Banking

Red -- Getting Out of It -- Is the New Black

Maria Sotero — Tue, 10 Nov 2009 02:22:00 -0500

Across California and the nation- in New York, Los Angeles, San Francisco, and Sacramento- money is the subject of buzz, new ideas, and VIP events. Specifically, the topic is the lack of money- the have-nots, the why-nots, and trendsetting solutions.

For once the subject is not just the typical California budget woes. Those aren't new (yet somehow the designers bring them back every season). It's banking development districts (BDDs), and the new models of community-building and economic development being tried on by cities. And it's the poverty measure, and the work being done to revamp its outmoded form and function.

BDDs create incentives to encourage banks and credit unions to locate in low-income areas that lack mainstream financial institutions, and are fast becoming the subject of local buzz. On October 30th the Los Angeles City Council announced it was unanimously passing a motion directing the city attorney to draft a BDD ordinance.

LA is the first city in the nation to create a BDD ahead of the example of its own state. New York City created one, after New York State did ten years ago. That model has been proven to work, but other states have failed to pick up the trend. (And with any hot, "in" model, there's been a bit of catty criticism. These ordinances make city deposits already deposited in - guess what - banks a 'carrot' for those volunteering to locate in bank-less areas. That's not "corporate welfare" or "letting council members play with bank funds," it's good, smart policy.) This recent local action could provide the impetus to state legislators to create a statewide BBD program.

As far as non-legislative ways cities can help their unbanked constituents, San Francisco has set the trend. The city's "Bank on" initiative is a public-private partnership to 'bank the unbanked,' who in San Francisco pay as much as $40 million a year to check cashers and payday lenders, by facilitating access to free or low-cost traditional bank services. Where location of banks is not the issue, partnerships like Bank on do much to increase the economic stakes of hard working families. And 50 cities across the nation 'Banked on' after seeing Frisco's success.

We're talking about poverty. So let's see what we're talking about. The federal poverty measure, which was designed the same year as the lava lamp and the smiley face, is pitifully outdated. Tripling the cost of food does not endure eternally as the measure of 'how much is enough' for America's families. Housing and health care have become luxury goods, while food has become relatively cheap.

New York City, not surprisingly, is where the modern measure debuted. Mayor Bloomberg's Director of Poverty Research Mark Levitan took the National Academy of Science's recommendations to create a method that reflects both the geographic differences in housing costs, and all the varying kinds of state support received, when determining whether a family is in poverty. That's two things the current measure does not do. President Obama endorsed the update. And a few weeks ago, New America's California Asset Building program hosted Dr. Levitan at a small roundtable in the Capitol for key staff. If California follows suit, it will be fitting with the goal of keeping the state on the leading edge.

All fashion puns aside, the work and the conversation is not important because it's new, but because it's necessary- California may actually have the highest poverty rate in the nation. And before a problem can be mended, it has to be measured correctly.

Simple and creative solutions are not going to go out of style- we just need to make sure we update policies that no longer function the way they were originally designed.

Angelenos to the Financial Mainstream

Hosai Ehsan — Fri, 22 May 2009 20:33:00 -0400

Today the city of Los Angeles made its second attempt to bring under-banked and unbanked Angelenos to the financial mainstream. Two months after Mayor Villaraigosa launched Bank on LA, City Councilmember Richard Alarcón launched the Banking Development Districts (BDDs) Initiative. Los Angeles has recognized the need for placing affordable financial services at the hands of its people and is taking major steps toward eliminating dependency on fringe financial institutions.

While 1.5 million households are unbanked state-wide, Los Angeles has the third highest percentage of unbanked households nation-wide. For the Angelenos who do not have a simple checking or savings account, BBDs are a promising way to gain access to the appropriate financial services and products necessary to get connected to savings and asset building. Research shows that a full time worker conducting business with non-traditional financial institutions can pay tens of thousands of dollars in fees in a life time. This is a chunk of money large enough to start a small business, send a child to college, build a retirement or put a down-payment on a house.

BDDs are a strong step in the direction of helping low-income households hold onto their hard earned dollars. Modeled after New York State's successful program, state and local deposits will be used to encourage banks to locate in underserved neighborhoods (identified as BDDs) and provide products appropriate to the needs of the people. In Los Angeles this means thousands of unbanked households will soon have the opportunity to conduct affordable financial business, safely set aside savings, and begin building assets to secure a nest egg or off-set future financial trauma.

Top Thinkers on the Global Economy: Dec. 16

Daniel Mandel — Tue, 16 Dec 2008 15:06:00 -0500

Each morning, New America's Next Social Contract Initiative scans the leading media outlets for must-read analysis on the economic crisis and recovery efforts. Today's highlights include:

Housing Starts Decline to Record Low
Calculated Risk, http://calculatedrisk.blogspot.com/, 16 December 2008
Total housing starts were at 625 thousand (SAAR) in November, by far the lowest level since the Census Bureau began tracking housing starts in 1959.

"The Barking Swan"
Mark Thoma: Economist's View, http://economistsview.typepad.com/, 16 December 2008
Does the financial crisis justify "vilifying statements about economists, statisticians, finance professionals and their entire canon"?

This is what a crisis looks like in the balance of payments data
Brad Setser: Follow the Money, http://blogs.cfr.org/setser/, 15 December 2008
At least a crisis marked by a run out of risky US assets and into safe US assets.

China's economy hits the wall
Gideon Rachman, Financial Times, 15 December 2008
It is now clear that, far from being immune to the global financial crisis, China is very vulnerable. Its economy may not be hit as hard as that of the US. But as a poorer country - with a less resilient political system - it could suffer worse, writes Gideon Rachman.

The Lessons From 30 Years of Chinese Reform
Hugo Restall, Wall Street Journal, 16 December 2008
One of the greatest economic booms in history, but an emerging turn back to the left.

Our view on credit cards: A break for borrowers
Editorial, USA Today, 16 December 2008
Overdue action will protect consumers from egregious practices.

Opposing view: Higher rates, tighter credit
Top four credit card issuers' public comments, USA Today, 16 December 2008
Fed's rules will hurt the very people they're supposed to help.

The low oil price calls for a fresh set of rules
Nick Butler, Financial Times, 15 December 2008
Producers and consumers require realistic forecasts and an orderly market. The need is to develop a common understanding, writes Nick Butler.

The crisis gives the US new financial power
Ricardo Hausmann, Financial Times, 15 December 2008
It remains the world's only super-borrower and able to issue thousands of billions of dollars in debt at record low rates, writes Ricardo Hausmann.

It's no time to panic
Jonah Goldberg, Los Angeles Times, 16 December 2008
Economic crisis is leading some to abandon time-honored wisdom.

Can Africa Trade Its Way to Peace?
Herman J. Cohen, New York Times, 15 December 2008
If undertaken with enough will and persistence, an American-led mediation to create a common market in East Africa could end the war and transform the region.

How Bernard Madoff's Pyramid Scheme Will Erode Trust
Anne Applebaum, Washington Post, 16 December 2008
Bernard Madoff's Ponzi scheme will help bring down the trust that enabled it.

Best Buy Cites "Historic Slowdown", cuts Capital Spending Plans in Half
Calculated Risk, http://calculatedrisk.blogspot.com/, 16 December 2008

President rises above politics on auto bailout
DeWayne Wickham, USA Today, 16 December 2008
George W. Bush may have saved the Republican Party from itself and pumped a bit of helium into his deflated approval rating.

The Senate GOP Seems Set on Hastening the Death of Detroit
Eugene Robinson, Washington Post, 16 December 2008
Only a free-market fundamentalist, lunatic or Senate Republican would want to hasten Detroit's demise.

Bankruptcy Is the Perfect Remedy for Detroit
Todd J. Zywicki, Wall Street Journal, 16 December 2008
Washington hates the idea because it would lose leverage.

For more on New America's work on the economy, stimulus plans and recovery efforts, please click here.

Asset Building Event: Community Banks, the Financial Crisis and a Way Forward

Mark Huelsman — Tue, 18 Nov 2008 21:09:00 -0500

Much of the discussion during our current financial crisis revolves around whether certain institutions are "too big to fail." Forgotten in the wreckage, however, is the relative success of the community bank -- the small-scale "relationship" bank where individual savers and borrowers are members of the same community. In fact, the failure rate among big banks is eight times greater than among small banks so far this year.

This Thursday November 20th, the Asset Building program and the Washington Monthly will explore ways to encourage the health and number of small-scale financial institutions as a means of thwarting the tendency toward excessive consolidation in financial services and restoring a mutuality of interest between borrowers and lenders. Our own Ellen Seidman and Phil Longman will discuss the role of these institutions in climbing out of our current economic mess and preventing more trouble down the road. They will be joined by Doug McGray (Fellow, New America), Joshua Rosner, (Managing Director, Graham Fisher & Co), and Jan A. Miller (President & CEO, Wainwright Bank & Trust Company).

We hope you join us for what promises to be a lively discussion. Click here to RSVP.