The Growing Case for Local Banks
I read with interest an article in my local newspaper, The Denver Post, last Sunday, November 15, 2009, Too Big To Succeed? which was about how big banks are "too big to succeed" to help local businesses, and how we need to "revive the nation's broken community banking system." This was written by Henry Dubroff and John Huggins, who should both know the local business environment in Denver extremely well. Dubroff was formerly business editor of The Denver Post and the Denver Business Journal; he's currently editor at the Pacific Coast Business Times. Huggins is an entrepreneur and investor who twice served as economic development director for the city and county of Denver.
What was of interest to me is how their call for local, community oriented banking coincides exactly with similar recommendations I reading about several years ago (2006, 2007) in the works of David Korten and Michael Shuman. Both these authors have been decrying the disastrous effects of global capitalism on local economies for years, and I was thankful to them as my first discovery of authors who were able to validate and give shape to the vague but nagging feeling of dismay I'd had about the direction of local, and international, economic development for some time. At times, this led to bouts of profound emotional nausea, since there seemed no chance of escape from these global financial forces that were slowly but surely grinding the life and joy out local communities the world over by making them ever more dependent on multinational banks and chain stores.
So it was with no small amount of enjoyment to read how Dubroff and Huggins were bluntly stating that the "big banks" (national banks and financial institutions like Chase, Wells Fargo, CIT and the like) are simply ignoring the financing needs of small to medium sized companies at the local level. Because of their own misguided greed for short term profit and obscene executive paychecks, their failed balance sheets have sucked up the trillions of taxpayer bailouts with little or none of it passing through them to serve as loans to local banks, much less local companies -- all without the least evidence of shame or contrition on their part.
But what to do? Rather than try to change these behemouths, it seems more sensible, say Dubroff and Huggins, to start over with new local banks that do listen and respond to the needs of local businesses; in other words, "to bring back community-savings intstitutions that would harken back to the 'building and loan' of the past-World War II era." They then go on to briefly describe how this smaller, more locally-oriented banks would work, and their advantages over larger banks. However, their description any detail on how such a transition might get started was disappointing. The only quote from Dr. Sung Won Sohn, former chief economist at Wells Fargo, stated "...he thinks it would be essential for any new community banks to have 'enough products and economies of scale' to attractive to investors."
Huh? Why these authors chose to use a quote from a high level employee of one the very institutions that helped cause our current mess is confusing, to say the least; and Dr. Sohn's statement insinuates that such local banks would end up beholden to some vague, larger investment source...perhaps the very same larger banks we would like to rid ourselves of?
A clearer statement of how to the slavish relationship to larger banks is not hard to find. (In fact, I suspect this story has been told many times, ever since big banks have been oppressing communities.):
To explain TINA and LOIS: TINA means 'There Is No Alternative' and LOIS means 'Local Ownership and Import Substitution'. Both terms...
An even more powerful case for why local banks are needed comes from David Korten, who has a 12 point litany of urgent supplications of what to do here:
1. Redirect the focus of economic policy from growing phantom wealth to growing real wealth
2. Recover Wall Street's unearned profits, and assess fees and fines to make Wall Street theft and gambling unprofitable.
3. Implement full-cost market pricing.
4. Reclaim the corporate charter.
5. Restores national economic sovereignty.
6. Rebuild communities with a goal of achieving local self-reliance in meeting basic needs.
7. Implement policies that create a strong bias in favor of human-scale businesses owned by local stakeholders.
8. Facilitate and fund stakeholder buyouts to democratize ownership.
9. Use tax and income policies to favor the equitable distribution of wealth and income.
10. Revise intellectual property rules to facilitate the free sharing of information and technology.
11. Restructure financial services to serve Main Street.
12. Transfer to the federal governement the responsibility for issuing money.
(Korten, 2009, 122)
References
Korten, David C., Agenda for a New Economy: From Phantom Wealth to Real Wealth, Berrett-Koehler Publishers, 2009.
Shuman, Michael H., The Small-Mart Revolution: How Local Businesses are Beating the Global Competition, Berrett-Koehler Publishers, 2006.
What was of interest to me is how their call for local, community oriented banking coincides exactly with similar recommendations I reading about several years ago (2006, 2007) in the works of David Korten and Michael Shuman. Both these authors have been decrying the disastrous effects of global capitalism on local economies for years, and I was thankful to them as my first discovery of authors who were able to validate and give shape to the vague but nagging feeling of dismay I'd had about the direction of local, and international, economic development for some time. At times, this led to bouts of profound emotional nausea, since there seemed no chance of escape from these global financial forces that were slowly but surely grinding the life and joy out local communities the world over by making them ever more dependent on multinational banks and chain stores.
So it was with no small amount of enjoyment to read how Dubroff and Huggins were bluntly stating that the "big banks" (national banks and financial institutions like Chase, Wells Fargo, CIT and the like) are simply ignoring the financing needs of small to medium sized companies at the local level. Because of their own misguided greed for short term profit and obscene executive paychecks, their failed balance sheets have sucked up the trillions of taxpayer bailouts with little or none of it passing through them to serve as loans to local banks, much less local companies -- all without the least evidence of shame or contrition on their part.
But what to do? Rather than try to change these behemouths, it seems more sensible, say Dubroff and Huggins, to start over with new local banks that do listen and respond to the needs of local businesses; in other words, "to bring back community-savings intstitutions that would harken back to the 'building and loan' of the past-World War II era." They then go on to briefly describe how this smaller, more locally-oriented banks would work, and their advantages over larger banks. However, their description any detail on how such a transition might get started was disappointing. The only quote from Dr. Sung Won Sohn, former chief economist at Wells Fargo, stated "...he thinks it would be essential for any new community banks to have 'enough products and economies of scale' to attractive to investors."
Huh? Why these authors chose to use a quote from a high level employee of one the very institutions that helped cause our current mess is confusing, to say the least; and Dr. Sohn's statement insinuates that such local banks would end up beholden to some vague, larger investment source...perhaps the very same larger banks we would like to rid ourselves of?
A clearer statement of how to the slavish relationship to larger banks is not hard to find. (In fact, I suspect this story has been told many times, ever since big banks have been oppressing communities.):
Every existing business support program needs to be reviewed and recast in community-friendly terms. Here are some goals policymakers might keep in mind: Make publicly supported incubators and one-stop small business shops off-limits to TINA. [Explanation of TINA below.] Use public money for educating entrepreneurs, whether through adult-ed classes or full-blown MBA programs, to emphasize LOIS [Explanation of LOIS below.] entrepreneurs. Fund studies that focus on the needs of LOIS businesses -- on indicators, assets, leakages, entrepreneurship, finance, policy reform -- and take advantage of a whole new generation of economists eager to do this kind of research. (Shuman, 2006, 168)
To explain TINA and LOIS: TINA means 'There Is No Alternative' and LOIS means 'Local Ownership and Import Substitution'. Both terms...
An even more powerful case for why local banks are needed comes from David Korten, who has a 12 point litany of urgent supplications of what to do here:
1. Redirect the focus of economic policy from growing phantom wealth to growing real wealth
2. Recover Wall Street's unearned profits, and assess fees and fines to make Wall Street theft and gambling unprofitable.
3. Implement full-cost market pricing.
4. Reclaim the corporate charter.
5. Restores national economic sovereignty.
6. Rebuild communities with a goal of achieving local self-reliance in meeting basic needs.
7. Implement policies that create a strong bias in favor of human-scale businesses owned by local stakeholders.
8. Facilitate and fund stakeholder buyouts to democratize ownership.
9. Use tax and income policies to favor the equitable distribution of wealth and income.
10. Revise intellectual property rules to facilitate the free sharing of information and technology.
11. Restructure financial services to serve Main Street.
12. Transfer to the federal governement the responsibility for issuing money.
(Korten, 2009, 122)
References
Korten, David C., Agenda for a New Economy: From Phantom Wealth to Real Wealth, Berrett-Koehler Publishers, 2009.
Shuman, Michael H., The Small-Mart Revolution: How Local Businesses are Beating the Global Competition, Berrett-Koehler Publishers, 2006.
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