Vermont’s Public Bank

Over in North Dakota, the state-run bank has been an oddball, yet very successful, model of 1910s socialism.  It’s the only state-run bank…well, although it looks like it’s getting a sibling in Vermont.

Three out of four Vermont communities have voted to convert the state-run Vermont Economic Development Authority into a true banking institution.

Banks do business by storing some peoples’ money, and lending it out to others, charging interest on the loan.   Part of the 2008 economic meltdown was due to banks taking far too risky investments, losing not only the principal but harming their ability to pay interest to those whose money they were lending out.  Lending stopped, borrowing stopped, savings were depleted, and everything went to hell for a time.    That is, until the Federal government stepped in to bail out the messed-up banks.

The hope is that a state-owned bank, taking a more credit-uniony stance, will run its lending policies in the interest of building value, not simply turning a quick buck.  The Bank of North Dakota does an enormous amount of business investment, handles college savings accounts for North Dakota children, and is more directly involved in the financial building of the State’s economy than some financial advisory board.  As the Vermont study points out, states already do a lot of lending and financial investment without the benefit of acting in a bankly manner.  Actually crossing that line into hanging a big “BANK” sign on the capital building makes one side worry about financial abuse, the other side cringe away from the evils of Socialism, but calling a bank a bank and doing business accordingly is the smartest step for a state that wants to control its own financial wellbeing.

Good luck, Vermont:  the Bank of North Dakota turns a hundred years old in 2019; hopefully you’ll overcome any shortsighted opposition and come into being before then.


Marijuana Money

Marijuana was legalized by the state of Colorado for recreational use as of January 2014.   In the first week, it’s reported over five million dollars of pot was sold by dispensaries, making it about as good as the Avengers movie opening weekend.

Unlike the Avengers movie, you can’t just swipe your debit card to buy some sweet bud.  Thanks to the Controlled Substance Act, the Federal Government still sees pot as a Schedule I drug.   You know who else is governed by federal laws?  Banks.

Banks were once a much more state-oriented institution, up until the 1990s.  If you banked in one state, drove to the next state over and tried to do business with a branch of the same bank, you probably wouldn’t be able to do too much.   This isn’t the entire reason, but as banking began to spread across state lines, it began to fall further and further under Federal rules and less on state laws.

So, the banks that issue credit cards, offer merchant accounts, accept EFT transfers, and all other non-cash transactions, are worried that their involvement in the marijuana business in Colorado will bring scrutiny on their books.

There’s a simple parallel to this, though.   You know who else does business that’s legal in their state but illegal in other states?  Nevada brothels.  It’s possible to use your credit card at the brothels, so at some point banks stopped worrying and took the brothels in their greedy, greedy arms.   Sure, there’s no broad Federal law banning prostitution, so marijuana is a bit more restricted in that way.   However, once banks get comfortable with this newly-legal industry, they’re gonna find some way to make money off it. Who has ever heard of a bank passing up on business for moral reasons?

(picture via)

 Update 1/23/14: The Justice Department will change laws to allow banks to deal with legal marijuana businesses.

Burt’s Bucks

If you missed last Friday night’s episode of Raising Hope, you didn’t get to see the trials and tribulations of a fledgling monetary system.

Called “Burt’s Bucks“, S04E02 started out with a revelation:  Burt finds out that he can get paid in other things than money — lobsters for instance!   This gets the Chance’s minds turning: who else would take barter, and how can they make it work for everyone?

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D B Cooper And The Money He Took

What do you do when your business has been making money abroad and you want to send it home?   You could wire it, you could write a check…but what if that profit is in cold, hard cash?  You could deposit it at a bank, but — oh wait — you are the bank, and those greenbacks aren’t doing you any good sitting in a Swiss vault.  So, you pack it up, put it on a plane, and ship it back to the U.S.    Money’s safe at 30,000 feet, right?

Not as much as the bank thought.   Over a million dollars of cash disappeared in flight between Zurich and New York.  Maybe Karl Malden was right: when flying, take traveler’s checks instead.   D.B. Cooper jumped out of a plane with $20,000 strapped to his chest, but $1,200,000 in C-notes was only 10x as much weight.    Because the packs of hundreds were in a case packed inside another case, the theft escaped notice until its arrival.   More than likely, the money was stolen before it was loaded on the plane, and there wasn’t any mid-flight adventure flick shenanigans going on.

Despite all the money stored in bits and bytes these days, the Reserve has about $1.19 trillion of currency in circulation.  That means the theft consisted of 1/1,000,000th of all currency in circulation — one out of every million dollar bills disappeared from that plane.  That might not seem like much, but a million doesn’t buy a whole lot anymore.


The Children’s Bank

They always say you need to start kids young when it comes to financial learning, and an unusual group in India is taking that to heart.  The Children’s Development Khazana is a child-run bank focused on helping street children build financial security through microtransactions. The project has been around since 2008, but only in the past few years the project has seen huge increases in membership, and has expanded into other south Asia countries as well.

The system works as a credit union of sorts, with membership only allowed for kids who make their money ethically, not through begging, drugs, or other illegal activities.   The bank offers passbook savings accounts, in the traditional “write by hand” method, for their members.  The bank, as a whole, manages a single savings account with a financial institution, which earns interest that is distributed to accountholders.   The ‘peer review’ method of operation seems to be successful:  rather than being told by adults how to handle their money, the bankers and tellers are mostly children, and are accountholders as well, so negotiations are handled between people of similar age and stakes in the bank.

Also, like most microfinance systems, the CDK also does microlending, requiring a defined business plan of course, making them as functional as a full-service banking institution for the poor and homeless children of India.   Hopefully the goals of the Children’s Development Khazana will come to pass, helping elevate the children out of poverty, and put them on a track of financial independence by teaching them how to properly manage money at such a young age.  Similar programs are also thriving in a few places around the U.S., largely with educational goals rather than povery-reduction, making the stakes not nearly as high.