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So, how was your Christmas vacation? Coffee and Markets is back from our holiday offseason to talk about what 2011 will bring, the rise of China, the challenge of microfinance, and Thomas Sowell’s take on Federal Reserve policy.

We’re brought to you as always by Stephen Clouse and Associates. You can find our iTunes feed at CoffeeandMarkets.com. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

China Post: A Chinese Century?
The Economist: Microfinance Under Attack
Uncommon Knowledge: Thomas Sowell on the Fed

As the Central Illinois 9/12 Project has briefly written about in the past, one form of banking in which Shorebank is engaged is microfinance, especially in foreign countries. As this is not a type of finance that is well known to the general public, we will discuss briefly what microfinancing is, how it is used in conjunction with green initiatives and Sharia law, and how Shorebank is using this type of financing in their banking processes.

The Consultive Group to Assist the Poor (CGAP) defines microfinance as simply “the  supply of loans, savings, and other basic financial services to the poor.”  These loans are generally relatively small, but carry with them a high interest rate due to costs incurred by defaulting on loans and the transaction costs that are disproportionate to the size of the loan.  (The cost of manpower and other factors needed to make the loan are the same regardless of the size of the loan – thus for smaller loans, the  percentage of these costs in relation to the amount of the loan is greater.)  Specifically, the microfinancing industry enables people to receive loans when they would not otherwise be able to do so, whether due to poverty, lack of a bank account, inability to provide collateral, and/or inability to prove employment. In 2007, there were 873 microfinance institutions worldwide serving more than 133 million loan recipients.

Microfinance was initially, and oftentimes still is, aimed at providing loans and opportunities to those who otherwise may not have the funds to get a business off of the ground, but microfinance is sometimes tied into other things such as green initiatives. Shorebank, a community development bank whose practices the Central Illinois 912 Project has highlighted before, is a partner in an eco entrepreneurship through a project called “Yurtcozy.” This initiative allows individuals to “offset their carbon footprint” by buying carbon credits which enable a microfinance loan recipient to receive funding  for things such as energy efficient appliances and solar lighting. It may also finance education on clean energy for microfianance recipients and partnerships in green initiatives. Yurtcozy asserts that if the carbon credit purchases were made for all microfinance loan recipients worldwide, then loan recipients could decrease their carbon emissions by 260 million tons, and thirty percent of their income would be unlocked.

One of Shorebank’s first forays into microfinance was through the establishment of Grameen Bank in Bangladesh in 1983. Grameen Bank was founded by Mohammed Yumus, a Noble Peace Prize Recipient in 2006 and 2009 recipient of the Congressional Medal of Freedom from President Obama. Yumus’ description of the features of Grameencredit includes stating that “credit is a right,” and it’s built on “trust” (i.e., social justice in banking.)

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The Central Illinois 9/12 Project became one of the first to expose — beginning this past March on BigGovernment.com – Shorebank’s extensive green and microfinancing agendas, in anticipation of that bank’s impending bailout.  Shorebank, a Chicago-based, community-based investment bank, is focused on domestic and foreign microfinancing, is heavily engaged in the financing of “green” projects and “green” jobs, and has a host of ties to the Obama and Clinton administrations.  Most recently, we wrote in April about Shorebank seeking a “bailout” from larger financial firms that have previously received bailout money from the federal government. Congresswoman Jan Schakowsky had previously proposed that the bank receive funds from the State of Illinois to help cover its loss of capital since the beginning of the nation’s economic downturn in 2008.

As we previously wrote, Shorebank would potentially be eligible for TARP funds if it were to be recognized as a “Community Development Financial Institution.” In order to to received needed federal TARP money and prevent seizure by the FDIC, Shorebank needed to receive appropriate matching funds from private sources.  News stories have been released over the past several days indicating that Shorebank has potentially received such funding.

Shorebank has reportedly received $20 million from General Electric, $20 million from Goldman Sachs, and $20 million from Citigroup – with additional large funds being promised by J.P.Morgan Chase, Bank of America, and Morgan Stanley. Shorebank also has received funds from the Northern Trust Corporation, State Farm, and Harris N.A.  It has been reported that the bank could also receive funds from Wells-Fargo and PNC Financial Services.  Assistance from these financial institutions puts Shorebank’s raised capital from private sources within the range needed to make it eligible for TARP funds.

As we reported previously, Citigroup, Bank of America, and Chase all received tens of billions of dollars in taxpayer money from TARP.  Does this then mean that Shorebank is being bailed out by bailout money?

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As the Central Illinois 912 Project has addressed previously on BigGovernment.com, Shorebank is a community bank based out of Chicago that is engaged in microfinancing – a hybrid of capitalism and social justice.  They have been supported and promoted by individuals like Van Jones, President Obama, President Clinton, and Secretary Clinton. They have also become heavily involved in the financing of green projects (see here and here).

In 2009, Shorebank received more than $35 million in federal funds for grants and new market tax credits. Despite this new flow of funds to extend to their customers and loan recipients, Shorebank reported a loss of $50 million in 2009 alone and was issued a “cease and desist” order by the FDIC and the Illinois Department of Financial and Professional Regulation.  In addition, ShoreBank was receiving strong warnings from the Federal Reserve Bank of Chicago. Their dire financial state had lead them to initially seek a “bailout” from the State of Illinois, promoted by Chicago Congresswoman Jan Shakowsky and Senator Dick Durbin. However, they have since decided that they can find capital without seeking state help.

Interestingly, Shorebank is currently seeking support from a few large banks –all of which have received federal bailout money from the Toxic Asset Relief Program (TARP) and are Shorebank stockholders. These banks include Citigroup, Bank of America, and Chase. Citigroup initially received $25 billion in taxpayer money (plus another $20 billion soon after), and Bank of America initially received $15 billion (plus another $20 billion after that). Neither of these banks has completely paid back their TARP loan. Chase also received $25 billion in bailout funds, but repaid its loan in December of 2009. So rather than seeking a bailout from a state that has a $13 billion budget deficit, Shorebank is seeking to be bailed out by banks that have already been bailed out by federal taxpayers – which is, in essence, an indirect, federally-funded bailout.

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The Shorebank story is quite complicated and filled with literally hundreds – if not thousands — of individuals who have been in some way involved in the unfolding of an intriguing saga. It has been difficult to narrow down the field of characters in order to focus on just a few. Some of the names are familiar, and some are relatively unknown (except, perhaps, within the context of their own circles of influence).

The original founders of Shorebank probably didn’t dream that this bank would have the worldwide influence that it now has. They were all very active in their communities and had a desire to see the South Shore neighborhood re-built to its former state of safety and community life. The neighborhood had suffered economically and was becoming run-down and plagued by crime. Their hope was to re-invest and re-enliven this neighborhood of Chicago. They made loans towards the renovation of many of the buildings which were deteriorating and in disrepair. They also invested in new building projects to benefit the residents of South Shore.

For 30-plus years Shorebank has seen its founders’ dreams realized; and beyond those dreams, Shorebank has become the catalyst for international financing — especially that directed toward low-income people in many countries of the world. The Community Reinvestment Act, passed into law in 1977 during President Jimmy Carter’s term of office, encouraged financial institutions to make loans to low-income borrowers. Ron Grzywinski (one of the original founders of Shorebank) was the only banker to testify before Congress in support of the Community Reinvestment Act. Its passage was instrumental in paving the way for Shorebank’s success. The bank steadily grew financially and facilitated the renewal of poverty stricken areas through the rest of the 1970’s and early 80’s, catching the attention of then-Governor Bill and Hillary Clinton of Arkansas (in fact, according to the IFA, Bill is still advocating on behalf of ShoreBank).

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Since its founding, ShoreBank has been a progressive-minded bank focused on community development. However, it soon adopted the progressive commitment to environmentalism after founders Ron Grzywinski and Mary Houghton were approached in 1993 by Ecotrust, an environmentally-conscious firm focusing on debt for nature swaps in rainforest countries as well as environmental banking in the Pacific Northwest. The partnership of the two firms led to the establishment of ShoreTrust (now ShoreBank Enterprise Pacific) which provided financing, marketing and management assistance to small businesses in the Pacific coastal rain forest area. From there, the rest of the ShoreBank family eventually followed in adopting the green agenda.

For the entire story chronicling the founding of the bank and its move towards its environmental commitment, you may read Alka Srivastva’s dissertation for Case Western Reserve University here>>>.

From there, it did not take long for ShoreBank to incorporate environmentalism into its mission and formalize its commitment to the green agenda. In 1999, ShoreBank’s board of directors adopted a new conservation and development policy requiring the bank itself to reduce its waste and also encourage its customers to adopt more sustainable practices. The concept of environmental health then assumed its place alongside the goals of community development and profitability to form the “Triple Bottom Line” slogan that the company champions today. As evidence of its own commitment, ShoreBank has even addressed its own carbon emissions by purchasing offsets for 450 metric tons of C02 to offset emissions through 2010.

ShoreBank’s environmental advocacy is now prevalent throughout its dealings, both  in how it relates to its domestic banking customers, and in its international development objectives.

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In the midst of the radical social atmosphere of the 1960s, a group of Chicagoans, Ron Grzywinski, Milton Davis, James Fletcher, and Mary Houghton, came together to found South Shore Bank in the 1973 with a goal to provide loans to minority owned small businesses.

Ron Grzywinski had banking experience with Hyde Park Bank. Milton Davis was a University of Chicago employee and the Chicago leader of the Congress of Radical Equality (CORE).  James Fletcher had previously worked in President Johnson’s administration as part of the internal transition team and with the Citizen’s Action Program in the Office of Economic Opportunity.  Mary Houghton, at that time, was running a daycare program for low income families.

These four individuals had often met to discuss ways in which they could help the needs of urban society by becoming a financial intermediary for social development and community actions. These discussions led to the creation of a minority lending program at Hyde Park Bank. With the influence of Al Raby, a Chicago black rights leader, they looked for the next step to continue their goals of providing loans to small businesses in neighborhood development. Grzywinski stated, ” community-based organizations appeared to be the only organizations in society that cared about the broad range of needs that exist in urban communities”.

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We all know what the words “debt,” “taxpayer,” and “interest” mean, but how many people know what the words “jizya”, “dhimmi” and “Grameen” mean? In order to understand the precipice of disaster that the banking system is resting upon today, one must understand all these words, and then some. No solution can be found by only understanding the first three. Only an illusion of understanding exists until the latter, and more, like “jihad” and “Sharia Law”, are considered.

The jizya amounts to a tax paid by Non-Muslims to Muslims in order that they may live in peace. A fair comparison is money paid by business owners to neighborhood thugs in order to gain protection. Think Mob. Engaging in this endeavor creates the status of dhimmi – a willingly subservient protected group of third class subjects. Let’s just call this what it is – extortion based slavery. Let us also understand that this is an endgame of this thing called “jihad”.

From the Koran:

(9:29) – “Fight those who believe not in Allah nor the Last Day, nor hold that forbidden which hath been forbidden by Allah and His Messenger, nor acknowledge the religion of Truth, (even if they are) of the People of the Book, until they pay the Jizya with willing submission, and feel themselves subdued.”

(30:39)  And whatever you lay out as usury, so that it may increase in the property of men, it shall not increase with Allah; and whatever you give in charity, desiring Allah’s pleasure– it is these (persons) that shall get manifold.

(3:130) O you who believe! do not devour usury, making it double and redouble, and be careful of (your duty to) Allah, that you may be successful

(2:275) Those who swallow down usury cannot arise except as one whom  Shaitan has prostrated by (his) touch does rise. That is because they say, trading is only like usury; and Allah has allowed trading and forbidden usury. To whomsoever then the admonition has come from his Lord, then he desists, he shall have what has already passed, and his affair is in the hands of Allah; and whoever returns (to it)– these arc the inmates of the fire; they shall abide in it.

You get the idea.

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