Posted on November 11, 2008

As the global financial system destroys decades' worth of Americans' savings, the relative calm and stability surrounding community-based financial institutions is striking. Locally owned banks and credit unions, which rarely got involved with predatory loans or resold their loans on global markets, are faring remarkably well. The founders of e3bank, a new ecological bank in Philadelphia, believe that they now will have an easier time raising necessary capital. The Rudolph Steiner Foundation's business loan funds, underwritten by their anthroposophy-minded investors, expect most of their client businesses – all carefully selected for their strong social and community character – to fare reasonably well.

In my last blog entry I suggested the importance of expanding the Community Reinvestment Act (CRA) from banks to all kinds of financial institutions, including bond issuers, mortgage and consumer credit companies, insurers, and mutual, pension, venture, and hedge funds. All these institutions should be required to disclose where their investments are going (to reveal how much, if any, of their capital stays local) and be incentivized to invest more locally (the CRA conditions mergers or expansion on good community performance).

Several weeks of further deterioration of my own pension funds have convinced me that CRA expansion is, ultimately, less important than a total reinvention of the U.S. financial systems. The CRA is about altering the behavior of financial institutions that are not typically locally owned – about pushing, guilt-tripping, even extorting them into slightly better behavior. What we really need is to replace these players altogether. — read more