Better than a Hole in the Ground

“Good morning,” says the old man. His hands, gnarled from a lifetime of dragging a hoe through hard soil, clutch a dusty plastic bag of clinking change.

“I am ready to put my money in the bank,” he says as he places fistfuls of dirt smeared 500 Uganda Shilling coins on the counter.

This is how a banking crisis ends, with an old man, his life savings and an empty hole in the ground.

For this old timer, the Ugandan banking system has at last become a better risk than a shallow pit in the brittle red earth.

You won’t see this scene repeated in Peoria, Salinas or New Bedford. It can’t happen, because there hasn’t been an American banking crisis—at least not the kind that makes a hole in the ground seem like a shrewd investment.

The U.S. “banking crisis,” for all the pain it’s caused, has played out like a night with three friends and ten bottles of cheap red wine. Banks got good and liquored up on mortgage backed securities, and after that eighth or ninth bottle of wine giving a $500,000 mortgage to someone with no job and no assets seemed like a lark, like giving your watch and house key to the homeless guy who you’re pretty sure is Bill Gates in disguise.

Of course, the next morning it doesn’t seem like the impromptu show of charity was the best idea. If it were Bill Gates, why would he want a $20 watch? Also, one of your buddies is in jail, one is dead and you’ve got tannins eating away at your frontal lobe and some purple stuff on your teeth that is probably wine but could be blood.

The fallout from the binge banking has been terrible. Americans lost their homes, saw their 401Ks become 201Ks and got dropped by employers who couldn’t borrow the money to make payroll. But you know what happened to the bank accounts of average people?

Nothing.

Even if everything else collapsed, people who had put their money in a good old savings or checking account got to keep their money even when their banks drove into the embankment. No one is digging in the back yard. God bless the New Deal.

There’s still a credit crisis in the U.S., which is economically debilitating, but there’s no real banking crisis. Having a credit crisis is like having a kidney stone. It is unbelievably painful, can take a long time to resolve and can make you want to piss yourself, but it’s not going to kill you unless you do something like taking treatment advice from Rush Limbaugh or Rosie O’Donnell instead of experts with long chains of initials after their names. Having a banking crisis, on the other hand, is like getting a railroad spike through the brain—even in the best-case scenario, you are going to be debilitated for a long time.

Let’s take a look at what an actual economic intracranial railroad spike looks like.

It starts with some guys coming to town, any town. Say… Nkokonjeru, Uganda. They probably wear nice suits and may even have a powerful patron, maybe a former mayor. These sharp looking fellows set up a nice building and put a name on it that sounds helpful and reassuring: “Microfinance Bank.” They hold a few events, they answer some questions, and presto! People start giving these guys money for safekeeping. After all, banking shouldn’t just be for the rich, right? And not many in the village can afford the international banks with their fees and minimum balances.

Microfinance Bank provides the community with valuable services, keeping money safe for a nominal fee and maybe even giving out loans to creditworthy customers. They smile when you come in, they keep careful records of every dime and then, one day, they leave.

Poof.

Gone.

There’s nothing but the missing cash to remind you that they were ever even there, that and the certainty that even if you could find them, their political connections make them untouchable, above the law.

This is just about the time, right when the $300 you’ve worked your entire life to save vanishes in a flash of naked greed, that digging a hole starts to seem like pretty savvy investing strategy. A hole may get robbed, but a hole will sure as hell never rob you itself.

This is what an actual banking crisis looks like. It looks like confusion. It looks like betrayal. It looks like a couple of guys in expensive suits laughing themselves silly.

And here’s the kicker. It’s not just that these grifters have hurt their marks; they’ve ransacked a community. People need a place to keep their money; people need access to credit and now that genial George Bailey has ripped off a mask to reveal a sneering Jesse James, who is going to be so brave as to put their money into a bank again? Whom can simple folks keeping shop or sharing crop possibly trust with their money ever again?

Each other.

It turns out we are our brother’s keeper—his bookkeeper.

The Nkokonjeru Savings and Credit Cooperative is four-years-old and three years past the crisis started by the “microfinance bank” across the street. The secret to its success, to its survival, is that it is an old fashioned credit union. The customer is the boss, literally. When a customer joins Nkokonjeru SACCO, as it’s called, he kicks in USh 20,000, about nine dollars. For that he gets a USh 10,000 ownership share, a passbook and a bank membership. And, as Karl Malden always told us in reference to a different financial institution, membership has its privileges. In this case the privileges are attending the annual meeting, voting for the board and running for leadership.

It’s still a struggle though. People remember that they were robbed for a long time. When one asks locals their opinions of banks in general, they’ll often respond matter-of-factly “They steal money.” But the sinister “they” does not include the SACCO. People are signing up with increasing regularity. In the last month, SACCO has signed up to a member a day.

A credit union can’t solve the economic problems of this little rural town. It can’t give the kinds of big loans people need to start businesses that have enough capital to hire people. It can’t pave the road to Kampala or eliminate the West’s domestic agricultural subsidies. But it can, at the very least, earn more trust than a hole in the ground, and when the banks are truly in crisis, being better than a hole should never be taken for granted.