What if Congress chartered a new class of federally guaranteed savings banks that were limited to taking deposits and making loans only within certain defined geographies: zip codes or Congressional Districts perhaps?
These savings accounts would be guaranteed to earn at least market rates (by holding a certain percentage of its outstanding loans in T-bills – and depending upon the performance of its other loans, even better. They probably wouldn’t do better than the stock market (they conceivably could), though they would be much safer, and they would certainly do better than the current Social Security system, and that’s the point. The deposits held by the bank would be directed there by citizens paying into Social Security. They are accounts held by the individual that cannot be drawn upon until the point at which that citizen is able to start receiving Social Security payments. Also, the depositor would be limited to choosing to keep their money in banks located within their locale.
This seeks to achieve multiple aims:
1) It would help foster the “ownership society,” one of the few good ideas from President Bush (politicians opposed to anything from the other side are tiresome)
2) It would protect grandma’s retirement money, and probably enhance her returns (not to mention my own and those of my three sons.)
3) It would be a boon to entrepreneurial activity as the loans would be targeted to helping small, and especially micro businesses everywhere, though particularly in poorly served neighborhoods
4) If grandma, myself, my children – all of us – are vested in the loans made in our neighborhoods, we can encourage positive social pressure on loan recipients to honor their obligations, lest they harm their neighbors in a very tangible way
A lot of details are lacking here, but it is a start. What do you think?