Tag Archives: San Francisco

Peer-to-peer Lending Update.

It’s time for an update on peer-to-peer lending and social finance.

Years ago, clipping coupons from bonds was the province and passion of people in retirement. Today, a tidal wave of aging boomers want income, but traditional sources basically suck. Ten-year ­Treasury’s yield 1.6%. Safe-money bank CDs? 0.5%. Investment-grade corporate bonds are delivering 3.2%.

So retiring boomers are seeking alternatives. That’s why dividend stocks and annuities are very popular. But, there’s another cool source of high yield investments that are rapidly growing in popularity. Peer-to-peer lending, or making personal loans via the Internet, using websites like LendingClub.com and Prosper.com, have proven to represent a new and attractive asset class for a broad range of investors.


They have been around for 6 years and have had some bumps, including weathering a financial crisis and the current recession, peer-to-peer (P2P) lending has earned its place on an income investor’s menu.

The basic premise of these bank disintermediaries is that they harness the networking power of the Web to match people who have excess cash, with people in need of it, or those who simply want to do things like refinance credit card debt.

The key to its success has been how the sites have managed the inherent riskiness of unsecured personal loans. Believe it or not, it is now possible to earn yields of 6% or more, making relatively safe loans to complete strangers.

Los Angeles financial advisor Brendan Ross committed $300,000 of his own money to Lending Club in early 2011. Based on his quarterly interest payments he claims he has accrued about $40,000 in income to date. Annual yield: 10.2%.

“I’d been tracking the P2P space pretty much since the inception,” Ross says. “I was waiting to feel like its loan underwriting model had matured.”

San Francisco’s Lending Club is the largest P2P lender, followed by its crosstown rival Prosper. And, there are several other, specialized sites (like iPeopleFINANCE) who offer a lending model that is different than the securitized model of Lending Club and Prosper. These offer a direct lending model where an investor chooses one individual borrower based on an affinity profile and makes a small, short term loan where the investor can earn higher interest rates, yet still be able to enjoy mitigated risk.  Lending Club and Prosper have loaned a total of more than $1 billion since inception, in 112,000 loans.

Lending Club currently issues about $45 million in loans a month versus Prosper’s $13 million per month. Prosper ran afoul of the SEC in 2008 and temporarily shut down to “revamp its risk-assessment model” which is corporate code for getting into SEC compliance.

At Lending Club, after a quick registration you can sort through hundreds of potential loans. Each loan has its own risk rating, term (either 36 or 60 months) and rate of return.

Loans with the highest rating—based on the borrower’s FICO score and some additional analysis—pay in the 5% to 9% range—about the same as junk bonds. Interest rates on riskier loans range as high as 31%. Both companies also offer diversified funds of aggregated loans and IRA options.

Lending Club and Prosper vet thousands of loan applications, whittling down the pool to only those borrowers the company deems least likely to default. Renaud Laplanche, cofounder and CEO of Lending Club says his firm declines about 90% of all borrower applications, focusing on the 10% of borrowers with the best credit. Which makes them essentially, banks.

Of course, defaults do happen. Lending Club’s top-rated three-year loans expect a default rate of around 1.4%, and the riskiest loans, offering rates as high as 25%, have a 9.8% default rate. By contrast junk bonds have an average default rate of 1.9%.

It’s prudent to opt for the pools of hundreds of P2P loans both sites offer. That’s how advisor Ross is earning 10%, despite a handful of defaults on direct loans he made, because his defaults were offset by his performing loans. With the emerging market lenders like iPeopleFINANCE, the investor cannot hedge his risk in the same way, but due to iPeople’s proprietary credit scoring algorithm, an additional 20% of applicants get funded, and get a higher credit rating than their FICO scores would yield from the big-3 credit bureaus.

Additionally, iPeople insures that each borrower has in place a free, pre-paid, re-loadable debit card that receives a direct deposit with each paycheck that guarantees the loan payment, so the risk of default is very low. iPeople is targeted to young Gen-Yers and to returning Vets from Iraq and Afghanistan. Both of these groups have had little opportunity to establish credit, prefer a more cash-oriented lifestyle, and seek relationships with non-traditional banks. iPeople offers a suite of mobile cash applications tied to the debit card, that can be downloaded to smart phones, and can efficiently deliver banking services to customers 24 hours a day, 7 days a week, wherever they may be.

John Mack, former chairman of Morgan Stanley, is a convert to P2P lending. After committing several million of his own capital to such loans, he joined Lending Club’s board in April, lending a strong measure of credibility to the space.

Of course, a couple of former Wells Fargo executives have joined iPeople’s board as well, sending strong messages to the markets that peer-to-peer lending is here to stay.


One Canary, Two Canary …

Will Stockton Be the Biggest Municipal Bankruptcy Ever?

I mentioned yesterday, that Stockton is the biggest municipal bankruptcy in US history. I had my cart slightly ahead of my horse. They haven’t filed bankruptcy. Yet.

In recent years this inland port city of nearly 300,000 people has earned several distinctions, none of them good. Twice atop Forbes‘ list of America’s Most Miserable Cities … Second highest violent-crime rate in California … Second highest home-foreclosure rate of all major U.S. metro areas. Now, Stockton is on the verge of another dubious benchmark: bankruptcy. In its third straight year of fiscal emergency, the city faces a deficit of as high as $38 million on its $165 million general fund budget. As required by state law, the city council is in mediation with creditors and unions. If a deal is not reached in the coming weeks — and prospects are bleak — Stockton will become the largest municipality in U.S. history to go bust.

While Stockton has been down on its luck for a long time, many residents insist its fiscal crisis is a function of bad management during the flush years of the housing boom. Long an agricultural hub for Central Valley farms and situated about 80 miles (130 km) east of San Francisco, it went through a steady financial decline that saw its once thriving downtown hollowed out by poverty and crime. Scores of people decamped for the north of the city, or left altogether. Street gangs multiplied. Then, in the early 2000s, the housing boom drew developers back to the region in droves. Plush subdivisions went up overnight to attract families with easy credit who could not afford the Bay Area.

Prior to the housing boom, reckless spending on public-employee contracts put the city’s long-term health at risk, according to active city officials. As coffers started to fill up from the swelling tax base, the sweetheart deals got sweeter. If an employee worked for one month, for instance, they and their spouses were eligible for retiree health care for life, a policy that had the predictable effect of motivating people to quit working early. Today Stockton has 94 retirees with pensions of at least $100,000 a year, Reuters reported, amounting to twice the number of California towns its size. The city’s long-term health liabilities alone amount to more than $400 million.

Meanwhile, Stockton’s urban core was given a face-lift to seduce homeowners. Tens of millions of dollars were poured into building a marquee waterfront area comparable to San Antonio’s river walk, complete with a gleaming sports arena, theater complex, marina and walkway. A celebrity chef was invited to run a restaurant, rent free, on the first floor of the historic Stockton Hotel. When it came time to open, the city paid singer Neil Diamond $1 million to headline a kickoff concert. “Then,” says longtime resident Robert Weaver, 76, “the whole thing ground to a standstill.”

The housing bubble burst, followed by the Great Recession. City revenue streams dried up (plunging more than $50 million compared with prerecession years), slashing municipal services across the board, from public parking to bike police. The downtown quickly reverted to a no-man’s-land: waterfront entertainments were shuttered, the grand hotels given over to low-income and student housing. A fancy high-rise municipal complex that officials had paid $35 million for is now being rented out, leaving the city council to debate its woes in their old building, where a red, white and blue banner out front reads with fitting irony: “Stockton: An All America City.”

“Stockton did something very similar to what many American families did: the city overcommitted to long-term obligations that even under the best of times the city could not afford,” says Bob Deis, the city manager since mid-2010. “So if there was not a recession, the city would have been having the conversation we’re having in four or five years. But then the perfect storm happened.”

Nobody Asked.

“The problem is, nobody asked the question: ‘How do you fund it?’ And consequently there was no money set aside to fund those commitments,” Deis said. “It was an unsound decision and it has similarities to a Ponzi scheme.”

In the 2000s, as housing prices soared in San Francisco and Silicon Valley, buyers from San Jose to Oakland seeking affordable alternatives flocked to Stockton, where starter homes cost around $400,000. Single-family home construction, which had averaged 2,500 units a year from 1991 to 1997, tripled to 7,500 annually from 2003 to 2005, according to Robert Denk, senior economist at the Washington-based National Association of Home Builders.

The city’s population grew 20 percent in a decade, to 291,707 in 2010 from 243,771 in 2000, driven by a surge in Hispanics who identify themselves as Mexican, according to U.S. Census Bureau data. That ethnic group jumped 56 percent in the period, to 104,172 from 66,900, while the black population grew 30 percent and the Asian population rose 29 percent, Census figures show.

Boom Time.

“Money was just pouring into the city coffers for development fees and permits,” Miller said. “Property taxes were going through the roof. It was boom-time.”

“There was an unspoken policy that to keep the unions from complaining about the amount of money being spent on projects, the easiest way to do that was to continue sweetening their compensation packages,” Miller said.

Among those measures were automatic salary increases regardless of whether the city had the revenue to support them. The contract with the fire union required the city to compare its pay with that of 16 cities including Huntington Beach, Anaheim and Torrance. Stockton firefighters’ salaries were required to rank fifth-highest, according to the city’s May 2011 emergency declaration document.

$100,000 Pensions.

Stockton retirees also fared well. The 94 with pensions of more than $100,000 compares with 38 in Bakersfield, which has 347,000 residents, and 35 in Chula Vista, with a population of 244,000, according to data compiled from state pension records by the California Foundation for Fiscal Responsibility, a Citrus Heights-based group that advocates pension reform.

An epidemic of foreclosures reached Stockton in 2007, as the recession left thousands of homeowners unable to afford their mortgages. Home construction collapsed and housing prices plummeted.

Revenue dwindled to an estimated $161.8 million in fiscal 2012 from $203.1 million in fiscal 2009. The city fired 25 percent of its workforce.

In Stockton’s San Joaquin County, assessed property values tumbled almost 11 percent in fiscal 2010, followed by 3.9 percent in 2011 and 4 percent in the current year, according to the county’s website.

Drastic Decisions.

“In the beginning, when this whole economic bubble burst, everyone had the attitude, ‘We’ll just avoid making drastic decisions and in a year or two things will be back to normal,’” Miller said.

The base pay for a Stockton police officer can be as much as $76,860, while a sergeant’s can reach $90,836, according to data provided by the city. In 2010, 87 percent of police officers got additional pay that added 8.7 percent for a canine handler, 4.3 percent for SWAT and 5 percent in “longevity pay” at six years of service. All are included in the calculation of retirement benefits.

“We are now the fifth-lowest paid police organization in the county where we handle the majority of the calls,” said Kathryn Nance, a Stockton Police Officers’ Association board member.

By 2009, city officials began considering bankruptcy.

Bankruptcy Protection.

Fritchen, the council member, asked the city attorney’s office to lay out the pros and cons of bankruptcy protection at a budget committee meeting.

A year later, in May 2010, the city declared a fiscal emergency to deal with a $23 million deficit. The declaration allowed the city to make changes to existing labor contracts.

Crime escalated as the police force was reduced by about 27 percent to 324 sworn officers from 441, according to Pete Smith, a police spokesman. There were a record 58 homicides last year, most involving gang violence, Smith said.

“We’re losing our grip on some of the more troubled neighborhoods and don’t have the ability to police the city as proactively as we did,” Smith said.

In the spring of 2011, Deis met with about 15 police employees and budget officials to seek concessions from the union.

Breaking Our Contract.

“He said if we continue to fight on them breaking our contract, then he is going to push the reset button and go bankrupt and we will all lose,” said Steve Leonesio, president of the police union. The union is suing the city, challenging its authority to reduce benefits under the emergency declaration.

Last year, city officials uncovered bookkeeping errors requiring $15 million in budget cuts that “will have the effect of stripping Stockton’s cupboards bare,” Deis said.

The mistakes included double-counting of $500,000 in parking-ticket revenues and overstating the city’s available balance by an estimated $2.8 million.

On Feb. 24, Deis walked into a news conference at City Hall and announced that the errors and the recession represent “the knockout blow” for the city’s finances. He recommended the city invoke the state bankruptcy law.

“We see no viable alternative,” he said.

Given the city’s huge obligations and shrinking capacity to generate revenue, Deis says it’s critical for Stockton to “break itself from the boom-and-bust cycle.” With guidance from a team of urban-development experts from around the country, city leaders are pursuing a new plan to revitalize the downtown — this time with private money. “We’re investing a huge amount of resources to make this process work”, says Deis, praising the tenacity of the current city council in going after bloated labor contracts to find some fiscal breathing space. “But we’re not in control of it,” he adds.

Stockton is not an anomaly. I am certain that I will uncover countless stories similar to this one, if I were to search every day for the next city about to fail. It is almost as if City governance across this country woke up one day in 2012, four years after the fact and said, “Gosh, there seems to be a recession here. Did something happen while we weren’t paying attention?” Yes, something did. I remember having lunch with Robert Bobb, one of the best City Administrators I have ever met. Bobb said, “Oakland has a chance to become one of the premier cities in America, but I wouldn’t bet on it.” He cited the growing pension problems that has Oakland in its grasp today, and that lunch was in 2003. Jerry Brown’s biggest mistake as Mayor was firing Robert Bobb.

The only way out of this mess is for City Administrators to get out in front of this never-ending problem with ballot measures for tax increases to cover the pension costs, and with contract re-negotiations to try and lower the trajectory of growth in pension debt burden. The city employee’s unions must come to the table with more reasonable proposals to re-cast those agreements in the light of the realities of 2012, and be willing to accept the fact that the money to pay for them is simply not there. We can’t party like it’s 1999 anymore.

The Price of Gas, and a Reasonable Man.

Someone named Winghunter, called me Stevey and referred to my post, “Gas Prices Go Up Under Obama. Really?” (sic) with disdain, citing about 10 stories relating to the Obama Administration’s efforts to stop drilling for oil here in this country, and his opposition to the pipeline project which would of course, “create tens of thousands of jobs.”  He then assumed I am a left wing radical and closed his rant with “not expecting to hear from you” or something along those lines. Well, Winghunter, you SHOULD expect to hear from me,  and here it is.

To your surprise, I am not a left wing radical. I am actually a capitalist and a member of the 1% club. I voted for Reagan, Bush, Bush and Obama

I voted for Obama because he is a reasonable person (as my partner Tim Handley would say) and a really cool guy. This was after 8 years of being embarrassed by a really un-cool guy. I voted for Reagan and the Bush’s because I thought they were the best chance I had at protecting my earnings and keeping the tax rate the lowest. I was right. And, I was wrong.

I was raised in an Irish Catholic and Jewish household by parents who couldn’t be more opposed when it comes to politics and business. My Mother had worked hard at being a secretary to officers of the US Navy and finished her career as secretary to the base commander at Hunter’s Point Naval Shipyard in San Francisco. She was a self-described Jew, daughter of Hungarian immigrants, a conservative Democrat and capitalist. My father was the 12th child of Irish-Catholic immigrants, drove Yellow Cab in San Francisco for 38 years, was a Teamsters Union steward and thought of himself as a liberal Democrat. From the time I was old enough to remember, we had animated discussions over dinner, about politics, race, religion, taxes, education and movies.

My Father hung with a group of guys who drove cab like him. French, Irish, Albanian, Italian, Spanish, Portuguese and Greek. No African-Americans allowed. They drank and smoked and shot pool and mostly liked working the night shift. My Mother hung with me. I grew up thinking that she was mostly right and he was mostly wrong.

I attended a Catholic elementary school (Our Lady of Angels) and a Catholic High School (Junipero Serra). I met my first African American at UC Berkeley. My Mother held a severely racist view of African Americans based on her experience managing “Negroes” at Hunter’s Point. She didn’t like Italians much better, and we never ate “Italian food”. Whether her stories were true or not, I walked out into life with roughly the same prejudicial inclination. It took ten years for me to lose the prejudice. I think I was lucky.

Somehow, my high school girlfriend became impregnated, so I had to turn down an appointment to the US Naval Academy that my Mother had worked hard to get me, and marry her. This did not make my Mother happy. Just to really slam it to her, I married an Italian later.

Me – Summer of 67

My first exposure to public protestation occurred when Mario Savio held free speech rallies on the UC Berkeley Campus during my freshman year. Our country was just getting going for real in Vietnam, but I was granted a 3A draft status because I had 2 children at the time, and was unable to participate. A couple of years later, the Chicago riots over the Vietnam war turned our National attention to the voice of the people, while Bobby Kennedy got shot and killed and the Summer of love kicked off the hippie movement in San Francisco. By this time, I had developed a social conscience and participated in all of that, including Woodstock a few years later. Divorced by then, I lived in a communal home in Los Altos Hills. An oxymoron, I know. But, through all of that, I never quit my job in the “establishment”.

Like almost every other Californian my age, I hated Ronald Reagan when he was Governor, but managed to get over it when I was making $250,000 a year in 1972, and voted for his second term. Someone once said that if you weren’t a liberal when you were in college and aren’t a conservative when you were in business, there was something wrong with you. But, that didn’t exactly apply to me.

The view that I have always held was tempered by the question, “What would a reasonable person do or think under these circumstances?” And, I think I owe this to watching and listening to my parents “debate” issues over dinner. Neither one of them was ever reasonable. It was sort of like watching John McCain argue with Nancy Pelosi. Though, my Mom and Dad were more articulate.

Was I a proponent of the power to the people movement in the 1960s and 70s? Sure. I saw then, just as I see now, a disproportionate distribution of attention, power and leverage to a small group of individuals at the expense of an increasingly disenfranchised majority of Americans. Nothing has changed in the way our government manages its business. Make love, not war? Give peace a chance? Of course. Was I a proponent of the hippie movement? Absolutely. Drugs and sexual freedom seemed like a great idea in 1967. Catholic, all male high school boy gets key to the city. Now, not so much.

So, here’s the deal Mr. Winghunter:

First fact, the POTUS has almost no control over the price of gas at the pump. Fact. Mr. Gingrich needs to stop it.

Second, if he agreed to go along with the Keystone pipeline from Canada to Texas, the bulk of that oil ends up being shipped to other places and it would have almost no effect on the price of gas at the pump. It would not create tens of thousands of jobs either (an independent study conducted by the Cornell ILR Global Labor Institute found that the Keystone Pipeline would result in 2,500 to 4,650 temporary construction jobs). It also crosses an active seismic zone and is the dirtiest source of transportation fuel currently available. The proposed route additionally crosses the Sandhills in Nebraska, the large wetland ecosystem, and the Ogallala Aquifer, one of the largest reserves of fresh water in the world. The Ogallala Aquifer spans eight states, provides drinking water for two million people, and supports $20 billion in agriculture. A leak could ruin drinking water and devastate the mid-western U.S. economy.

Third, The price of gas at the pump is affected mainly by commodity futures trading. Yes, the same 27 year-old MBA gamblers in pin-stripes and yellow neckties who took the economy down. Supply and demand, taxes, transportation, cost of crude, refining margins and competition make up the rest of the equation. Are the oil companies making a huge profit. Of course, and why not? As long as we stay stuck on this insane dependency on oil, they will continue to make huge profits.

So, commodity future trading based on the current supply in terms of output, especially the production quota set by OPEC, is the biggest single impact on the price of gas at the pump. If traders believe supply will decline based on say, threats to the straits of Hormuz, or a war with Iran, they bid the price up. If they believe supply will increase, the price falls. Another influence for traders is Oil reserves, including what is available in U.S. refineries and what is stored at the Strategic Petroleum Reserves. These reserves can be accessed very easily, and can add to the oil supply if prices get too high. Saudi Arabia also has a large reserve capacity. If it promises to tap those reserves, traders allow oil prices to fall. The last influence is Oil demand, particularly from the U.S. Demand usually rises during the summer vacation driving season. To predict summer-time demand, forecasts for travel from AAA are used to determine potential gasoline use. During the winter, weather forecasts are used to determine potential home heating oil use.

And, those are the facts, Mr. Winghunter. Facts. Not my opinion.

Mr. Obama is a reasonable man, has a great singing voice, is the ultimate in cool, has done a really good job of trying to lead this dysfunctional country during a time of unprecedented economic disaster, and I intend to vote of him again this November because I know that he will continue to resist terrible ideas like the Keystone Pipeline. As any reasonable man would.

Based on your call sign, Mr. Winghunter, I would guess you are a bird hunter, and like my brother-in-law, a proud owner of a large cache of guns and ammo. I have nothing against that and I applaud your ability to do so, but when the neighbors took me hunting when I was 10 years old, and I had an 8 point buck in my sights at 20 yards, I couldn’t pull the trigger. I personally don’t think it is reasonable for men to kill other living things when it is not necessary for survival. Just my view. Enjoy your day.

Crowdfunding, The Great Disruptor!

Crowdfunding as a disruptor is growing exponentially, and there are suddenly 14 different platforms that can help raise money for everything from cultural, art and music projects to social enterprises, nonprofits, volunteer groups, sustainable businesses, community and food organizations. I am surprised that public schools haven’t climbed on board to fund things like after-school sports programs, music and art programs and all of the stuff that has been hacked off the table in public education budgets. Imagine, your $10 could get you a ball cap, paperweight or team jersey commemorating your contribution to keeping the your local high school tennis program going. 

An example of disruption through Crowdfunding would be Sunday’s well-attended Progressive Opportunities conference in Berkeley, CA. The principle discussion centered around the roles of food and energy as a focal point for reshaping our world. “If there’s anywhere people have really gotten the importance of local change, it’s the food movement,” said Elizabeth Ü, one of the speakers at the event (which was produced by the East Bay Express). The speakers at Progressive Opportunities were level-headed pragmatists, with attainable goals and interesting stories. If anyone is going to create an alternate food economy, it’s probably these people.


At the conference, coordinator Al Weinrub delivered an overview of what he calls “decentralized energy systems.” To elaborate: “You could think about it as trying to move toward net-zero communities, where you essentially can generate as much energy locally as you need locally, so that you don’t have to buy a lot of energy from the grid,” he said. “The idea is that it’s a more sustainable approach to energy use, and also allows for a lot of economic development and jobs.”

In the end, Weinrub explained, a system emerges where wealth is held within a community rather than extracted by outside forces. Some of that wealth can take the form of investments in infrastructure, jobs, and businesses aimed at harvesting natural resources like solar, wind, geothermal, biomass, and biogas. Thus spent, the money then trickles through the community rather than leaving on a utility bill. It may seem a utopian vision, but Weinrub says it’s already technologically available. He also insists that such a transformation is more of a necessity than most realize. “We’re going to have to rethink how people work and live, and energy is a crucial part of that,” he said. “So we have to think about redesigning our energy systems in a serious way.”

The concept of growing new economies through the sustainable use of local resources is the focus of the Hoop Fund, a San Francisco-based crowd-funding platform that offers microfinance loans to small farmers and artisans. Similar to the micro-lending platform Kiva, individuals make loans as small as $25 and investments are paid back in small, gradual increments. In lieu of interest, Hoop Fund lenders earn discounted products from the entrepreneurs, fostering a strong sense of connection between the involved parties.

I sat in on several of the day’s workshops, but Crowdfunding for Local Food Economies was particularly interesting. The topic was nominally crowdfunding, but it encompassed a larger exploration of different ways food entrepreneurs (farmers, restaurants, artisans, etc.) can secure capital.

Lawyer Jenny Kassan, who’s CEO of Cutting Edge Capital, advises entrepreneurs on the distinctions between different types of investments. She also helps navigate the tricky SEC restrictions aspiring food businesses have to contend with. “It’s ridiculous that we need to hire lawyers to solicit investments from our own community,” Kassan lamented. Her presentation reviewed funding models like Kiva and Kickstarter that avoid securities regulation, as well as co-ops like Mandela Foods and Arizmendi Bakery. Hopefully, all of this changes soon when the Senate actually does something useful for this economy and approves an “Entrepreneur’s Access to Capital” bill.

Kassan also showcased Gather, the critically acclaimed vegetarian restaurant that certainly needs no financial assistance at this point. But several years ago, when owner Ari Derfel was trying to raise $400,000 to launch his business, he used a securities exemption that allows funding from up to 35 small, unaccredited sources. Not only did these non-bank investors give financial assistance, they also created a community support network that helped fill tables during Gather’s infancy.

Elizabeth Ü is the young firebrand director of Finance for Food, and is currently working on a book of the same name. She started with strong words of caution for food businesses in need of capital. “When you are offered money, I can’t stress enough that you should know exactly what strings are attached,” she said. “You don’t want to be forced to sell out your values later” (see Niman Ranch, Ben and Jerry’s, etc.). Ü had many suggestions for funding sources, including small “friends and family” loans and peer-to-peer lending, but she warned against venture capital for most small food startups.

The last speaker was Arno Hesse, co-founder of Slow Money and a trailblazer in the field of sustainable investment. Hesse just launched a crowdfunding platform for food businesses called Credibles. The tagline is “If you eat, you’re an investor” and it comes with a simple premise: Investments are returned in edible credits rather than cash. Some of Credible’s first entrepreneurs are Berkeley-based Gelateria Naia and Amber and Son Farm, a small chicken farm in Sebastopol. Investors in these companies will get their dividends in gelato bars and pasture-raised eggs.

All four speakers showed not only that alternative food and energy economies are within reach, but that they are well on their way.

So, the following is a list of crowdfunding websites that can help social enterprises, sustainable businesses, public shcools or nonprofit organizations get what they need to launch or sustain their programs. Check them out:


33 Needs: Connecting microinvestors & social entrepreneurs

33needs is a recent crowdfunding startup that connects microinvestors with social entrepreneurs who have big ideas in categories such as sustainable food, health, education and the environment. Investors can earn a percentage of revenue in exchange for their support.


AppBackr: Offset app development costs

A specialty crowdfunding site that may be useful to some social enterprises, AppBackr allows Apple developers to get funding upfront for iPhone, iPod and iPad apps in the concept stage by selling the app wholesale to backers, who receive a percentage of the profits for the apps they have purchased. Many app buyers also assist developers with marketing and promoting their apps to ensure that their investment is fully recouped. With a growing number of social enterprises tapping into the explosive apps market to raise awareness and sell products or services, AppBackr may be a useful tool to help offset app development costs, and even gain some extra promotional help.


Buzzbnk: Supporting a wide range of fields

Buzzbnk is a crowdfunding platform especially for social enterprises that allow funders to donate either money or time to support social enterprises working in a wide variety of fields. Though based in the UK, it is open to social ventures operating anywhere in the world. Social enterprises must submit their project proposal to Buzzbnk and the Buzzbnk team will work with the social enterprise to help develop appropriate fundraising targets and benefits or rewards to offer funders.


CauseVox: Fundraising pages for nonprofits

CauseVox offers nonprofit organizations a fully customizable fundraising page that makes collecting money from supporters easy. Supporters can also create their own personalized fundraising pages. Social media integration makes it easy to embed YouTube videos, Flickr slideshows and more.

Kickstarter: Supporting a wealth of creative projects

One of the best-known crowdfunding websites is Kickstarter, which rose to fame after the open source Facebook alternative Diaspora raised more than $200,000 on the site. Kickstarter funds creative projects such as independent films and music albums, books, software, citizen journalism, theatrical productions and more. Project creators are required to offer rewards to donors, such as bonus musical tracks, autographed books, signed prints, free performance tickets or something similar. Although Kickstarter cannot be used to fund social enterprise start-ups, it can be a great source of funding for social enterprises and nonprofits hoping to use creative projects to raise awareness of their cause, as well as for social-minded creative enterprises such as nonprofit theater companies and independent music producers. Other great crowdfunding sites focusing on creative projects include IndieGoGoRocketHub, UK-based Crowdfunder and Australian-based Pozible.


ChipIn: Embed a widget, raise $

ChipIn is a simple widget that can be posted on blogs, websites and many social media profiles. It allows individuals, private groups, non-profits and others to raise money easily online.


Crowdcube: Equity-based investment community

UK-based Crowdcube bills itself as “the world’s first equity-based crowdfunding community dedicated to business investment.” In exchange for microinvestments of as little as £10, investors can fund worthy enterprises and in exchange gain a share of direct equity in the business. Crowdcube is currently available only to UK-based investors and entrepreneurs who have or can start a UK Limited Company, but hopes to expand to other regions in the future.


Give.fm: Create your own campaign

Give.fm allows nonprofits and individuals to set up a campaign to raise money for causes ranging from local soccer teams to international efforts to fight poverty, hunger, disease, environmental degradation and more. The site works by allowing donors to set up recurring microdonations of as little as 10 cents per day.


Peerbackers: Raise funds from your peers

Peerbackers offers entrepreneurs and nonprofits of all types the opportunity to raise funding for their idea from their friends, family and peers. Rather than receive financial returns or equity, backers receive rewards such as free or discounted versions of the products or services offered by the company.

First Giving

FirstGiving: Raise funds for your favorite cause

FirstGiving has helped more than 8,000 nonprofit organizations connect with more than 13 million donors and raise more than $1 billion to date, it reports. The site allows nonprofit supporters to create their own fundraising page to raise money for the cause of their choice.

Razoo: Simple, secure tools to raise funds

Razoo is a crowdfunding platform for nonprofits and charities that allows individuals, organizations, corporations and foundations to set up a fundraising page to raise money for their own cause or their other cause of choice. Razoo also allows team campaigns.


Sponsume: Free fundraising platform

Sponsume is a crowdfunding startup, launched in 2010, that allows both creative projects and social enterprises to raise funding on the site. Sponsume is currently free to use, but does plan to start charging fees in the future.


Spot.us: Funding citizen journalism

Spot.us is a one-of-a-kind crowdfunding platform that supports citizen journalists by funding their investigations of specific topics. Spot.us can be a very useful tool for organizations seeking to raise awareness through hard-hitting investigative journalism, community reporting or similar means.


Start Some Good: New kid on the block

Start Some Good is a new crowdfunding startup that launched in February with the goal of connecting social entrepreneurs with crowdfunded venture capital. Start Some Good allows both for-profit and nonprofit social enterprises to post fundraising campaigns to the site. Team members will help review the campaign’s goals and rewards to ensure they’re a good match for Start Some Good’s philosophy.

A Mortgage Settlement That Is As Bogus As The Mortgage, And The Foreclosure.

Details about the $25 billion mortgage settlement signed off by 49 state attorneys general tamp down early expectations about how many mortgage borrowers might receive relief.

The much-ballyhooed bank settlement over mortgage lending and foreclosure abuses is eerily reminiscent of the scandal itself. Beware of the fine print.

Forty-nine state attorneys general signed off on a $25 billion deal with five major banks — one is tempted to say robo-signed — that first and foremost protects the banks from government lawsuits.

Exactly which struggling homeowners will benefit is still being sorted out. If a mortgage is owned or backed by Fannie Mae or Freddie Mac — about 55 percent of all mortgages — it is not eligible for help. Underwater, but making your payments? Do not expect any relief.

Borrowers who lost their homes to dodgy foreclosures might collect $2,000 for what they went through. In theory they could sue their lender, but imagine how much legal time two grand would pay for.

The New York Times reported an audit of recent foreclosures in San Francisco County found most all involved legal violations or suspicious documentation. It is not clear the settlement goes after the abuses found in the audit.

Past industry standards of confirming a borrower’s credit, capability and collateral sound so ’70s. Instead the lenders signed documents without verifying information. Those instincts carried through at the other end with foreclosures that did not follow legal processes of notice and filings.

The latest wrinkle in the settlement story comes via The Associated Press, which reported that $2.75 billion for states to help prevent foreclosures is being sucked up in state budgets. Governors and legislators covet the cash to plug budget holes.

Lessons learned from the mortgage scandal are about the details. Same for the settlement. And at the end of the day, the tiny, elite minority who govern and control this country slide out the back door. Un-accountable, un-controllable and un-punished.

Audit Uncovers Extensive Flaws in Foreclosures.

So, now that I am back in the saddle, here goes: 

An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday.

Phil Ting, the San Francisco assessor-recorder, found widespread violations or irregularities in files of properties subject to foreclosure sales.

Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings suggest how pervasive foreclosure irregularities may be across the nation.

The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.

Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.

Kathleen Engel, a professor at Suffolk University Law School in Boston said: “If there were any lingering doubts about whether the problems with loan documents in foreclosures were isolated, this study puts the question to rest.”

The report comes just days after the $26 billion settlement over foreclosure improprieties between five major banks and 49 state attorneys general, including California’s. Among other things, that settlement requires participating banks to reduce mortgage amounts outstanding on a wide array of loans and provide $1.5 billion in reparations for borrowers who were improperly removed from their homes.

But the precise terms of the states’ deal have not yet been disclosed. As the San Francisco analysis points out, “the settlement does not resolve most of the issues this report identifies nor immunizes lenders and servicers from a host of potential liabilities.” For example, it is a felony to knowingly file false documents with any public office in California.

In an interview late Tuesday, Mr. Ting said he would forward his findings and foreclosure files to the attorney general’s office and to local law enforcement officials. Kamala D. Harris, the California attorney general, announced a joint investigation into foreclosure abuses last December with the Nevada attorney general, Catherine Cortez Masto. The joint investigation spans both civil and criminal matters.

The depth of the problem raises questions about whether at least some foreclosures should be considered void, Mr. Ting said. “We’re not saying that every consumer should not have been foreclosed on or every lender is a bad actor, but there are significant and troubling issues,” he said.

California has been among the states hurt the most by the mortgage crisis. Because its laws, like those of 29 other states, do not require a judge to oversee foreclosures, the conduct of banks in the process is rarely scrutinized. Mr. Ting said his report was the first rigorous analysis of foreclosure improprieties in California and that it cast doubt on the validity of almost every foreclosure it examined.

“Clearly, we need to set up a process where lenders are following every part of the law,” Mr. Ting said in the interview. “It is very apparent that the system is broken from many different vantage points.”

The report, which was compiled by Aequitas Compliance Solutions, a mortgage regulatory compliance firm, did not identify specific banks involved in the irregularities. But among the legal violations uncovered in the analysis were cases where the loan servicer did not provide borrowers with a notice of default before beginning the eviction process; 8 percent of the audited foreclosures had that basic defect.

In a significant number of cases — 85 percent — documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, “a ‘stranger’ to the deed of trust,” gained ownership of the property; as a result, the sale may be invalid, it said.

In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose. Many of the foreclosures that were scrutinized showed gaps in the chain of title, the report said, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.

Banks involved in buying and selling foreclosed properties appear to be aware of potential problems if gaps in the chain of title cloud a subsequent buyer’s ownership of the home. Lou Pizante, a partner at Aequitas who worked on the audit, pointed to documents that banks now require buyers to sign holding the institution harmless if questions arise about the validity of the foreclosure sale.

The audit also raises serious questions about the accuracy of information recorded in the Mortgage Electronic Registry System, or MERS, which was set up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report found that 58 percent of loans listed in the MERS database showed different owners than were reflected in other public documents like those filed with the county recorder’s office.

The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. “We can deduce from the public evidence,” the report noted, “that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question.”

A Credit Union to Bail Out People, Not Big Banks.

Protesters chained themselves to the door of the Wells Fargo Bank in San Francisco's financial district. / Credit:Judith Scherr/IPS
Protesters chained themselves to the doorof the Wells Fargo Bank in San Francisco’s

Financial District.

By Judith Scherr

SAN FRANCISCO, California, Jan 21, 2012 (IPS) – Occupy activists from Wall Street to San Francisco’s financial district have dramatised their anger with big financial institutions by blocking JP Morgan Chase Bank doorways, dancing atop Wells Fargo counters, pitching a tent in a Bank of America lobby, hanging banners across Citibank windows, and accompanying the actions with the now-familiar chant “Banks got bailed out, we got sold out.”

The Occupy Movement condemns the banks’ role in predatory lending and the foreclosure crisis, the high-interest student loans they say enriches the bankers and impoverishes college students, bank investments in private prisons and more.

But protesting isn’t enough for Occupy San Francisco activist Brian McKeown. He says a bank should be a transparent institution whose mission is to help people. And so, with like-minded partners, McKeown is putting together a plan for the People’s Reserve Credit Union (PRCU). Occupy San Francisco is encouraging the venture.

In the next few weeks, McKeown says he’ll be ready to submit the PRCU’s application for a charter to the California Department of Financial Institutions.

“The country’s been devastated economically because of greed and government malfeasance,” McKeown said in a recent interview at the downtown San Francisco Public Library. “I don’t think it’s hard for folks who are educated to understand that the banks have ripped us off.”

banks or even at most credit unions. However, they won’t be targeted to people who cannot pay them back.

Borrowers will be required to attend classes in business and personal finance and will have mentors to help their businesses succeed and to enhance their ability to pay back the loan. The PRCU will work with San Francisco State’s Community Service Learning Project to provide the education component, McKeown said.

San Francisco entrepreneur Tim Mayer, who is advising McKeown, said the bank will offer the same services other banks do. “But there will be a different consciousness,” he said. The PRCU board “will not focus on shareholder profits,” he said, but will be “concerned with the welfare of those they are servicing.”

While microloans in developing countries can be as low as 100 dollars, McKeown is planning to offer loans of around 1,000 dollars. That amount may seem small in a place like San Francisco, he said, but it’s enough to fund materials to make jewelry, buy a used server for someone creating computer apps, or to rent equipment, which an allied non-profit organisation would purchase. Funding student loans may come later, as the bank grows, he said.

“I’d rather support 12 taco stands than one Taco Bell,” McKeown quipped.

To apply for the charter, McKeown needs to have his board of directors in place – he said he does, but is not yet ready to reveal their names. (Selection of the board will be preliminary and subject to an eventual election by PRCU members.)

McKeown needs to present a business plan and show that he has adequate capitalisation to get chartered. He said they already have some wealthy backers and a fundraising concert is in the works.

The road ahead for the new credit union will not necessarily be easy, cautioned Rafael Morales, public affairs and west coast programme officer at the National Federation of Community Development Credit Unions.

“There’s generally a high rate of failure for most start ups,” said Morales, who has had preliminary meetings with McKeown. He said usually the NFCDCU recommends that a credit union begin with operating capital of one to two million dollars to carry it through several years.

“The first couple of years are unprofitable,” Morales said. “The more working capital, the higher chance of success.”

Others say it can be done for less. Warren Langley, former president and CEO of the Pacific Exchange in San Francisco – and a supporter of the Occupy Movement – told IPS he thought a credit union could be established with 100,000 to 200,000 dollars.

McKeown said he plans to capitalise the bank at 250,000 to 500,000 dollars for the first year, keeping expenses at a minimum with bank officials working at low or deferred salaries and some without compensation. Mayer acknowledged, however, that it will be a challenge to find a CEO for the PRCU that has the requisite experience, shares the PRCU philosophy and will work for low wages.

A startup credit union also needs “a committed, capable organising committee”, Morales said, noting that McKeown’s group is very strong in this area.

The Occupy Movement is a “big tent” that includes libertarians, Democrats and communists. McKeown may part ways ideologically with those among his fellow Occupiers who reject capitalism.

“I’m a capitalist,” he said.

The problem, as he sees it, “is in the way capitalism is run. When my business fails, it doesn’t get protected. No one comes and bails me out. Why are we bailing out the businesses – financial institutions – – that are supposed to be the most conservative in the world?” He said if the system were working, the big banks would have failed.

“When we had that 800-billion-dollar bank bailout….they took the money and allowed the mortgages to fail,” he said. “Now all of a sudden Wall Street is making profits again, like it was before. It’s a jobless recovery. People have a right to be pissed off. Access to capital and credit made this country great.” He intends to make that access possible through the PRCU.

Of course, one new small credit union won’t make big changes in a system that’s not working. Langley, the former Pacific Stock Exchange CEO, noted, however, that the PRCU could solve the problem for its members.

“And if everybody, then does more of those [credit unions], it would certainly help,” he said. “It provides people alternatives.” Yes. Just like iSellerFINANCE!

A National Day of Action

Standing in the rain, in front of a Bank of America in San Francisco’s financial district – one of the half- dozen or so banks shut down Jan. 20 by protesters from Occupy Wall StreetWest and some 55 allied organisations – Amanda Starbuck of Rainforest Action Network spoke through a bullhorn, telling the crowd gathered around her, “In places like Appalachia they have blown up mountains and poisoned people’s drinking water, because it’s easier for banks to make a profit on those investments than it is to make a responsible decision.

Starbuck pointed to credit unions and small local banks that are alternatives. “With credit unions and local community banks, the money stays in the community and is rarely invested in destructive environmental practices,” she said.

Elsewhere in San Francisco’s financial district, crowds of protesters that included clowns and jugglers and stilt walkers shut down streets and intersections. They turned one bank into a food bank and served lunch to all; they used song and dance at one Wells Fargo Bank to denounce profiteering from student debt, and, at a different Wells Fargo, used street theatre to show the link between Wells Fargo investments and private detention centres for undocumented immigrants.

Many of the protests targeted the 12,000 foreclosures in San Francisco between 2008 and 2011. Bank of America foreclosed on the home of Josephine Tolbert, a 75- year-old African American cancer survivor.

“Bank of America sold my house while they were working with me for a loan modification,” she told a crowd. “They said, ‘as long as you are in review, you cannot be foreclosed on.’ They lied.”

The day of protests included demonstrations at the federal courts against the Citizens United decision that treats corporations like people and protests at the U.S. Immigration and Customs Enforcement office against the deportations that break up immigrant families.

They also demonstrated support for hotel workers fighting for better conditions and for health care for all. There were reportedly 18 arrests.


Klout Confirms “Strong Round” of Funding.

We are using Klout scores in our iSellerFINANCE credit scoring engine as one co-indicator of social media interaction. While I won’t quantify exactly how we use it, I can say that the higher your Klout score, the higher the influence will be on your credit score.

While it’s been talked about for some timeKlout today finally confirmed that it raised a “strong” third round of funding — though it won’t say how much.

Klout CEO Joe Fernandez confirmed the funding with All Things D, and said that the round was led by Kleiner Perkins. In October, the company was said to be raising around $30 million at a massive $200 million valuation with Kleiner at the head.

As VentureBeat’s Tom Cheredar described it when word first hit about the funding, Klout works by measuring a person’s activity on a variety of social networks such as Twitter, Facebook LinkedIn, Google+ and others. Based on that individual’s interaction within those social networks, Klout calculates the true reach of that person’s communications and issues them a 1 to 100 Klout score.

The funding is a good sign for Klout’s long-term viability, especially since the service has caught flack from the tech community over its seeming frivolity. It has been criticized as a mere popularity contest for the web, and the value of a Klout score is still unclear.

It seems the company is ready to tackle these common criticisms head on with the funding:

“We’ve already made significant investments in both engineering and infrastructure, and with this funding we’ll invest further in these areas so we can continue to provide the most accurate and transparent measurement of influence,” Fernandez wrote in a blog post today. “We’ll also help our community become better users of social media, expand Klout Perks so that all influencers are rewarded for their influence, and make it clear why it pays to have Klout.”

Fernandez also said that the service is now handling 10 billion API requests per month, up from just 100 million last January. There must have been a big jump in December for Klout, as the company announced it had hit 7.5 billion monthly API requests just last week.

In addition to this latest funding round, San Francisco, CA based Klout has raised $11 million in funding over two previous rounds.

It’s 2011 and Santa is a Pawnbroker.

Children in San Mateo, Calif., whispered their wish lists to Santa Claus this weekend at Best Collateral, a pawnshop in a strip mall about 20 miles south of San Francisco.

And if their parents didn’t mind discounted gifts — well, to be realistic, used or hocked ones — they did their shopping there, too.

Christmas this year has come to the neighborhood pawnshop — and business is booming like never before.

Sue Gallagher, 54, is one shopper who now works through her Christmas list at a pawnshop before heading to Wal-Mart or Target.

She recently bought a television for her daughter at Tom’s Pawn Shop in Lake Jackson, Tex., a “decent-sized flat-screen TV for less than $100.” She described the experience as festive, with “garlands and tinsel and some music playing in the background.”

“I didn’t feel like I was shopping in a pawnshop,” said Ms. Gallagher, who works for a nursing service.

Tom’s is not the only pawnshop that is thriving. At the Pawn America chain of stores in the Midwest, the founder Brad Rixmann said his business was up 50 percent this holiday season over last year. In San Diego, Yigal Adato, a co-owner of CashCo Pawn, said customers were showing up with Christmas lists, desperate to save money.

“We’ve had a couple of customers who say, ‘You know, if it wasn’t for you guys’ prices, my kids wouldn’t be getting anything this year,’ “ Mr. Adato said.

While some customers have always bought Christmas gifts at pawnshops, only recently has the idea gained widespread acceptance, said Emmett Murphy, a spokesman for the National Pawnbrokers Association. So far, this holiday season has been the best one yet, he said.

Many pawnshops, in turn, are embracing holiday shoppers like never before, offering promotions long deployed by more traditional stores, like “25 Days of Deals,” “Black Friday” specials — even visits from Santa. It underlines how the recession has hit those at the bottom of the economic spectrum, for whom even Wal-Mart can be too expensive.

“We want people to think of us as an alternative to Target, Best Buy,” Mr. Rixmann said. “You can buy stocking stuffers for next to nothing.”

The gloomy economy is the most immediate explanation, but industry experts also point to the success of television shows like “Pawn Stars,” which have attracted a more mainstream audience to the stores.

“People look at it now as a place to find stuff and find a bargain, where before they may have been afraid of it or figured it was all stolen,” said Mark J. Perry, an economics professor at the University of Michigan, Flint.

Pawnshops get their name from the fact that customers can “pawn” merchandise as collateral in exchange for a loan. When the money is paid back — with interest of course — pawnbrokers return the merchandise.

If the customer doesn’t pay back the money, however, the pawnbroker keeps the merchandise and resells it.

In the years since the economy has soured, pawnshops have been making more loans than ever, and the average amount of a loan has grown from $80 in 2008 to $150 today, said Mr. Murphy. In addition, pawnbrokers were flooded by customers looking to sell gold jewelry when gold prices soared this year.

On the retail side, sales had been more tepid before the holiday surge, because many customers are flat-out broke. Owners of pawnshops melted down much of the jewelry in stock because there were so few buyers, Mr. Murphy said. But the tide has turned, at least for some pawnshops. Sleek chains that resemble mainstream, big-box retailers and offer a much wider range of merchandise, some of it new, are replacing mom-and-pop shops. As the industry consolidates, the number of pawnshops has fallen to roughly 10,000 from 12,500 in 2008, Mr. Murphy said.

Mr. Rixmann of Pawn America said his own trajectory illustrates the trend: his first store was 700 square feet; and one of his newest stores, in Madison, Wis., is 35,000 square feet in a former Circuit City.

Mr. Adato of CashCo Pawn said about 60 percent of its sales started on layaway, because “people might need a paycheck or two to pay it off.” And he offers even deeper discounts around the holidays. December sales include half off diamond jewelry, 30 percent off electronics and 40 percent off tools.

La Familia Pawn and Jewelry, a chain of shops based in Florida, threw a “Why Wait Wednesday” event the day before Thanksgiving, trying to get an edge on stores like Wal-Mart that offered Thanksgiving specials. Revenue over Thanksgiving weekend rose 40 percent from a year ago, La Familia’s co-founder and chief financial officer, Woody Whitcomb, said.

Other pawn stores have a way to go before shoppers feel the warm glow of the holidays. Richard Sears, 43, who owns the Jazzy Dog Cafe in Orlando, Fla., said he was shopping more and more at pawnshops now because his “restaurant is getting clobbered.”

While they have put up holiday decorations, the shops he frequents are “in the really worst parts of town,” he said.

“They try,” Mr. Sears said, “but it’s hard to be festive when you’re putting garlands on burglar bars.”

Don Bellville, the executive vice president of Best Collateral, a group of pawnshops in California, said his stores had embraced the holidays in the last two years by offering deals, bringing in Santa and putting some snowflakes in the windows. But he acknowledged there were limits on how far any pawnshop could go.

“Macy’s we are not,” he said.