Aug 5, 2017 - Divestment and Solidarity part 1
The call for divestment is clear. Indigenous leaders whose prayers gave rise to the resistance at Standing Rock have spread the word across the country. They tell us to stop doing business with all people and financial entities that violate Native sovereignty, break treaties, and threaten our planet through financing of the Dakota Access Pipeline (DAPL) and other extreme fossil fuel extraction projects. The call is clear, but the implementation is fraught. The coalition must be strong, and the vision must be transformative. I hope that this writing helps bring us together.
Why call for divestment?
Many forces are aligned with the intention of creating extreme fossil fuel infrastructure projects similar to DAPL. Divestment is vital, but it alone cannot influence all of these. The demand driving these projects can only be reduced by alternate sources of energy and changes in behavioral patterns. Moreover, efforts to roll back these projects must address the racist framework that the builders operate under. A racist framework that ignores the demands of the Standing Rock Sioux to not have a pipeline run near their homes, while respecting those same demands from the white majority city of Bismarck.
The colonial mentality encoded in the Catholic Church’s Doctrine of Discoverythat opened the door to global colonization and genocide continues to grant the United States’ impunity to violate national treaties. This situation will only be changed by healing the white Christian supremacy. Only then, will people be able to return to the basic values of respect and interconnectedness that we are all born with.
So why place the call for divestment front and center, when there are so many other things that need work? Because we must highlight that Capitalism is the system by which these forces wreak havoc on people and the planet. We must highlight that people are getting richer through the use of extraction, racism, and colonization. These forces don’t just happen to exist. They are strategic tools used to make violence palatable to the populace. And the vast majority of us remain complicit in it because it is benefiting us.
If we keep our money in the banks and financial institutions that fuel the system then we are fueling this system. If we receive interest on an account held in a bank that invests in DAPL, then we are personally benefiting from what is happening. This needs to end. We all have a role to play; and we cannot work against a system that we are still dependent on.
What does divestment accomplish?
Divesting enables us to begin untangling our own lives from the multi-headed monster that is colonial capitalism; it sends a strong message about shifting cultural tides that will exert pressure through the market; and if the movement is widespread enough it can create competition between existing institutions to develop more humane practices in order to get business.
But divestment will do little in and of itself to halt the violence against indigenous people. It can do quite a bit to help build a movement around this concrete action (if we organize within Native leadership, more on that later) but the act of divesting itself will not be enough. It is just the beginning. Banks will still be able to make loans and investments even if entire cities stop using bank services. If banks were actually using the money we deposit to make the loans, then taking our money back would give them less money to loan, but that’s not how the system works. To understand this, we need to take a closer look at exactly how a bank works.
Banks transact in three different types of money: cash, loans/deposits, and federal reserve dollars. Cash and loans/deposits are the two that will be relevant for us understanding the impact of moving our “money” from one bank to another.
Banks start with cash. This cash is called their “capital reserve.” They often get it from equity investments. Once they have sufficient reserves they can begin making loans. When they make a loan, they don’t actually give the borrower the cash that they are holding in reserves. Instead, they open a deposit account in the amount of the loan. Then the borrower can use the account (that exists only as data in a computer system) to make payments or get paper currency. The bank then records the amount of the loan on the “liability” side of their balance sheet, and records an equal amount plus interest on the “asset” side of their balance sheet. The amount of capital reserves is unaffected. It is through this process that banks literally create money. Their possession of 1) sufficient cash in reserves and 2) a banking charter enables them to create loans/deposits that become money backed by the United States government.
The amount of loans a bank can issue is limited by the amount they have in capital reserves. A bank must have a capital reserve ratio of about 7%. This means that if a bank has $7 billion in reserves, they can make up to $93 billion in loans. The $7 billion remains “in the vault” so to speak, and the $93 billions gets created by the bank. Most of the money in circulation is created this way.
The accounts of individuals, business, organizations, and cities are “deposits.” They appear on bank balance sheets the same way loans do, and they are stored as computer data. For banks, deposits are a liability, because it is capital that is owed to the people who deposited them. The bank doesn’t actually have our money in a vault, it just has a record that it owes us that much money. So when we go and “move our money” from one bank to another, we are not actually moving any cash. Instead, we are saying that one bank no longer owes us money, and instead a different bank owes us that money. Behind the scenes, the banks will exchange the third type of money (federal reserve dollars) to balance this whole thing out. The central thing to notice is that the capital reserves remain unaffected. The power to create money and provide that money in the form of a loan to a business violating indigenous sovereignty is unaffected.
Though moving our deposits out of a bank doesn’t directly impact their ability to finance destructive projects, it does make an indirect impact. When accounts move out of a bank, the overall size of their balance sheets shrink. This reduces the leverage that a bank could use to secure additional capital reserves on the capital markets, which would create the basis for more loans. The impact, however, is marginal. J.P. Morgan Chase, for example, holds about $1241.3 billion in deposits. If the City of Oakland, for example, were to take its $5billion out, this would make only a small dent. And J.P. Morgan Chase could bulk up their balance sheet by making $5 billion in loans to someone else. Banks get bigger through both accepting deposits and making loans that they can convince investors are reliable.
“Moving our money out” of big banks is important. But it is not a direct attack on the source of capitalist power. That requires a much more subtle strategy. Its also worth noting, that when speaking of “divestment,” the issue of loans/deposits is only one small part of the system. There is also the question of equity transactions and stock brokerage. We will leave the explication of that for another time.
The Importance of Reinvestment
As we shift away from an extractive and exploitative financial system, we are shifting to something else. All of the energy, people, money, and power that moves out of a big corporate bank needs to find a home elsewhere. The question of where to reinvest is of central importance.
When we move our accounts to a smaller community based institution, the size of that institution’s balance sheet increases and they get more capital reserve dollars. This helps them become a larger, healthier, more powerful institution that can secure more cash in the capital markets. We could also invest our money into community institutions in the form of cash that would directly increase their capital reserves. Either of these mechanisms would increase the community-based institution’s ability to make loans (i.e. create money) that people in need can use.
Many of the stakeholder-oriented financial institutions we need already exist. The clearest example are credit unions. Credit unions are nonprofit organizations that return the profits made by the activities to their members, usually the account holders themselves. This means that the people who benefit from the bank’s proceeds are the very same people who receive the loans. The bank would not try to abuse its customers because it is its customers. Additionally, credit unions tend to be smaller, community based organizations that actually know the human beings that they are dealing with. Instead of deciding whether to extend a loan based on a complex algorithm that systematically privileges people who already have wealth, credit unions can make loans based on their understanding of the reality of the applicant and the community. Members also get to elect the members of the board and can influence policies to get the credit union to refuse to do business with fossil fuel or private prisons, or to emphasize particular types of loans that the community needs.
Wells Fargo will barely notice if we are able to move $100 million worth of deposits out of their accounts. But if we were use that $100 million to provide capital reserves for a credit union, they could turn around and make another $900 million worth of loans to people in the community. Moving the money would empower the community owned institution to create $900 million more dollars for circulation, and put it in the hands of people that need it.
Given the loud call for divestment coming from Standing Rock, the history of divestment work around fossil fuels and private prisons, the 2008 financial crises, and the people’s growing recognition of the true nature of big banks, agreeing to divest is not too difficult politically. Agreeing where to reinvest, on the other hand, is much more challenging. It is an agreement about values we want to actualize and the realities we want to manifest using the energy that is breaking free from the hold of colonial capitalism.
Severing ourselves from one system is not enough, we need to water the seeds of the garden we long to live in. In our urgency to divest, we need to have the patience necessary to make the reinvestment decisions intentionally. We may only have one chance to create a wave of political pressure this large.e need to make sure get it right.
When determining what a loan-making entity (a bank or credit union) is aligned to do, there are four important questions. These questions can help us think critically about whether a given institution is really a seed that we want to water.
Who owns it? The entity will generate profits. If the group receiving the profits is different from the group paying for the profits, the owning group will be incentivized to extract as much as possible. We need to look closely at how profits flow in order to determine what interests are driving the institution.
How is it governed? The entity will set policies for itself, make strategic decisions, and determine how its workers are treated. If all decision makers are elected by shareholders (the folks benefiting from extraction) then the organization will tilt out of alignment with the needs of the community. We need to look at who is represented on the decision making body, the process used to make decisions, and the extent to which that process can be influenced by various stakeholders in the community.
What is its loan portfolio? We need banks to be making loans to entities like entrepreneurs in frontline communities, people with stable incomes who were hit with surprise medical bills, permanently affordable housing developers, and more.. The extent to which a bank is serving its community is a function of who it gives its loans to. A community owned and operated bank that invests only in oil extraction and prison construction is no change at all. The bank will, of course, need to balance its portfolio to remain a viable business and this may require them to make some ‘safe’ loans.
What are its legal obligations? Banks and credit unions can create obligations for themselves in addition to those set by the default law. They can incorporate certain guidestar values into their chartering documents, or enter into contractual relationships with community organizations that would help ensure their behavior stayed in line with community interests.
With these questions in mind we can start to see the future of stakeholder oriented financial institutions take shape. We need entities that are owned by the people, governed by the people, provide liquidity for the people, and are obligated to serve the people and repair the planet. We need entities that will actively repair the damage of colonization by supporting indigenous leadership. We need entities that will begin healing the wounds of slavery by supporting Black empowerment. That is what we need to reinvest in. That is where all of the money needs to go.
This is part one in a multi part series on the divestment. This piece was written by Simon Mont on behalf of Defenders of Mother Earth-Huichin
Simon is an Ashkenazi Jew living Oakland, CA. They are a poet, organizer, and attorney currently affiliated with Defenders of Mother Earth-Huichin, Sustainable Economies Law Center, Tikkun Magazine, and If Not Now. This piece was written to reflect the thoughts the indigenous led DOME coalition and has been collectively edited and approved.
Defenders of Mother Earth-Huichin Mission Statement
We join the many people all over Turtle Island who are responding to the call from Standing Rock to do the work of divestment and decolonization in our own communities. We are a native led coalition working to divest the City of Oakland, our community institutions, and our neighbors from extractive colonial banks and climate chaos-causing fossil fuels, and to reinvest in native leadership and collective liberation. We are diverse across race, class, age, gender, sexuality, ability, and ethnicity.
In doing this work, we follow Native leadership. We honor and recognize Native cosmology and worldview. We pay close attention not only to what we are doing, but also to how we are doing it. We strive to learn and embody Native wisdom for four main reasons: (1) it is indigenous people and energy that resisted the Dakota Access Pipeline and gave rise to the powerful call for disinvestment. It is that call that we are heeding; (2) to decolonize this land, we must focus on what was here before the colonizers; (3) only a strong and constant commitment to follow Native leadership will enable us to break free from the colonial mindsets that we have internalized and continue to perpetuate through our own behavior in ways we often do not even notice; (4) we recognize that the healing of all people requires us to be in good relationship to the ancestors of this land. We rely on the connection that living Native people carry.
DOME-Huichin exists to move money out of banks that invest in extractive and exploitative industry and to reinvest in spaces that bring justice to all people. Justice is only possible if solutions support the development of native communities that suffer from the impacts of genocide and continued exclusion. Our commitment is to honor indigenous sovereignty and push corporate and public entities to do the same.
This mission of disinvestment is part of a broader project of decolonization that requires much more than the movement of money. In order for us to return to a good relationship with Mother Earth, we must divest from colonial mentalities, behaviors, thought patterns, cosmologies, ways of relating, and ways of being. If we move money from one bank to another without also shifting our own personal relationships and mentalities, then we have not succeeded at the depth we intend to.
Our vision of the world is for healing for all people, and this particular decolonial struggle is rooted in Native cosmology.