Finance

# FINANCE

Let’s wrest control of the financial system from **private banks** and financial institutions, so that the money we save, borrow and spend serves the needs of local communities rather than **global speculators**.

# Highlighted Finance Actions

* [ ] Move your Money. (Expand Action)

* [ ] Start a Local Investing Group. (Expand Action)

* [ ] Barter what you have for what you need. (Expand Action)

* [ ] Policy action: Support fundamental Change the Financial System. (Expand Action)

# Explore the Finance topics

* [ ] Investing and Divesting

* [ ] Beyond Money

* [ ] Banking

# The Big Picture

As any economics textbook will tell you, money is a medium of exchange, a unit of account, and a store of value. But that textbook is unlikely to tell you **how money is created**.

Every time a bank issues a loan, the money deposited in the borrower’s account didn’t previously exist: it was created – conjured out of thin air – by the bank. (Most people believe that a bank lends out the funds entrusted to it in the form of savings and checking accounts, but banks can actually make loans for at least 10 times that amount). [1]

The system of **money creation via bank lending** is one of the reasons that economies require growth: each borrower must pay back the full amount of the loan, plus interest, and the **money supply must constantly increase** or there wouldn’t be enough for all that interest to be repaid.

Bank loans are just one small piece of a $26.5 trillion global financial system – representing **over 30 percent of world GDP** [2] –  that has enabled multinational banks and financial institutions to amass incredible wealth.

In recent decades the global financial system has become little more than **a casino**. Every day, for example, more than $5 trillion in currency exchanges occur – and 98% of that amount is **pure speculation** unrelated to the real economy of goods and services. [3] In addition to currency and stock speculation, bets are also placed on complex derivatives that are even further removed from the real economy. Speculative activity "leveraged" through borrowed money created by banks creates immense wealth for a few, but can have a **devastating impact** on the lives of millions of ordinary people. The financial crisis of 2008, as well as currency crashes in Mexico in 1994 and East Asia in 1997, are just a few examples.

Unfortunately, most small locally-owned businesses and family farmers have little choice but to turn to this same bloated and precarious financial system when they need capital. New businesses and aspiring farmers may need start-up funds to get off the ground. Existing businesses and farms may not have enough money on hand to replace or upgrade equipment. And individuals may want to finance a large purchase like a car or a home. Most often, this means going to a commercial bank for a loan, or even paying for their needs with bank-issued credit cards.

For local economies, reliance on these sources of capital poses serious problems. Borrowers may end up saddled with **high interest payments** that make it difficult to make ends meet, or to pay employees a livable wage. What’s more, those interest payments are **drained out of the local economy**, winding up as profits for distant bank shareholders or Wall Street investors.

Many of the initiatives in this section aim to **meet local needs for capital without relying on the global financial casino**, while others are attempts to create **alternatives or supplements to the money created by banks**. While these and other steps at the local level are valuable, they will not be enough to limit the worst damage caused by the global financial system: only **government policy** shifts can accomplish that.

# References [1] Ellen Brown, Web of Debt (Third Millennium Press, Baton Rouge, LA:2007) [2] Sean Ross, “Financial Services: Sizing the Sector in the Global Economy”, Investopedia, Feb. 6, 2020. https://www.investopedia.com/ask/answers/030515/what-percentage-global-economy-comprised-financial-services-sector.asp [3] Statista, “Average daily turnover in the global foreign exchange market from 1998 2019:, https://www.statista.com/statistics/247328/activity-per-trading-day-on-the-global-currency-market/; Bernard Lietaer, The Future of Money (Century, 2001)

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What are the key parts and relationships in finance systems?

In the first on-line, virtual eSyntegration (eSyn2030) we began to explore finance--5. Economics of Change and Change of Economics

digraph { layout=circo rankdir=BT overlap=false concentrate=false bgcolor=lightblue1 splines=true #[constraint=true] mindist=.1 node [shape=ellipse style=filled] label="\nSmall Scale Financial Systems" Currency [color=white] Credit [color=white] Debt [color=white] "Real\nEquity" [color=green1] "Real\nValue" [color=green1] "Real\nSavings" [color=green1] Interest [color=white] "Compound\nInterest" [color=red fontcolor=white] "Debt\nEquity" [color=pink] "Debt\nSavings" [color=pink] "Debt\nCurrency" [color=red fontcolor=white] "Ponzi\nScheme" [color=red fontcolor=white] "Real\nCapital" [color=white] "Debt\nCapital" [color=pink] "Real\nValue" -> Currency Debt -> Currency "Real\nEquity" -> Currency Currency -> Credit "Real\nSavings" -> "Real\nEquity" "Real\nValue" -> "Real\nSavings" "Real\nValue" -> "Real\nEquity" "Real\nSavings" -> Currency Debt -> Credit Credit -> Debt Debt -> Interest Debt -> "Compound\nInterest"[color=red penwidth=3] Debt -> "Debt\nEquity" Credit -> "Debt\nSavings" "Debt\nCurrency" -> Currency[color=red penwidth=3] Currency -> "Debt\nCurrency" [color=red penwidth=3] "Debt\nCurrency" -> "Compound\nInterest" [color=red penwidth=3] "Compound\nInterest" -> "Ponzi\nScheme" [color=red penwidth=3] "Real\nEquity" -> "Real\nCapital" Debt -> "Debt\nCapital" }

digraph { layout=dot rankdir=BT overlap=false concentrate=false bgcolor=lightblue1 splines=true #[constraint=true] mindist=.1 node [shape=ellipse style=filled] label="\nSmall Scale Financial Systems" Currency [color=white] Commitment [color=black fontcolor=white] Credit [color=white] Debt [color=white] "Real\nEquity" [color=green1] "Real\nValue" [color=green1] "Real\nSavings" [color=green1] Interest [color=white] "Compound\nInterest" [color=red fontcolor=white] "Debt\nEquity" [color=pink] "Debt\nSavings" [color=pink] "Debt\nCurrency" [color=red fontcolor=white] "Ponzi\nScheme" [color=red fontcolor=white] "Real\nCapital" [color=white] "Debt\nCapital" [color=pink] Commitment -> "Real\nEquity" Commitment -> "Real\nSavings" Commitment -> "Real\nValue" Currency -> Commitment "Real\nValue" -> Currency Debt -> Currency "Real\nEquity" -> Currency Currency -> Credit "Real\nSavings" -> "Real\nEquity" "Real\nValue" -> "Real\nSavings" "Real\nValue" -> "Real\nEquity" "Real\nSavings" -> Currency Debt -> Credit Credit -> Debt Debt -> Interest Debt -> "Compound\nInterest"[color=red penwidth=3] Debt -> "Debt\nEquity" Credit -> "Debt\nSavings" "Debt\nCurrency" -> Currency[color=red penwidth=3] Currency -> "Debt\nCurrency" [color=red penwidth=3] "Debt\nCurrency" -> "Compound\nInterest" [color=red penwidth=3] "Compound\nInterest" -> "Ponzi\nScheme" [color=red penwidth=3] "Real\nEquity" -> "Real\nCapital" Debt -> "Debt\nCapital" }

Problematic aspects of finance include Compounding Interest, Private Banks, Fiat Money, Financial Speculation, and government Subsidies, Tax Shelters, & Bailouts for irresponsible financial institutions. Unethical Alliances--Collusion between financial institution's, governments, and big businesses use your earnings (gov taxes and corp profit) against you. We are feeding those institutions that take more from us than they give back. It can be argued that the financial system and its tentacles are destroying our neighborhoods and the planet which would support us all.

Finance: Local or Remote?

This is a time to strengthen our Neighborhood Financial Systems. We need to create our own courses in Neighborhood Economics, like home economics which has been dropped from school curricula.

We can relatively easily use our own Local Currencies and sidestep the current and growing scarcity of national currencies.

We can create and recreate our local business as Local Co-ops of local workers and users.

We can do all our banking with Local Co-op Banks and Credit Unions.

We can move as much land into Local Land Trusts as possible. We can displace Wall Street equity with Local Crowd Sourced Equity.

Eventually we could even become a network of locally self financing co-ops capable of both autonomy and export as has occurred in Northern Italy Article .

When external systems of material wealth fail us, we have a moment to come together and change things, locally. This is One of Those Moments. There will be more but we should make hay when the sun shines, to turn a phrase upside down.

None of this is impossible. Any neighborhood or community can create committees to explore the practical approaches to these forms of local economy and associated finance. All of it is going on now around the world. It is up to us to bring it here. Just try things. Learn from doing. A few Local Finance Development Teams could facilitate these changes toward an economically resilient and sustainable local economy developed from within and supporting each other. We can create Local Self-Education on these critical local financial tools.

A caution: When things are going well and we have all we need and more, few are willing to take time to change things, especially things that provide the material wealth we have.