The Community Banking Plan -- How to solve our Home
Mortgage, Money and Banking problems -- all at once
5/9/09
From: http://www.primeronmoney.com/howtosolve.html
This plan provides for the establishment of 4,000 Community banks -- one in each community-area of about 75,000 people. Each Bank will sign a contract with the State 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 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 homeowner’s 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 -- minus $1/2 Million
(c) Dividends -- minus $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 bankers who hold these loans. The bankers will probably object in all sorts of ways. But why should they be the only business 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)
• THEN WHAT?
That profit can be spent by the local government for any general common good spelled out in the Bank’s Charter.
Martin & Gladys Carbone
Concerned citizens
5123 Don Rodolfo Drive
Carlsbad, CA 92010
martycarbone@yahoo.com
Comments (14)
I have no idea. I'd need to do some serious homework to have an opinion on this one.
But now that you mention it, that 30-year mortgage is an abomination. It doesn't help anyone, it just drives up the price, rakes it in for the banks, and makes us slaves forever. REAL ownership (with no mortgage) should eventually be within the reach of most people. If anyone cared, they could cut the 30-year limit back gradually so as not to traumatize the market. Maybe by a few months less every year.
Banks should go back to regulation and doing all the different finanical packages they offered in the past.
Making them too large to fail (interantional) was a big mistake by Congress since Reagan. Americans protested prior to the banking failures (fraud and bottomless pit).
The creation of mortgage corporations, savings & loans, Ponzi schemes, etc. took money away and caused huge scandals for profit. If you are specialized the services and profits are few (except for CEOs and politicans).
How is direct governmental control of the mortgage rates preferable to raising out children to avoid borrowing money? Rather than protecting people from there own stupidity and greed, why not educate them?
When a corrupt system is the only game in town, you are forced to play. All the islands and caves are taken.
Someone is going to come and force me to borrow money? Or are you saying that no one will sell me a house for cash?
I don't know anyone who has that kind of cash.
I don't have that kind of cash either, yet. However, I'm saving for it and in 4 or 5 years it will be a different story. That is, if we are not paying 75%+ taxes by then
Government needs to get out of the banking business. People within their communities fund their banks and banks in turn sell "loans" to those who need them. This generates money for the banks............
There are basic financial principles which banks operate on. MOST banks are not megabanks like Citi, BankAmerica, etc. that got into trouble. There are small town, perfectly financially stable banks that are doing fine and people want the government to go away, let the FDIC insure the deposits. But the FED is broke and is borrowing money from itself and therefore monetizing the debt. This will cause hyperinflation. The government is not in any position to tell BANKS WHAT TO DO. The government cannot govern, the government can't run anything profitably....we don't need the government in banking. We need the government OUT of private industry and out of everything except what it is supposed to be in Constitutionally.
To sylvester.cathy
Thanks for your thoughts.
Please note the Constitution specifically says Congress shall "coin money and regulate the value thereof". That sentence puts the government squarely in the banking game.
The trick to success, we believe, is constructing a system that will provide natural checks and balances between federal, state and local government wherein the local government banks deal directly with the people.
We tried to do that. Please reconsider your argument.
Marty Carbone
You are so right Mary. Banking (the purse) is controlled by Congress not a private world banking system.
What that old document isn't worth the paper it is written on (as claimed by President Bush). Forget he thinks the Bible is modern and to date (older than the Constitution). Bush should have been impeached since it was evident he had no intensions of honoring our laws just making his own.
The Constitution is agreement between the people off all states to form a union and a government with certain limitations and rights. We limit them not them us. It is not a government who comes along and decides to do it their way without ratification of 2/3rds of the states (and its citizens).
What Constitution Congress and the President think? What about that oath of office to protect and defend the Constitution against all enemies both foreign and domestic? We seem to have both. I know they aren't ignorant since most of them graduated high school...many college of some sort.
Let's remind them "We the People" aren't "unwashed and uneducated". The elite few don't need to tell us what to do.
A Constitutional crisis might be avoided if all the state remind the federal government of that contract which they are bond to.
It's OK to allow CEOs to walk away with our treasury (fraud and treason by them) because it is not acceptable to break their contracts. What about our contract called the Constitution and Bill of Rights? They took an oath of office to follow that contract and have broken it. They should all be impeached.
States who have moved to protect their Constitution (and probably banks).
You don't have to be a Constitutional lawyer to know our laws are being broken and ignored. I'm not a lawyer but my family was full of them. States should move to protect it and our nationhood, borders, democracy.
It is an effort to bring the states out and remind Congress and the Imperial President Obama that they have gone too far.
Get rid of the Federal Reserve and the World Bank. It is treasonous and dangerous to our survival. We are being robbed by our own using it.
martycarbone, isn't it a rather large jump from coining and regulating the value of money to making mortgage loans?
Would private banks still exist to secure deposits since government banks would only make loans?
If not, do you propose that everyone have a home safe to store cash or are you suggesting a credit only system?
I voted against this because it's unamerican. If the private sector wants its banking system to be an unregulated casino, that's their problem. What this idea does is to make their problem OUR problem even more than it already is. While I agree in having gov't-owned community banks, it should be in a completely separate system from the private Federal Reserve System, and use US Treasury Notes, rather than Federal Reserve Notes as its dollar. This country fought the Revolutionary & Civil Wars using gov't bank notes alongside private bank notes, or even foreign currency, such as Spanish silver dollars, all as legal tender, AND THEY DIDNT HAVE computers or calculators. They probably were able to calculate the conversions in their heads.
After considering the comments, I agree that central gov't shouldn't engage in retail banking. However, the Constitution forbids state central banks such as the Bank of N.Dakota from emitting their own banknotes, a power delegated to Congress in Article IX of the Articles of Confederation, and still in force, as found in the hardcopy of USC Title 1 in any law library. A gov't-owned alternative needs a currency independent of commercial demand, so forcing the Treasury to issue US Treasury notes for State central banks to use in it. The US already has a 'central bank' called the Government Development Bank, but it uses FRNs rather its own greenbacks, and only operates in Puerto Rico where there are community (Popular) banks. It did not allow subprime mortgages there, so there's no foreclosure crisis, and housing prices haven't gone down. It still has a systemic fault of being able to dry up the supply of affordable credit for businesses, and driving up their interest rates, which wouldn't happen if there were a different currency for public uses.
HAHAHHAHAHA
You really really think that these bank execs are ever going to let that happen? Right.
The dollar is going to be useless anyways. Enjoy it while you can.