From interest to reciprocity, savings pools are a great innovation.

Among all our discussion of currency and tax changes at national level we must never lose sight of the good things happening at local level. For it is at the level of neighbourhood that we all exist. It is at community level where our comfort comes from. It is from the ground up that initiatives and innovations happen. New Zealand has a unique innovation here.

It is at local level where we can take action to restore local economic resilience and maximise our chances of survival after a major bank failure and economic crisis. Nicole Foss has reminded us yet again that the system must crash. “When the music stops there is only one chair for every 100 dancers”.

Money-tabooIn August 2014 I had the privilege of attending the annual hui of the Living Economies Educational Trust. Among the local resilience initiatives being taken are green dollars, timebanks and now savings pools. It is the savings pools that I want to talk about here.

A savings pool is a family sized group of people (4 to 30 people) who get together regularly for the mutual financial purposes. It is a cross between a purchasing cooperative, a support group and a pawn shop. There is not a scrap of interest paid to anyone.

So how does it work? Members meet at someone’s home monthly. They discuss what they will contribute to the group’s shared pool. It might range from $10 to $200 a month, but where the membership is say 10, the group’s monthly savings can quickly range from $100 upwards. Before long you have a sum of, say, $3000.

But you don’t want this money languishing in the bank. You want it out amongst your members doing good. The members volunteer in turn what their financial needs are. Perhaps three in the group have financial needs. Susan draws attention to her credit card debt, Jim is desperate for a new car so he can get to work and a Rosy needs to pay a dental bill. The group then pays attention to those three needs. They figure they can work out how someone can take Jim to work for a while and decide to pay off Susan’s credit card. Without having to pay interest, Susan can put more into the pool each month.

Susan’s promise is to pay $50 a month to pay the pool back, plus another $50 as reciprocation (equal give and take) towards her future pool account. She pays a total of $100 a month now. Or else she could pay $50 a month for double the period. Her choice.

In savings pools trust is important but there is a saying "Trust in God but tie up your camel". Tying up your camel entails prudent purchasing agreements. Collateral is usually necessary. e.g. if I want $1000 from the group to pay off my credit card debt and I have a $5000 car, the group can own my car and I enter into a purchasing agreement with the pool to buy back my car for $1000. That way the pool is more like a special kind of pawn shop. The car should be insured. The whole group reviews their next month’s contribution, and the result is a bigger fund. Since they don’t know Rosy well they meet in her house next time. As trust builds and the social capital of the group grows, they realise Rosy should be next in line for a contribution from the pool as her teeth really are causing her trouble. Maybe there is enough in the pool to meet her needs now.

Rosy offers some appropriate property for sale and purchase, plus an equivalent savings/contribution to the pool. Money, Colorful words hang on rope by wooden peg The accounting spreadsheet is available for them all to see. They add up what they will have at each month in the future, aware of some of the future demands on the use of the funds.

When Jim’s turn comes around for a car the pool has $5000 with which to buy a car. The car belongs to the pool. Jim uses it and pays off $100 a month. But as before he also has to put in another $100 a month so that others can have access to his money during the period he pays it off. If $100 a month is all he can afford then the term could be extended for two years. That is reciprocity in action. So instead of paying it off in one year Jim takes two years. At the end of the two years ownership transfers to Jim. He has paid off $5000 plus he has put another $5000 in the pool. When he has paid off his $500 and contributed another $5000, he can withdraw the second $5000 if he wants as it is his money. Meanwhile for all that time it has been at work for the pool’s benefit.

So you see not only has the group lent without interest but nobody gains from being a borrower without paying an equal amount back to the pool. Reciprocity replaces interest.

There are now at least 22 savings pools in New Zealand and membership is growing fast. Several people are now available to help new groups form. They do this by running a game (it's more fun than monopoly) where they are each given an identity (e.g. a retired couple with no mortgage or a solo mother with part time work) Each person is then handed a crisis/opportunity card saying what happened that month for them (unexpected expense they can’t meet or an inheritance or ‘no change’). Then they role play what might happen within the group. At the end of the game people are itching to start their own savings pools.

These groups work particularly well if they start with a group who already know each other. It is also good if you have a cross section – those with extra money they want to protect in case of an economic crisis and those whose finances are more precarious. If a person dies or moves away their money can be withdrawn, together with their savings points (amount of money multiplied by the number of months they have had it in there) and passed to their heirs.

You need a person who will be a good recorder.

I have been to several of these events. Enthusiastic members of existing pools tell us of the celebration and joy when a credit card is paid off. One group had a party where they ceremoniously cut up the card.

The first financial threat is a global downturn causing major economic contraction and loss of ability to service mortgages. The second is bank insolvency where depositors (unsecured creditors of the bank) find their accounts have been frozen overnight and wake up with a "haircut". In crises the solvency of banks depends on the elimination of debt and calling in non performing loans (mortgage foreclosures and asset seizures).

Savings pools already own all assets not yet paid for. Contributions will tend to dry but but the pool community remains. Loss of liquidity results in temporary paralysis of the system, but no loss of its real underpinnings

The assets of savings pools or more strictly Buyers Clubs in New Zealand are now growing at between 75-100% a year. In other words they are nearly doubling every year. If you would like to find out how it all started have a look at the 15 min video done by its founder Bryan Innes here.

For more information go to the Living Economies website where you can read more and see a typical agreement.

To start one in your area contact either Peter Luiten, Bryan Innes, Phil Stevens or Helen Dew. Or leave your information here

Thoughts on the Occupy Movement and Bank Transfer Day

I have just read the most wonderful piece of prose on the Occupy Movement by Charles Eisenstein, author of Sacred Economics. And today I have been interviewed for Planet FM on the world's Problems so I am thinking about the Occupy Movement. I think they will eventually win and suspect it will take years. It was so inspiring to read the Dominion this morning and see that St Paul's Cathedral in London was letting the protesters camp there and that the Anglican church is launching a fierce attack on greedy bankers, accusing them of having "slipped their moral moorings." Nov 5th was Bank Transfer day, the day people are called on by the Occupy movement to transfer their bank accounts to a credit union. Credit unions didn't go down in the Global Financial Crisis of 2008 and have excellent facilities for changing automatic payments. They have ATM machines round the country. A good choice if you don't mind going without a credit card. They are financial co-operatives where the customers own the bank so you can go to their AGM and stand for their board. They don't deal in derivatives. Very recently the PSIS has managed to acquire bank status with the Reserve Bank and is now rebranded as the Co-operative Bank. Up to now their cheque books had to have the Bank of New Zealand them, presumably because BNZ did their credit clearing overnight. So you can change your account to them, but remember to keep a close watch on how they change. Will they deal in derivatives? They have the right to. Will they deal in shares and bonds and their derivatives? Will they get into insurance or wealth management services? They shouldn't. Banks should be prohibited by law from doing anything but banking (the Glass Steigel Act in USA) and we had a similar prohibition before Roger Douglas deregulated the banks in the 1980s. Yes old fashioned banks were doing what old fashioned banks did best – taking in deposits and lending them out.      

ANZ records $1billion dollar profit from New Zealand

ANZ Auckland. None of the directors lives in New Zealand

Not a single director of ANZ is a New Zealander. Today it was announced that ANZ made  $1 billion profit and of course it was sent to Australia. So looking at their website we find their board comprises seven men and one woman. Two live in Sydney, four in Melbourne, one has homes in both Sydney and New York and one lives in Singapore. They have backgrounds in law, accountancy and one was an ex Reserve Bank of Australia Governor. No surprises there. And of course they are on the boards of other companies like CocaCola and one was an advisor to Goldmann Sachs. Bernard Hickey was on Closeup TVNZ tonight explaining how their margins have widened. People are paying higher mortgages and investors are getting lower returns. But this isn't all. A look at their website shows they are dealing in derivatives like spots, options and forwards. Then there are spot minors, forward majors etc. All sorts of "financial instruments"  that not even bankers understand themselves sometimes. This calls for a financial transaction tax. And of course there is the small matter of fractional reserve banking and the fact that private banks create and control the money supply. No wonder their buildings are the biggest in each city. No wonder they make record profits when the country is in a recession. Our policy is that "We would require corporations that choose to operate in more than one country to charter an independent local subsidiary in our country with majority ownership here." The TV item said that 95% of profits from our banks now go overseas. How can we maintain any national integrity when we are controlled by overseas owned banks? This issue must be a priority of any self respecting government.

Savings, Loans and Insurance entities

Savings, loans and insurance

Old style Savings Banks work very well

With the disappearance of the privilege of seignorage as a source of income, there will be diversion to investment in green business. The reinvention for the 21st century of safe regional savings and loans banks, savings pools, building societies, mutual insurance societies would be encouraged so that people could borrow money from others at a local level. Without the privilege of being able to create the nation's money supply at a profit,  banks would then have 100% reserve, thus reverting to Savings and Loans Banks which lend out depositors' money. David Korten in his New Economy Working Group Report, How to Liberate American from Wall Street Rule, has  suggested that the system of community banks, mutual savings and loans and credit unions is one with proven capacity to perform the desired functions. It worked throughout the 1940s to the 1960s. It was well regulated and decentralised banking system and provides a model to restore financial and economic integrity.