Sunday, December 21, 2008

Doing Well By Doing Good.

Global stocks fell sharply last week on news of increasing inflation which will limit the Federal Reserves ability to continue cutting interest rates. On Tuesday the Dow Jones Industrials tumbled 294 points following the Fed's announcement of a quarter point cut to the Fed Funds rate. The financial industry is going through a major retrenchment, losing more than 25% in aggregate capitalization since July. The real estate market is collapsing. You get the picture.

Take the case of Citigroup - a once- great bank brought near to ruin by a grossly negligent board of directors. The cost? A mere $351 billion - that is, only $1,000 for every man, woman and child in America. Blame abounds, but most of it must can be directed to the Citigroup directors - the men and women paid well to make corporate policy, and to oversee its proper execution. But that got me thinking about blame...

Let's look at former Chairman of the Federal Reserve of the United States Alan Greenspan.

In his trademark opaque language; Greenspan tiptoes through the well-documented facts of his tenure as Fed chief to absolve himself of any personal responsibility for the ensuing disaster. Greenspan's apologia is a masterpiece of circuitous logic, deliberate evasion and utter denial of reality. He says: I do not doubt that a low U.S. federal-funds rate in response to the dot-com crash, and especially the 1 per cent rate set in mid-2003 to counter potential deflation, lowered interest rates on adjustable-rate mortgages (ARMs) and may have contributed to the rise in U.S. home prices. In my judgment, however, the impact on demand for homes financed with ARMs was not major. "Not major"? 3.5 million potential foreclosures, 11-month inventory backlog, plummeting home prices, an entire industry in terminal distress pulling down the global economy is not major? But Greenspan is partially correct. The troubles in housing cannot be entirely attributed to the Fed's "cheap credit" monetary policies. They were also nursed along by a Doctrine of Deregulation which has permeated US capital markets since the Reagan era. Greenspan's views on how markets should function were -to great extent -- shaped by this non-interventionist/non-supervisory ideology which has created enormous equity bubbles and imbalances. The former-Fed chief's support for adjustable-rate mortgages (ARMs) and subprime lending shows that Greenspan thought of himself as more as a cheerleader for the big market-players than an impartial referee whose job was to monitor reckless or unethical behavior...

Sheesh - shady crooks, ethical lapses that cost people there retirements and homes - its enough to get you all warm and cozy in time to enjoy the holidays. Right?

Well... Instead let's look at Nobel Prize winner Muhammad Yunus.

Yunus founded the Grameen Bank in 1983 in Bangladesh on the theory that giving no-collateral loans to the poor would help them out of poverty by providing loans on terms suitable to them and by teaching them a few sound financial principles so they could help themselves. Because hardly any women in Bangladesh could qualify for a loan 32 years ago, Yunus saw to it that 50% of Grameen's borrowers were women.

Once he realized women were investing more of their loans into improving the lives of their families, the bank started lending to them almost exclusively. Of Grameen's 7.5 million borrowers, 97% are women. The bank lends about $1 billion a year, lending out individual amounts averaging less than $200. At first, the typical loan is for about $30.

Yunus' personal loan of small amounts of money to destitute basketweavers in Bangladesh in the mid-70s, the Grameen Bank has advanced to the forefront of a burgeoning world movement toward eradicating poverty through microlending.

"The majority of people on this planet do not have the opportunity to do banking at conventional banks," Yunus said. "They say all the time that the poor are not creditworthy. And we showed how creditworthy they are."

The bank has provided $4.7 billion dollars to 4.4 million families in rural Bangladesh. With 1,417 branches, Grameen provides services in 51,000 villages, covering three quarters of all the villages in Bangladesh. Yet its system is largely based on mutual trust and the enterprise and accountability of millions of women villagers.

Today, more than 250 institutions in nearly 100 countries operate micro-credit programs based on the Grameen Bank model, while thousands of other micro-credit programs have emulated, adapted or been inspired by the Grameen Bank. According to one expert in innovative government, the program established by Yunus at the Grameen Bank "is the single most important development in the third world in the last 100 years, and I don't think any two people will disagree."

So if you believe in Santa -- or if you just believe we all need to spread kindness around a bit -- consider the Yunis' in the world whilst remembering the Greenspan's.

Then go. Do something good. And make this a Merry Christmas, Happy Hanukah, Festive Kwanzaa and Killer New Year.

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