Suppose there was a bank local to American Samoa and another international bank with a branch in American Samoa, and the latter could offer higher interest rates because it saw fewer average defaults when lending money. Are you saying we should prohibit American Samoans from putting their money in the international bank and getting higher returns, effectively forcing locals to lend to other locals?
It's much simpler: Private Banking is offered for a profit, not because it is in demand. If an international bank can make more black ink stateside rather than Samoa, even if the risk/reward ratio isn't that different, the larger bank chooses the more profitable market to distribute it's loans. This puts Samoa in an awkward spot where they have a dearth of services, despite demand, simply because every bank made this analysis. It's classic Tragedy Of The Commons.
A public bank, in contrast, does not have to put this absolute profit first, giving them the flexibility to enter markets where they might not be as successful, but they don't have nearly the competition for their services. Additionally, since this is operated by the state, they can benefit from business loans and interest as another form of revenue, giving them room to cut taxes or improve services.
EDIT: As consolidation creates both larger businesses and larger reserves of capital, this causes the bank to make more conservative loans. They must play more defensively. As these banks retreat from "riskier" markets, it leaves genuine demand behind. Look at the article's description of "predatory lending" near the top of the article.
Because there is this pent-up demand, a local bank could open a branch that captures some of that demand, and incentivizes locals with higher returns than the international bank because they can charge a higher interest rate. But the IntBank wouldn't still enter this market because the size is still too tiny to warrant their attention and/or the interest rates locally don't move the needle in their global reserves. It's literally too small to be worth the effort.
It's not a tragedy of the commons unless something artificially prevents banks from charging a profitable rate for loans. If no other bank is doing business there, and if any bank which does do business is allowed to make a profit, then certainly one will. Indeed, that's what the 'loan sharks' are doing: providing desired services at a market-clearing rate.
It seems to me that a public bank will end up having to be subsidised from the general fund to cover its losses, which in the case of American Samoa probably isn't very large.
I think the risk for a business is that when the rates get too high, shadow banking just takes over. Which it will, because the rates will be really high.
It’s a whole lot of work to serve 55,000 people with a GDP of $13,000 per capita. There just isn’t enough economic activity to make this work from an international bank.
> Are you saying we should prohibit American Samoans from putting their money in the international bank and getting higher returns, effectively forcing locals to lend to other locals?
If it improves the local economic conditions by keeping money flowing in the local economy, then such a ban seems like a reasonable trade-off for the common good.
Being a greedy individualist, by focusing on chasing after marginally higher savings account interests rates, is likely going to be self-defeating in this case. Your dozens of dollars in extra interest payments are unlikely to compensate you for the other economic hardships you'll encounter because there's no local bank that will bother to make loans to your community.
But it doesn't direct local resource to unprofitable forms of work, it directs local resources to less profitable local forms of work rather than more profitable foreign forms of work. That seems like a perfectly reasonable trade-off for a community to make.
You're just dropping slogans. Please reply substantially on why you seem to think communities like American Samoa would be better off if its people couldn't get bank loans.
>> lease reply substantially on why you seem to think communities like American Samoa would be better off if its people couldn't get bank loans.
> I'd think it's obvious that they can't invest their money profitably if you don't let them do that.
I don't think you're really wrapping your head around the situation. No one's saying they "can't invest their money profitably." What's being said is that it's better for their community if their community's money is deposited in a local bank that makes loans to the community, rather than an international bank that won't (and perhaps pay slightly more in interest).
If you're having trouble wrapping your head around terms like "better for their community," you may have an easier time if you roughly translate it to "more profitable for their community."
You're confusing putting money in motion with actual production. If people don't invest locally, wages will fall until they've fallen enough that it's profitable to invest locally. There's no scenario in which investment dries up.
Now, in order for economic health, the investments made have to be put towards doing useful things. Ideally, very useful things.
(Edit: Notably, you can't invest locally if you don't have any profits to invest.)
Difficult to understand how people can still think like this. This is complete nonsense. Look around. The USA and Europe are littered with economic ghost towns where the disappearance of factories and industry sent the community into an economic death spiral from which they won't ever recover. Simplistic models like this have no bearing on the real world.
> If people don't invest locally, wages will fall until they've fallen enough that it's profitable to invest locally.
The problem with toy economic models like yours is that they're toys, and the elide many important factors in the name of simplicity. That simplicity can be extremely intellectually compelling, especially for laymen, but at the end of the day the world is complex and if you ignore that you have bad policy.
When all you have is a hammer, every problem looks like a nail. The solution to market failures is not more and harder market.
> There's no scenario in which investment dries up.
The literal facts are against you. The banks withdrew and American Samoans have no access to credit outside of usurious backyard moneylenders.
> Now, in order for economic health, the investments made have to be put towards doing useful things. Ideally, very useful things.
What at all does this have to do with anything under discussion? Usefulness is a local function and the precise problem here is that American Samoans (and others) don't have access to the credit they need do useful things in their communities. I'll bet you money that they're not planning to take out loans to do useless things like dig and fill in holes.
Anyway, I think we're talking past each other, and you seem more interested in performing dogma.
This thread is in response to your post about "prohibiting American Samoans from putting their money in the international bank," not about the current banking situation.
Again, I said that sounds like it could be a reasonable trade-off. You have to balance...
1. the good of the theoretical possibility of getting a pittance more in interest from an international bank with
2. the social costs of not having a well-regulated local bank that will make loans in the community.
If you totally ignore #2, you're going to make a bad policy decision. I think that's approximately what you're doing.
My position is if the good from #2 is greater than the good from #1, discouraging community members from depositing their money in a distant bank over a local one is good policy.
