GWU Invests in Washington, DC Communities

Settled in the heart of the Foggy Bottom neighborhood of downtown Washington, DC, the George Washington University is characterized by its diverse student body, robust international affairs and political science programs, and high cost of attendance. Tuition fees go towards everything from funding events on campus space to acquiring new properties, but the institution was never known for its commitment to developing low-income communities around the District. That changes, however, with 20-year-old Zach Komes’ program GW Bank on DC – a plan to funnel $250,000 of university cash holdings into community development banks around the city.

http://www.freeimages.com/photo/1225847A community development bank is different from a name-brand megabank in a few ways. Both types of institutions will offer services like checking and savings accounts, debit and credit cards, loans, and mortgages. Unlike a megabank, however, a federally certified community development bank must invest 60% of their funds into low-income communities in order to maintain their distinction. This incentivizes both sustainable and profitable investments in neighborhoods with significant infrastructural needs like housing and transportation.

There are many benefits to investing in community development banks. Research indicates that an investment in a local CDB can create jobs and channel capital to low-income communities, simply because CDBs provide more opportunities to low-income families and small business owners than other banks. Keeping that investment with an institution that serves local residents and entrepreneurs ensures that money circulates within low-income communities and not away from them.

As policy director for the GWU chapter for Roosevelt Institute Campus Network, a student-run policy think tank, Komes hopes to make the university a leader in socially responsible investment decision-making. “We don’t have to sacrifice financial return for social return. Through our proposed plan, GWU can support local neighborhoods, while meeting fiscal and policy goals,” Komes says.

Green America supports GW’s decision to take an active interest in its city and invest money where it is needed most. By keeping investments local, we can continue to build a sustainable, resilient community full of small businesses, happy citizens, and bright horizons.

Supporting local communities through banking is not only for institutions, as individuals, we can also direct our money to banks and credit unions that benefit low income communities around the country. To learn more about community investing, please visit our page.

You Don’t Have to Be a Rockefeller

It’s not often at Green America that we highlight members of the 1% as an example to follow, but recent action by the Rockefeller family now serves as a model for many Americans. The Rockefellers have instructed the Rockefeller Brothers Fund to divest its holdings of fossil fuels, joining a growing list of foundations that are taking this stand against irresponsible fossil-fuel polluters. Since the family’s wealth — much of which is now in charities — was made from Standard Oil (now Exxon), the move is particularly meaningful.

The divestment decision comes after years of the Rockefellers engaging with Exxon and trying to encourage the company to be more sustainable, without much success (for 10 years Green America and its members also put direct pressure on Exxon). Exxon and the other major fossil fuel multinationals have made it clear that they plan to pursue a strategy of increasing the production of fossil fuels for decades. That means increased drilling in fragile ecosystems, with the inevitable major spills on land and seas. That means more fracking and more tar sands fields. It also means pumping way more carbon into the atmosphere and warming the planet to levels it hasn’t experienced in millions of years, creating massive disruptions to civilization as we know it, and speeding the extinction of thousands of species.

ThatFossil Free’s why more and more philanthropies, universities, houses of worship, and individuals are saying “enough is enough” and moving their money out of fossil fuels and reinvesting in a green economy.

You don’t have to be a Rockefeller to take part. Here’s four steps to take action with your money:

  1. Divest from climate polluters and reinvest in clean energy. 
    Green America’s Fossil Free Investment campaign has the most complete resources available.
  2. Break up with your megabank.
    Megabanks continue to invest billions in coal and other fossil fuels, even after pledging to go carbon free.  Green America’s Break Up With Your Megabank Campaign has all the resources you need to move your money to banks and credit unions that invest in local communities and green companies.
  3. Take the Divest/Invest Pledge.
    The Divest/Invest coalition is asking people to take their pledge to divest to demonstrate the growing numbers of individual investors who are saying no to fossil fuels in their portfolios.
  4. Share this information widely.
    Encourage family, friends, your house of worship, school, etc. to divest their money from fossil fuels as well.  The faster the movement grows, the more pressure there will be on polluters.

The People’s Climate March – 400,000 strong – demonstrated that Americans are willing to take action for climate change and are not going to wait for Washington or all Street to take action. We can all take action with our money for the climate. In the 1980’s the divestment movement made a huge impact on ending Apartheid in South Africa. Now, it’s our turn to divest our money from fossil fuels and invest in the clean energy economy we need.

Take action today!

Megabanks can afford to break the rules, but can the economy afford the risk?

ImageRecent high-profile settlements involving some of the nation’s largest banks have consumers scratching their heads. Since 2012, banking giants like Chase and Bank of America have come under fire from regulators in an effort to discourage the kind of egregious behavior that drove the economy to the brink of collapse in 2008. While the sums collected thus far by regulators appear to be huge, they are little more than a drop in the bucket for the megabanks. Have a look at some examples of the fines and settlements these banks have reached so far:

  • Bank of America has paid over $15 billion since 2007 to settle claims related to the financial crisis, including $11.6 billion to Fannie Mae in 2012 to resolve repurchase claims related to bad mortgages between 2000 and 2008.
  • Since October of 2012, American Express has refunded approximately $144.5 million to 585,000 customers for deceptive marketing regarding add-on products like payment protection and credit monitoring, as well as charging unlawful late fees to customers’ accounts.
  • Capital One paid $210 million to the Consumer Finance Protection Bureau in 2012 to reimburse customers that they deceptively charged for unnecessary services like credit monitoring, generally targeting unemployed people and those with poor credit.
  • Last year, Citi paid almost $1 billion to Fannie Mae resolving claims over nearly 3.7 million subprime mortgages it sold.
  • In addition to paying $1.32 billion to Fannie Mae and Freddie Mac over subprime mortgages, Wells Fargo reimbursed customers $203 million for organizing debit charges from highest to lowest, rather than chronologically, collecting excess revenues from overdraft fees.

These are only a few examples of settlements reached by banks and prosecutors. Consumer reimbursement accounts for only a small percentage of the fines paid; most of the time fees were collected by the FDIC and similar regulating agencies. Furthermore, these settlements account for a miniscule fraction of the damage done to the economy as a result of rule breaking or lax regulations and enforcement.

No one believes that the megabanks have learned their lessons, and several are once again engaging in speculative behavior and manipulating markets. For example, several megabanks are heavily invested in manipulating commodities. It was also recently revealed that Wells Fargo trained members of its staff to forge foreclosure documents. Despite continued efforts by regulators to control this sort of behavior, the banks employ massive legal resources to challenge regulations every step of the way.

If you believe that megabanks should be held accountable for deceiving customers and engaging in self-interested behavior at the expense of our society and natural resources, there are a few things you can do to make sure your voice is heard. First, you can move your account to a socially-responsible community development bank and stop supporting a megabank with your service and account fees – and let them know about it once you do.  Second, you can stop using lines of credit offered by megabanks – each time you swipe your credit card, they collect a percentage of your charge. You can find a list of cards from banks that benefit communities and devote a portion of their interchange fees to environmental protection or community development here. And finally, you can take action and tell regulators to keep putting pressure on the megabanks by writing and implementing rules that discourage deceitful behavior. The more you know about what these banks are really up to, the more you can do to make sure they start working for the people and the planet.

Mega-banks: More than just Banks

One of Green America’s goals is to teach consumers how the businesses you choose to support can have a big impact on the world around you. From the food we buy each week, to the clothes we wear, to the energy we use to heat and power our homes – on almost all levels of the economy, we have a choice between companies that operate with an awareness of the effects of their presence on the world, and companies that pursue the goal of growth over anything else.

And while it is easy to see the negative impacts of massive agricultural engineering companies, clothing companies’ sweatshops in faraway countries, and dirty international oil companies, the financial services industry influences nearly every sector of the economy – often with serious implications for people and the planet. And as banks actually sell very few tangible products, it is more difficult to recognize that our choices can drastically affect our environment and our communities. To give an example, let us look at commodities: the raw materials for nearly every product you can buy.

Recent news coverage of the banking industry has revealed that large investment institutions like JP Morgan Chase and Goldman Sachs have been spending their money on warehouses. As in the large empty buildings where industrial materials, like aluminum and copper are kept before manufacturers buy them to produce goods. Why would a bank be interested in owning a warehouse?www.freefoto.com

There are a few reasons. When an entity like Goldman owns the rights to its warehouse, it can control the time it takes to process an order from a manufacturer for raw materials. While manufacturers wait for their orders, the banks make trades based on the projected future price of the materials in their warehouses. The catch is that the banks already know how much they have, where it is stored, and exactly when they plan on moving it. They use their knowledge of the location and inherent value of the commodities to make purchasers less “in-the-know” believe that the commodities are worth more. And as the owner of the facilities and the commodities inside, the banks are the ones who overwhelmingly profit from their position in an industry where they really do none of the work.

What is the result of a large investment bank purchasing industrial amounts of something like aluminum and then artificially charging more for it? Companies that use the metal, like Coca-Cola, pay more for the materials they need to make their soda cans, and then they pass this cost onto the consumers. So when you pay a few more cents for a can of coke at the vending machine, you are essentially supporting the monopoly created by the bank that purchased the warehouse in the first place.

So if banks are presently deregulated to the point where they can exert influence upon multiple levels of industry and profit across all of them, where does that leave us as consumers? It leaves us right where we started – with a choice. When we deposit our paychecks at, or use credit from a mega-bank, we are directly supporting activities like monopolistic commodities speculation that inhibit industrial efficiency and raise prices for consumers. And just like purchasing an organic apple, or fair-trade clothing, we can support local financial institutions that abstain from activities that come at a great cost to society. Green America’s Break Up With your MegaBank and Take Charge programs offer information and resources to help you make the switch from a megabank to a local institution that serves people and the planet. Check them out today!

“Dad, What’s a Financial Crisis?”

“It’s something that happens every five to seven years,” Jamie Dimon told his daughter without a breath of sarcasm, writes Bloomberg financial reporter Bob Ivry in his book “The Seven Sins of Wall Street.”

As the United States navigates its way through a post-recession financial environment, our tendency to fall back on old habits makes the term “recovery” questionable at best. While there has been a concerted public effort to address the regulatory discontinuities that brought the global economy to the brink of collapse in 2008, mega-banks continue to use the same financial instruments to gamble with the lives of ordinary citizens. The mortgage-backed securities industry may have been in the spotlight for years, but cousin industries have flourished in its shadows. Here is an example of a new value-creating machine and how it threatens the economy.

wall stHousing                                                                                

Remember how banks were encouraged to sell as many mortgages as humanly possible, no matter what the circumstances? The “junk” or “sub-prime” mortgages, where the borrowers had no chance of making their outlandish payments, were grouped together and sold to investors as bonds. We all saw how well that turned out as soon as homeowners’ mortgage rates adjusted upwards and payments stopped being made; the ripple effect caused people in all corners of the economy to lose money.

Now, in the wake of mass foreclosures, Wall Street has found a new way to make money from the basic human need for shelter. Private equity firms have zoned in on certain housing markets, like in Riverside County, CA, and purchased blocks of foreclosed homes with cash. By doing this, they were able to artificially inflate the price of the housing stock, ensuring that first-time buyers are priced out of the market.

So what will private equity firms do with all of these empty, expensive homes? Rent them out, of course! With the inflated price of housing, however, people are now paying more than 50% of their income on rent in some regions. This leaves fewer dollars for other essentials like food, transport, and health insurance, let alone thousands of other industries that consumers support. With fewer customers, businesses make fewer sales, growth stalls and our nation’s economic output suffers.

But does a weak economy mean reduced profits for Wall Street? Private Equity firms aren’t stupid. There must be something about these foreclosed homes with value-creating capability. Enter “rental-backed securities.” Private equity firms like Blackstone bundle the revenue streams from rental payments into bonds, and then sell them to investors – much like mortgaged-backed securities. Though the first rental-backed securities received a triple A rating by evaluators Moody’s, Morningstar, and Kroll, the question of what will happen if rent payments begin to come up short looms. And with people spending more than half of their paycheck to keep a roof over their heads, it’s more a matter of “when” than “if” this will happen.

While the sale of rental-backed securities is slated to reach $70 billion a year, the wealth created by this industry will be transferred largely from the labor of renters to the far away-landlords on Wall Street. GDP will likely increase, but the purchasing power of thousands of Americans, especially younger, first-time renters, will be significantly diminished.

Rental-backed securities are just one of the ways mega-banks are maintaining their control and oversight of our economy. Despite their omnipresence, there are lots of things you can do to remove your support for practices like these and encourage a shift to a more just and local economy. By moving your accounts from your current mega-bank to a community development bank or credit union, you can be confident that each fee you pay will be pumped back into local causes, and not into the funds of private equity landlords. Green America’s  Break Up with your Megabank and Take Charge campaigns offer resources to help you start making the transition to an economy that works for the people and the planet today.

When in Doubt: Commit Forgery?

This week, Linda Tirelli, a lawyer representing a client in a foreclosure case with Wells Fargo came across a very disturbing piece of evidence: a company manual instructing the bank’s staff in how to forge documents to proceed with foreclosures.  The manual instructs employees how to process [mortgage] notes without endorsements and obtaining endorsements and allonges.  In essence, if employees lacked the documents needed for foreclosure, they were instructed to make them up.  As Tirelli stated to the Washington Post:

“This is a blueprint for fraud,” said Tirelli, who attached a copy of the manual as evidence in the lawsuit filed in U.S. District Court in White Plains, N.Y. “The idea that this bank is instructing people how to produce these documents is appalling.”

The disclosure of the manual has been duly reported in the business sections of major media, but has not made a huge splash.  It’s shocking that the media and the public are this numb to the latest revelations of fraudulent behavior by megabanks.  Two years ago, several banks paid a settlement of $25 billion for their fraudulent conduct in robo-signing mortgages (although much of that money never actually benefited the people who lost their homes).  Apparently, the money paid by Wells Fargo for its portion of the settlement was not enough to deter ongoing wrongdoing.  The bank is so emboldened by the failure of the US government to truly crackdown on bank fraud that it was actually willing to create a manual for engaging in fraud.

How is it possible that 5 years out from the financial crash, the steps taken by the federal and state governments to address widespread fraud and abuse in the financial sector are sorely lacking?  In a letter to the Justice Department sent on the same day that the Wells Fargo fraud manual was disclosed, three members of Congress – Elizabeth Warren, Elijah Cummings, and Maxine Waters – asked Eric Holder why the Justice Department was not prosecuting mortgage fraud more aggressively.  The letter calls out the fact that even though $200 million was appropriated to the FBI to investigate mortgage fraud between 2009-11, the FBI ranks investigating mortgage fraud as its lowest priority.  When nearly five million families have lost their homes due to the financial crash brought about by Wall Street, and when many of these homeowners lost their homes through suspect foreclosure proceedings, it is an outrage that the Justice Department is failing to take mortgage fraud more seriously.

What can we do as individuals?  One important step to take is stop banking with megabanks.  If you have a bank account with Wells Fargo, go to our Break Up With Your Megabank site to find community development banks and credit Unions that support people and communities instead.  If you have a credit card with Wells Fargo, use our Take Charge of Your Card site to get a card with a responsible bank or credit union instead.

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Why a Central Banking System Doesn’t Work for Everyone

Green America’s Take Charge Program urges consumers to support smaller, local financial institutions in lieu of megabanks. Here are a few reasons why local banks and credit unions benefit smaller communities across the country. 

Since the early 20th Century, The United States has relied heavily on its centralized banking system. Represented by the Federal Reserve and top-tier financial institutions, (such as Citi and Bank of America), a centralized system is one in which a single entity regulates a state’s currency, money supply, and interest rates. The Federal Reserve has many responsibilities, including regulating and supervising private banks, protecting the credit rights of consumers, and issuing the nation’s currency.

The role of large, wealthy private banks is important in understanding how the central banking system works. The Fed is not controlled by the government, but rather by a group of governing board members who are often employees of private megabanks. Private banks give the board information related to their particular economic situation, and Federal Reserve policy is based on their suggestions. In turn, Federal Reserve policy largely influences to whom, and by how much banks should lend their money.

www.freefoto.com, Ian Britton

The centralization of banking benefits wealth concentration and increases risks

Research suggests that “high-ability entrepreneurs” tend to gravitate towards a central banking system. Essentially, wealthy individuals and institutions enjoy the connectedness that a centralized system offers. Pooling together the resources of powerful entrepreneurs, however, increases the risk of losing all of that money by making poor lending decisions. Large, wealthy banks are able to spend more on screening potential borrowers so that they have the lowest chance of losing a large amount of money. Even so, due to their sheer volume of lending, a megabank’s ability to evaluate the underlying credit-worthiness of their borrowers is compromised at such a large scale. Despite their best efforts, risk is always present.

On the other hand, as a part of a decentralized system, banks face lower screening costs. Community investment banks and credit unions focus primarily on the specific regions they serve. Local banks spend less on the evaluation of potential small-scale borrowers, in part because of the modest needs of their customers and in part because they have less to lose by lending in the first place. As such, local banks can consider factors other than the bottom line, like a project’s potential benefit to or impact on the surrounding community or environment.

The difference in risk management costs leads to what researchers call a spatial bias. Think of New York City, where some of the largest banks in the nation are headquartered. Communities surrounding the central banks benefit from their proximity to the hub. After all, it’s much riskier to lend money to someone across the country than it is to lend to a neighbor. But what about the communities that are nowhere near a banking center? Credit-worthy businesses and consumers in these areas often have a hard time obtaining financing from megabanks, which prevents smaller communities from growing.

The higher risk faced by lending megabanks also steers their preference toward larger borrowers. It is less costly to screen one large entity seeking a loan than many small individual requests for risk. The problem is, large borrowers often need financing for some of the most damaging activities, like dirty energy and sub-prime mortgages (which helped trigger the economic malaise of the past 5 years). In addition to making those involved quite wealthy, these activities can have serious societal consequences – consequences that small, regional, low-impact borrowers would not likely cause.

Local Banks support what Megabanks Don’t

Areas with limited access to capital are best served by community investment banks and credit unions to finance homes and build infrastructure. These communities have relatively little to offer towards the megabanks’ record-breaking profits, and they frequently emerge as losers against investment opportunities considered to be “safe bets” by large banks.

What is particularly troubling about the influence megabanks have on our central system is that there is ample room for abuse – we have seen countless examples of megabank misconduct, and we know that the forces at play can be damaging to both the environment and communities.  For example, many large banks were recently fined billions of dollars for their role in the mortgage fraud that precipitated the Great Recession and are currently being sued by the FDIC for their role in manipulating LIBOR (an international interest rate).

Given this misconduct, we, as everyday consumers of financial services like modest lines of credit and checking/savings accounts, should support community investment banks and credit unions outside of the centralized sphere. Instead of supporting coal mining or questionable mortgage-lending practices, the fees paid for your bank’s services could go directly back into your own world, supporting community development and environmental protection projects. Unless your megabank can offer you something your local financial institution cannot, the decision to Take Charge should be a no-brainer.

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