City of Seattle Micro Bonds

I made an inquiry of Seattle City Councilmember Tom Rasmussen about the possibility of having the city offer municipal bonds at lower denominations than $5,000. He sent the question to Dwight Dively, the city's Director of Finance.

Tom, we tried this about 12 years ago. Several other nearby jurisdictions had issued what are called "minibonds" in denominations of $500 or $1000, so we tried it with a City Light issue. The theory was that citizens and employees would want to buy these bonds. It turned out that there was almost no interest in these bonds. Further, they require a significant administrative expense because they aren't managed through the usual municipal bond process, which is administered through the Bank of New York. City Light incurred substantial administrative costs for a relatively small amount of bonds. So, our experience suggests this just isn't worth it. Please let me know if you have other thoughts. Thanks.

Here is my response:

Thanks for the voice of experience. I pretty much expected that the administrative costs of such an enterprise would limit the effectiveness. The problem is that just like almost nobody has $5,000 to put into an investment, not many more people have $1,000 or even $500. $1,000 is a mortgage payment. $500 is a car payment. $100 is groceries for a week. $50 is a dinner out. $25 is an amount that people can spare. Until we can figure out a way to enable people to put down as little as $25 for a community investment, the interest won't be there from the general public.

What we did not have 12 years ago was the Internet. We didn't have online banking institutions like PayPal and Sharebuilder, each of which have $25 minimum investments. We didn't have Citigroup or Bank of America having market capitalizations above $200 Billion. And we didn't have a negative national savings rate. We were just starting to launch the Internet, and everyone was after 10% returns. It makes sense that the administrative costs at that point were prohibitive for micro-bonds.

But new ideas are the only way that we are going to dig our way out of the mess that we are in. If it's not worth the investment for the Bank of New York, maybe it would be something that Google.org would look at. The online financial services are trying to figure out a way to enable efficient transactions of $25 or less. How many of them would jump at the chance to create an investment vehicle for people to put in $25 or more? All I can do is ask, and hope that I can find someone who shares my vision. I'm tired of watching my city and my country build a foundation of debt. I'd rather watch, and help, as we build a foundation of wealth instead.

I don't know if that sounds too much like a soapbox article or not, but I have real concerns that we're headed towards a financial meltdown at a global level, and that the only way to stem the tide is to start saving money at an individual level.

I've started to work on a presentation that outlines the issue and what I think the solution is. I guess I was inspired by Al Gore. And now that I have a laptop, I can work on it at any time.

PS, is anyone watching this blog? Please let me know. Dialoge is always better than an echo chamber.