“Give that Frog a Loan; his Old Man is a Rolling Stone”

Kat Taylor came to teach the 5th grade about banks, loans, the credit crisis, etc. The students responded with terrific questions and even a funny riddle. Below is a summary of the topics she reviewed with the class.

One California Bank
• 15 months ago, she and her husband, Tom Steyer, launched One California Bank
• We’re all in the same boat; we are all in one California
• When the larger community succeeds, we succeed.
• Goal is to watch out for our customers /borrowers, and when they’re growing, we’re all OK.
• We help people save money, make money, and invest money
Muhammad Yunus
• His first loan was $27.00 to 6 ladies in Bangladesh; now he has $1.7 billion in assets
• Bangladesh famines
• Lent to 6 people at a time; borrowers were to re-pay all the $ even if some were sick or shirking responsibility
Education is fundamental to economic opportunity and advancement
• His goal was to have people have the skills to make money AND to sell their goods/services AND have a little reserve
Incentives among the borrowing circles
o Are borrowers going to do what’s best for them?
o Are they going to do the right thing?
o Are they going to do what’s best for everyone?

• Best record of paying back the loan. No defaults b/c of the relationships. The families all knew each other.
• Special institutions in our society; they are necessary and regulated
• They must keep capital in addition to lending money in order to have a cushion
• Great Depression saw a run on the banks, bankruptcy, and a complete systems disaster
• How to know if your bank is safe? Look at reports and loans your bank has made.
Interest charge and compounding of interest
• Federal Insurance of Deposit
• Loans make commerce and growth possible
• W/o credit, it is hard to create goods and services to sell
• Loans = provide for cash upfront, allows making, production, and marketing of goods and services
• W/o credit, this cycle is stopped
• Government stepped in make it easier /more attractive for banks to lend
• Trigger for recent economic crash is artificial boom in housing
Owning vs. renting
Mortgage-backed securities
Underwrite: analyze ability of borrower to payback loan
• “A Perfect Storm” – so many influences it condemns to the outcome
• Economics – so complex b/c it is a global economy
• Need to give banks the incentives to underwrite properly

5 C’s of Credit
1. Character
• Know your borrower in a relationship over time
2. Collateral
• Items (car, house, etc.) go to bank if you cannot payback loan
• Collateral values change
3. Capacity to payback loan
• Can you anticipate future debts, pitfalls, expenses, etc?
4. Capital
• Pile of savings
5. Conditions
• This is the wild card and consists of what is happening in the world today

Best advice – Plan for a rainy day and be conservative

Lending is:
• Valuable
• Provides jobs
• Creates savings / wealth
• What will get us out of this mess

Economic opportunity
• Is a civil right
• Allows people movement which is important in a democracy