2006-01-25T12:35:00.000-08:00

Meeting with a credit union Board member...

Today I met with a Board member of the credit union near my town. We spoke for about an hour. This person was inspired to join a credit union herself after she learned about and then visited Mondragon, a network of worker-owned cooperatives (employing about 26,000 people) in Spain. Mondragon has their own credit union, which has enabled them to have access to large reserves of capital and to grow their cooperative enterprises. The credit union is a crucial part of what makes Mondragon thrive.

What I learned from this Board member of our local credit union:

The Board of Directors of a credit union in the U.S. has a lot of responsibility and power in the workings of the credit union. The Board meets monthly, with the CEO present, and makes sure that the credit union is following all the regulations. The Board decides personnel policy and can set the interest rates! The Board has the power to renew (or not) the CEO's contract. The Board can also suggest new kinds of loans or other programs. For instance, this Board member suggested that, given the rising cost of oil, the credit union give out energy efficiency home improvement loans at a good rate. The Board agreed with her and they have created this kind of loan.

Most interesting to me, I learned that each month the Board reviews losses --this means that the Board decides what to do about people who aren't paying back their loans or are not able to pay their credit card bills. As an illustration, the Board member told me about one credit union member who had a very high credit card bill, and the credit union suspected this person would never be able to repay the debt. So, the Board decided that it would forgive the interest and ask the person to pay back to principle of the loan --the actual amount borrowed. They had the power to forgive the interest!

I also learned a little about how the credit union makes its earnings. Like a bank, it creates earnings from interest on loans as well as from investments. According to the Board member (and she is still learning about all this), the credit union primarily makes investments in other credit unions. She also thought that the credit union could invest by putting money in a commercial bank account, like a CD.

This still feels pretty vague to me --how the credit union invests its money. I may see if I can ask the CEO.

I did learn that, along with the Assistant Director of the Credit Union, the Board sets the investment policy for the credit union. So, the Board can say: we want 10% of our assets to be in "socially responsible" funds or accounts. And the staff will have to do that.

The staff of the credit union can be members of the credit union, but they dont have to be. It seems they can also run for the Board, but I dont think any of them has done that lately.

I believe this is one way that the typical US credit union is different from the Mondragon credit union, where the workers are the decision makers. I'll have to clarify how the Mondragon credit union differs from the typical US credit union.

The Board member pointed out one difference: the Mondragon credit union offers business loans for emerging coops. The credit union in my town does not offer any business loans. There may be some laws prohibiting federally chartered credit unions from giving business loans --but this Board member is researching this. She is not too worried about this because there is a great Community Development Corporation (CDC) in town and they give business loans to risky ventures --though apparently the interest is high, about 7-8%. How is a CDC different from a CDFI?

I shared with the Board member what I recently learned about community development credit unions, and she was very excited about this info! She may see if her credit union can become a community development credit union!

Some other memorable thoughts from this Board member:

I asked her about a socially responsible bank like Wainwright and she said her big concern was that, since it was not a cooperative, it could be easily purchased by a bigger banking company. I wonder if Wainwright has any policy about this.

2006-01-24T11:41:00.000-08:00

Well, it turns out there are a number of community development credit unions!

Well, it turns out there are about 80 CDFI credit unions, according to the National Federation of Community Development Credit Unions, which has their OWN website. The CDFI credit unions are a subsection of community development credit unions. There are 225 community development credit unions, though only 80 have chosen to be recognized as CDFIs, as I mention above. (It sounds like ALL CDCUs are eligible to be CDFIs; it's not yet clear to me why they don't all become CDFIs.) I'm having a hard time finding a full listing of the community development credit unions, including the CDFI community development credit unions on this website --which seems to be oriented more to credit unions who are considering community development status.

I was very cheered by the Santa Cruz community development credit union website --wow. Looks like such a great credit union. The Chair of the Board is a economics professor at UC Santa Cruz, John Isbister, who has written some very relevant books, such as Thin Cats: The Community Development Credit Union Movement in the United States (1994), and, more recently, Capitalism and Justice, Envisioning Social and Economic Fairness (2001). (Thin Cats is a hard to find book --Amazon and Powells dont carry it; none of the libraries in my region has it...)

Some helpful info on the precise definition of a CDCU from the National Federation of Community Development Credit Unions website:

"A community development credit union (CDCU) is a credit union with a special mission of serving low- and moderate-income people and communities.

A CDCU:
is nonprofit and tax-exempt (but not a charity)
is cooperatively owned and governed -- one member, one vote
is government-regulated and has deposit insurance
provides fairly priced loans, including to members with imperfect, limited or no credit history
a safe place to save
a place to conduct transactions at reasonable cost
financial education for its members
has a commitment to serve the broader community, which it demonstrates through community outreach, participation in government programs, partnerships with the private-sector in community revitalization efforts, and/or collaboration with other CDCUs.

CDCUs and "Low-Income Credit Unions"
Often, the term "community development credit union" is used interchangeably with "low-income credit union." The great majority of CDCUs have low-income designation -- however, most credit unions with low-income designation are not CDCUs. Here's the distinction:
Designation as a "low-income" credit union must come from the National Credit Union Administration (or occasionally, a state regulatory agency). This designation gives a credit union certain special powers, such as the right to accept non-member deposits and secondary capital. Many low-income designated credit unions serve narrow fields-of-membership (for example, groups of employees), rather than their broader communities.
Only members of the Federation are "community development credit unions." Community development credit unions have access to the wide range of services and programs offered by the Federation. However, designation as a CDCU does not, by itself, give a credit union the legal power to accept non-member deposits or secondary capital; low-income designation is still required.

CDCUs and Community Development Financial Institutions (CDFIs)
CDCUs make up an important segment of the community development financial institutions movement. The Federation was a co-founder of the CDFI Coalition, and our Executive Director, Clifford Rosenthal, served as the first elected chairman of the independent Coalition of CDFIs.
The Federation regards all CDCUs as CDFIs within the meaning of the CDFI Act. All CDCUs are eligible to apply for CDFI certification, and 80 currently enjoy that standing.

So, exactly how is a CDCU different from a regular credit union --in terms of how my deposited money is used and in terms of what the credit union supports? And, then how is a CDFI CDCU different from a CDCU in this regard?

2006-01-24T10:47:00.000-08:00

Consider the Institute for Community Economics (ICE)

In my research, I’ve been interested in banks, credit unions, and alternatives to banks. The Institute for Community Economics (ICE) in Springfield, Massachusetts, is one of the alternatives I’m trying to learn more about.

ICE is, among other things, a Community Development Financial Institution (CDFI). They are members of National Community Capital Association, the national association of CDFI’s. [News alert: As of January 2006, the national association of CDFI's is called the Opportunity Finance Network.] I’ve never heard of CDFI’s before, and want to learn more about them.

For starters, some info about ICE...

Founded in 1967, ICE is committed to the needs of low-income families, especially to the issues of locally controlled, permanently affordable housing and community economic development. ICE has a special affinity for community land trusts.

To meet their goals of creating permanently affordable housing, community land trusts, and locally controlled economic development, ICE established a Revolving Loan Fund. Sine 1979, ICE has loaned $42 million, making over 430 loans to community organizations in 30 states and helping with the development of more than 4,400 housing units. Typically, ICE uses loans to help buy land or to buy/ construct/ rehab housing. They also offer loans to buy office space for non-profits doing related work.

Here is how the Revolving Fund works, from what I can piece together:

About 400 individuals and a few "socially responsible" mutual funds (80% of the investors are individuals and those participating in mutual funds like Domini; 20% of the money comes from religious organizations and foundations) pool their money in the ICE Revolving Fund--the amount now comes to $13 million.

Then, “investors propose the size, term, and interest rate of their investments. Because many of ICE's borrowers require low-interest loans to adequately serve community residents, we encourage our investors to consider their actual need for interest returns in relation to the needs of those whom the Fund serves. ICE seeks investments of at least $1,000 for at minimum of one year. We ask that investors propose a fixed rate of return between zero and our maximum rate that is adjusted quarterly. Currently, ICE is able to offer interest rates of up to 3.5% for loans of five years or more, and up to 3% for loans of four years or less. We readily accept loan offers within these constraints, but we hope for lower interest rates to subsidize our work and that of our borrowers.”

So, it sounds like a person like me could put $1000 into the Revolving Fund for 1 year and negotiate an interest rate with ICE, up to 3%. Hey, I could even say --you can use this money interest free! ICE would get to loan out the $1000 to a community group who wants to buy land or develop housing and that group would return the borrowed money with the amount of interest agreed on. (Presumably, the community group would generate money by charging rent, or selling the units to people with low incomes.)

In terms of risk, ICE explains, "Although loans to the Fund are not insured, ICE has loss reserves and a pool of permanent capital as a cushion against potential losses. No investor to the Revolving Loan Fund has ever lost a penny. Loan losses to date have been less than 1.5% of total loans placed."

I wonder what interest rate ICE charges the community group borrowers --how does this rate compare to what a commercial bank would charge for a loan?

I'm tempted. Here is how to make a loan offer: "investors...should contact ICE's development office for a Loan Fund Response Form. Upon completion of this form, ICE will prepare a loan agreement in duplicate to be signed, according to individual needs and preferences..."

It sounds like the U.S. Department of Treasury offers support for CDFI funds like ICE's Revolving Fund. In 1998, the Department of Treasury's gave (or lent?) ICE $1.125 million to help ensure the long-term health of its Revolving Loan Fund. ICE also received a $405,000 award from the Treasury to create a 10- to 30-year long-term financing program for ICE's borrowers. (According to the national association of CDFI’s, "The House and Senate passed and the President signed into law spending legislation that would provide $55 million for the CDFI Fund in FY 2006, the same level as last year.")

Sounds like ICE is pretty cool --they are a founding member of the Social Investment Forum, a national non-profit trade association of socially responsible investment advisors.

So, what's up with CDFI's?

The ICE website says CDFI's are "financial institutions that have community development as their primary mission and that develop a range of strategies to address that mission."

They describe 5 kinds of CDFI's:

* Community Development Banks
* Provide capital to rebuild economically distressed communities through targeted lending and investment

* Community Development Credit Unions
* Promote ownership of assets and savings and provide affordable credit and retail financial services to low-income people with special outreach to minority communities

* Community Development Loan Funds
* Aggregate capital from individual and institutional social investors at below-market rates and lend this money primarily to nonprofit housing and business developers in economically distressed urban and rural communities

* Community Development Venture Capital Funds
* Provide equity and debt with equity features for community real estate and medium-sized business projects

* Microenterprise Development Loan Funds
* Foster social and business development through loans and technical assistance to low-income people that involved in very small business or self-employed and unable to access conventional credit

I checked the CDFI umbrella website and found a few CDFI organizations that are, in fact, credit unions. How exciting. Santa Cruz (Santa Cruz Community Credit Union), Ithaca (Alternatives Federal Credit Union) and Burlington,Vermont (Opportunities Credit Union) have CDFI credit unions...

There is at least one CDFI bank (Shorebank), though there may be more; it's not always clear from the names which ones are banks. Most have names like Economic Development Fund.

And, aside from ICE, I found another CDFI in Western Mass, the Western Massachusetts Enterprise Fund in Greenfield, MA: wmefcs@aol.com

Why arent there more CDFI's that are credit unions and banks--this seems like an appealing alternative to a commerical bank! And maybe even better than a typical credit union --who knows where their investments usually go.

2006-01-23T15:56:00.000-08:00

The assistant bank manager has been very sweet --staying in touch with me and letting me know she hasn't had time to answer my (admittedly daunting) list of questions. She said she will try to work with an experienced branch supervisor to answer my questions.

I sent the assistant bank manager a new email today:

Dear X,

Thanks so much for staying in touch with me and letting me know you haven't yet had time to answer my list of questions.

I have been able to get answers to several of my questions. And, since my prior email list of questions was so lengthy, I am sending you a revised (and considerably shorter!) list of questions --this should be easier to answer when you and the branch supervisor have a few extra minutes.

The more succinct list of questions:

1. Are there different rates of interest for different kinds of loans (say, education, personal, car)? If so, why are there different rates for different loans?

2. If I understand correctly, the bank makes money by charging various fees, but then also by collecting interest on loans and making investments. What are the kinds of things the bank invests in? Is the list of investments that a bank makes public information, available to customers?

3. And, what group of people make the decisions about what the bank invests in?

4. (This is a new question) How is the bank's Board of Director's selected? What does the Board do, and do the members of the board get compensated for their work on the Board?

Thanks again for helping me understand the structure and workings of banks, as I work on this kid's book/blog.

2006-01-20T19:05:00.000-08:00

Differences between commercial banks and credit unions

A commercial bank is a for-profit business, owned by members of a corporation, while a credit union is a not-for-profit cooperative, owned by everyone who has an account there. (Could a bank be owned by one person and not by a corporation?)

A commercial bank typically has stockholders. Some of the bank’s profits are shared with these stockholders, to retain and attract more stockholders. By contrast, a credit union has “no stockholders and earnings are returned to the membership in the form of lower loan rates, better savings rates and invested back into the credit union to expand services members need and want.”

A bank can be bought by a larger bank without the input from customers. A credit union, which is a cooperative, can't be easily bought, I dont think.

Anyone with at least a little money can open an account in a commercial bank. By contrast, credit unions are restricted by law to people belonging to a defined group --such as a geographical region, occupation, company, or association.

A commercial bank’s Board of Directors are selected by Y and do X…[check]
A credit union’s Board of Directors are elected by members (those with accounts) for three year terms, and they do a lot: they set interest rates, review losses, make personnel policy, make sure the credit union is following the laws, and set investment policy. A bank’s Board of Directors get compensation for their work (as much as what?) while the a credit union’s Board works voluntarily.

Commercial banks pay taxes on their earnings. Credit unions do not pay taxes on their earnings. (To be precise, federal credit unions pay no income tax; state credit unions still have to pay state income tax. Why would a credit union opt to get a state rather than a federal charter, given this added cost for state credit unions?) Are credit unions exempt fromincome tax because they are non-profits? Apparently, the American Bankers Association has made it a priority to change this law, so that credit unions would have to pay taxes.

A commercial bank is insured by the Federal Deposit Insurance Corporation (FDIC.) That means that the government guarantees any money you put in a commercial bank, up to $100,000 per person. If the bank closes for whatever reason, the government promises to give you the full amount of your deposit. (Does this insurance money come from tax dollars?) A credit union is insured by a comparable institution called the National Credit Union Share Insurance Fund (NCUSIF.) So, if a credit union closes, the government still promises to give you the full amount of your deposits, up to $100,000.

Interestingly, there are a similar number of banks as credit unions in the U.S. but more money is actually deposited in banks. According to one source, in 2004 "the National Credit Union Administration insured more than $500 billion in deposits at 9,000…credit unions. The [FDIC] insured more than $3,000 billion in deposits at 8,900 banks and thrift institutions.”

Two other interesting bits of information, one about credit unions, one about banks:

First, credit unions formed in the 1900s in the US as the “poor persons’ banks” after banks consistently refused to offer loans to poor people.

Second, it turns out commercial banking is a very profitable business:

“Large banks in the United States are some of the most profitable corporations, especially relative to the small market shares they have…For example, the largest bank, Citigroup, which for the past 3 years has made more profit than any other company in the world, has only a 5 percent market share. Now if Citigroup were to be as dominant in its industry as a Home Depot, Starbucks, or Wal Mart in their respective industries, with a 30 percent market share , it would make more money than the top ten non-banking U.S. industries combined.”

2006-01-20T16:34:00.000-08:00

International Banking: Not Properly Supervised?

Today I listened to a very interesting audio lecture, part of an excellent series you can get for free on the web called "Wizards of Money." The whole series is an accessible introduction to and critique of the global financial system.

In episode two, "Financial Risk Transfer," the writer/narrator Smithy makes the argument that the international banking system is not properly supervised.

The body that claims to supervise the banking industry on an international level is based in Basel, Switzerland, and is called the Bank for International Settlements (BIS). BIS is funded by the central banks of the richest countries in the world, and is, apparently, as important as the IMF and World Bank, and yet few of us have heard of the BIS, while many people have heard of the IMF and World Bank.

Smithy sees a few problems with the BIS: namely, it works in secrecy and is run by people who also sit on the Boards of central banks and, I think in some cases, by those who sit on the Boards of large financial services companies. These people, even with the best intentions, have too many connections to those who can personally profit from BIS policies. They are not in a good position to make sound banking policies that serve the public at large. Smithy argues instead for a democratically elected international banking supervisory system, one that is more transparant and actually accountable to the public.

Why do we need a supervisory structure for the international banking industry?

Smithy explains that "banks want to hold as little capital as possible, so that they can create a maximum amount of loans (or money) that can bring in higher profits. From their perspective a safety net [enforced by a supervisory structure] has an 'opportunity cost' which limits the profits they can make."

Banks and others in the finance industry want to take big risks in order to make big gains. And, in the current system they can take big risks without paying the full price if their risks fail. In the event of an impending failure, there will be a bailout to prevent a breakdown of confidence in the global financial system. Thus, Smithy argues, the financiers can take big risks and either make big bucks or get bailed out. They really can't lose. This seems to be most true in the extreme cases, as when speculators mucked up the Thai currency and more or less destroyed the Thai economy. Thailand was then bailed out with an IMF loan, which refinanced Thailand's debt (and imposed structural adjustment policies) so that it could still pay back its US creditors.

Smithy's larger point is that the banking system should have supervision that PREVENTS the need for bailouts, rather than having a system, as we do now, that has few preventative measures on things like speculation, and relies on bailout as a way to avoid a meltdown of the whole system.

One more point worth mentioning: Smithy links poor supervision of the finance industry to growing income inequality.

She says, "An increasing amount of financial activity [is] driven by those who have so much excess money that the bulk of their transactions are speculative. This inequality and these risks increase with each publicly funded bailout, which then further increases income and wealth gaps. And so the cycle continues, with this positive feedback built in to make the whole system more and more unstable."

It seems that speculation (and a whole bunch of related financial activities that Idont yet understand, except to know that they are not investments in actual companies or goods, but rather bets on things like changing currencies) is the big threat to the safety of the global financial system. There may be a time when the system collapses in such a big way that even an IMF bailout won't fix it, and Smithy alludes to the scary facist possibilities that could emerge.

So, the questions for me are:

Is it public knowledge who sits on the BIS?
How does speculation work?
Could I talk to a speculator?
Is it possible that if I had a savings account or a CD in a commerical bank that my money was being used in speculation schemes? How common is speculation?
Are there any politicians or NGOS, in the US or elsewhere, who are addressing the regulation of speculation?
What other kinds of companies comprise the financial industry --aside from banks?

2006-01-19T09:01:00.000-08:00

So, how does the Federal Reserve affect interest rates?

The Fed, made up of 12 Board of Governors who are Presidential appointees with 14 year terms, affects banks’ interest rates indirectly.

They indirectly affect the interest rates in three ways:

First, the most influential thing the members of the Fed do is referred to as open market operations. This means they sell or buy government securities, also known as Treasury securities, on the open market. If they want to shrink the national money supply, they sell securities (who are the typical buyers, I wonder.) And, if they want to increase the national money supply, they buy securities (from whom, I wonder, and with what money –money is transferred from where to where? How does the buying and selling of these securities affect the national money supply?)

These securities transactions directly influence the amount of reserve funds that commercial banks have to lend each other. (How do these security transactions affect the reserve funds of commercial banks?) The open market purchase of securities, for instance, increases the amount of money that banks have available to lend. The amount of money a bank has to lend affects what’s known as the banks’ federal funds rate. The federal funds rate is the rate banks charge each other for overnight loans. The federal funds rate falls if the banks have lots of money to lend each other, and rises if banks have little money to lend each other. (Why do the banks lend money to each other “overnight”? Is this a big part of banking?)

So far, it seems that the Fed’s selling or purchasing of Treasury securities affects the federal fund rate, but then how does this affect interest rates?

A member of the Federal Reserve Board of Governors, named Laurence H. Meyer, explains:

“While the federal funds rate itself is not a particularly important influence on the economy, movements in the federal funds rate (and expectations about future federal funds rate encouraged by any change) influence the broad spectrum of interest rates and financial asset prices in the economy. In this way, changes in the federal funds rate exercise an important influence on the demand for goods and services, especially those that are relatively interest-sensitive.”

I still don’t know exactly how the federal funds rate influences interest rates, but it must be because the amount of money a bank has influences the amount of interest it needs to charge on loans.

(Incidentally, the open markeet operations are decided eight times a year by a committee called the Federal Open Market Committee (FOMC.) After each meeting, the FOMC reports to the news media the targeted federal funds rate, the inter-bank lending rate the Fed hopes will be achieved with the securities they have sold or purchased. The media usually mislabels this as a change in the interest rate.)

A second way that the Fed can influence the interest rates in banks is by altering something called the discount rate. This is the rate of interest on the money the Fed is willing to lend commercial banks. The discount rate is usually adjusted in relation to the open market operations. Commercial banks sometimes need to borrow money from the Fed, because of unanticipated shortages or demands.

Finally, the Board of Governors can influence interest rates by manipulating the reserve ratio –the amount of money the banks are required to have on hand. As mentioned in a previous blog entry, the Fed doesn’t change this often. They last changed this ratio in 1992.

Later, I’ll try to explain why the Fed does all this manipulating of securities and federal funds rates. It’s part of its larger goal to create a “healthy economy,” one that is growing and employs many people.

2006-01-18T09:49:00.000-08:00

Comparing Local Bank Interest Rates

A local insurance/ financial services agency runs a regular ad in the Advocate, a popular magazine in my area. The ad lists the interest rates for ten "local banks," including one credit union. I'm not entirely sure why the insurance agency offers this info as their ad -are they supporting local financial institutions?

I mostly want to mention here that, when comparing loan and CD rates in this ad, the credit union is the way to go! For instance, last week the rate for a personal loan at most of the commerical banks was around 14%, while it was 11.99% at the credit union.

Plus, the interest one can earn on a 1 yr CD in the local commercial banks is 2-3%, while it is 4% at the credit union.

So, now I'm curious how these number compare to the big commercial banks in town --the non-local ones like TD Banknorth, and Bank of America. Since they have so much money, maybe they offer more return in their CD's...

Actually, a TD Banknorth 1 yr cd is 2.47%. Even if you take their promo, a 15 month CD and get 3.45%, it's still pays less interest than the credit union's 4%.

Bank of America, (which only lists the phone number of one of its local branches in the phone book, and lists a 1-800 number for every other branch in the area!) will pay only 3.2% on a 1 yr CD.

And what about the credit union in the town nearest to me? They will offer 3.75 on a 1 yr CD, higher than both of the huge banks.

Why don't more people use credit unions? Why don't I?

I suppose they may be less convenient --fewer branches around, fewer ATM machines to use, less ATM transactions allowed for free.

At the Franklin First credit union, which I am considering joining, one can get 4 ATM transactions from a SUM-member ATM every month without being charged. After the 4th, one is charged $1 for every ATM transaction that month. So, there is that issue. Is this the case at the other big credit union in the area?

Otherwise, there is free checking and bettter CD rates at the credit unions, and, most likely, better Money Market rates, too.

And a credit union is a coop. I'll write more about the significance of that later.

2006-01-17T15:14:00.000-08:00

No news from the assistant bank manager...

I think the email I sent her was too long, detailed, and daunting.

Since sending her that email, I found two answers to my questions in the Federal Reserve Bank of Boston kid's document, "Basics in Banking."

In response to my question, "What are the various kinds of accounts a customer can get?" I learned that banks typically offer:

-Savings accounts, which allow one to collect a little interest

-Checking accounts, which allow one to write checks without earning interest

-NOW (Negotiable Order of Withdrawal) accounts, which enable one to write checks and collect interest. NOW accounts usually require a minimum balance.

-Money market deposit accounts, which pay a higher rate of interest, allow one to write checks, and require a higher minimum balance of about $2,500

-CD’s (Certificates of Deposit), which are savings deposits that bring in a still higher rate of interest. The customer agrees to leave the money in the CD for a certain amount of time, say a year.

-Individual retirement accounts, which are savings accounts kept in the bank until one reaches a certain age, I think 65.

In response to my question, "What info does the bank need from a customer if he/she is applying for a loan? " I learned that, in addition to collecting information about job and salary, the bank usually does a credit report on the customer. A credit report records how well the customer has been at paying his/her bills. The credit report is compiled by credit bureaus, which are private companies.

I learned from “Banking Basics” that if the bank gives a customer a loan, say for a car, the bank will write the check to the car dealer, and will then hold the legal title for the car, until the customer pays off the loan.

Finally, during my ongoing research on the Federal Reserve, I learned the answer to my question about the current fractional reserve amount. The fractional reserve amount, which has not changed since 1992, is 10%. This means that the bank can legally lend out 90% of its deposits and other assets, while 10% of its money and other assets must be on hand, available in case customers want to withdraw money.

2006-01-14T09:32:00.000-08:00

Reviewing the Federal Reserve Bank of Boston educational materials for kids

I continue to feel stunned. I just read my first download of kid’s educational material from the Federal Reserve Bank of Boston, a 20-page trippy comic book called “Wishes and Rainbows,” written in 1980.

A synopsis of “Wishes and Rainbows” (Note: I am not making this up.)

Roota, our heroine, lives in an underground tiny world that has no color –only white, gray, and black. One day she is playing hide and seek in a cave and discovers golden sunlight seeping through a crack. She follows the light and stumbles onto a world of color and flowers. Roota picks a red tulip and returns back home to her colorless world, eager to share the red flower with her grandmother, who is delighted. Roota then plants the tulip in the town center so everyone can enjoy it, but soon the tulip withers from lack of sun, leaving three seeds.

Roota and her friend try to fetch more colorful flowers for people in town –everyone wants one! But the passageway to the sunlit, colorful world is now blocked by boulders. Roota succeeds in finding light seeping through another high crack. She plants the three tulip seeds in the soil beneath the light and soon three new tulips grow. Roota ponders who in town should get the three new tulips –the mayor, the richest person, the eldest? She decides that the fairest system is to make a list with everyone’s name on it. The people at the top of the list. The oldest people, will get the first three tulips. Then, Roota will plant the seeds from those three withered flowers to grow new ones, and give the fresh flowers to people next on the list, and so on. This plan succeeds wonderfully, and in time a new sunlit spot opens, allowing even greater cultivation of flowers.

What this has to do with the Federal Reserve or banking eludes me.

I’m impressed that the Federal Reserve would turn to such interesting allegorical material and, further, that it would make our heroine a girl! I agree that girls are good candidates for devising a fair economic system that offers satisfaction to the greatest number of people. And that fairness means regulating the economy so that everyone’s needs are met.

But is this what they intended to say in this comic book?

According to the teacher’s guide, the story is about “one society and its attempts to assimilate, with least disruption, a rare and much coveted new resource,” the colorful flowers. The story is about scarcity. There is a high demand for the colorful flowers but little supply. Since the flowers are scarce (a limited resource), Roota suggests that they ration the flowers, and this works as the story concludes.

But it might not work for long, since the demand for flowers is so high and people can be self-interested. Readers are encouraged to imagine what could transpire in the near future in this village. With the help of investments, might someone try to meet demand by boosting production of the flowers, whether by exploring the caves for more sunlit planting areas, or by developing rock-moving technologies, or by creating fake flowers? Or, as the guide also suggests, perhaps the village mayor will fund increased production of flowers with tax money and share all the proceeds with the people.

I'm happy that the teacher's guide emphasizes the value of "unrestricted imagination" in thinking about future scenarios. This spirit is far too scarce in most economic classes or books.

Let's boost production of the imagination!

2006-01-13T10:49:00.000-08:00

Alert! The Federal Reserve Bank of Boston has kid’s books!

I’m having a stunned moment. In my efforts to learn about the Federal Reserve, I checked out the Federal Reserve regional branch closest to where I live (there are 12 Federal Reserve Regional banks spread across the country.) Turns out the Federal Reserve branch in New England, which is in Boston, has a hearty educational program. Who knew? They have free publications for kids including “Banking Basics,” “What is the Balance of Payments?” and even a comic book about economic ideas like scarcity. More on these documents soon as I read the downloads. Im interested to learn about the topics and also to see the assumptions these booklets make about economics and finance.

The Federal Reserve branch in Boston has educational programs on topics like: “Federal Reserve System Overview,” “Introduction to Monetary Policy,” and “Banking Basics.” I spoke to the person who teaches the 90 minutes interactive programs, and he said I could attend an upcoming one.

Plus, there is a program for high school students at the Boston Federal Reserve building called New England Economic Adventure - www.economicadventure.org The "economic adventure" is a contest in which students are given $10,000 to invest in three historical periods in the United States: early industrial, later industrial, and the 1970s. The "winner" is the one who makes the most money from these investments. Why is this how they define winner? Why cant the winner be the one who increases the quality of life for the most people? And how might we measure that?

2006-01-13T09:44:00.000-08:00

So much else to discover: Federal Reserve and interest rates

As I await a response from my bank's assistant manager, I can think of so much else I want to learn, and I have some free time today.

I dont really understand how the Federal Reserve influences the interest rate on loans that banks offer. Im going to see if I can piece this together.

2006-01-13T09:12:00.000-08:00

Bank research, continues...

Today, I sent the assistant manager of my Banknorth branch the following set of questions (we agreed email was the most efficient way for her to help me):

1. What are the services that a bank like Banknorth offers that it collects fees on? I am assuming that banks collect fees for the following types of services: safety deposit boxes; wire transfers; cashier checks; overdrawn accounts; boxes of checks, ATM use by someone without an account at Banknorth. Can you clarify the other kinds of fees --are there fees for getting a loan or mortgage, or fees if someone invests through the bank? Anything else that there are fees for? If a savings account falls too low?

(From the website, it looks like the bank also collects fees/ gets income by selling insurance and offering investment planning and wealth management.)

2. What are the various kinds of accounts a customer can get? I know of a checking account, for which one gets no interest, and then a savings account, for which one gets some interest. And then there is a CD, for which one gets a higher rate of interest if one agrees to keep the money in the account for a certain amount of time. Are there other kinds of accounts, perhaps some that have higher interest payments?

3. What are the various kinds of loans (i.e. higher ed, mortgage, small business, etc) at Banknorth --is this the typical list of loans in most banks? Are there different rates of interest for different kinds of loans? If so, why are there different rates for different loans?

4. Are there loans/ programs specifically intended for low income people --say first time home buyers? Im especially interested in understanding first time home buyer programs. Do they get any special help from the bank? Does this vary from bank to bank?

5. What info does the bank need from a customer if he/she is applying for a loan? Does this info affect the amount of interest on the loan that the customer gets? (That is, if someone has a bad credit report, or if the bank thinks that the customer's business venture is a bad idea would the customer possibly get a higher interest rate on a loan?) On what basis does the bank decide whether or not to give a loan?

6. Approx. what percentage of customers default on a loan, say in your branch or in Banknorth at large, or just generally in the US (whatever numbers you have) and what happens then?

7. If I understand correctly, the bank "makes" money by charging various fees, but then also by collecting interest on loans and making investments. What are the kinds of things the bank invests in? And what group of people make the decisions about what to invest in?

8. I understand that the Federal Reserve has the power to set the fractional reserve amount, that is the percentage of money each bank has to have available on hand (and thus how much of its assets it can lend out at a given time.) Do you know what this fractional reserve amount is right now, and how often that fraction changes? If you dont know this, no problem --I will try to ask the regional Federal Reserve bank.

9. I read the TDBanknorth has assets of approx $30 billion. Approximately what percentage of the bank's assets is actually deposits/ bank accounts? Im assuming some portion of the assets are bank accounts, and some other portion of the assets is profit from investments, but Im not certain one can easily distinguish these things...Any thoughts? Im mostly trying to see if bank accounts are, in fact, a small or large portion of the bank's assets.

2006-01-11T15:11:00.000-08:00

Adventures in Banking, part 2

Just after Banknorth informed me of its new name and I was feeling worried about ongoing mergers, I stopped by the window of the University of Massachusetts-Amherst Credit Union to see what other options there are for depositing and storing money. I had never understood credit unions –were they as convenient, safe, and free of fees as banks could be? Was the deposited money actually put to better, more ethical use? Were credit unions democratically run? What is the difference between a bank and a credit union, really?

I was open to switching to a credit union, but also felt reluctant to close my account at Banknorth, wary of the hassle and full of unanswered questions. I decided that before making any moves, I would talk with people at my bank and at the credit union, and see what other options exist. I wanted to proceed in an informed way.

To start my research, I stopped by my Banknorth branch –I was quite nervous actually, checking my reflection in the bank window to make sure I didn’t look too eccentric. I didn’t want them to think I was researching for a bank robbery.

I sat down with a customer service rep, and said, “I m working on a kid’s book/blog, and I want to know if I can ask you a few questions.”

She said, herself nervous but cheerful, “Okay, I’ve only worked here 7 months, but… okay.”

I asked:

“Who decides what loans and investments are made?
Where is the money invested?
What fraction of the deposited money is actually on hand in the bank, and what fraction is lent out at a given time?”

The customer rep said she didn’t know the answers to any of these questions and that she’d like to read this bank blog/ kid’s book when it’s finished. She told me to try the assistant manager.

2006-01-10T14:32:00.000-08:00

Adventures in Banking, part 1

I have a checking account at a western Massachusetts bank called Banknorth, a New England bank.

I opened my account at Banknorth after my prior bank was bought out three times, changing from BayBank to BankBoston to FleetBoston over the course of five years. When the name changed to Fleet, I was sufficiently freaked out by this ever growing, monolithic banking business that I fled for a bank that seemed more local. (After I fled Fleet, it was gobbled up and re-named Bank of America.)

1995 - BayBank bought out by Bank of Boston, becoming BankBoston
1999 - BankBoston bought out by Fleet Financial Group, becoming FleetBoston
2004 - FleetBoston bought out by Bank of America, becoming Bank of America

It turns out my new choice, Banknorth, is smaller (as of 2005, $31.8 billion of total consolidated assets, as compared to Bank of Amercia’s $851 billion) but not exactly local anymore. Earlier this year, I received a letter informing me that Banknorth is now going by the name TD Banknorth, a subtle, almost imperceptible name and logo change.

Old Banknorth stationery:

And new stationery:

Yet, the change is significant: it turns out that, as of March 1, 2005, Banknorth sold 51% interest in itself to Toronto-Dominion Financial Group, the second largest Canadian bank! [News alert! I was just informed that Boston's Fleet Center, a huge sports/music arena, was recently renamed the TD Banknorth Garden.] I feel oh-so-uncomfortable with this logo/ letter-head changing experience and with being part of a monolithic banking venture. I admit: I am wary of change. But I have grounded concerns. I fear businesses and organizations around me growing bigger and bigger. I fear a few far away people having a lot of power and making decisions that affect my neighborhood. I feel suspicious.

2006-01-09T14:56:00.000-08:00

At an auction this week, I bought the book pictured here:

Having Junior Bank Book in my hands helps me embark on my own bank book/ blog, for kids and others. I generally turn to kid's books in the public library when I want to understand something (i.e. soil, the French Revolution, the eye) clearly. I had wanted to understand banks clearly, but was unable to find a book that answered my questions.

Unlike Junior Bank Book, which is a series of rhymes with places to insert coins so that the reader can save five dollars (coincidentally, the price I paid for my copy of the book) this here kid-friendly bank blog will describe what banks are up to.

Here is a list of some of the questions I will address:

What do banks do?
How do banks "make" money?
Who makes decisions in a bank about how to use the money deposited in the bank?
How does one start a bank?
What is life like if one doesn’t have a bank account?
What is meant by predatory lending?
How many people in the world use banks?
What is recent U.S. government legislation about banks and what is the impact of this legislation?
What is my dream bank?
What are other peoples’ dream banks?
What is a credit union?
What do "socially responsible" banks do that makes them different from other banks?
How is a community development corporation like and unlike a bank?