The Community Banking Plan -- How to solve our Home
Mortgage, Money and Banking problems -- all at once
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.
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.
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
5123 Don Rodolfo Drive
Carlsbad, CA 92010