Too resilient to fail

The current financial crisis has exposed how little control communities have over their local economies. It’s up to us to change that.

As informed consumers, we recognize that spending at locally owned, independent businesses generates 3.7 times more direct local economic benefit than spending at chains.

We’re learning about ways to invest our savings in local banks and credit unions like as Self Help/Carolina Mountains Credit Union. And last week, we read about investing money in Community Development Financial Institutions” like Mountain BizWorks.

Now: Think about all the money that continues to leave Western North Carolina through interest charges on credit-card debt, personal and student loans, and mortgages that originate with or get sold to too-big-to-fail (TBTF) banks. The top five U.S. banks’ share of total deposits has more than doubled since 2000; they have acquired 40 percent of the country’s deposits. These banks control more funds than the next largest 45 banks combined. What’s more, between 2007-2010, the top five banks reduced their small-business lending by 53 percent. As a result, small and mid-sized banks now account for more than half of all small-business lending, even though they control less than one-quarter of all bank assets.

The economic power of Wall Street has enslaved the middle class. We now pay obscene amounts in interest payments to private bankers in exchange for the necessities of life and a lifestyle package sold to us by corporate America. Forbes Magazine reported that, in 2012, the 400 richest Americans were worth on average $4.2 billion — each having grown, on average, $400 million richer than they were the year before. Wall Street uses two pillars of the American Dream — getting an education and buying a house — to beat the middle class into servitude while advancing its own interests.

Adding insult to our individual plight, the nation’s cities, counties and states collectively deposit trillions of dollars in tax revenue into the same Wall Street banks. Instead of extending credit back to our communities, TBTF banks use these funds to invest in the stock market, commodity trading, international currency speculation, leveraged buyouts and investments in multinational mega-corporations that compete with our locally based companies. To put it bluntly, while our municipal leaders struggle to manage their budget shortfalls, they act like political lackeys helping TBTF banks and private interests grow rich using local public money.

But there is good news.  Since 2010, thanks to the Occupy Movement, in conjunction with the Move Your Money effort, Americans closed more than 10 million accounts at the nation’s largest banks and moved their money to credit unions. As a result, these small local banks’ collective assets reached a historic high in 2012, surpassing $1 trillion.

But there’s more to do: Our next task is to convince local governments to take their funds out of Wall Street and move them to local banking institutions.

One strategy to keep more funds locally is to create a state bank. Imagine if, rather than diverting public money (tax revenues and rainy-day funds) into speculative instruments and private foreign industries that compete with domestic companies, these local funds were leveraged in the public interest to create jobs and stimulate local economies.

There is already a working model for this. Since 1919, the Bank of North Dakota has returned its profits back to the state. Over the last decade, profits from the Bank of North Dakota augmented the state’s general fund by more than $300 million. This bank is essentially a banker’s bank and does not compete with locally owned banks. Instead, it adds to the amount of money local banks have to lend. In this way, the Bank of North Dakota did more than weather the economic crisis: Between 2007-2009, it increased its loans to local banks by 35 percent.

Twenty state legislatures, including North Carolina’s, are considering bills either to form state-owned banks or to do feasibility studies to determine the potential.

A handful of states have asked the Center for State Innovation to research the viability of forming state banks. CSI’s report for the state of Washington concluded that “with a capitalization of $100 million … within five years a Washington state bank will have returned more than $8 million to the state, in 10 years more than $71 million, and in 20 years more than $206 million” — in addition to creating or retaining more than 8,000 jobs within small local businesses through it’s lending. For Oregon, CSI predicted that a state bank would help its community banks expand lending by $1.3 billion and lead to 5,391 new small-business jobs in the first 3-5 years. And it could be done while turning a profit.

If North Carolina isn’t ready for a state bank, let’s take up the idea of a publicly owned bank at the county level. Clearly, we clearly need a pool of dollars working for our community, and we, the people, have the tools to do it if we take our responsibility seriously as citizens and community members, rather than seeing ourselves only as consumers.

— Hip Relacements owner Franzi Charen is the founder of the Asheville Grown Business Alliance.