Home » 2014 » December

Monthly Archives: December 2014

Community Banking: The missing link in America’s economy

Community Banking: The missing link in America’s economy | 24/12/14
by John Brian Shannon John Brian Shannon

The missing link in America’s economy is community banking, but no one wants to admit it.

America’s banking sector operates in much the same way that many corporations do — they charge fees in order to make profit. And while that makes the banks rich, that paradigm doesn’t necessarily contribute to making individuals, towns, cities, corporations or other organizations that do business with banks, any wealthier.

And that results in ‘lost opportunity’ for the American economy.

The Marriner S. Eccles Federal Reserve Board Building, Washington, DC.

The Marriner S. Eccles Federal Reserve Board Building in Washington, D.C. Designed by architect Paul Philippe Cret in 1935, construction of the Art Deco building was completed in 1937. Image courtesy of AgnosticPreachersKid

How banks presently operate in America

Banks operate on the ‘Catch as Catch Can’ system where consumers of financial services are captured by the banks (through advertising) and various banking fees and charges conspire to (in effect) drain money from account-holders, while the banks accrue huge profits.

And while there is certainly nothing wrong with corporations making a profit, the present banking paradigm doesn’t help the macro-economy (as well as it could) because it simply wasn’t designed to do that.

How can Community (Zip Code) Banking help the macro-economy?

What the U.S. needs is a ‘zip code’ banking system whereby a bank purchases the right to conduct banking operations within a certain zip code on a yearly basis. By regulation, other banks would be excluded from operating within that zip code.

Hence, the bank which has purchased the rights to that zip code would have a captive audience.

A New Relationship Between Banks and Citizens

Therefore, the present consumer/corporation relationship that the banks have with consumers would be replaced with a new and symbiotic relationship.

Bankers are smart people, and they would soon recognize that working to ensure the financial success of each person within that zip code dramatically improves their bottom line

That’s a new normal that would work for everyone and work wonders for the macro-economy.

The Logistics of Community Banking

Let’s say that U.S. Bank wants to set up shop in zip codes 90210 through 90280. And, let’s imagine that the combined population of those zip codes is one million people (it isn’t, but let’s just say that it is)

Suddenly the financial success of every single one of those people becomes a matter of importance for U.S. Bank — for the simple reason that the more those people prosper, the more U.S. Bank will profit.

Having paid one dollar (per head/per year) for the privilege of being allowed to sell financial services within those zip codes (amounting to one million dollars paid by U.S. Bank to the Fed every year for 90210-90280) the bank would be thereby motivated to ensure the financial stability and financial success of every one of those people.

Of course, if 4 other banks want to compete within the same space (90210 through 90280) they should be encouraged to do so. (In that case, the Fed is getting paid $5 million dollars per year instead of $1 million dollars per year for that group of zip codes with its 1 million residents) The Fed can always use the money.

But it isn’t about that.

It’s about a new relationship between banks and banking customers. It’s about a new paradigm, where instead of being ‘takers’ of consumers money, banks would play a central role in the macro-economy by partnering with communities — one where it is in the bank’s best interests to ensure that everyone within their zip code is progressing financially at best possible speed.

For the first time ever banks would be partners with customers — instead of monolithic banking corporations trying to make a buck from them.

Going back to the example, if more than one bank wants to purchase rights to operate within those same zip codes, they should be encouraged to do so. A little competition is a fine thing.

At a certain point however, a saturation point would be reached and banks would cease applying to the Fed in order to compete within those particular zip codes.

But if 5 banks want to compete (assuming one million potential customers is a big enough market to support 5 banks) and they apply to the Fed and pay the $1 per head/per year for the privilege — that works for consumers, it works for the Fed, and it works for the macro-economy.

From the Fed point of view

As of 2014, there are over 40,000 zip codes in America. The United States has a total population of 317 million and there are more than 80 million businesses operating within the U.S.A. Every one of them needs a bank.

If the Fed is receiving $1 per head/per year from one bank wanting to operate in every zip code across the U.S.A., that totals $317 million for the Fed per year.

If two banks want to operate across the U.S.A., that totals $634 million per year for the Fed. If four banks want to operate nationally, that equals $1.268 billion per year for the Fed.

Obviously, some banks may not want to operate nationally, only setting up shop in the Northeast U.S. for example, or only the zip codes within 50 miles of downtown Los Angeles, CA. Some banks may wish to operate exclusively within urban zip codes, while others may specialize in rural banking only. That’s fine too.

“Are you a foreign bank? In which zip codes would you like to operate? Yes, that will be one dollar per head/per year.”

Clearly, the Fed could be raking in triple-digit billions of dollars per year selling the rights to domestic and foreign banks wanting to operate within some or all zip codes in the country. Nice.

Selling permits to banks would bring the Fed plenty of money, allowing it to not only cover its overhead, but to be a net contributor to the banking sector and the overall economy.

But it’s more about aligning the interests of banks with bank customers. It’s about removing the huge ‘lost opportunity’ from the U.S. economy by employing banking policies designed from the get-go to be symbiotic in nature.

Community Banking could thereby stimulate the financial position of individuals, corporations, counties, towns and cities, at the micro-scale — and in so doing, robustly stimulate the macro-scale American economy.

Related Articles:

Sweden’s Example to the World

by John Brian Shannon | December 9, 2014

Sweden began governing with a unique brand of socialism in the 1960’s and almost everything in that small, but very picturesque nation of 9.5 million people has worked very well for citizens and non-Swedish residents since.

The coastal city of Malmö, Sweden. Image courtesy of Viking Trip 2012.

The coastal city of Malmö, Sweden. Image courtesy of Viking Trip 2012.

By combining results-oriented liberalism with a strong focus on the well-being of citizens and investing in a strong industrial base geared towards the export market, the country excelled and continues to excel in many aspects.

Some problems have arisen over the years as one would expect — it can’t be all Camelot and winter wonderland!

For example, during the worldwide financial crisis of 2008/09 Sweden’s unemployment rate shot up to 7.7% and some of the country’s generous benefits-to-citizens were slightly reduced.

Which was pretty shocking stuff for Swedes, as the unemployment rate historically fell within the 2-3% range and benefits had never been curtailed.

Like everything in Sweden, things are taken in stride. The most telling Swedish aphorism is; “There is no such thing as bad weather, only bad clothing.” And don’t forget that the Swedes see winter temperatures as low as -50 degrees every year, though most of the winter it stays at a relatively balmy -25 degrees. Usch!

Although Swede’s certainly enjoy a model society, they pay for it with some of the highest taxation levels on the planet as most employed people pay 50% tax rates or higher. Still, so many things are covered by the state and the society functions so well that it’s a good deal for everyone. An entire separate article would be required to list off every single benefit of living in Sweden’s social welfare state.

Full medical benefits, full medical prescription benefits, full dental benefits, full holistic medical treatment, full employment for life (or at the very least, a job-sharing programme), a very low crime rate, one of the highest life expectancies in the world, a high rating on the UN’s Happiness Index, among the highest literacy rate in the world and many other benefits are part of living in Sweden. That’s the short list!

World’s Happiest Nations are… [Sweden in 5th place] | CNN.com
‘Outstanding’ [2nd place] climate ranking at COP 20 for Sweden | The Local – Sweden

In Sweden, if the industry you work in can’t employ all of its workers, you’re automatically enrolled in a job-sharing scheme whereby you and one other worker ‘share’ a job over the course of the year. Each person in a job-sharing programme works for six months (or more) of the year. One person stays on unemployment insurance, while the other works.

The person who is ‘off work’ for up to six months must still make themselves available to cover any sick days or vacation times of the person who is ‘on work’ for six months. Not only that, but when the ‘off work’ person is called in, not only do they receive their normal unemployment benefits for those days, they also receive the regular hourly wage from the company for those days worked. “Yes, I’d be happy to come in and cover Sven’s shift for him.”

It is unknown in Sweden that a company is short-staffed and thus, cannot handle the workload. Orders are taken, projects are completed on-time/on-budget, companies prosper, and everyone benefits.

Everything in Swedish society functions with degrees of redundancy, not just employment. It’s part of the recipe for success.

Anyone who has visited or worked in Sweden, wants to live or retire there. It’s just that good.

How to make lower oil prices work for the environment

How to make lower oil prices work for the environment | 01/12/14
by John Brian Shannon John Brian Shannon

Oil prices crashing in 2014. Image courtesy of Newstalk770.com

Oil prices crash in 2014. Image courtesy of Newstalk770.com

As oil prices continue their dramatic slide, the U.S. and Europe could use a bit of progressive energy policy to put some political pressure on North Korea, Iran and Russia, while adding some momentum to the adoption of renewable energy.

All that the U.S., Canada and Europe needs to do to punish North Korea, Iran and Russia over recent political disagreements would be to ratify a unified carbon tax of (for example) $20.00 per tonne of CO2 emitted — which rate is about half of the externality cost of CO2 emissions.

A carbon tax would cost the worst polluters like coal (heavily) medium polluters like oil (somewhat) and natural gas the lowest fossil polluter (much less)

Especially over the long term this kind of taxation would depress oil demand and make other energy somewhat more attractive by comparison, thereby lowering coal and oil production and profits for Iran and Russia.

I’m certainly not proposing a level of subsidies equal to that enjoyed by the fossil fuel industry which will top $600 billion dollars globally for 2014

I’m merely proposing that the (tiny, $20/tonne) carbon tax revenue be used to fund renewable energy projects where they make economic sense, for (reactive) carbon damage mitigation and proactive energy efficiency programs.

In the grand scheme of things, the additional cost of approximately $1.00 per barrel to the price of oil via a ($20 per tonne of CO2) carbon tax is inconsequential when the per barrel price has fallen by $40.00 per barrel in the past 12 months.

Crude oil price from Dec 5 2013, through Dec 5, 2014

Crude oil price from Dec 5 2013 — Dec 5, 2014. Image courtesy of www.infomine.com

The cost of a $20 per tonne of CO2 carbon tax at the gas pump?

The price of fuel at the pumps would increase by approximately $.03 per US gallon. The accumulated carbon tax revenue stream could be used to fund ongoing zero-carbon energy solutions and energy efficiency programs.

By slightly increasing the cost of fossil fuels via carbon taxation as the per barrel cost of oil continues to fall, natural gas with it’s lower carbon footprint would surge, renewable energy adoption would increase, and the West would show real progress and concomitantly lead the world towards a cleaner environment.

To summarize:

By initiating a small $20.00/tonne carbon tax we would reap the following benefits:

  1. Lower oil revenues for Iran and Russia/increased energy costs for North Korea.
  2. Relative to oil and coal, an increased demand for (the infinitely cleaner) natural gas.
  3. Gives both non-polluting renewable energy and energy efficiency a mild subsidy boost.
  4. Cleaner air and year-on-year lowered health care costs.
  5. Lowered acid rain damage to concrete infrastructure — ‘concrete spalling’ and a lower level of agricultural crops damage.
  6. Preserve rising domestic electric vehicle and hybrid/electric vehicle sales and the related jobs.
  7. Adds plenty of energy jobs to the economy via ongoing year-on-year (carbon tax funded) renewable energy manufacturing and installations.

And I get that Russia and Iran would eventually ramp-up their natural gas production to counter the lower oil price. But it would be very inconvenient for their economy over the next 24 months.

We all breathe the same air, and reducing our high-carbon-fuel use benefits us all (natural gas, instead of oil — renewables, instead of coal) no matter where it is being burned on the planet.

When we use energy policy as a judicious diplomatic lever, that too, can be a benefit.

Related Articles: