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A Plan for Newark NJ to Lead the Country Out of our Money and Banking Mess
By Martin Carbone (about the author)
Become a Fan (1 fan) -- Page 2 of 3 page(s)
The Community Banking Plan -- How to solve our
Home Mortgage, Money and Banking problems
This plan provides for the establishment of 4,000 Community banks across the U.S.A. -- one in each community-area of about 75,000 people. Each Bank will sign a contract with the State where it is located for a State Charter that will spell out, in detail, what that Bank will be doing. For the most part, at the beginning of this program all Banks will focus on placing 4% / 30-year mortgages on single-family, owner-occupied homes wherein the owners have put down 20% of the purchase price as a down payment and have sufficient verified income such that the mortgage payment will not exceed 25% of that verified income (President Obama thinks 31% is OK).
All levels of government will be involved in this plan in a very simple arrangement that will thereby serve to naturally provide the checks and balances that are inherent in the Constitution. Those checks and balances are missing from our existing banking system that is essentially run by the Federal Reserve System that is outside any of the branches of government established by the Constitution.
Participants in the new Money and Banking system and what they will do:
(a) Legislative Branch of the Federal Government: Will pass laws telling how the money and banking system will operate
(b) Executive Branch of the Federal Government: Will manage the money and banking system in accordance with laws passed by Congress.
(c) The Federal Reserve System: Will be put into the Executive Branch of the Federal Government and will work in concert with the Treasury Department of the Executive Branch and renamed "The United States Central Bank".
(d) The 50 States: Will, in contractual agreements with Local Governments, set the terms of the charters which will specify, for each bank, which specific duties the Community Banks will perform and the rules under which the banks will operate.
(e) Local Governments: Will manage the Community Banks with local-government employees who will work directly for the banks.
ASSUMPTIONS
1) Banks will be extremely narrow -- no deposits will be accepted. That will cut overhead to an absolute minimum.
2) There are 50 million owner-occupied homes in the country.
3) There are 300 million people in our country.
4) 20 million homes will be covered by these 4% mortgage loans.
5) There will be 4,000 banks -- one for every community-area of 75,000 people.
FOR EACH BANK
1) Loans will cover only owner-occupied homes.
2) At the beginning, owners must have a 20% down payment. Later, it might be possible to have charities lend the owners the down payment on a 4% second mortgage as long as the total mortgage payments will not exceed some maximum % of the homeowners income.
3) Mortgage payments must not exceed 25% of family income from all sources. It has been reported that President Obama thinks 31% is OK.
4) The average loan on each home will be between $100,000 and $300,000 -- depending on average local home prices. From here on, in this presentation -- to make the calculating easier, we will assume $100,000 loans.
5) Each Bank will issue and hold 5,000 mortgages. A total of $500 million / Bank.
GROSS BANK INCOME
1) GROSS INCOME PER LOAN -- For each Bank, there will be a Bank income of $4,000 / year on mortgage income per home.
2) GROSS TOTAL INCOME PER BANK -- Each bank's mortgage income will therefore be $20 million / year (5,000 mortgages -- each returning $4,000 / year).
BANK CAPITALIZATION
Assume $50 million capital for each bank. This can come from any source, preferably local people. Investors will be given a 6% return (dividend) on their investment. That will result in a dividend payout of $3 million / year. That will reduce bank profit to $17 million / year. If the $50 million can't be raised easily, the money can be advanced by the Central Bank and paid back at the rate of 6% / year.
BANK EXPENSE
1) Each Bank will operate with 4 employees.
2) Bank payroll will average $80,000 / year per employee. Maximum amount per employee -- $100,000. Minimum -- $60,000
3) Total payroll will be $320,000 / bank / year. (4 employees at an average of $80,000 each)
4) Insurance, overhead and taxes / employee will be 50% of payroll. That will add to $160,000 / bank / year in expenses.
5) Floor space will be 400 square feet / bank. This space can be in any existing government facility.
6) Rent, utilities and overhead will be less than $20.00 / per square foot / year or $8,000 / bank / year.
Total expenses / bank / year will be:
(a) Employees -- $320,000 (from #3) + $160,000 (from #4) or $480,000 total.
(b) Space -------- $8,000 / year ( from #6)
(c) Total ---------- $488,000 / year -- adding (a) & (b) -- round to $500,000
NET PROFIT / BANK / YEAR
(a) Gross Income -- $20 Million, minus expenses and dividends
(b) Expenses -- $1/2 Million
(c) Dividends -- $3 Million
(d) Total net profit -- $16.5 Million / bank / year.
NOTE: That is a 33% annual return on the invested capital of $50 Million.
DRAWBACK
There is one drawback to the plan. All of this money will come out of the pockets of the existing mortgage bankers. The bankers will probably object in all sorts of ways. But why should they be the only business-type protected from meaningful competition? Fair competition is the American way.
By the way, managing mortgage loans must be the cushiest, most profitable job in the world. Basically you lend out ten times the money you have as capital in the bank -- plus ten times the deposits you hold -- all at 6% interest (at least). That brings you in a gross income of at least 60% on the capital you have invested in the bank.
When managed in the interest of the general public, this fractional reserve banking system can do wonders. It has proven to be the best system ever devised to create new (temporary) money that can be used to create wealth to satisfy the needs of a country. The only problem has been that the system has never been managed with the general public in mind -- it has always been managed in accordance with the generally accepted default principle that corporations are operated for the benefit of the bank's stockholders.
The plan we are suggesting will basically return the net-profit on those loans to taxpayers by supplementing the income of local government. It is anticipated that at some future date, this program might be expanded to cover other low-risk loans such as inventory loans and farm loans to common people and small businesses, thus putting more competitive pressure on existing banks.
(A) TOTAL NET BANK PROFIT for the entire system of 4,000 banks: $66 Billion / year.
(B) HOMEOWNERS' SAVING -- In addition, if the homeowner's previous mortgage was at 6%, each homeowner will save $2,000 in interest / year (per $100,000 of mortgage). That works out to a total saving of at least $40 Billion / year for the 20 million homeowners across the country.
(C) TOTAL NATIONAL PROFIT -- (A) + (B) = $106 Billion / year. (If you capitalize that annual income at 4%, it has a present value of $2.65 Trillion) That profit can be spent by the local government for any general common good spelled out in the Bank's Charter.
(D) SUMMARY -- This new, narrow, banking system will work alongside the existing banking system.
The system will work for the stockholders by returning a 6% dividend to all stockholders on their invested capital.
The system will work for the general public by returning all other profits to the general public by local governmet expenditures aimed at programs that will work for the good of all citizens. The money spent on these programs will be about 5 times the amount made by stockholders. In essence the stockholders will get 1/6 of the profit made by the bank and the public will get 5/6 the profit made by the bank. That seems fair -- the stockholders own part of the bank by virtue of their capital investment in the bank -- while the public owns 100% of the government by virtue of their being a citizen of the community. The corporate charter for the bank will reflect the fact that the $50 Million Capital investment in the bank will be buying 1/6 of the stock in the bank while 5/6 will be retained by the local government in the common interest of the general public.
4. GLOSSARY STARTS HERE -- we believe the following glossary defines all the terms in this plan that might not be familiar to the reader.
4.1 State-chartered bank -- "A bank that is operating under a State Charter". Most banks in the United States are operating under a State Charter.
4.2 Charter -- "A written document, issued by the State, by which an institution such as a bank is created and its rights and privileges defined. A State license (or charter) gives the holder(s) the right to open a bank in accordance with the terms of the charter". NOTE, All charters should be considered contracts and should be covered by standard contract law.
4.3 Reserve Rule -- "The State or Federal rule that specifies the percentage of loans a bank must keep in reserve". See Section 19(b) - (2) - (of the FEDERAL RESERVE ACT) where the following is written " RESERVE REQUIREMENTS.-- (A) Each depository institution shall maintain reserves against its transaction accounts as the Board may prescribe by regulation solely for the purpose of implementing monetary policy -- (1) a ratio of not greater than 3 percent (and which may be zero) in [sic] for that portion of its total transaction accounts of $25,000,000 or less ...
See: <click here(b)>
Under a 10% reserve rule, a bank with one million dollars in capital can lend ten million dollars. Under a 0% rule, a bank with $1 in capital can also lend ten million dollars. This might seem strange -- but careful analysis leads us to believe that it is perfectly safe for the system as long as the lending bank makes good loans. However, if the lending bank has any bad loans, that bank must be made to reduce its lending such that its reserves do not go below 10%. The charter should carefully consider this and make sure the charter wording is clear on this issue. Holding banks strictly accountable for bad loans is extremely important.
4.4 Narrow Charter -- "A charter that restricts the allowed bank services to a very few, tightly controlled services". We are specifically suggesting that we focus on banks that will be making 4% home loans. Perhaps the bank will be allowed to make loans at 3.5% to veterans of the armed services.
4.5 Transaction account -- An account that records a bank's deposits on the bank's books. The following is from Section 19(b) - (1) - (C) - (of the FEDERAL RESERVE ACT). "The term "transaction account' means a deposit or account on which the depositor or account holder is permitted to make withdrawals ... or transfers to third persons ... . "
4.6 Reserves -- FORM OF RESERVES (From the URL at #4.3 above) SEC. 19(c)(1) "Reserves ... shall ... be in the form of -- balances maintained for such purposes by such [bank] in the Federal Reserve bank of which it is a member ... except that (i) the Board may,... permit [banks] to maintain ... their required reserves in the form of vault cash ... ."
4.7 Vault cash -- "Currency that is held by banks and is stored overnight in their vaults in order to meet the business needs of the bank". Presumably in today's banks, any electronic record of dollars controlled by the bank is the equivalent of "vault cash". It does not seem to make sense that the term "vault cash" is restricted to actual dollar bills or physical money (currency). Definition from
<<click here;>
4.8 Depository institution -- A financial intermediary that accepts savings and/or demand deposits from the general public. In common, plain English, we take "depository institution" to mean "a bank".
Supporting data --
http://research.stlouisfed.org/fred2/series/REALLN?cid=49
There are currently about $3.6 Trillion of real estate loans currently in existence in the United States. If each loan is covered by 6% mortgages -- the current interest on those loans is about $200 Billion / year. If those mortgages are reduced to 4%, that will save the home-owners about $66 billion / year -- resulting in interest payments reduced to $133 Billion / year. In addition, if those banks are operated by efficient State-chartered narrow banks run by local governments, they will generate profits of well over $100 Billion / year that can be used by the local government to improve the lives of all citizen / taxpayers.
Become a Fan (1 fan) -- Page 2 of 3 page(s)
Home Mortgage, Money and Banking problems
This plan provides for the establishment of 4,000 Community banks across the U.S.A. -- one in each community-area of about 75,000 people. Each Bank will sign a contract with the State where it is located for a State Charter that will spell out, in detail, what that Bank will be doing. For the most part, at the beginning of this program all Banks will focus on placing 4% / 30-year mortgages on single-family, owner-occupied homes wherein the owners have put down 20% of the purchase price as a down payment and have sufficient verified income such that the mortgage payment will not exceed 25% of that verified income (President Obama thinks 31% is OK).
All levels of government will be involved in this plan in a very simple arrangement that will thereby serve to naturally provide the checks and balances that are inherent in the Constitution. Those checks and balances are missing from our existing banking system that is essentially run by the Federal Reserve System that is outside any of the branches of government established by the Constitution.
Participants in the new Money and Banking system and what they will do:
(a) Legislative Branch of the Federal Government: Will pass laws telling how the money and banking system will operate
(b) Executive Branch of the Federal Government: Will manage the money and banking system in accordance with laws passed by Congress.
(c) The Federal Reserve System: Will be put into the Executive Branch of the Federal Government and will work in concert with the Treasury Department of the Executive Branch and renamed "The United States Central Bank".
(d) The 50 States: Will, in contractual agreements with Local Governments, set the terms of the charters which will specify, for each bank, which specific duties the Community Banks will perform and the rules under which the banks will operate.
(e) Local Governments: Will manage the Community Banks with local-government employees who will work directly for the banks.
ASSUMPTIONS
1) Banks will be extremely narrow -- no deposits will be accepted. That will cut overhead to an absolute minimum.
2) There are 50 million owner-occupied homes in the country.
3) There are 300 million people in our country.
4) 20 million homes will be covered by these 4% mortgage loans.
5) There will be 4,000 banks -- one for every community-area of 75,000 people.
FOR EACH BANK
1) Loans will cover only owner-occupied homes.
2) At the beginning, owners must have a 20% down payment. Later, it might be possible to have charities lend the owners the down payment on a 4% second mortgage as long as the total mortgage payments will not exceed some maximum % of the homeowners income.
3) Mortgage payments must not exceed 25% of family income from all sources. It has been reported that President Obama thinks 31% is OK.
4) The average loan on each home will be between $100,000 and $300,000 -- depending on average local home prices. From here on, in this presentation -- to make the calculating easier, we will assume $100,000 loans.
5) Each Bank will issue and hold 5,000 mortgages. A total of $500 million / Bank.
GROSS BANK INCOME
1) GROSS INCOME PER LOAN -- For each Bank, there will be a Bank income of $4,000 / year on mortgage income per home.
2) GROSS TOTAL INCOME PER BANK -- Each bank's mortgage income will therefore be $20 million / year (5,000 mortgages -- each returning $4,000 / year).
BANK CAPITALIZATION
Assume $50 million capital for each bank. This can come from any source, preferably local people. Investors will be given a 6% return (dividend) on their investment. That will result in a dividend payout of $3 million / year. That will reduce bank profit to $17 million / year. If the $50 million can't be raised easily, the money can be advanced by the Central Bank and paid back at the rate of 6% / year.
BANK EXPENSE
1) Each Bank will operate with 4 employees.
2) Bank payroll will average $80,000 / year per employee. Maximum amount per employee -- $100,000. Minimum -- $60,000
3) Total payroll will be $320,000 / bank / year. (4 employees at an average of $80,000 each)
4) Insurance, overhead and taxes / employee will be 50% of payroll. That will add to $160,000 / bank / year in expenses.
5) Floor space will be 400 square feet / bank. This space can be in any existing government facility.
6) Rent, utilities and overhead will be less than $20.00 / per square foot / year or $8,000 / bank / year.
Total expenses / bank / year will be:
(a) Employees -- $320,000 (from #3) + $160,000 (from #4) or $480,000 total.
(b) Space -------- $8,000 / year ( from #6)
(c) Total ---------- $488,000 / year -- adding (a) & (b) -- round to $500,000
NET PROFIT / BANK / YEAR
(a) Gross Income -- $20 Million, minus expenses and dividends
(b) Expenses -- $1/2 Million
(c) Dividends -- $3 Million
(d) Total net profit -- $16.5 Million / bank / year.
NOTE: That is a 33% annual return on the invested capital of $50 Million.
DRAWBACK
There is one drawback to the plan. All of this money will come out of the pockets of the existing mortgage bankers. The bankers will probably object in all sorts of ways. But why should they be the only business-type protected from meaningful competition? Fair competition is the American way.
By the way, managing mortgage loans must be the cushiest, most profitable job in the world. Basically you lend out ten times the money you have as capital in the bank -- plus ten times the deposits you hold -- all at 6% interest (at least). That brings you in a gross income of at least 60% on the capital you have invested in the bank.
When managed in the interest of the general public, this fractional reserve banking system can do wonders. It has proven to be the best system ever devised to create new (temporary) money that can be used to create wealth to satisfy the needs of a country. The only problem has been that the system has never been managed with the general public in mind -- it has always been managed in accordance with the generally accepted default principle that corporations are operated for the benefit of the bank's stockholders.
The plan we are suggesting will basically return the net-profit on those loans to taxpayers by supplementing the income of local government. It is anticipated that at some future date, this program might be expanded to cover other low-risk loans such as inventory loans and farm loans to common people and small businesses, thus putting more competitive pressure on existing banks.
(A) TOTAL NET BANK PROFIT for the entire system of 4,000 banks: $66 Billion / year.
(B) HOMEOWNERS' SAVING -- In addition, if the homeowner's previous mortgage was at 6%, each homeowner will save $2,000 in interest / year (per $100,000 of mortgage). That works out to a total saving of at least $40 Billion / year for the 20 million homeowners across the country.
(C) TOTAL NATIONAL PROFIT -- (A) + (B) = $106 Billion / year. (If you capitalize that annual income at 4%, it has a present value of $2.65 Trillion) That profit can be spent by the local government for any general common good spelled out in the Bank's Charter.
(D) SUMMARY -- This new, narrow, banking system will work alongside the existing banking system.
The system will work for the stockholders by returning a 6% dividend to all stockholders on their invested capital.
The system will work for the general public by returning all other profits to the general public by local governmet expenditures aimed at programs that will work for the good of all citizens. The money spent on these programs will be about 5 times the amount made by stockholders. In essence the stockholders will get 1/6 of the profit made by the bank and the public will get 5/6 the profit made by the bank. That seems fair -- the stockholders own part of the bank by virtue of their capital investment in the bank -- while the public owns 100% of the government by virtue of their being a citizen of the community. The corporate charter for the bank will reflect the fact that the $50 Million Capital investment in the bank will be buying 1/6 of the stock in the bank while 5/6 will be retained by the local government in the common interest of the general public.
4. GLOSSARY STARTS HERE -- we believe the following glossary defines all the terms in this plan that might not be familiar to the reader.
4.1 State-chartered bank -- "A bank that is operating under a State Charter". Most banks in the United States are operating under a State Charter.
4.2 Charter -- "A written document, issued by the State, by which an institution such as a bank is created and its rights and privileges defined. A State license (or charter) gives the holder(s) the right to open a bank in accordance with the terms of the charter". NOTE, All charters should be considered contracts and should be covered by standard contract law.
4.3 Reserve Rule -- "The State or Federal rule that specifies the percentage of loans a bank must keep in reserve". See Section 19(b) - (2) - (of the FEDERAL RESERVE ACT) where the following is written " RESERVE REQUIREMENTS.-- (A) Each depository institution shall maintain reserves against its transaction accounts as the Board may prescribe by regulation solely for the purpose of implementing monetary policy -- (1) a ratio of not greater than 3 percent (and which may be zero) in [sic] for that portion of its total transaction accounts of $25,000,000 or less ...
See: <click here(b)>
Under a 10% reserve rule, a bank with one million dollars in capital can lend ten million dollars. Under a 0% rule, a bank with $1 in capital can also lend ten million dollars. This might seem strange -- but careful analysis leads us to believe that it is perfectly safe for the system as long as the lending bank makes good loans. However, if the lending bank has any bad loans, that bank must be made to reduce its lending such that its reserves do not go below 10%. The charter should carefully consider this and make sure the charter wording is clear on this issue. Holding banks strictly accountable for bad loans is extremely important.
4.4 Narrow Charter -- "A charter that restricts the allowed bank services to a very few, tightly controlled services". We are specifically suggesting that we focus on banks that will be making 4% home loans. Perhaps the bank will be allowed to make loans at 3.5% to veterans of the armed services.
4.5 Transaction account -- An account that records a bank's deposits on the bank's books. The following is from Section 19(b) - (1) - (C) - (of the FEDERAL RESERVE ACT). "The term "transaction account' means a deposit or account on which the depositor or account holder is permitted to make withdrawals ... or transfers to third persons ... . "
4.6 Reserves -- FORM OF RESERVES (From the URL at #4.3 above) SEC. 19(c)(1) "Reserves ... shall ... be in the form of -- balances maintained for such purposes by such [bank] in the Federal Reserve bank of which it is a member ... except that (i) the Board may,... permit [banks] to maintain ... their required reserves in the form of vault cash ... ."
4.7 Vault cash -- "Currency that is held by banks and is stored overnight in their vaults in order to meet the business needs of the bank". Presumably in today's banks, any electronic record of dollars controlled by the bank is the equivalent of "vault cash". It does not seem to make sense that the term "vault cash" is restricted to actual dollar bills or physical money (currency). Definition from
<<click here;>
4.8 Depository institution -- A financial intermediary that accepts savings and/or demand deposits from the general public. In common, plain English, we take "depository institution" to mean "a bank".
Supporting data --
http://research.stlouisfed.org/fred2/series/REALLN?cid=49
There are currently about $3.6 Trillion of real estate loans currently in existence in the United States. If each loan is covered by 6% mortgages -- the current interest on those loans is about $200 Billion / year. If those mortgages are reduced to 4%, that will save the home-owners about $66 billion / year -- resulting in interest payments reduced to $133 Billion / year. In addition, if those banks are operated by efficient State-chartered narrow banks run by local governments, they will generate profits of well over $100 Billion / year that can be used by the local government to improve the lives of all citizen / taxpayers.
Take action -- click here to contact your local newspaper or congress people:
Help Cities and Citizens start State-Charted, City-Owned Banks
Click here to see the most recent messages sent to congressional reps and local newspapers
Retired engineer, product and business developer, inventor (six patents). Currently (a) trying to completely understand our money and banking systems and (b) planning to pass that information to the American public.
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State Bank already exists
by Scott Baker on Thursday, Oct 15, 2009 at 10:42:46 AM