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3/25/09 / prints out in 7 pages
Grassroot Banking Plan -- How to easily solve our Money
and Banking problems and perhaps pay for everyone's
Medical Insurance and Social Security as well
A plan is herewith presented whereby common, trustworthy people and groups of
people, including charitable and other community organizations will start Narrow,
State-Chartered, Grassroot Banks and specialize in giving 4% mortgage loans.
A glossary follows the plan -- it is intended to define all the words that may be new to the reader.
An introductory note of historical importance that
emphasizes the importance and power of leverage.
“Give me a lever long enough and a fulcrum on which
to place it, and I shall move the world.” Archimedes
(this plan uses the leverage inherent in Fractionl Reserve Banking)
GOALS -- The goals of this plan are to solve our current Money and Banking
problems and perhaps pay for everyone's Medical Insurance and Social
Security as well ...
ABSTRACT -- Give grassrooot Citizens a State-chartered Narrow Bank operating
under existing law, including Fractional Reserve Banking and a place to sit and they
will create all the money this country can use to create a surfeit of national
wealth
through 4% mortgage loans.
FEATURES AND BACKGROUND --
1. Grassroot banks can solve our Money and Banking problems and perhaps pay for everybody’s
Medical & Social Security Insurance as well.
2. The plan presented here envisions the formation of Grassroot, State-Chartered Narrow Banks
by people who will separately and jointly start thousands of banks across the country. You can
be one of those people.
2.1 GOALS -- The goals of this plan are to solve our Money and Banking problems and perhaps
pay for everyone’s Medical Insurance and Social Security as well ...
2.2 A note of importance that emphasizes the power of leverage -- from Archimedes.
“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.”
3. I WANT YOU ... and other common, patriotic citizens like you ... to start Grassroot State-Chartered ...
Narrow Banks that will concentrate on providing 4% mortgage loans to the American public.
Do as you are told !
Under existing laws, thousands of the Narrow Banks will be able to create and lend all the
money this country can use to create a surfeit of national wealth.
4. It is relatively easy for common people and groups of people to start Grassroot Narrow Banks.
Go to # 20 of this page to read how you can do it ...
If Old Hickory were around -- he would throw the vipers out and follow this plan.
5. Under our present system of Fractional Reserve Banking there are only two factors that control
the amount of money a bank can lend -- (1) is the dollar amount of (a) the capital invested in the
bank, plus (b) the customer’s deposits and (2) is the Required Reserve as a percentage of the loans.
6. If capital (a) is increased enough -- or the required reserve (b) is reduced enough,
the lending allowed in all banks will increase to as much as the country needs.
6.1 A capital amount (a) of one million dollars and a required reserve
(b) of 10, jointly allow a loan amount of ten million dollars.
6.2 That $10 milion will return $400,000 in interest at 4%.
That is a return of 40% on the original invested capital.
6.3 Fifty loans of $200,000 add up to $10 million. An energetic banker
can probably do all the paperwork for 50 loans in a month.
7. In all banks discussed in this report, the narrow charter is important:
It must force the bank managers to follow sensible, prudent rules and
refrain from doing strange financial sleight of mind.
8. It is a simple matter to write a narrow charter. Such a charter can probably be patented in the
interest of the common good and assigned to the public at large. Charters are the routine way
banks are permitted to operate -- this is nothing new.
9. England, Canada, Mexico, New Zealand, and Sweden have a 0% reserve requirement.
See << http://en.wikipedia.org/wiki/Reserve_ratio >>
There is no reason why the United States can’t have a 0% reserve requirement. In the U.S.A.,
the reserve requirement is zero to 3% until the bank has $10 million in deposits and 10% thereafter.
See item #16.3 and the URL listed there.
10. If the loans are used to create or protect wealth equal in value (at market prices) to the amount
of the loans -- there will be no inflation. We think this is plain common sense describing a situation
where money and wealth are balanced. But beware, many economists and experts think this is economic
heresy. They dogmatically argue that the creation of any new money is inflationary.
11. If, on top of this plan, and as a separate issue, the Federal government sells bonds (yielding -- say 6%)
to citizens and uses the proceeds of those bonds to buy stock in the chartered banks, I believe the income
on the bonds will generate enough money to pay for the medical insurance and social-security benefits of
everyone in the United States.
12. The downside leverage in the fractional reserve system is all that is needed to keep the banks prudent --
as long as banks are prohibited from selling their loans to third parties.
See: The One Root Cause Of The Mortgage Market Meltdown
The downside leverage is directly connected to the Reserves needed. If the Required Reserves is 10%,
for every dollar “lost” in bad loans, the lending bank must call back $10 in loans outstanding and therefore
lose the interest on all those loans. That hurts. They will be prudent.
See: downside leverage
13. If you have comments or questions, write to Martin Carbone < martycarbone@yahoo.com >
or 5123 Don Rodolfo Drive, Carlsbad, CA 92010
14. Supplemental Information -- # 14 and 15 / In the case at hand, the
charter will only allow the proposed banks to lend money
(a) under a 10% reserve rule to
(b) well qualified borrowers with
(c) adequate collateral and
(d) a reasonable plan to create wealth with the loan money where
the value of the wealth created in dollars will be equal to or more
than the dollar value of the loan. Or
(e) for owner-occupied single family houses.
14.1 A great deal of thought will have to go into the charter on this point. For instance lending money to buy
jewelry would be disallowed, but buying a house in which the borrower will live would be allowed because the
house will undoubtedly be maintained and keep its value. In our view this is the only thing about these plans
that is not extremely simple to implement.
14.2 This problem of creating wealth by lending is analogous to the nation’s current problem trying to decide
which stimulus projects will create wealth and which will drain wealth.
15. (continued from # 14) If the banks are run as frugally as practical, the banks will generate enormous profits. I
estimate something like 35% on the invested capital in the bank can be achieved.
15.1 In order to make sure that this profit is not squandered by the managers of the bank, the charters should tightly
control what can and what can’t be done with the profits. In my view the return to the bank stockholders should
be 6% on their invested capital and the other 29% should be used for the common national good -- primarily
Medical and Social Security Insurance.
16. GLOSSARY STARTS HERE -- we believe the following glossary defines all the
terms in this booklet that might not be familiar to the reader.
16.1 State-chartered bank -- "A bank that is operating under a State Charter". Most banks
in the United States are operating under a State Charter.
16.2 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".
All charters should be considered contracts and should be covered by standard contract law.
16.3 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-- (i) 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 <<http://www.fdic.gov/regulations/laws/rules/7500-200.html#750019(b)>>
Under a 10% reserve rule, a bank with One Milion dollars in capital can lend $10,000,000. Under a 0% rule, a bank
with $1 in capital can also lend $10,000,000. This might seem strange -- but careful analysis had led us to believe
that it is perfectly safe for the system. The charter should carefuly consider this and make sure the charter wording
is clear on this issue. It will come into play if a loan goes bad.
16.4 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.
16.5 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 --- see URL at #3 above). “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 ... . ”
16.6 Reserves -- FORM OF RESERVES (From the URL at #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 ... .”
16.7 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” as used in #6 above is restricted to actual dollar
bills or physical money (currency).
Definition from <<http://www.investordictionary.com/definition/vault+cash.aspx>>
16.8 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”.
-------------- end of Glossary -----------------
17 to 19 reserved for the future
20. HOW TO START A BANK
Starting a bank is like starting most businesses except for the fact that it is generally a lot easier because the regulations established
by the State will pretty much stop you from making major errors. If you have a college degree in business, engineering, accounting,
business management, math, sales, journalism or any related subject -- you should be able to handle all the problems you will come
across. If you are a college dropout like Bill Gates -- you might also be able to handle the challenges.
In general there are no laws that tell you how much money you need to start a bank. There once were laws that said you needed a
free standing dedicated building and a substantial vault -- but that is no longer required since internet banking has come on the scene.
You will first have to start a corporation and and get a number of stockholders. Since I live in California, all the following information is
for a California bank. All states probably have similar laws.
21.
1. It is a rather simple matter to open a bank in California.
2. None of the requirements are the least bit difficult.
3. Note that there is no minimum amount of money needed in the law.
4. You have to show a reasonable promise of a successful operation.
5. You also have to show there is a need for the services you are planning to offer
in the neighborhood where you are doing business.
6. See more detailed information at: California Financial Code
7. Remember -- the law must be followed by you and all the regulators -- no regulatory agency can make up rules that contradict the
intention of the written law. If you come across an effort of that type that is unreasonably blocking you, you can probably file a complaint
and ask a judge to enforce the law.
The only thing the least bit difficult is showing that you will have bank directors that have “sufficient banking experience”. That can be
finessed by either (a) hiring an experienced bank manager or (b) asking for a limited charter that will restrict your bank to making loans
of a specific type -- such as mortgages. In that case, showing that you have (a) considerable knowledge about mortgages loans and
contracts and (b) that know how to ascertain whether the loan applicant is a good risk and (c) if the collateral that is being offered is
adequate to cover the risk of the loan going bad -- that should suffice. You can finesse most of this by having a good banking lawyer
on retainer who will advise you as needed. If you will be doing nothing but making mortgage loans -- there is obviously no need for
you to be proficient in other areas of banking.
Remember -- this is the United States -- where we are all encouraged to be entrepreneurs and capitalists.
Don't let anyone tell you that you have no right to be a banker.
22. At the previously listed link, it appears that at sec. 351 you will find you will need to form a corporation
and have 35 stockholders. See our comments on this at the link. The wording is a little ambiguous on this point, so you will have to clear this up.
But in any event, you will probably want more that 35 stockholders -- so there will be no problem.
Forming a corporation is, of course, very easy -- any business lawyer can handle that -- or you can go to an online firm like <http://www.legalzoom.com>
who are very reliable and reasonably priced. I have used them and can vouch for the excellence of their work. (mrc)
It is important to note there are no requirements for any specific facilities or equipment. A Narrow Bank that only provides 4% mortgage loans
can be operated out of a 1-bedroom studio apartment or a 10’ x 10’ office with a phone, fax and computer.
Every dollar you save in overhead will become another dollar of profit.
------------ end of plan ---------------
Your comments, help and advice are welcome -- please tell me what you think.
Do you approve of this plan? Can we list you as approving this plan?
My wife Gladys and I plan to travel to Washington and hand-deliver this plan and some other related material
to each member of both Congressional Banking Committees in May 0f 2009.
Do any of you know your way around Washington?
Martin Carbone / 5123 Don Rodolfo Drive / Carlsbad, CA 9201 / Tel:760-603-1910 / martycarbone@yahoo.com
website: http://www.alphabeticalist.com