Do you mean the Grameen micro lending? Minx and I talked about that a long time ago.Originally Posted by Khendraja'aro
It worked because the women had fused as a community long before the bank entered the picture. It works because the bank is helping their society move forward by small moves, not huge leaps.
The article cites Muhammad Yunus as the guy responsible for the concept who got a Peace Nobel Prize for it. My take is that it works if the lender (read: bank) recognizes it for the tool it is: To develop a society.
What happened is that other money lenders besides the original one recognized it as a tool to make money. And promptly botched the job because they tried to milk it for all its worth (lending indiscriminately, promising huge profits, raising the interest up to 60%).
When the stars threw down their spears
And watered heaven with their tears:
Did he smile his work to see?
Did he who made the lamb make thee?
The origin of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus, a Fulbright scholar at Vanderbilt University and Professor at University of Chittagong, launched a research project to examine the possibility of designing a credit delivery system to provide banking services targeted to the rural poor. In October 1983, the Grameen Bank Project was transformed into an independent bank by government legislation. The organization and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize in 2006;[6] the organisation's Low-cost Housing Programme won a World Habitat Award in 1998.
Now, we all know I've been imbibing. Loki called me out for # 12 hours ago. What a guy, eh?
But the whole idea of micro-lending does, indeed, have a social purpose. One that goes well beyond banks making money for the bankers. It's capitalism plus socialism, lending money to make it grow, with a purpose. A societal purpose. SSSocialism?
It's profits found in the Long Tail, not just the big head.
When Minx and I discussed this a long time ago (years ago?), I recall Loki was one of the nay-sayers. (Won't work outside of India, can't translate to economies of scale, need desperate people for the model to work, or some such.) However, my memory is limited. I do know minx and I talked about this and thought it had a great future. I still think it has a great future.
No, you did. I think that's an interesting point about progress being science, not iPods. My only difference is that, for most people, the progression of science is useless without iPods. And better food. And better insulation. And better light sensors for space-based telescopes. And all the other goodies that bring us further and further from a subsistence lifestyle.
Candidly, the progress of science inevitably leads to the progress of consumerism. Which is fine if we have environments that promote this kind of development and laws that protect the environment that people live in.
If the borrowers don't invest in creating a job, what are they doing with it?
More generally, as we've all discussed, a big problem of microcredit has always been the usurious (extremely high) interest rates. It distorts every actor in the system.
How much money do you think was available for microcredit before and after this development? Is there a point of having this feel-good project if it doesn't reach a vast majority of its intended targets due to a lack of funding?
Hope is the denial of reality
On the one hand, it's not an unreasonable idea of progress, and I certainly wouldn't object to having an informed citizenry with all achieving a reasonable standard of living, and constant scientific progress as markers of civilization. On the other hand, that is a progress that brings no tangible results to a vast majority of people at a given time. You're going to find it very hard to get people to support your version of the good life without giving those people Ikea furniture and Nokia phones. This was one of the main failings of the Soviet Union: it focused on industrial production to the detriment of consumer needs/wants. Ultimately, the Soviets lost all support for their socioeconomic model. Your idea is what the Soviets tried to implement; even the Finns try to strike a balance between that and pleasing the consumer. And that kind of a system simply doesn't produce economic growth, which means it can't be maintained over the long run.Progress is tricky to define! GeeGee pointed out the recent Newsweek proclamation about how great Finland is. I think I'd agree with a lot of their ranking criteria. Progress is moving out of sustenance-farming, educating everyone to understand a polynomial equation and the Hundred Years War, and helping them understand the importance of working together towards the next generation. It all sounds so wishy-washy when the alternative ideology offers untold riches just for you if you work it just right, but I think mr Cohen was correct about our level of cognizance on that front.
Progress is science, not iPods. Progress is good education and school lunches for all, not billion-dollar bonuses for heads of failing corporations.
I want to be optimistic, but I'm nihilistic about our chances of attaining it. People suck.
I probably didn't answer your question, but I don't think we speak the same language, so there we go.
Hope is the denial of reality
The Finns are logical. They begin at the beginning, with food, shelter, improved food and shelter, etc. They don't give a cell phone to a starving person. Progression of science is useless if it focuses on iPods.
I'd say progression of science inevitably leads to protection of the consumer. But that means some gumint intervention aka laws.Candidly, the progress of science inevitably leads to the progress of consumerism. Which is fine if we have environments that promote this kind of development and laws that protect the environment that people live in.
You're wrong or misinformed about micro-lending. The borrowers (usually women) are already invested in a job, and community connections. That's how they qualify for the loan. It's not usury in that sense. You can call it distortion of actors, but the bank simply continues what the borrowers have always done --- helping each other out of poverty.If the borrowers don't invest in creating a job, what are they doing with it?
More generally, as we've all discussed, a big problem of microcredit has always been the usurious (extremely high) interest rates. It distorts every actor in the system.
My understanding is they usually have a business idea in need of funding, or a current business in need of more funding. Any loan with an interest rate of 25% counts as usury in my book. When business development lending is available across the world at much lower rates, it seems silly to lend at the kinds of rates we see with microcredit.
Not read the last 3 pages but came online and seen its locked by what appears to be a mistake. I sent Dread a message asking why he locked it but am yet to have a reply, I see others are surprised too so I'm going to assume this was an accident and re-open it.
FYI when we reply on the new version of vB there's a tick-box that says "close thread with reply", I suspect that's been accidentally ticked, the lock is time-stamped as happening at the same time as the time-stamp on the last post which gave no indication of an intention to lock.
Eh? While the log says I locked the thread, I'm really sure I didn't. I would have had to go through a number of dialog box clicks that I really couldn't do by accident.
Sorry for the disturbance folks, not sure what's going on here.
Underneath the Quick Reply tab is a tick-box for "Close this thread" - I've accidentally tabbed to that a couple of times, but realised before pressing Post Quick Reply.Eh? While the log says I locked the thread, I'm really sure I didn't. I would have had to go through a number of dialog box clicks that I really couldn't do by accident.
Sorry for the disturbance folks, not sure what's going on here.
http://finance.yahoo.com/news/Why-Ge...FueXRoZXJl?x=0During the boom years, Germany's banking system was hardly a model of mittel-European probity. The country endured several expensive bank failures and bailouts , including West LB, IKB, Hypo Real Estate, and Sachsen LB. Now, Chancellor Merkel, Germany's banking system, and the German citizens are among the most significant beneficiaries of the bailout of Ireland — and of the potential bailouts to come of Portugal and Spain.
The Bank of International Settlements is a great repository of data on who owes what to whom. This chart documents precisely how much exposure banks in different countries have to the public and private debt of other countries. With the biggest economy in the Eurozone, it's not surprising that Germany's banks are intricately involved with their neighbors' economies. In fact, it's clear that many of the biggest beneficiaries of the deals through which Greece and Ireland accessed international lines of credit to ensure that bondholders wouldn't suffer unduly are. . .German. (Here's historical data on German banks' exposure to debt of other countries.)
So in December of 2009, Germany had $45 billion in exposure to Greek debt; that number fell to about $36 billion in June 2010. Germany's exposure to Irish debt has fallen from $193 billion in September 2009 to $139 billion in June 2010. That's second only to the U.K., whose banks own $148 billion in Irish debt. U.S. banks, by contrast, had $68.7 billion in Irish debt in June. German banks, it turns out, are also huge lenders to Spain ($182 billion as of June 2010). In total, Germany's exposure to the troubled so-called PIGS (Portugal, Ireland, Greece, and Spain) is $394 billion, or about 13 percent of the banking system's $3.1 trillion in foreign exposure. That's larger in absolute and relative terms than the amount of debt held in the PIGS by France ($308 billion, or 9.3 percent of the total foreign exposure), the U.K. ($292 billion, or 7.6 percent), or the U.S. ($126.5 billion, or 4.5 percent).
The cash being provided by Irish taxpayers, the IMF, and European monetary authorities isn't bailing out bank shareholders, and it's not being used to help Irish citizens who took out mortgages they can no longer afford. Rather, those Euros will be deployed to help spare senior bondholders on Irish debt from suffering harm. Were Ireland (or Greece) to restructure its debt rather than seek international bailouts, the German banks that own a disproportionate share of those bonds would have to write down the value of their assets, raise new capital or, in a pinch, seek help from their own government.
For Merkel and the German political establishment, it's the best of both worlds. They build domestic credibility by talking tough about bailouts to Euro-strugglers while insulating their banks (and the electorate) from further pain.
Sounds like what the US did, bailing out the Banks and bond holders, then charging the tax payer. No surprise the Irish feel angry...
Rich entities bailing themselves out with taxes on the serfs.
Faith is Hope (see Loki's sig for details)
If hindsight is 20-20, why is it so often ignored?
And this is why we (and Ireland) should not have bailed out the banks. Let bad business fail.
And that is why you shouldn't be in charge but someone who can include consequences into their decisions instead of tunnel visioning some sort of doomed to fail ideology
I could have had class. I could have been a contender.
I could have been somebody. Instead of a bum
Which is what I am
I aim at the stars
But sometimes I hit London
Ok, just shouting that these banks should be allowed to fail is indeed short-sighted.And that is why you shouldn't be in charge but someone who can include consequences into their decisions instead of tunnel visioning some sort of doomed to fail ideology
On the other hand; the problem was partly caused by the implicit bail-out expectations of the market. Everybody was expecting that the deep pockets of Germany would be available just in case something like the Greek/Irish crisis was going to happen. What we are seeing now in the markets is traders (over)reacting to the German sabre rattling when people too easily assume they are willing to bear the burden all alone.
Maybe, just maybe it might have been worth it to let the Irish banks collapse and concentrate on keeping the fall out contained. In which case the costs would roughly have been the same (though likely harder to pinpoint), but at least Ireland would have had a fighting chance to get out of this crisis.
Lewk may be callous in his calls, but, let's not forget that in the end that's what everybody wants to return to; a system in which we can afford to let banks go bust without them taking the entire system down with them.
Congratulations America
Just so we're crystal, that was all I was saying without any implications added
Of course. I might be quite left wing, much more so than Obama, but I aint no socialist*On the other hand; the problem was partly caused by the implicit bail-out expectations of the market. Everybody was expecting that the deep pockets of Germany would be available just in case something like the Greek/Irish crisis was going to happen. What we are seeing now in the markets is traders (over)reacting to the German sabre rattling when people too easily assume they are willing to bear the burden all alone.
Maybe, just maybe it might have been worth it to let the Irish banks collapse and concentrate on keeping the fall out contained. In which case the costs would roughly have been the same (though likely harder to pinpoint), but at least Ireland would have had a fighting chance to get out of this crisis.
Lewk may be callous in his calls, but, let's not forget that in the end that's what everybody wants to return to; a system in which we can afford to let banks go bust without them taking the entire system down with them.
Keep in mind that the quote I replied to said: "And this is why we (and Ireland) should not ...". Which has (and Ireland) as an afterthought.
*The term Socialist as used by the American Punditry, not the more sane flavours which I indeed might feel rather related to and would still allow banks to collapse in the system you're talking about.
I could have had class. I could have been a contender.
I could have been somebody. Instead of a bum
Which is what I am
I aim at the stars
But sometimes I hit London
This is not a dig at the euro so don't over-react Hazir but I'm becoming genuinely concerned now that this might not be so controllable. Every attempt at "contagion" is spreading the affect wider, inflicting damage on previously healthy bodies and thinning out the remaining number of healthy ones.
Bad debts caused a crisis with the banks. Bailing out the banks caused the crisis in smaller nations. Now the smaller nations have failed its looking increasingly like that more smaller ones and ultimately the middle-sized nations might fail. If that happens then this domino effect could reach the top.
The bailout of Ireland has not contained this economic disease, that is spreading like a cancer. The markets haven't settled, after an initial rally in the euro its now continued to fall and is now lower than it was before the Irish bailout. Funds are leaving Portugal, Italy and Spain. If Portugal fails then we can attempt to "contain" that again and bail them out too. If Spain or Italy do then it will be disastrous. Plus as each one fails it puts more of a burden on the remaining nations. The odds of Italy failing are increased, not decreased, if Portugal and Spain already have. While if all 5 of the PIIGS nations end up getting bailed out then previously secure nations will end up getting infected just like Ireland was from bailing out its banks.
Even Ireland may fail again, they're going to be spending 25% of tax revenue on Interest payments alone with the high interest rates their facing.
Ultimately it may prove that it would have been better that the Irish banks failed than prop them up, just maybe.
http://www.marketwatch.com/story/spa...-up-2010-11-30Contagion crisis intensifies; Spain yield soars
Investors continue dumping peripheral bonds in wake of Irish bailout
LONDON (MarketWatch) — The euro zone’s sovereign-debt crisis intensified Tuesday, with yields on Spanish, Italian and other peripheral government bonds soaring in the wake of a weekend meeting of European Union finance ministers that failed to soothe fears of the potential for future defaults.
.....
More importantly, officials outlined plans for a new European Stability Mechanism that will take the place of the €440 billion bailout fund put in place after the Greek bailout. The new program, which would take effect in mid-2013, includes provisions that could require private bond holders to take write-downs in the event of future sovereign-debt crises. Read about the reaction to the ESM
The plan watered down German calls to automatically impose haircuts on private bond holders, but the outline also left significant uncertainty and failed to soothe investor worries over their potential exposure to any future debt restructuring, analysts said.
By waiting until 2013 to make private bond holders take a loss, and protecting sovereign debt holders (Germany) they've given bond vigilantes the upper hand. They'll go from one nation to the next, like locusts.
S'pain:
http://www.cnbc.com/id/40429685Spain's government faces a bond redemption at the end of April of 15.5 billion euros in competition with the banks, which are also looking to refinance around 35 billion euros, according to analysts at Barclays Capital.
"We are concerned that tapping the markets for more than 50 billion euros in March and April represents a substantial level of execution risk," the analysts said in a note, adding the situation would worsen in 2012.
Banks also face mounting credit losses, aggravated by stubbornly high unemployment, which Barclays estimates could hit 200 billion euros over the next few years.
This appears to be the case, and why would they stop? No matter how crazy they act they get high yields combined with German risk levels. It is absolutely necessary that this disconnect is fixed or what we will see is an incredible transfer of wealth to these people on the backs of the average tax-payers.
I seriously think we should not even try to save Spain if that is what it takes to stop this madness. They should put a mechanism in place that allows core banks to operate and let the rest go bust. It would sure put an end to the crazy practise of zombie banks paying millions in bonuses because they are so good at pretend-success.
Congratulations America
I really don't think that letting the banks fail would stop the contagion. The real problem is that there's uncertainty in the market - bond holders (both corporate and government) simply don't know what's likely to happen with their money - will they take a haircut? Will they lose the principal entirely? - so this uncertainty feeds into sharply lower bond prices (i.e. higher yields). If markets were sure that the countries had a safety net, bond prices would moderate some. The issue is that no one really knows what the EU and ECB will do with a given bailout, and how they'll apportion the pain (between bondholders, governments, banks, etc.). Is there was clarity, I think that the contagion could be mostly contained, provided that structural reforms started in the affected economies.
The real issue for the future, of course, is the moral hazard problem. But I think this issue (while a big one for future crises) is not something that should concern us in the here-and-now when deciding whether to bail out a financial system or country. Now, we just need to look at the economic effects of allowing financial collapse (or a sovereign default) compared to the losses borne by a bailout.
http://www.cnbc.com/id/40432513Morici: Irish Bank Bailout Leaves Financial Markets Nervous for Good Reason
Published: Tuesday, 30 Nov 2010
By: Peter Morici
Professor, Smith School of Business, University of Maryland
The EU bailout for Irish banks failed to quell financial markets. Borrowing costs for Portugal, Spain and others continue to rise, because structural problems created by the euro and single European market remain unaddressed and more crises are inevitable.
In the United States, banks engage in dollar-denominated deposit gathering and lending. The smooth functioning of the banking and payments systems are guaranteed by the Federal Deposit Insurance Corporation, the Treasury and Federal Reserve.
When banks fail, the FDIC makes good on deposits up to $250,000 by subsidizing mergers with healthy banks.
If banks are too big to be merged-for example, the recent Citigroup [C 4.19 0.04 (+0.96%) ]and Bank of America [BAC 11.219 -0.091 (-0.8%) ] rescues-the Treasury and Federal Reserve can step in. Such extraordinary measures are possible, because the Treasury can issue dollar denominated bonds and the Federal Reserve can print dollars. The latter was critical during the recent crisis.
In the EU, individual member states regulate and guarantee the banks that take deposits and lend in euro. The Irish government guarantees covers all liabilities-not just deposits up to $250,000.
EU governments on Sunday approved an $113 billion bailout deal for Ireland to help the debt-struck nation withstand the weight of its banking crisis.
Major banks in smaller member states have grown too large for their Treasuries to act. They simply can't issue enough euro denominated bonds without driving up their borrowing costs to prohibitive levels and thrusting regular government operations into insolvency.
In Ireland, the government is potentially on the hook for liabilities equal to two times GDP — no government, big or small, can borrow that much money.
The analog in the United States would have been for North Carolina to have been responsible for all the liabilities of Bank of America.
Prior to its banking crisis, Ireland had sound finances and a balanced budget. Now it has a deficit exceeding 30 percent of GDP, and even with the EU aid package, it faces draconian budget cuts. Along with lost banking business, those will reduce GDP by more than 10 percent and impose grave hardships on citizens who neither profited from the bank industry nor were responsible for its reckless behavior.
Without European wide bank regulation and deposit insurance, reasonable ceilings on government guarantees, real EU taxing authority, and a mandate for the EU Treasury and European Central Bank to use bonding and currency printing authority to ensure the stability of banks, Ireland's banking crisis won't be the last of its kind.
Similarly, the budget problems in Portugal, Italy, Greece, and Spain stem from social spending, health care and pensions more generous than their economies can finance with any conceivable national tax regime-if national taxes are raised too high, businesses will flee, and GDP and tax revenues actually fall.
Whether social benefits are too high throughout Europe is an important issue, but the creation of the single European market has heightened expectations that benefits in southern Europe more nearly approximate the norm established in Germany, Holland and other rich countries.
However, the creation of the single European market for goods and services was not accompanied by pan European taxation to finance social spending, health care and pensions. Even though Germany and others are richer by virtue of their participation in the single EU market, they don't assist poorer countries in the manner that New York subsidizes social security and Medicaid in Mississippi as part and parcel to the benefits its banking, advertising and other service industries receive from participation in a single market across the fifty states.
The austerity now planned for poorer counties will not solve their basic fiscal problems-those will shrink their economies and tax bases. The $750 billion EU bailout fund is nothing more than a quick fix that boots the problem to the next generation of national leaders.
In the days before the euro, national government debt was denominated in national currencies, and governments could inflate and devalue their way out of a fiscal mess. That's just a stealth way of imposing losses on bond holders but in a more gradual, economically less costly, and politically palatable manner.
Now the EU has announced plans for private investors to take losses on bonds issued after 2013 if the weaker governments need another round of bailouts. The fact is sovereign governments in Athens, Lisbon and elsewhere already can enforce such losses on bondholders, and if they choose, boot the euro, reinstate national currencies and start over.
A common currency and single market in Europe simply won't work without continental institutions to guarantee the solvency of banks and share social spending, health care and pensions. Until then, the bonds of individual member states carry high risk of eventual default, and investors would do well to demand much higher interest rates than have been offered in the recent past.
Raiding pension funds and imposing this austerity on the poorer 'peripheral' nations sounds like a recipe for massive social unrest.
I think it's a bit too easy to chalk it down to insecurity only. It's all a bit too neat, country after country is taken out. It's not like the situation in Portugal dramatically deteriorated after the Irish bail out. To the contrary, the situation should be better than before Ireland; the Portugese accepted an austerity package and we know there is money to prop them up and the willingness to use it. Still virtually on the day after Ireland gets solved Portugal is under attack. Despite the risks in general of a haircut reduced.
As for the moral hazard; that is not just a problem for the future. A lot of irresponsable lending was done because bankers were banking on the Germans digging deep in their pockets.
Congratulations America
Rubbish, the situation did worsen. With the failure of Ireland the worst was proven for them, making the same in the other nations more likely (since Ireland couldn't avoid it).
Furthermore and most importantly is the "tough talk" from Germany at the time stating that future rescues would result in "haircuts" and that sort of language. That means that Portugese creditors are more at risk than they were 2 weeks ago.
I'm not sure I understand this; obviously moral hazard was a problem before this crisis due to an implicit government guarantee of large financial firms, and is still a problem today. But is this moral hazard currently a major contributor to the ongoing crisis?
My point is that the current problems won't be addressed by a fix (probably regulatory) of the moral hazard problem. While it's something we need to worry about, it just isn't something that should be high on our agenda now. Ditto with short term fiscal deficits to address an acute shortfall in demand and employment.
Precisely my thinking. Tough talk sells well to a domestic audience but not the market. Without a clear rubric of what a bailout will entail, each of these sovereign debt crises is completely up in the air, and creditors are protecting themselves against these risks by driving yields up.
I would say so; not so long ago it turned out that the Sovereign Wealth fund was investing in Greek bonds. Supposedly the worst investment possible given the 'huge' risk of default. If it weren't for the fact that it's not really Greece standing behind these bonds as the guarantor of last resort.
I am starting to doubt this; to me it starts to look more like a great way to make a quick buck than jitters in the markets.My point is that the current problems won't be addressed by a fix (probably regulatory) of the moral hazard problem. While it's something we need to worry about, it just isn't something that should be high on our agenda now. Ditto with short term fiscal deficits to address an acute shortfall in demand and employment.
The tough talk was toned down significantly over the weekend. Ireland got its bailout (implicit message Portugal will get it too if it needs one) and Portugal doesn't have a real estate bubble or a banking sector on the brink. Nor does it have government finances in a shambles like Greece. So please explain to me how the situation got worse for Portugal over the weekend? The risks for holding Portugese bonds significantly improved over the weekend. How does that add up to a higher spread ?Precisely my thinking. Tough talk sells well to a domestic audience but not the market. Without a clear rubric of what a bailout will entail, each of these sovereign debt crises is completely up in the air, and creditors are protecting themselves against these risks by driving yields up.
As for dealing with the moral hazard; they shouldn't talk about it, they should hit the market with the new rules overnight.
Congratulations America
I'm not sure that's really the right comparison. We have bankrupt state-level benefit systems too, but our states are subordinate to the federal government in this and so their debt is guaranteed.However, the creation of the single European market for goods and services was not accompanied by pan European taxation to finance social spending, health care and pensions. Even though Germany and others are richer by virtue of their participation in the single EU market, they don't assist poorer countries in the manner that New York subsidizes social security and Medicaid in Mississippi as part and parcel to the benefits its banking, advertising and other service industries receive from participation in a single market across the fifty states.
I think he means that euro social programs (plus taxes and spending) are so varied by nation, a common currency alone can't unite them. They're not like the United States of Europe.
Wait what? If a state goes bankrupt the government might go to their aid but there is no requirement to do so.
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