26 Questions
What type of organizations are mentioned as taking loans from commercial lenders?
COAs, ESOPs, CLDCs, and CSOPs
What is the purpose of CCRC loan default insurance?
To reduce the risk of loan default for lenders
What happens to the loan paper after it is insured?
It is brought to the discount window of the regional Federal Reserve bank
What is the purpose of the discount fee?
To cover the Federal Reserve overhead in administering the system
What happens when new currency is issued?
The bank's reserves are correspondingly increased
What is not involved in this system?
All of the above
Who published an article on 'The Federal Reserve Discount Window'?
Norman G. Kurland
What is the title of a publication by Norman A. Bailey?
A Nation of Owners
Why should the full faith and credit of the Federal Government not stand behind bank loans or insurers of capital credit?
To encourage responsible lending practices by member banks
What percentage of a defaulted loan would capital credit insurance cover according to one proposed option?
80% to 90%
What is the main purpose of the Capital Credit Reinsurance Corporation (CCRC)?
To reinsure commercial capital credit insurers of banks
How would the operational costs of the CCRC be covered?
Through premiums on insurance programs
What type of insurance would the CCRC reinsure?
Capital credit loan default insurance
How would the premium rates for capital credit insurance be determined?
All of the above
What is the main benefit of portfolio reinsurance for workers?
Protection against the loss of retirement assets
Why would commercial portfolio insurance be useful for ESOPs?
To offset the lack of diversification in most ESOPs
How would the premium costs for commercial portfolio insurance vary?
Based on the company's age and profitability
What is the main goal of the Economic Democracy Act (EDA)?
To encourage employee ownership and capital homesteading
What is the main goal of the Economic Democracy Act?
To enshrine access to credit for acquiring productive capital as a fundamental right of citizenship
How would citizens purchase newly issued shares under the Economic Democracy Act?
With interest-free capital credit
What is the purpose of capital credit insurance under the Economic Democracy Act?
To provide a substitute for traditional collateral requirements
What is the 'Catch-22' situation referred to in the text?
You need collateral to get credit
What would be the long-term benefit of the Economic Democracy Act for citizens?
A decent and regular income from the earnings of the capital they accumulate
What would be funded by the risk premium portion of service charges under the Economic Democracy Act?
Commercial loan default insurance and reinsurance pools
What is the main barrier to extending access to meaningful capital ownership among the poor and middle class?
The collateral that lenders require from borrowers
What would citizens have to pass on to their children under the Economic Democracy Act?
Income-producing property
Study Notes
Overcoming the Collateral Barrier to Capital Ownership
- The Economic Democracy Act (formerly called the Capital Homestead Act) aims to make access to credit for acquiring productive capital a fundamental right of citizenship, like the right to vote.
- Through a well-regulated central banking system and safeguards, citizens could purchase newly issued shares representing newly added technology and structures with interest-free capital credit.
- These purchases would be paid off with tax-deductible dividends of these companies, without reducing the income citizens use to support their families.
Capital Credit Insurance: A Substitute for Traditional Collateral
- The collateral requirement for loans creates a "Catch-22" situation where those who do not have assets to serve as collateral cannot access credit to grow the economy and create new capital owners.
- The Economic Democracy Act proposes the establishment of commercial loan default insurance and reinsurance pools, funded by the risk premium portion of service charges.
- This insurance would cover the risk of loans defaulting, allowing lenders to provide credit to those who do not have traditional collateral.
The Capital Credit Reinsurance Corporation and Commercial Capital Credit Insurance Companies
- A Capital Credit Reinsurance Corporation (CCRC) would be established as a backup insurer of last resort, with no taxpayer funds or government underwriting involved.
- The CCRC would offer capital credit loan default insurance to commercial capital credit insurers, covering the risk of loans defaulting.
- Participating lending institutions would pay an annual premium (0.5% or higher) to insure against losses on loans offered to borrowers through Capital Ownership Accounts, ESOPs, and other pure credit vehicles.
- The premium would be included in the one-time discount charged by the lenders, with sounder companies having lower premiums.
Portfolio Reinsurance
- The CCRC could offer portfolio reinsurance to insure assets accumulating in capital homesteading accounts against the "downside risk".
- For an additional premium, commercial insurers would insure assets against the loss of value, guaranteeing a high percentage of the initial values of company shares.
- Portfolio insurance would also be useful for offsetting the lack of diversification in most ESOPs.
Discount Window Mechanism
- Once insured, the loan paper could be brought to the discount window of the regional Federal Reserve bank.
- The Federal Reserve would issue new currency or increase the bank's reserves to cover its expanded liquidity needs, without involving taxpayer funds, interest subsidies, or Treasury borrowings.
Learn about the Economic Democracy Act, a proposed law that aims to provide citizens with access to credit for acquiring productive capital, and its potential impact on wealth distribution.
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