Socialism: insure workers' final wages and savings, without taxpayers

Add savings-guarantee.md: a co-op-funded insurance pool covering final unpaid wages, former members' payouts and a protected slice of current accounts, priced for near-zero recovery by an independent actuary, with a credit-union-style deposit, phased coverage, pro-rata payment when short, and rules against phantom profits, early quitting and fraud rings. Co-ops may no longer take member deposits or sell members bonds. Co-Authored-By: Claude Opus 5.5 <[email protected]> Claude-Session: https://claude.ai/code/session_01QWPs69B8nQZjtPEUXMKzZx
2026-09-23 20:28:16 -06:00
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@@ -45,7 +45,7 @@ Members can also raise their own salaries instead of taking profit, but that doe
 ## How the account grows
- **Interest is set by formula, not by vote.** A current member's account earns the one-year Treasury rate plus two percentage points in years the co-op makes a profit, and the plain Treasury rate in loss years. Once a member leaves, their balance earns the plain Treasury rate. If current members voted on the rate, they could set it to zero on accounts that mostly belong to people who've left. Or senior members could set it high to pay themselves out of the firm. A formula stops both.
+- **Interest is set by formula, not by vote.** A current member's account earns the one-year Treasury rate plus two percentage points in years the co-op makes a profit, and the plain Treasury rate in loss years. Once a member leaves, their balance earns the plain Treasury rate. So does the slice of a current member's account that's protected by [insurance](savings-guarantee.md), since it's no longer at risk. If current members voted on the rate, they could set it to zero on accounts that mostly belong to people who've left. Or senior members could set it high to pay themselves out of the firm. A formula stops both.
 - **Why the extra two points.** Money in a current member's account is at risk: it shares in losses and ranks behind lenders. If it only earned what a risk-free government bond pays, every member would take as much cash as they could, and the co-op would have less of its own money to invest. Once you leave, your balance stops sharing in losses, so it stops earning the premium. See [Investing for the Long Run](the-long-run.md#the-rules).
 - **Losses are shared.** In a year the co-op loses money, the loss is charged partly to the reserve and partly to members' accounts, in the same proportions as profits. Your account can go down, just like shares in any company.
@@ -65,7 +65,8 @@ A payout system can also be used to strip a failing firm. People who see trouble
 - **If a payout fails the test, it's paused for at most two years.** Interest keeps building, and nobody's account is cancelled. While any former member's payout is paused, **current members get no cash profit share and no bonuses.** Nobody gets paid ahead of the people who are waiting.
 - **Payouts rank behind the co-op's lenders.** In a bankruptcy, members' accounts are paid only after the co-op's creditors. That's the honest cost of being an owner, and it's the main reason for the one-year-of-pay cap.
 - **The co-op doesn't lend to members against their accounts.** That would just be an early withdrawal by another name. Members can use their account as collateral with an outside lender.
- **Federations can insure balances.** A [federation](federation.md) can use its shared fund to guarantee members' balances up to a modest limit, the way deposit insurance protects bank savers.
+- **Savings are insured, up to a point.** Every locked co-op belongs to a members' savings insurance pool, paid for by the co-ops. It covers workers' final unpaid wages, former members' unpaid payouts up to $50,000, and a protected slice of current members' accounts. See [Protecting Members' Savings](savings-guarantee.md).
 - **No other savings in the co-op.** A co-op can't take deposits from its members or sell them bonds. A member's only money in the co-op is their account.
 **Why this much caution.** Fagor, Mondragon's appliance maker and once the world's largest industrial co-op, went bankrupt in 2013 with about €1.1 billion of debt, putting 5,600 jobs at risk. Savers who had bought its subordinated co-op bonds, which had been sold as safe deposits, ended up suing ([Wikipedia summary of the Mondragon record](https://en.wikipedia.org/wiki/Mondragon_Corporation)). Shortly before Enron collapsed in 2001, about 63% of its workers' 401(k) retirement savings were in Enron's own stock ([GAO-02-480T](https://www.gao.gov/assets/gao-02-480t.pdf)). It's the same lesson: savings concentrated in the company you work for are the savings most likely to disappear with your job.
@@ -16,5 +16,6 @@ The fix is a structure between firms, and Mondragon already built it:
 - **Firms pool a slice of profits into a mutual solidarity fund.** The fund absorbs shocks. A firm having a bad year draws support instead of dying.
 - **When a firm does die, the federation redeploys its workers into member firms.** Your company failing stops meaning your life failing. *This* is what licenses healthy risk-taking: not lower stakes on paper, but a floor under the fall.
 - **The fund becomes a second lender.** Over time, the federation (financed by its members and by the indivisible reserves of dissolved co-ops) becomes a source of patient capital that doesn't depend on the public bank at all. That is the path to the co-op sector outliving the political coalition that started it.
 - **Federations can insure their members' savings.** A federation can run its own savings insurance pool, as long as it meets the national standards and reinsures with the others. Its co-ops' workers are then covered close to home (see [Protecting Members' Savings](savings-guarantee.md)).
 Membership is voluntary, but the incentives all point in: unfederated co-ops face the concentration problem alone.
@@ -13,7 +13,7 @@ summary: A working model for building an economy where the people who do the wor
 This model doesn't buy, seize or convert anyone's company. Instead it builds new worker-owned companies alongside existing ones, then lets customers and workers choose between them.
- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally. Salaries still exist, and hard jobs still pay more. Part of each year's profit builds up in a personal account that's paid out when you leave, and part goes into a permanent reserve that keeps the business investing. [Worker Ownership](worker-ownership.md), [Member Capital Accounts](capital-accounts.md) and [Investing for the Long Run](the-long-run.md)
+- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally. Salaries still exist, and hard jobs still pay more. Part of each year's profit builds up in a personal account that's paid out when you leave, and part goes into a permanent reserve that keeps the business investing. An insurance pool the co-ops pay for protects workers' last paychecks and part of their savings if the co-op fails. [Worker Ownership](worker-ownership.md), [Member Capital Accounts](capital-accounts.md), [Protecting Members' Savings](savings-guarantee.md) and [Investing for the Long Run](the-long-run.md)
 - **A small public bank lends to worker co-ops.** It charges market rates, so it only succeeds if co-ops can really compete. Its whole job is to be willing to lend to a kind of company other banks won't. Spain, Italy and the US have all tried versions of this, and the pilot is built around what went right and wrong. [The Bank](the-bank.md) and [Has This Been Tried?](precedents.md)
 - **Co-ops funded this way stay co-ops forever.** They can't be sold to conventional owners, and members can't vote to cash out what earlier members built. An independent lock-holder can veto any attempt, including selling the business off piece by piece. [The Lock](the-lock.md)
 - **It runs as an honest experiment.** A one-time $350 million pilot aims to fund about 400 new co-ops. The success measures are published before the first loan. If, after twelve years, co-ops stay open about as well as similar conventional firms while paying their members fairly, and the bank earned at least what Treasury bonds would have, Congress votes on growing it. If not, it shuts down automatically. [The Test](the-test.md) and [The Pilot, in Numbers](pilot-spec.md)
@@ -13,7 +13,7 @@ An honest list of what the model hasn't solved yet, most dangerous first.
 2. **The horizon problem.** *(Mostly answered.)* Members near retirement have little reason to vote for investments whose payoff arrives after they leave. The evidence from France and Italy finds no underinvestment where co-ops must keep a reserve, and [Investing for the Long Run](the-long-run.md) closes the main routes around this model's reserve: pay above the going rate, sales of assets, and development spending. Still open: nothing forces a co-op to maintain its equipment once its loan is repaid, reserve money could be wasted on bad expansion, and it's unsettled whether 30% is enough and whether the account rate is right. Letting members sell their places to incoming workers was rejected, because that is how the plywood co-ops ended up sold.
-3. **Members' savings sit inside their employer.** [Member capital accounts](capital-accounts.md) are capped at a year's pay and protected by a solvency test, but they rank behind the co-op's creditors. Fagor's 2013 bankruptcy shows what that can mean. Federation-backed insurance is an option, not yet a design.
+3. **Members' savings sit inside their employer.** *(Partly answered.)* [Member capital accounts](capital-accounts.md) are capped at a year's pay, protected by a solvency test, and now insured by a pool the co-ops pay for ([Protecting Members' Savings](savings-guarantee.md)). It covers final wages, former members' payouts and a protected slice of current accounts. Still open: the pool has no government backing, so a wave of failures in one recession could outrun it. Nobody knows yet what the premiums really need to be. And its legal form, probably insurance under state law, isn't settled.
 4. **Is the lock too rigid?** A co-op that should be sold (a better operator exists, the members want out) can only go to another co-op. If the co-op sector is small, that buyer pool is tiny, and viable firms may be liquidated instead of rescued. The federation as buyer of last resort is a partial answer. Critics on the right add a sharper version: a lock that outlasts a repaid loan by generations is a permanent restriction on selling property, bought with one loan, and it binds members who never agreed to it. The lock is now built to hold in layers, including an independent lock share and rules against selling the business piece by piece ([The Lock](the-lock.md#how-the-lock-is-made-to-hold)). Its biggest legal gap is bankruptcy: federal bankruptcy law generally overrides limits on selling a bankrupt company's property, so the lock only holds in bankruptcy if Congress amends that law. Italy offers a softer model: a co-op there can convert into an ordinary company, but its accumulated reserves go to the co-op development fund, not to the members ([Has This Been Tried?](precedents.md#italys-co-op-funds-coopfond-and-the-marcora-law)). That would keep the part of the lock that stops members cashing out what earlier generations built, and drop the part that stops a firm from ever changing hands.
@@ -0,0 +1,81 @@
 ---
 title: Protecting Members' Savings
 section: The Co-op
 order: 26
 summary: If a co-op fails, its workers shouldn't lose their last paychecks and their savings along with their jobs. How an insurance pool paid for by the co-ops protects them, and what it can't promise.
 ---
 # Protecting Members' Savings
 Every member of a co-op builds up savings in a [capital account](capital-accounts.md). That money is real, but it sits inside the same business that pays the member's wages. If the co-op fails, its lenders get paid first, and members' accounts are paid only from whatever is left. A worker can lose their job and their savings on the same day. Their last few paychecks may go unpaid too.
 The model already limits how much can pile up (accounts are capped at a year's pay) and stops insiders cashing out first (every payout has to pass a solvency test). This page adds the missing piece: insurance.
 ## What goes wrong in real life
 - **Fagor, 2013.** When Mondragon's appliance maker went bankrupt, more than 900 former workers of Fagor and a related co-op sued Mondragon for €47.8 million of capital contributions they had lost. The courts turned them down, ruling in 2018 that the claim had been filed too late ([Europa Press, via Infobae, 2023](https://www.infobae.com/espana/agencias/2023/11/12/diez-anos-de-la-caida-de-fagor-electrodomesticos-cronologia-de-una-quiebra/)). Some savers had also bought Fagor's subordinated bonds believing they were ordinary deposits ([elDiario.es, 2023](https://www.eldiario.es/euskadi/diez-anos-quiebra-fagor-electrodomesticos-tambaleo-esencia-cooperativismo-vasco_1_10612926.html)). Mondragon did protect most of the *jobs*. Of 1,736 members in the Basque plants, 577 became members of other co-ops, 320 were moved temporarily, and many more retired early or were compensated, paid for partly by doubling contributions to Mondragon's own social insurance fund (elDiario.es). It had no equivalent protection for their savings.
 - **Italy's consumer co-ops, 2014–15.** Italian consumer co-ops let their members keep savings with them, as a "social loan" to the co-op. When two co-ops in Italy's northeast failed, thousands of members' savings were frozen. At one of them, Coop Operaie di Trieste, 17,662 members held social-loan savings, and a rush of withdrawals set off the collapse ([Wikipedia, in Italian](https://it.wikipedia.org/wiki/Cooperative_Operaie_di_Trieste_Istria_e_Friuli)). At the other, CoopCa, about 3,000 members had around €27 million at stake. Under the rescue plan they could expect three-quarters back at best, and not before 2018. Neighboring co-ops voluntarily paid them up to half of their money, €13 million in all ([Il Fatto Quotidiano, 2015](https://www.ilfattoquotidiano.it/2015/08/05/crac-coopca-la-guerra-dei-soci-che-spaventa-le-altre-cooperative-del-nordest/1919384/)).
 - **Enron, 2001.** Not a co-op, but the same trap: about 63% of the money in its workers' 401(k) retirement plan was in Enron's own stock when it collapsed ([GAO-02-480T](https://www.gao.gov/assets/gao-02-480t.pdf)).
 Three lessons come out of these. When members sense trouble, they rush to get their money out, and the rush itself can sink the firm. Savings get sold as safer than they are. And help after the fact is voluntary, partial and slow.
 ## How similar protection works elsewhere
 - **Credit unions.** America's credit unions are member-owned, like co-ops, and they insure their members' savings through a fund they pay for themselves. Each credit union keeps a deposit worth 1% of its insured savings with the fund, and the fund aims to hold reserves of 1.2% to 1.5% of insured savings ([12 U.S.C. § 1782](https://www.law.cornell.edu/uscode/text/12/1782)). Unlike this model, that fund is backed by the full faith and credit of the United States ([NCUA](https://www.ncua.gov/support-services/share-insurance-fund)).
 - **Bank deposits.** Deposit insurance is paid for by the banks, through premiums that by law must rise with each bank's risk. The fund's legal minimum reserve is 1.35% of insured deposits, and its long-term goal is 2% ([FDIC](https://www.fdic.gov/resources/deposit-insurance/deposit-insurance-fund/); [12 U.S.C. § 1817](https://www.law.cornell.edu/uscode/text/12/1817)). It too has government backing.
 - **Unpaid wages in Europe.** Every EU country has to run a guarantee institution that pays workers' unpaid wages when their employer goes insolvent: at least three months' pay (or a set minimum over a longer reference period), up to a ceiling. Employers help pay for it unless the government covers it all, and its money has to be kept out of reach of any employer's insolvency ([EU Directive 2008/94/EC](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32008L0094)).
 - **A warning: America's pension insurance.** The federal agency that insures private pensions has charged premiums only loosely tied to each plan's risk. The Congressional Research Service put them at "about half of the market price for the insurance." Companies in trouble let their pension plans fall further behind before going bankrupt and handing them over. By 2004 the program's deficit had reached $23 billion ([Congressional Research Service, 2004](https://www.everycrsreport.com/reports/RL32702.html)). Insurance that doesn't charge for risk invites risk.
 ## The insurance pool
 Every locked co-op belongs to a **members' savings insurance pool**. It protects three things, in this order.
 **1. Final wages.** If a co-op fails owing its workers pay, the pool pays up to eight weeks of each worker's unpaid wages and earned time off. For a low-paid worker, this is usually the biggest loss, and US bankruptcy law only partly protects it: unpaid wages get priority, but only up to $17,150 per worker, and only after secured lenders are paid ([11 U.S.C. § 507(a)(4)](https://www.law.cornell.edu/uscode/text/11/507)).
 **2. Former members' payouts.** When someone leaves, their account becomes a fixed amount the co-op owes them, paid over up to five years (see [Member Capital Accounts](capital-accounts.md#how-its-paid-out)). They no longer work there and have no say in how it's run, so this is the clearest case for protection. The pool covers these unpaid payouts up to $50,000 per person.
 **3. A protected slice of current members' accounts.** A current member's account is different. It's their share of the risk of owning the business, and they help run it. So only a slice is protected: 80% of the first $10,000. That protected slice earns the plain Treasury rate. Only the part of the account that's still at risk earns the extra two percentage points (see [Member Capital Accounts](capital-accounts.md#how-the-account-grows)). Nobody gets paid a premium for risk they don't carry, and every member keeps some skin in the game.
 **The limits are per person**, across every co-op they've ever belonged to. An account split in a divorce or passed to an estate shares the original person's limit.
 ## How it's paid for
 **By the co-ops, not taxpayers.** The pool has **no government backing**, for the same reason [the bank's](pilot-spec.md#the-decision-rule) debts don't. A public guarantee would be a hidden subsidy, and markets would come to assume it. That's a real difference from credit unions and banks, and it's why the pool has to be run more cautiously than they are.
 - **A deposit to join.** Like a credit union, each co-op keeps a refundable deposit with the pool, worth 1% of what's covered.
 - **Yearly premiums, priced as if nothing will be recovered.** Members' accounts rank behind the co-op's lenders, so when a co-op fails, there's usually little or nothing left to recover. Premiums assume exactly that. They're set by an independent actuary from a published formula, and audited every year in both directions, like [the bank's rates](pilot-spec.md#what-market-rate-means).
 - **Priced on the co-op's structure, not its last bad quarter.** The premium depends on things like the size of the reserve and how much the co-op owes, measured from its audited year-end accounts. It can rise by at most one percentage point a year. A struggling co-op can defer part of its premium, as a debt to the pool. Otherwise the pool's own charges could push a weak co-op over the edge.
 - **Members pay for their own cover.** The premium for accounts is charged against account interest, in proportion to each person's protected balance. Members who take all their profit share in cash, as low-income members can, don't pay for cover they don't have. The premium for final wages is paid by the co-op as a whole, since everyone is covered.
 - **Coverage grows as the pool does.** Limits start lower and rise to the full amounts only as the pool's reserves reach their target of 3% of covered amounts, higher than for banks because nothing stands behind it. The pool buys reinsurance against a single large failure, where it can, and limits how much of its exposure can sit in one co-op or one industry.
 **What it costs, roughly.** A mature 40-person co-op might have $400,000 of protected account slices, $200,000 of former members' payouts outstanding, and $300,000 a year of payroll at risk in final wages. If premiums run 1% to 3% of the covered amounts, depending on the co-op's strength, that's roughly $6,000 to $25,000 a year. That's about 1% to 4% of the $600,000 annual profit in the [capital accounts example](capital-accounts.md#where-each-years-profit-goes). The real rates will come from the pool's actuary and its early experience, not from this guess.
 ## Who runs it, and how claims are paid
 - **An independent board.** Most of its members are independent (actuaries, former insurance regulators, people with no stake in any co-op), not representatives of the co-ops that pay premiums. Otherwise the biggest co-ops could keep their own premiums low at everyone else's expense. Board members step aside from anything involving their own co-op.
 - **Federations can run their own pools** if they meet the same standards and reinsure each other, so insurance can stay close to the co-ops it covers. Co-ops outside a federation join the national pool.
 - **Automatic payment.** When a covered co-op fails, the pool pays from the co-op's own member register and payroll records. Nobody has to know to file a claim. Fagor's former workers lost their case partly because they filed too late. Disputes go to an independent adjudicator.
 - **Stepping in early.** Every covered co-op sends the pool quarterly accounts. If warning signs appear, the pool can stop covering *new* additions to accounts until the co-op recovers, which stops members from piling up covered savings in a sinking firm.
 ## Closing the loopholes
 - **No paying out phantom profits.** Before paying, the pool's own auditor or the liquidator rechecks the last two years of accounts. Losses that were hidden or booked late are charged to accounts first. A covered balance can never be more than the allocations reported to the IRS.
 - **No quitting just before the fall.** Anyone who left within a year before a failure has their balance recalculated to share the losses of the year they left and the year after, before coverage applies.
 - **No stuffing accounts.** Amounts added to accounts in the year before a failure are covered only up to the co-op's normal split, meaning its average over the previous three years.
 - **No cover for brand-new shells.** Account cover starts after a co-op's first three years of audited accounts, and every covered co-op must pass the same checks as bank borrowers: real members doing most of the work, verified against payroll records (see [Guarding the Pilot](pilot-safeguards.md#the-hidden-boss)). Final-wage cover starts at once.
 - **No underreporting.** Payouts are based on the lower of what the co-op reported and what it actually owed. Unpaid premiums are deducted from payouts, and directors who file false reports are personally liable.
 ## No selling savings as something they're not
 Both Fagor and the Italian co-ops got into trouble partly because members' money was held in things that looked like bank deposits. So:
 - **A locked co-op can't take savings deposits** from its members, or sell them bonds or other investments. A member's only money in the co-op is their capital account.
 - **Every member gets a plain statement each year** of how much of their account is protected, how much isn't, and what the pool can and can't promise.
 ## What it can't promise
 - **A wave of failures could outrun the pool.** Co-ops in the same region or industry tend to fail together, in the same recession. If claims exceed what the pool has, it pays everyone the same share of what they're owed at once, then pays the rest as money comes in. That rule is published in advance, and members are told about it every year. This model gives the pool no government backing, so it can't promise more. **It's insurance, not a guarantee.**
 - **It starts small.** It will be weakest in its early years. That's why coverage phases in, and why account cover starts only after three years.
 - **Members pay for it.** Premiums come out of account interest and profit. That's the honest price of making savings safer.
 - **Bankruptcy law may not cooperate.** Courts can push former members' claims to the back of the line, behind other creditors, which makes the pool's recoveries even smaller. That's another reason it assumes nothing comes back.
 - **The legal form is unsettled.** A pool like this is insurance under state law. It would probably need to be chartered by the same federal statute as the bank, or licensed as a mutual insurer in each state. This is listed in [Open Problems](open-problems.md).