 We use the study of a hospital, a medical provider institution, to open the potential for citizen management of the medical industry. In a like way, we will study the performance of a bank as a doorway into management of our larger economy. One of the things to look for in this presentation is the role of government in this. It is the role of your government, the one you own, in having beneficial effect on our economy. We start with, your deposits are protected by the FDIC. The bank you use is probably buying insurance from the Federal Deposit Insurance Corporation. The origin was bank failures during the Great Depression, when a bank going under left the depositors with a loss. The FDIC is a federal government insurance corporation that sells its services to banks, so that its depositors have assurance that their savings will be restored even if the bank fails. There is obvious value in this for almost everyone. Depositors generally put money into a bank in order to secure it somewhere. It can be reasonably available to meet the account holder's needs and wants. It is valuable to the bank as a way to advertise security as an inducement to its customers. It is only when we look at performance that the downside of this arrangement begins to peek through. It is a government service available for depositors, but the depositors are not the ones who have purchased decisions. It is just a small cost that gets covered by your earnings on deposits. We ran across this before it was the mom selling insurance to businesses, with businesses' customers having to pay just a little more to cover that cost, even though they received nothing for it. It was a required cost that had no product. It was waste that could be eliminated, so violently antisocial that it was openly criminalized. We ran across this before it was in the medical industry selling malpractice insurance to medical providers. It adds a cost even though the patient received no medical or other services for the additional payment. It was a cost without a product. It was a waste that could be eliminated. The real burden of this systemic waste is paid by medical customers, by all of us. At least the FDIC isn't extracting the funds by threats to the banks that buy it. They do get a real service. The challenge is not in the service rendered, but in the failure to recognize the customer. If the benefit is to us as depositors, then buying that insurance is to be our decision. Of course, it is a great convenience to deal with one bank instead of a thousand bank customers. It is then that another challenge arises and it is that the government is not there to ensure banks, it is there to benefit people. We are the customer of government. Where it serves non-citizens, we have a potential waste. It is our government. It is hard to define the value relation that government has arranged in this situation. It does a way to address the failing banks, set up a federal corporation to offer insurance to banks, non-citizens, for the benefit of depositors. It is not that this is some terrible burden upon the public that screams out for immediate change. It is that we have selling protection to non-citizens as the purpose for a government business. Again, it is addressing the owners of the nation as beneficiaries of what leadership has decided to do. It is malpractice insurance for banks. It is businesses that are not liable to their own customers for a failure in running their bank businesses. A larger amount of the liability is assumed by the insurance carrier. Banking is highly regulated to minimize the potential for failure, but also to limit the services to customers. Banks actually have two customers, depositors and borrowers. We will need to address both. We just start with the depositor. The first question, who is the depositor? How do we identify this customer? The first answer is, it could be anyone. This is a public business. Anyone who wants to deposit money in a bank is welcome to do so. And more on point, it is probably everyone as almost everyone will buy depositor services from a bank. For performance understanding, we must address that symbiotic flow of value that serves the purpose of both the bank and the depositor. In this case, the input that keeps the bank in business is limited access to depositor funds. The deposits made by customers are the input. It is highly regulated access to customer funds that the bank will use to continue its operation as a bank. Then we have to address product. What is it that the bank generates and delivers to depositors as a basis for the customer decision to deposit that money? What is it that customers value? These are bank services for depositors. There are the protections of accumulation of funds in bank accounts. There are potential earnings from giving the bank regulated access to those funds. There is convenient access to the funds for depositor direction to meet needs and wants. The ability to write checks, deposit demands on a bank account is a wonderful service. It allows the depositor to create an effective transfer document in place of having to carry money on his or her person. Checks can be mailed with some level of security as they are arranged to transfer to specific persons or businesses. Banks now commonly support depositors with the issue of credit and debit cards, but this function is an ancillary business with its own relationships. The other customer cycle is with those who receive funds that are deposited in the bank with requirement to return the same with interest at a later time. The bank invests in borrowers with expectation of a return on that investment. The return on investments generally funds the operation of the bank. The bank can come into effective ownership of property as an investment, or it can issue loans to individuals or businesses with an expectation of gaining increase when the funds are returned. Again we ask the identity of those who receive loans from the bank. It's borrowing customers. Again the answer is that it can be almost anyone. There are house loans, car loans, business loans, and personal loans. They are all potential customers. The bank is responsible to loan only to those who are at good risk. Those whose likelihood of returning the funds with interest will be sufficient to cover the risk the bank assumes on behalf of its depositors. This defines a second symbiotic value cycle. The value delivered to the bank is return on bank investments. Borrowers have the purchase decision of receiving loans for the cost of returns. The product delivered to the borrowers is access to the funds for their use as specified in the loan, with the requirement of paying the loan back with increase. For the larger operation of the business of banking, we have to relate these two value cycles. The operating income for the bank business is the difference between what the bank earns from borrowers and other investments, lest what it pays to depositors to entrust their funds to the bank in its accounts. While largely unrecognized by the depositors, a bank has highly regulated access to some of the funds of its depositors. The very idea of giving a bank a business access to put someone else's property at risk is enough to prompt public scrutiny. Giving that bank permission to use the money without reporting the same to depositors has potential for abuses. This analysis also puts the FDIC involvement into perspective. It is a way for government to minimize the risks incurred by the bank on behalf of their depositors. This same is supported by a fairly strict regulation of properties, loans, and investments that a bank can use to assure income for its operation and the benefit of its depositors. There is a lot of good sense in this. Our primary public challenge is monopoly behavior among banks. The more their operations are restricted and regulated, the more they act as elements of the same banking business. Will additional regulation be able to address this or just increase the monopoly effect? After all, it is a public business that is almost everyone serving as customer, both as depositors and investors. The FDIC involvement even relieves bankers of some of the natural responsibility for what they do with customer funds. This gives the general impression of privilege of bankers having access to the property of others with a promise to act responsibly with it. In this understanding, the purpose of government interference in the banking industry is to limit any abusive activities that might be taken by a banker because he or she has access to the funds belonging to customers. There is a significant amount of trust to be assumed when establishing bank accounts. As a final note, the banking business is about credit more than money. It does not keep piles of other people's money, nor does it give out piles of money as loans. It commonly deals with credit, with promises to provide money on demand. This can be a concern as the credit actually available might not cover the value that the bank has received for deposit. The account records show the amount deposited but has no indication of how much is unavailable because it has been loaned out or used to purchase investments or other properties. A bank is recognized as a financial institution and the subject of finance comes to point on the concept of money. In this study, we are addressing performance with value in a performance cycle that serves the purposes of a business and its customers. In this study, we address commonly recognized value as what can bring people together to get things done. Beyond this, we have a history of promises of money being used by employers to draw employees to a common purpose. So what is money? How do we understand the concept? If you have a dollar bill, is it somehow valuable in itself or just a token of something else that has value? Money has been called a medium of exchange as something that is useful through its potential value that is agreed between people. When the value is agreed, they can exchange money for other things. In the subject of this work, we have a performance aspect of money. It is an intimate and ongoing part of the symbiotic value cycle with customers and businesses. In this aspect, money is a common input for the business and the buyer pays money for what the business produces and delivers. In a bit more detail, the business delivers a product to the customer and the customer returns money to the business to get what he values. The money is a token for the value received. And when we look for where the buyer got that money, it was probably selling time and labor to a business. The time and effort that the business needed for operation came to the business from the employees and the money went in the opposite direction. The money is a negative marker for the passing of value, whichever way the value is transferred, the money goes the other. Money is not a value in itself, but a token of value. It is a potential to gain what is valued. When it comes to performance, we have a solid and definitive understanding of value. People are the only party in interest, and real value is what satisfies the needs and wants of the person who receives it. A business will pay an employee to gain possession of what the employee offers, time and effort. That employee will surrender that same money to gain possession of goods and services that he or she values. As you see, there is little difference in effect between credit and money. They both are the same units and they both serve as negative tokens for value. Both issued bills and credit are money. What the bank has deposited in accounts is credit, a promise of producing a token of value to the depositor at a future time or under other conditions. What a bank provides to borrowers is credit, that same token of value. Are you ready for the next leap in understanding? The money that the customer uses to pay for goods and services is the same money that the customer has earned. The money that is paid to employees for their time and effort is the money that came to the business from the sale of its product. The money that is given as return on investment to the owners and investors is the money that came to the business from sale of its product. The new focus is that there is no conversion process performed on the money. It passes through both the business and its customers without being converted into anything else. What this means is that there is no way to have effect on the performance cycle by effect on the money. Money does not take part in performance. Trying to manage by adjusting the prices for labor and goods and services will not increase performance. The expectation for cross controls, including the cost of labor, is loss of performance. On the borrower side, laws that limit the interest that can be gained through loans also limits the customer's base of borrowers. Those who use the money which is too risky for payback are not going to be bank borrowers. Banks will seek other investment instead of loans. On the employee side, laws that set minimum pay will promote employee alternatives. The use of mechanical and electrical means to carry on the business of the bank. On the customer side, laws that limit what banks can earn from their investments of the credit they hold will also limit the value of depositors value in committing funds to the bank. I do not see this as anti-regulation. There are many good reasons to interfere with normal bank economics. The purpose for doing so is the welfare of the people. The same purpose that we, the people, gave to federal government in its establishment. Again, the tool for performance evaluation is investment, accepting the cost of the regulation in order to secure the benefit it offers. The FDIC was an obvious attempt at doing this, accepting the cost of the insurance system for the benefit it offered to banks and depositors. From an economic standpoint, the operation of the FDIC is waste, but it has value in terms of a valid government purpose. From our studies of performance, we can see potentials for improvement, but that will again be subject to investment by people based on what they are willing to commit to gain the beneficial change. For the purpose of this course, empowerment comes from being able to see the potentials for improvement and to have a reasonable understanding of the cost so that we can support the intelligent decisions of others to focus on committing their efforts where they are most likely to find the greatest personal value. As a last comment on the meaning of money, we have the history of its development. In the United States, there was an attempt to assure the value of money by relating it to the value of precious metals. The value of gold and silver was generally recognized. It provided a common value base for determining the purchase power of the American dollar. At one time, the Treasury of the United States held a supply of precious metal to assure that the money it issued would have a basis for value. We have the Silver Certificate, a dollar bill that specifically announced that it had an equivalent value in the silver maintained by the government. We have another performance matter that is visible in the example of the bank, but will only come to full importance when we address the entire economy as an operating entity. It is the relation between the owners, customers, and employees of the bank. We touched on this in the black box analysis earlier in the lesson. We identified two types of customers, depositors and borrowers. We also addressed employees and bank owners. It is time to look at how they relate to each other. For the first, anyone can be a customer of the bank. It is not only a choice concerning whether to be a customer, but which purpose will be served. The bank is generally open to accept money from anyone who desires to start up an account. Having money in the bank is a basis for the operation of the bank and it is an important source of value for its use as a bank credit. It is so important to the operation of the bank that it will often offer return on investment for those who are willing to deposit any significant amount. Banks work to attract depositors. In a like sense, the bank is also looking to attract borrowers, those who will be able to assure a return on what they borrow. This provides much of the operating income that assures the ongoing operation of the bank. It is a valued service, but only earns income as there are borrowers who are likely to pay back with interest. Secured loans, those backed by property ownership, are common. These are loans backed on the purchasing, real estate, and the valued physical properties like vehicles. The bank takes an ownership interest as security that the loan will get paid back with interest and releases its interest on satisfaction of the loan. So almost anybody can become a borrower. The borrower is even likely to have some active accounts in the bank as a depositor. It is most likely that the one who seeks to borrow will go first to the bank where they have accounts. They are already customers of that institution and have already established a mutually beneficial interaction. They have established mutual trust in the sense of past dealings. The depositors and borrowers are likely to be the same people. Here there is no advantage for a customer to benefit as a depositor from interactions that are disadvantaged as the borrower. That would be taking money out of one pocket just to put it in another, with the bank harvesting a little for supporting the transaction. A bank does not get to serve its depositors at the expense of its borrowers, nor serve its borrowers at the expense of its depositors. This business comes from providing a valued service to both of them. And then we have owners, people who hold stock in the banking business. They also have an established relationship with those in the bank, and they are more likely to deposit and borrow from the bank that owes them consideration as an owner. But there are still more, as the ones who come to hold stocks are those who have money to invest, money they probably keep in a bank. Many of those owners will be seniors who have money to invest from their earlier employment. Trying to benefit them at the expense of customers makes no sense. Their purpose is in the profitable operation of the bank. And that purpose is achieved through maintaining the valued cycle with depositors and borrowers. The bank also has to serve owners and investors, but not to the point of taking value from customers. In a like understanding, we have employees and where they are likely to bank. They have an interest in the bank and know the people there. They too are likely to be customers and get what they need when they put in money or take money out. In the banking business, it is the people who count. The bank has to be a fair broker doing its best to satisfy the needs and wants of all these people without benefiting anyone at the expense of the other. As a business, the bank is an employer and a service provider, as well as a support for owners. The bank continues on the general quality of services that it provides to all those who are involved with its operations or results. The focus of the larger effort is people outside the bank, people who provide to it and receive from it. This includes even those who are employed by the bank, seeing to its internal operation. In a very real sense, there is a single party in interest. It is people who interact with that bank. The primary value cycle deals with the flow of money between the bank and its customers. The uniqueness of this business operation, is it the money that passes, is not used to purchase anything. The money that flows from the depositor to the bank is the same money that the bank is required to return to the depositor on demand. The money that flows from the borrower to the bank is the same money that the bank loaned to the borrower. Money is the subject of the transactions, but not as a negative marker for value. Rather, what the customers are receiving is a valued service for the depositor. It is preservation of deposited funds with convenient access for use. The bank does not receive money as operating income, but receives a highly controlled access to the depositor's funds for which it provides the services that the depositor values. Likewise, the borrower does not receive funds as something the bank sells. The service is access to the money that really belongs to the depositor's. The borrower has use of the funds as a purchase service. The borrower receives and values the service, paying for it as interest on the loan. There appears to be only two groups of people who have other interests. The one is bank leadership that is focused on running the bank rather than operating it. The other is regulators whose focus is established by public leaders. They are commonly intent on running the economy. What is the value relation with bank leadership? Is there some separate purpose in running the bank business? Is there some separate value that comes from providing a stable and effective authority structure to the bank? When we address this in terms of performance, there is no separated value in having and maintaining an effective authority structure. The value is in the performance cycle, just as it is for any other business. Bank leadership has only exception-based effect on customer relations. Customers are beneficiaries of any policy decisions. They have no purchase decisions beside the decision to accept depositor or borrow relations. When we address bank leadership, it is in terms of an internal investment. The value that the leadership provides is to those who service the customers. These internal customers are the ones who are able to value what leadership provides. We are faced with the question of what leadership provides that can support or enhance the services that bank workers are able to provide customers. The primary value of service for customers involve the working relation between depositor services and borrower services. The operation of the bank includes a coordination between these two. It involves a high-level technical support for that interaction, both for the general services provided and for internal operations. Teaming these, keeping them working in coordination for the benefit of customers, is a management service that is valued by those who are responsible for dealing with customers. The value is in the sense of providing interactive purpose for those dealing with customers. There is some value in assigned responsibilities as primary duties of the job, but not in the regulation of those assigned. If the purpose is clear and the value is shared among bank employees so that they can value what each adds, the need for policy and other regulatory interference in operation is minimized. Our government involvement by regulation is somewhat more complicated, as the only good basis for government interference in supporting the operation of the bank is in serving its customers. It is here that the value of the FDIC is apparent. It was a serious attempt to support the banking business. It was just implemented to support the bank's institutions instead of the bank's service providers. So what does regulation cost that who both pays for it and values what it provides? There may well be a challenge in paying for it by taxing business operations. The costs of that approach are borne by the customer, but there is no customer decision. It is all between the government as a regulatory agency and a bank as an operating business. The cost of the bank transactions with customers is another matter. It is just a cost that is then passed to the customer of the bank without either customer decision or receipt of value. It is a burden placed on the bank's value cycle with its customers, a reduction in its ability to service its customers. It is like the farmer who takes milk from a cow that has a calf, reducing what the cow is available to provide for it. I know that looking at a bank in this sort of detail is a little frustrating. For the most part, they seem to be pretty good at delivering what customers value. They seem to be among the more effective service businesses we have. The challenge is actually one of waste created by government rather than by the bank. Consider that the management of our system of money was recognized to be of such importance that it was specifically assigned to Congress in our Constitution. It is currently being managed through regulatory means, through empowered corporate entities who largely act on their own and without even having direct oversight by Congress. The money supply has been allowed to grow to the extent that the value of the dollar continues to drop, minimizing the effective wealth as collected value. For our purpose, that of empowerment, the bank is a doorway into our study of the larger economy and the economic management being accomplished by central government management. Also, we have not been presenting anything that is really new or surprising, but rather are developing a performance-based vision of how our economy works. It is technical support for those who will develop an improvement and seek support of others when it comes to action. In that sense, this is pretty heady stuff. It is information that people already have, but presented so that there is a new and effective understanding that will support future actions. It is putting people more in charge of their economy. More specifically, it is putting you more in charge of our economy. In the following lesson, we will be using this performance perspective to address the operation of our larger economy. We will be looking at the bank from the standpoint of public services that impact on our general prosperity as we the people of the United States. Consider, for example, the potential for the federal government to perform some of the functions now being performed by banks. The primary constitutional duty for our government is to see to the welfare of the people of the United States. This could easily include public economic services to the people in support of citizens. It could include protection and maintenance of private wealth as a public service. It could include the maintenance and management of the value of our currency. It could include promoting the effective support for the voluntary investment of private money to meet citizens' purposes. These are not pipe dreams, they are performance potentials. The study of our banking institution provides a foundation for a deeper understanding of the value of the time and effort we put into economic pursuits and economic welfare we receive because we make those commitments. This study is just another door for empowerment of people.