Banking on thin air

TIME.com is running an interesting article on the American banking crisis and why bailout money has been disappearing like water on a hot stove. The banks are actually in worse shape now than they were before the bailout. Reassuring, eh?

I'm not going to rehash the whole thing here. You know where to find it. The most interesting thing in it as far as I'm concerned is how the underlying cause - banks lending massive amounts of money they don't have. Before 2004, banks could lend 15 times more money than they actually had (which strikes me as pure lunacy right off the bat). Then the SEC lifted even that restriction and things got even worse. Compound the problem with high-risk loans and you have the recipe for disaster.

"Changing the net-capital rule was an unfortunate misjudgment by the SEC," says former SEC official Lee Pickard. "It's one of the leading contributors to the current financial crisis."

That has got to be the understatement of the year. What the banks were banking on was the inevitability of unending good times. And you thought banks were institutions of stodgy good sense. Not when you dangle an easy buck in front of them, they're not. Common sense and integrity get left behind in the dust.

All of which leads me to the conclusion that if you abandon common sense, no matter what your computer models tell you, sooner or later reality will bite you in the rear. I wish I could say that things look hopeful for common sense, but I'm not inclined to be optimistic. Having rubbed elbows with the right people is still much more important than showing signs of common sense or integrity. Just ask Timothy Geithner. Despite all the change that's been promised, being an insider is what still really counts, and insiders scratch each others' backs.


Technorati tags: Banking, Economics

A nice clear explanation of the current financial crisis

I found this layman's explanation of the upheaval on Wall Street in an off-topic section of a writer's forum. It's clear and written in non-technical language and presented in easy bite-size concepts so that non-economists can wrap their heads around it. I hope this fellow works as a technical writer or a journalist, because people who can explain things well are all too rare.

Some of the posts that followed were pretty good too, so click here if you want to read the whole thread.

And here is Chuck Colson's take on the moral and political aspects, complete with a bibliography of links at the bottom.


Technorati tags: Banking crisis, Wall Street

Muhammad Yunus and practical feminism

Now this is the kind of feminism I can really get behind!

Bangladeshi economist Muhammad Yunus and the Grameen Bank are sharing a Nobel Peace Prize for pioneering and implementing the practice of micro-loans.

Yunus' notion -- today, known as microcredit -- has spread around the globe in the past three decades and is said to have helped more than 100 million people take their first steps to rise out of poverty.

Some bought diary cows, others egg-laying hens. In recent years, money for a single cell phone has been enough to start thriving enterprises in isolated villages without phone lines from East Asia to West Africa.

''Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty,'' the Nobel Committee said in its citation in Oslo, Norway. ''Microcredit is one such means. Development from below also serves to advance democracy and human rights.''

A large number of the beneficiaries of microcredit have been women, which is why I made the link to feminism.

''I can't express in words how happy I am,'' said Gulbadan Nesa, 40, who five years ago used $90 from the Grameen Bank to buy chickens so she could sell eggs. She's since taken more loans and expanded into selling building materials.

''Not long ago I was almost begging for money to feed my family,'' she said from Bishnurampur, her village in northern Bangladesh. ''Today, I've got my own house and enough money to feed my children and send them to school.''

This is the kind of feminism that gets me excited. It seems innocuous when you first look at it, but this is the kind of empowerment that has profound, lasting results. Families are lifted out of poverty, women gain dignity and independence, all through a very simple mechanism. And it is downright insidious and apolitical, with only lunatics like the Taliban likely to oppose it. No, I have no official statement from them along those lines. Seeing as they routinely firebomb schools teaching women skills for microbusinesses, I think it only likely they would oppose this kind of initiative as well. Most third world countries smile benignly and allow this kind of activity, which may ultimately prove to be positively seditious, both in terms of women's rights and in terms of political power.

And - dare I say it? - it is also capitalism at its finest. While I am very worried about some of the extremes of capitalism (think huge multi-nationals), this kind of capitalism dignifies and enables individuals and through them their families and the entire society, bit by bit.

I think the Nobel Committee chose very wisely this year.

Technorati tags: Muhammad Yunus, Nobel Peace Prize, Grameen Bank