A man will be imprisoned in a room with a door that’s unlocked and opens inwards – as long as it does not occur to him to pull rather than push.
In a poor city a large number of neighborhoods were littered with garbage. Rats spread diseases. The water was contaminated. Kids played among trash and got sick. The local government didn’t have the money to fix the problem. One of the few scarce resources that the local government had was an unused municipal bus system.
How could buses help to deal with the horrible trash problem? The city mayor had an idea. Large bins were placed along the streets near places with piles of garbage, and people who lived nearby were shown how to sort trash. Those who collected and sorted the trash were given tokens to ride buses.
Thousands of kids started collecting the trash and teaching their parents how to do it. In no time people started riding buses using tokens. Often they went downtown to find jobs. Pretty soon local food vendors started using tokens as a form of payment. The neighborhoods became clean. This radiated into the other social sectors: creating green areas and providing housing, as an example.
This happened almost 25 years ago and the city is Curitiba – the capital of the south-eastern state in Brazil, which now tops some of the best quality-of-life charts in the world.[i]
By this chapter in the book, we hope it has become clear how our financial system created the credit crisis of 2007-2008 and the ensuing Great Recession.
The sad part is that it is being rebuilt – or more accurately, patched up – with the same set of tools and by the same people who have failed to place value on social and environmental risks. The same people who benefited from the complexity of financial markets steered them away from socially useful purposes.
In many respects, we find ourselves lost and paralyzed, not knowing where to start and what to do – possibly much like the people of Curitiba.
Change can come from three different directions:
- It can be imposed by the government and regulators if there’s enough of a public outcry,
- It can come from insiders changing the way they operate, or
- It can come from new ways of doing business and rebuilding the financial system from the bottom up.
In the case of Curitiba, both the local government and the people of the city were willing to change, maybe because they had no other options. Similarly we can do it by recognizing collective human potential, our own potential, and ingenuity. That will give us courage to imagine alternatives and build a different financial system from the bottom up.
Join a group or a community-based organization that matters to you, or start one if none exists. Make waves and become part of the Occupy Wall Street movement in your community.
There has never been a better time to learn more about the banking system, finance, and regulations. The same economic catastrophe that has overwhelmed many of the world’s economies has called forth an extraordinary outpouring of analyses and commentaries. This truly is a Golden Age of writing about finance, from many different perspectives. Here are just a few suggestions:
Beyond Outrage by Robert Reich
13 Bankers by Simon Johnson
Debt: The First 5,000 Years by David Graeber
The Bankers’ New Clothes by Anat Admati and Marin Hellwig
The Debt Resistors’ Operations Manual by Strike Debt/Occupy Wall Street
Bull By The Horns by Sheila Bair
Bailout by Neil Barofsky
The 23 Things They Don’t Tell You About Capitalism by Ha-Joon Chang
Econned by Yves Smith
Film and Video:
Moyers & Company with Bill Moyers
Inside Job by Charles Ferguson
Money, Power and Wall Street – Frontline/PBS
“Let’s Consider Kate” by John Lanchester, The London Review of Books
“The Quiet Coup” by Simon Johnson, The Atlantic Monthly
“We recognize that everyone deserves adequate housing, meaningful work, short hours, fair wages, access to health care and a truly liberating education. We can’t fulfill these obligations if we continue to cooperate with the system as it currently exists. Why keep paying our money to the Wall Street mob? We know our resources could be better spent.”
Source: The Debt Resistors’ Operations Manual[ii]
Another very useful source is online courses. If you don’t have access to the Internet, go to your local public library and use its computers to watch tutorials about the financial system on sites like KhanAcademy.org, Coursera.org, and OpenYale.com.
Move Your Money Project
The “Move Your Money” campaign is a decentralized project to convince people to move their banking accounts from too-big-to-fail banks to smaller community banks and credit unions. The “Move Your Money” project was partly a result of people’s dissatisfaction when Bank of America announced plans to increase its fees. Within 90 days, 5.6 million adult Americans changed banks.
The Independent Community Bankers of America association said that a poll of its 5,000 members indicated that about 60 percent of community banks are gaining customers who no longer trust the big financial institutions. [iii] You can find more information and a list of small community banks on the projects’ site (http://www.icba.org).
Credit unions are an alternative for many people, although they each have a charter which restricts who is allowed to be a member. An exception to that rule, which allows anyone to open an account after joining a group with a free membership, is the NASA Federal Credit Union.
You can think of credit unions as a parallel financial industry. They are depository not-for-profit institutions created to serve their members’ financial needs. They are accountable to all of their members, not to a limited number of owners.
Credit unions offer many of the same services as banks: mortgages, car loans, personal loans, small dollar loans, credit cards, savings and checking accounts, international money transfers, retirement planning, and budgeting. Accounts at both banks and credit unions are insured up to $250,000 (by the FDIC for banks, and by the NCUA for credit unions). However, there are very important differences. Credit unions generally have missions to serve their local communities. This means that the money deposited by members often (but not always) stays local.
Credit unions are governed democratically; each member has one vote, regardless of the size of the member’s deposits. There is a member-elected board of directors who are volunteer-based.
There are over 70 credit unions in New York City alone and 8,000 nationwide, and the industry has been around for more than 100 years. Many provide their members with access to extensive surcharge-free ATM networks. Community Development Credit Unions (CDCU) have a specific mission to serve low-income communities. CDCU have the ability to fund-raise, offer affordable terms with low minimum balances, promote financial literacy, and provide financial counseling. Find more information by contacting The National Federation of Community Development Credit Unions.
Social (Peer-to-Peer) Lending
We want people to be informed about another kind of parallel financial industry as well. It is called peer-to-peer lending. This is an industry that brings together individual savers and lenders on online platforms. Social lending bypasses banks and credit card companies and claims to deliver better interest rates directly to both borrowers and savers. There are a lot of options, but the sites listed below have been in the social lending space for a while and seem to have found a working business model.
- Lending Club
- Lending Tree
- Zopa (UK)
Note that some sites act as a contract administrator, only creating loan documents for you to use with people you already know. With those sites, the idea is to create a legally binding contract that helps preserve friendships and families by letting everyone know where they stand upfront.
A couple of words of caution are due. First, while peer-to-peer lending might be a great option for some people, the current approach can be seen as a way to get around regulations, in particular the FTC’s Equal Credit Opportunity Law,[iv] by using models that judge people’s credit risk by their browsing history or their social network.[v] This is problematic and can be seen as yet another example of regulators not keeping up with so-called financial innovation.
Having said that, peer-to-peer lending is filling a vacuum left behind by the banks, at least for now.
Rotating Savings and Credit Association
A Rotating Savings and Credit Association or ROSCA is a group of individuals who agree to meet for a defined period of time in order to save and borrow together. “ROSCAs are the poor man’s bank, where money is not idle for long but changes hands rapidly, satisfying both consumption and production needs.”[vi]
ROSCAs are essentially a group of individuals who come together and make regular cyclical contributions to a common fund, which is then given as a lump sum to one member in each cycle. A member will lend money to other members through her regular monthly contributions. After having received the lump sum amount when it is her turn to borrow from the group, she then pays back the amount in regular and further monthly contributions. This explains the name for such groups: rotating savings and credit associations. Depending on the cycle in which a member receives his lump sum, members alternate between being lenders and borrowers.
Of course, any system like this can be set up and can work well in good times. It’s the question of what happens during financial crises or other hard times that tests such a system.
The common assumption has been that we all benefit from the free market operations of big banks. But as it has been pointed out multiple times throughout this book, the current system is no longer able to address many of our financial and social problems. One idea that might help is to familiarize ourselves with ideas that worked in the past and came from public banking.
After the First World War there was a drastic tightening of credit in the US. In the Midwest, farmers were having a tough time. In response to the plight of its citizens, the state of North Dakota formed a public bank in 1919. All state funds – state tax collections and fees and the funds of state institutions – are deposited with the Bank of North Dakota.
It has successfully been in business for almost 100 years and has generated more than $300 million dollars in revenue in the last 10 years.[vii] That’s about $1,200 per family in North Dakota. Moreover, it has been wildly supported by all political parties, which in itself is a rare occurrence in our political climate [viii].
Other great examples of state banking are:
- One PacificCoast Bank
- Bremer Bank
Since 2010, twenty states have considered or are considering legislation to form a state bank. In Colorado, people put forward a citizen’s initiative to do the same thing. For more information on these and other state initiatives see the Public Banking Institute[ix] It is a great source for citizens to learn and enact ideas about public banking not only at the state level but also in cities and towns. San Francisco and Portland are on the front lines of changing status quo. Here are some more references for specific cities:
1. Portland: see Rich Goward and Jennifer Yocom, “Draft for Public Discussion—Responsible Banking,” Office of the Mayor of Portland.[x]
2. San Francisco: see Jonathan Nathan, “Supervisors Hear from San Franciscans About City Finance Options.” [xi]
3. Kansas City, MO: Communities Creating Opportunity, “City Council Passes CCO- Supported Responsible Banking Resolution” [xii]
To see more examples go to www.community-wealth.org.
There are more examples of this quiet change happening in our neighborhoods, but they go mostly under the radar of the mass media. We should look around and find people like ourselves who are dissatisfied with the status quo and are willing to roll up their sleeves and work hard to change it. Their ideas and their implementation of them are diverse and varied from community to community.
There is no universal answer to this question, of course, so we should try to find out which approach will work in our respective communities. For that matter, one vital attribute of a working system is to have many different functional banking institutions; we’ve seen what happens when the financial system is monopolized by one type of thinking and structure. Namely, it becomes unstable.
…yes, it may take longer than we might hope for the point to sink in nationally, but the buildup of experience, state by state, community by community—as in the prehistory of the New Deal—is also ultimately likely to help put a truly refined model in place nationally
Consumer and Business Tech Applications
Internationally, there are surprisingly flexible and widespread solutions to money systems, especially in Africa where the infrastructure for what we consider normal banking is especially weak. Mobile banking, in particular, is essentially universal: people can exchange units of currency freely by phone, which is how they pay for things and how they get paid. Considering how developed a system it is some countries, it’s surprising indeed that no such system has been introduced in the United States.
Here are some specific companies that are trying to break into or create such a market:
- Mobino: believes that each citizen of the world should be able to effortlessly send and receive money with their phone, no matter where they live, which telephone company they use, and whether they have a bank account, a credit card, or just cash in their pocket, no matter how much they earn and what they buy.
- Square: makes a small credit card reader that plugs in to the headphone jack of an iPhone and lets any user take credit card payments via an app. It has allowed thousands of merchants, from taxi drivers to businesses big and small, to take card payments where previously it was impossible because of high charges and embedded vested interests.
- WePay: allows businesses and merchants to accept credit cards, similar to Square.
More than 130 million US citizens are involved in one or another form of co-ops, which is an institution where each person has equal voting rights, e.g. in one-person one-vote organizations.
We have previously described one form of this type of institution in credit unions, for example. The main idea is to democratize the means of ownership. However, when it comes to implementation, each group of individuals decides specifically what approach will work for them.
There are 10,000 worker-owned companies operating in the US and 4,000-5,000 neighborhood owned corporations[xiv]. They are present in multiple sectors of the economy: agriculture (land trusts), utilities (electrical co-ops which are more common in rural areas), retail co-ops (ACE and REI), health care, arts and culture, and many more.
Worker-owned companies are not the only forms of democratized ownership developing without broad recognition by the mass media in the United States. Indeed, there are many strategies the media simply doesn’t cover. Moreover, as the social and economic pain of the new era we have entered intensifies, most worker coops are developing in numbers, scale, sophistication, and reach.
Like other democratized forms of ownership, today’s land trusts are also the benefactors of early experiments that planted innovative seeds—the heart of any long-term evolutionary reconstruction process.
Some of the first serious modern efforts, for instance, were begun in the 1960s and 1970s in western Massachusetts by Robert Swann and in southwest Georgia by Charles and Shirley Sherrod. All three were deeply involved in the civil rights movement and saw cooperative land ownership both as an answer to systemic problems and, in the case of the Sherrods, as a way to help poor black farmers forced off the land by mechanization and political retaliation for their civil rights activities.
At the time the early trusts were conventionally seen as interesting utopian experiments signifying hard work and idealism, but essentially not going anywhere serious. However, hundreds of such efforts now exist, and new land trusts are being established on an expanding, ongoing basis in diverse contexts and cities.
There are also thousands of “social enterprises” that use democratized ownership to make money and use both the money and the enterprise itself to achieve a broader social purpose. One of the most impressive is Pioneer Human Services (PHS) in Seattle, Washington, an organization that provides employment, job training, counseling, education, and housing to recovered alcoholics and drug addicts.
PHS was established some fifty years ago as a nonprofit corporation dependent upon donations and grants. Its $67 million annual budget is now in significant part funded by revenues from businesses it created as part of its overall strategy. Among other things, PHS runs a full-service precision sheet metal fabrication and machining shop, produces thousands of aerospace parts for Boeing, and, through its catering services, prepares and distributes more than fifteen hundred meals a day to hospitals, care centers, and nonprofit and government facilities. PHS’s social enterprises employ nearly a thousand theoretically impaired and unemployable people.
At the other end of the continent, Greyston Bakery in Yonkers, New York, was founded by a Buddhist teacher to employ his students, but the organization’s mission quickly expanded to provide jobs for neighboring inner-city residents [xv].
Another direction in social enterprise development is illustrated by Southwest Key Programs in the heavily Latino East Austin section of Austin, Texas. Presently the fourth largest Hispanic nonprofit organization in the country, Southwest Key Programs has an annual budget of over $74 million and a staff of more than thirteen hundred employees. Following a path similar to that of Pioneer Human Services, it decided to expand into business development both to support its projects and to offer work to trainees. Start-ups include Café del Sol and Southwest Key Maintenance & Janitorial [xvi].
By far the most common social enterprise is the traditional community development corporation (CDC). Nearly five thousand CDCs have been in operation in almost every US city of significant size for a long time. For the most part, CDCs have served as low-income housing developers and incubators for small businesses. Early on in the fifty-year history of the movement, however, a different, larger vision was in play—one that is still present in some of the more advanced CDC efforts, and one that suggests additional possibilities for the future.
New Community Corporation (NCC) in Newark, New Jersey, is a large-scale neighborhood nonprofit that employs roughly thirteen hundred neighborhood residents, manages two thousand housing units, has $500 million in assets, and has an approximately $200 million operating budget. Though modest in the total picture, proceeds from NCC businesses—including a shopping center anchored by a major supermarket—help support day care and after-school programs, a nursing home, and four medical day care centers for seniors. NCC also runs the School of Practical Nursing and Gateway to Work programs, both designed to train young residents for future careers. [xvii]
The list can go on and on. Innovative things are happening and there is time for us to start challenging the status quo by asking what is the right thing for each of us to pursue and for our families and communities to do. We can decide what can be done on the practical level and not simply engage in rhetoric!
 Alicia Fazzano and Dr. Marc Weiss, “Curitiba, Brazil—Economic Strategy Report”,Global Urban Development Organization, July 2004.
[vi] F.J.A. Bouman, “Indigenous Savings and Credit Societies in the Developing World” in von Pischke, Adams and Donald (Eds.) Rural Financial Markets in the Developing World, World Bank, 1983.
[xi]www.beyondchron.org/articles/Supervisors_Hear_From_San_Franciscans_About_City_Finance_Options_9884.html) or Luke Thomas, “Supervisor Avalos Declares Re-Election Bid,” Fog City Journal (www.fogcityjournal.com/wordpress/3494/supervisor-avalos-declares-re-election-bid)
[xiii] Gar Alperovitz, What Then Must We Do, (White River Junction, VT: Chelsea Green Publishing, 2013).
[xv] John Golden, “The Zen of Brownies”, Westchester County Business Journal, May 11, 2009.
[xvii] New Community Corporation (www.newcommunity.org/about)