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I'm saying that they have the potential to.

Where is the capital to start a small local unit going to come from? Either you are a wholly-owned subsidiary of a larger corporation, or you need to get credit from a bank.

Or we can change the system.

Can the last politician to go out the revolving door please turn the lights off?

by Carrie (migeru at eurotrib dot com) on Sun Jul 15th, 2007 at 04:17:41 AM EST
[ Parent ]
Retail banking may be a profitable activity, but it's not profitable for the bankers involved. The only way bankers become "masters of the universe" is when banks get fees on multibillion euro deals and the investment bankers that do these deals claim fractions of that income for having "originated", "structured" and "closed" the deal. Without that important factoid that investment banking income in big, discrete, relatively rare amounts and not from lots of small transactions, you don't get the whole phenomenon of income capture, income concentration and all the instruments built on top of it.

Retail banking may not be seen as a very nice industry, but it's not the one creating the Anglo Disease.

And landing to relatively small organic farming activities will be retail, almost by definition - given how important local conditions are meant to be.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Jul 15th, 2007 at 04:33:33 AM EST
[ Parent ]
Are you saying the banks don't profit from the interest of their small loans?

Can the last politician to go out the revolving door please turn the lights off?
by Carrie (migeru at eurotrib dot com) on Sun Jul 15th, 2007 at 04:37:17 AM EST
[ Parent ]
but not investment bankers.

What makes investment banking so unusual as an industry is that it is the "workers" (i.e. the investment bankers above a certain pay grade/ in certain jobs) that capture most of the income. A very small number of people get a massive benefit from a system whereby other companies are rules for financial profit and engage in large financial transactions (mergers and acquisitions, structured financing, securitization of future cahs flows, etc...) from which they can capture a big chunk of the income generated/captured.

This is the easiest way to get very rich very quickly (the other way is to be a high level manager of a big company, essentially the mirror image of the other - in effect the two sides collude to capture money from the company's future via financial engineering). And this is what drives the financiarisation of business - massive personal interest.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Jul 15th, 2007 at 05:20:43 AM EST
[ Parent ]
Banks do but not investment bankers

Yes, I figured that's what you meant.

Now, will these retail banks be retail operations themselves, or will the profit generated by the bank be captured by the high-level managers of big banks?

Can the last politician to go out the revolving door please turn the lights off?

by Carrie (migeru at eurotrib dot com) on Sun Jul 15th, 2007 at 05:25:20 AM EST
[ Parent ]
but if it's the only industry where that happens, it's a lot easier to deal with. Banking is a heavily regulated industry, as it should, and the example of the 30s (the Glass-Seagall Act) shows that you can limit the worst excesses.

The thing is to limit the influence of investment banking on other industries, and one way to do that is maybe to take a harder look at mergers and acquisitions.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Jul 15th, 2007 at 05:43:18 AM EST
[ Parent ]
Where is the capital to start a small local unit going to come from?

Credit unions are an interesting alternative.

I can imagine a kind of social banking where loans are made by a local unit to individuals, and the ties they create as much personal as social.

Defaulting on a bank loan is much less traumatic when the bank is faceless and distant. When people know the other people they owe money to and everyone is in the same community, they're - usually - that much more likely to want to arrange pay back.

You could argue that the roots of the Anglo disease is a cult of impersonality and pseudo-objectivity. When economists, politicians, CEOs and bankers are personally isolated from the consequences of their actions, they have no incentive to consider social relationsships.

This kind of levitation would be much harder if pay-back was personal.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Jul 15th, 2007 at 05:33:17 AM EST
[ Parent ]
Credit Unions are a very poor alternative, because they are merely deposit taking and lending institutions moving around PRE EXISTING wealth or "money's worth".

Banks create new credit=Money on the back of their capital base, and it is this supply of "new" value (actually it's deficit-based "anti-value") that serves as the lifeblood of our economy and provides the building blocks of new businesses.

And for the reasons you give, people are not too bothered about defaulting - and that is without even understanding (not one person in 10,000 understands) the reality of deficit-based "fractional reserve" banking. If they truly understood that, people would be trashing the banks wholesale.

The real alternative is for the members of credit unions and local businesses to get together within a local (or functional) "Guarantee Society" legal protocol and to mutually guarantee bilateral credit granted "peer to peer" between Members. This would take place between people who know each other or have some sort of "common bond" (which is of course a requirement for credit unions)

No interest is charged within this GS model, but costs and defaults are shared through making provisions into a "Default Fund". The result is "banking without the bank" ie no credit intermediary but a requirement for either a bank,credit union, ratings agency, whatever, as a service-provider.

Great for a Bank, by the way: they no longer have to put capital at risk since they no longer create the credit but instead manage credit creation, system integrity and operation.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jul 15th, 2007 at 07:01:38 AM EST
[ Parent ]
You can find CUs operating in the manner you outline in so far as they can under the banking regulations.  A CU must charge "Interest" on loans or be shut down.  A CU must pay "Interest" on deposits or be shut down.  How a Credit Union goes about charging and paying "Interest" depends on the political, economic, and social stances of the Board of Directors and the sneakiness of their legal team.  ;-)

Of course, when I was the President of a Credit Union we strictly followed the banking regulations and the rules and restrictions of Proper Banking Practice.

8-9

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Jul 16th, 2007 at 11:49:59 AM EST
[ Parent ]
My CU in Colorado charged interest on loans, but paid "dividends" on savings.  We were legally considered "members" instead of depositors.

Our knowledge has surpassed our wisdom. -Charu Saxena.
by metavision on Mon Jul 16th, 2007 at 02:39:50 PM EST
[ Parent ]
That is necessary legal verbage for a CU.  

Legally when you put money into your account you were buying "shares" in the CU and you wrote a "share-draft" instead of a check.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Jul 17th, 2007 at 12:48:14 AM EST
[ Parent ]
To bring us full circle to the top of the thread, how about farming franchises?
In exchange for your investment and part of profits, you get help buying land, training, and a silly paper hat.
(Other people than I that don't just come here for the jokes could probably expand on that idea. More likely they will point us to a website that shows it's already being done, and done better.)

(If farmers could have actual holidays, I think it could be a lot more popular. But no, those spoiled cows want to be milked, like every day.)

(Here's another one: you invest in your local farm, in exchange for 5% off produce. Farmers get capital, and a guaranteed market. And you could help out plant the emus or whatever.)

by Number 6 on Mon Jul 16th, 2007 at 10:51:41 AM EST
[ Parent ]
... you invest in your local farm, in exchange for 5% off produce. Farmers get capital, and a guaranteed market.

There is already a small movement among the alternative ag people doing exactly this.  The idea is to give the farmer a larger percentage of the consumer price while the consumer gets a 10-15% break.  And it works if the farm is close enough to a large enough population so the numbers all work out.  

The sad fact seems to be the vast majority of consumers are perfectly happy eating rubbery vegetables and fatty meats.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Jul 16th, 2007 at 11:40:55 AM EST
[ Parent ]
Now I wouldn't do exactly what these guys are doing up here in Scotland

Cow Shares

but they're on the right lines...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jul 16th, 2007 at 12:01:00 PM EST
[ Parent ]
This is neat [emphasis added]:

The idea originated in the celebrated case of Deli Dollars in Great Barrington, Massachusetts. When a local delicatessen owner was refused a bank loan to finance an extension, he turned to his clientele. He issued "deli dollars" - refundable over the course of the following year - to the value of $5,000. In this way, his customers pre-financed the extension. In return, he was guaranteed $5,000 worth of custom and his delicatessen grew even more in the affection and esteem of its local community. What is more, the deli dollars started doing the rounds as an alternative currency, even turning up in the collection plate of a local cleric who was known to have a taste for the deli's pizzas.

I really like the idea of asset-backed currencies.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Jul 17th, 2007 at 12:37:02 AM EST
[ Parent ]
Now that's neat!

I'd prefer interest paid in cheese if that's OK.

by Number 6 on Tue Jul 17th, 2007 at 08:20:21 AM EST
[ Parent ]
The sad fact seems to be the vast majority of consumers are perfectly happy eating rubbery vegetables and fatty meats.

"People are stupider than anybody."
-Tom Lehrer, Interview in The Onion AV Club.

by Number 6 on Tue Jul 17th, 2007 at 08:17:47 AM EST
[ Parent ]

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