Debt, Credit, and Overcoming Poverty, Pt. 2

One of the best things about reading Banker to the Poor was that Dr. Yunus articulated my views on economics and fiscal politics better than I ever could. It was amazing to read his opinions and realize that he had expressed in writing what I have been trying to put into a coherent sentence for years. For example:

"There is little doubt that the free market, as now organized, does not provide solutions to all social ills. It provides neither economic opportunities nor access to health and education for the poor or the elderly. Even so, I believe that government, as we now know it, should pull out of most things except for law enforcement, the justice system, national defense, and foreign policy, and let the provate sector, a "Gremeenized private sector," a social consciousness-driven private sector, take over its other functions."
"I am not a capitalist in the simplistic left/right sense. But I do believe in the power of the global free-market economy and in using capitalist tools. I believe in the power of the free market and I believe in the power of capital in the marketplace. I also believe that providing unemployment benefits is not the best way to address poverty. The able-bodied poor don't want or need charity. The dole only increases their misery, robs them of incentive and, more important, of self-respect.
Poverty is not created by the poor. It is created by the structures of society and the policies pursued by society...given the support of financial capital, however small, the poor are fully capable of improving their lives."

I have never been a fan of welfare or government involvement in people's lives and finances. I am definitely a fiscal conservative, arguing for less taxation and correspondingly, less government spending. However, I am not some hard-hearted Republican who tells everyone to just pull themselves up by their bootstraps. I do believe that as Christians we have a responsibility to combat poverty and economic injustice. But how do you do that in a society where we have perpetuated unjust social structures, where we have created a world where CEOs who fail in their jobs get paid more in their severance packages than most people make in their entire lifetime? And how do we fight against injustice while still affirming a belief in personal responsibility and empowerment over entitlement?

Every day I am online, reading up on economics, the subprime mess, credit crunch, write-downs, and all of the other shtuff that has been hitting the web since last summer. More and more I am amazed at how our economy has gotten itself twisted up in so many layers of greed and debt. Investments that were considered "safe" have become volatile to the point of illiquidity. Banks are writing down and writing off losses bigger than the GDPs of entire countries. While analysts may say, "Capital preservation, debt reduction and financial intelligence remain the hallmarks of any successful financial agenda" it is obvious that our economy and the bull market we have been riding has been built on anything but common sense. Instead we have leveraged debt in pursuit of profit and told ourselves that we really could afford those mortgage payments.

Dr. Yunus speaks at length about greed in the capitalist system. But he also makes a piercing comment:

"Somehow we have persuaded ourselves that the capitalist economy must be feuled only by greed. This has become a self-fulfilling prophecy. Only the profit maximizers get to play in the marketplace and try their luck. People who are not motivated by profit making stay away from it, condemn it, and search for alternatives."

How true this is. Greed has been the primary motivation for our market economy. The profit seekers convinced money managers in the investment banks that leveraging was a good way to increase returns, not considering what would happen if the debt instruments at the bottom of their house of cards collapsed. All of these so-called "structured investment vehicles" are just examples of clever people focused only on a new way to create money out of thin air.

But it wasn't just the profit-seekers that caused this issue. Our pursuit of the "American Dream" led to insane spending. Individual borrowers stretched their budgets to the max with interest-only loans and adjustable rate mortgages, relying on the ever-increasing housing price bubble to support their desire for home ownership. Refinanace, refinanace, refinance. Refinance investments, refinance your mortgage. The same bad decisions made in the top investment banks were made in houses across the country. And it brought both groups down.

Now we have rising foreclosure rates and out of control consumer debt. The economic slowdown has led to rising unemployment rates which only puts further pressure. A quote in the New York Times sums up the downward spiral:

"You can almost draw it out in a diagram. With home prices going down, consumers cut back on spending. If consumers cut back on spending, the economy weakens further. If the economy weakens further, fewer people are able to afford mortgages so home foreclosures increase."

It's a neverending cycle, and what is most sad is that the lowest income people will suffer the most as the cycle continues.

Despite the pain, I think this market correction is a good thing. It isn't fun, but perhaps it is a necessary wake up call. If we really want a strong economy, it has to be built on actual growth, not engineered returns with a foundation of sandy debt. I don't enjoy having to explain to customers why their investments have dropped thousands, sometimes hundreds of thousands of dollars in the past several weeks. And it breaks my heart to read about low-income homebuyers who have seen their lives destroyed by the subprime crisis. We have to remember that behind the word subprime is a real person with a real credit score and a real foreclosure sign in front of their home. But we also have to realize that an economy built on debt is self-destructive.

The story of Grameen bank gives us a different perspective on the use of credit in the marketplace. Instead of using debt to finance out of control spending in non-essentials, credit is used to create a strong, stable business. Borrowers are part of a support group, helping keep each other accountable to their goals and providing counsel and assistance in hard times. Status is not the focus, stability is. Their borrowing is not fueled by greed or a desire to have the most toys, but a desire to provide health for their families.

So there you have it folks-a superpower economy being destroyed by its own greed and foolishness, versus a struggling country that used capitalist principles and common sense combined with hardworking care for people to create growth and stability. It's like a tragic novel where the rich man ends up destroying himself and the poor family finds peace in their strength of character. There's so much more to say about all of this. This market is an example of what people around the world condemn in capitalism. And yet the more I reflect on this contrast-the challenge of overcoming poverty put up against our American greed-the more I agree with Dr. Yunus' challenge:

"We can condemn the private sector for all its mistakes, but we cannot justify why we ourselves are not trying to change things, not trying to make things better by participating in the economy. The private sector, unlike the government, is open to everyone, even those not interested in making a profit.
The challenge I set before anyone who condemns private-sector business is this: If you are a socially conscious person, why don't you run your business in a way that will help achieve social objectives?"

Here in America we have amazing resources of capital and intellect. Perhaps instead of using these resources to continue our cycles of debt and greed we could learn a few lessons from Dr. Yunus and our recent economic failures. Could we put aside our pride?

I'm not naive enough to think that all of the CEOs in the American economy are going to suddenly step up and acknowledge that profit making must be governed by social consciousness. But a seemingly impossible dream can be an inspiration for change, a challenge to make even the smallest adjustments that could have lasting effects on how we think about business. And so I leave you with a final quote from Dr. Yunus, a statement that, if we allowed it to truly affect our actions, could change the world:

"Social consciousness can be as burning, or even more burning, a desire as greed in the individual human being. Why not make room for those people to play in the marketplace, to solve social problems, and to lead human beings to a higher plane of peace, equality, and creativity?"

Debt, Credit, and Overcoming Poverty, Pt. 1

I was going to do this all in one post, but I realized I had way more to say.

I've been reading a lot about finances and the economy lately as I think about this whole culture of debt idea I've started on. And I also have finally been able to read Muhammad Yunus' book Banker to the Poor, which I have been waiting to get from the libary for several months now. I will go on record as saying that this book is fantastic, and I'm not just saying that because fantastic is my new favorite word. It's a great story, a great message, and I would like to personally mail copies of it to every politician in the entire country. Maybe the entire world.

What I'm saying is, read it!

If you have never heard of Dr. Yunus or microcredit organizations like Grameen or Kiva, I would recommend doing some research. To summarize, the basic premise of microcredit is that given a small capital investment, someone who is currently struggling to make ends meet could develop a business that would enable them to provide for their family and expand their trade. This business would support not only the family's daily needs but also stabilize the community and spur economic growth. The proceeds from the business would go to pay off the initial microloan and be used to finance further expansion, and the profits would pay for food, clothing, housing, and education, thereby improving the borrower's quality of life, particularly for their children.

I am fortunate to have incredible parents. They are fantastic for many reasons, but one reason is that they taught me from a very young age how to manage money. I was given an allowance and taught how to tithe, save, and choose wisely what I spent. Allowances weren't extravagant, and my parents were always very good about discussing needs versus wants, long term plans versus short term pleasure. When I was 12, they told me that since I was old enough to work, I would no longer get an allowance. (By work, they meant babysitting and paper routes, don't be thinking they were breaking child labor laws here.) So I worked on building a good clientele of parents who valued my child-managing expertise and then added a paper route when I was 13. When I was 15, I bought my first car with cash. When I was 16, I graduated high school and took on a larger route. I worked nights through college, paying my own way, with the help of scholarships and a few thousand in student loans (the loans covered the amount that tuition rose each year, the infamous 7.7% hike at SPU). While I'm no millionaire or brilliant economist, I feel pretty stable financially, able to give freely to causes I support, and splurge occasionally on theatre tickets or eating out with friends.

In a lot of ways, that allowance that my parents gave me was a huge investment in my future. That five dollars every two weeks became a way for them to teach, and a way for me to learn how to handle money. That push into the "workforce" of babysitting and paper routes taught me to be a professional, to manage my income, to utilize savings (as small as it was). Each step along the way created an opportunity: savings from my first paper route enabled me to buy that first car, which enabled me to get a larger route, which enabled me to go to college, which enabled me to get the management job at the newspaper, which enabled...so on and so forth. The investment of my parents got me started on my journey to financial independence.

In poverty-stricken countries, parents can't give their kids an allowance. They can't give their kids enough food. There is no first step on their staircase to financial independence. Yunus' stories of giving microcredit to poor mothers show how we could be giving people that first step. We could give them that first five dollars and help them utilize it. We could encourage them to find their personal skills and strengths that will create the best return on that five dollars. Then they would be able to invest, both in their children's present and their future, and thereby, the future of their country.

If you have ever read anything by Jeffrey Sachs (I highly recommend The End of Poverty as required reading for anyone interested in global economics), he will tell you that one of the basic causes of national poverty is an inability for their people to invest in future growth. Dr. Yunus' program answers that need in what was at the time a completely unique way. His stories are inspiring and show an idealism grounded in practical application. I only hope that his example will challenge others to continue working to empower people all over the world.

Part 2 is forthcoming-my last commentary on debt and the economy (at least for awhile).


For more info on microcredit around the world and here in Seattle, check these out:

Grameen

Kiva

Washington CASH

Put it on your calendar

This year I have the privilege of assisting my co-leader and friend Jeff in presenting a Depth class on Passover. We have celebrated Passover in C group for two years now and it has been a great experience. Here is a reflection I wrote on last year's Seder.

I firmly believe Passover should be part of any Lent/Easter rhythm. There is so much symbolism, so much meaning in the prophetic elements of the readings and dinner. It is more a worship service than a dinner. It's been great to be involved in celebrating these last couple of years and I am looking forward to sharing it with the larger church.

Diligent Joy

I seem to be writing a lot of book reviews lately. It's not by design-I just happened to have had a bunch of my holds at the library become available all at once, and so I have been spending a lot of time with my nose in a book. It's actually rather nice, kind of a nostalgic thing, as I grew up with my nose semi-permanently cemented in a book for many years. As a matter of fact, sometimes my parents would punish me by forbidding me to spend time in my room reading. How many parents can say that, eh?

I'm still working on my economics post, but in the meantime I just had to get this one out. I find that when I am in a writing frame of mind, I need to get a story or post on the page (whether that be paper or online) before it dies in my head.

I just finished eat pray love by Elizabeth Gilbert. I highly recommend it, especially for any girl who has ever suffered with issues of self-worth, identity, or meaning. Which is basically all of us. I don't know what it is about the female side of the human race, but we seem to have cornered the market on self-loathing and depression. Not that guys don't have these issues as well-I know that men have serious egos that need to be constantly reassured-but women seem to universally struggle with our own sense of self and worth.

Liz Gilbert, while not a Christian, has a wonderful perspective on spirituality. I am in no way a universalist, and hold very tightly to my conviction that Jesus Christ is indeed the only way to God, but I find that even in the writings of those who I don't agree with, I can find truth. In many of Liz's stories, I can see how Christ is wooing her to Himself, even though she doesn't quite recognize Him yet.

I see a lot of myself in Liz. She worries, she overanalyzes, her mind goes nonstop. Prayer and meditation is a huge struggle, as physical and mental distractions keep her from achieving anything hear a zen state. But through her journeys she begins to accept herself. In one story, she shares how she had determined to live in silence, to be "the quiet girl" because she was too talkative, only to be assigned the duty of greeting and hosting new arrivals to the Ashram she was staying at. She realizes that she is her bubbly self for a reason, that she has a service she can give to others. And through her service she finds peace, to the point that people leaving the place remark to her how they perceived her as a quiet, calming spiritual person.

One of these days, I will be perceived as a quiet, calming, spiritual person.

Another big theme of the book was healthy relationships. A few times during my reading I was struck by something that Liz experienced or a comment she made, and I heard God saying, "yep, that was for you." I choked up a little when Liz was writing about when she was in India and her friend told her:

If you clear out all that space in your mind that you're using right now to obsess about this guy, you'll leave a vacuum there, an open spot-a doorway. And guess what the universe will do with that doorway? It will rush in-God will rush in-and fill you with more love than you ever dreamed.

I knew in reading that passage that God was telling me to let Him overwhelm me with His love, which is more fulfilling than any earthly relationship could ever be.

Not that I have ever obsessed about anyone. Ever.

Liz also comments on how she has approached men and relationships and the realization that she comes to regarding her perception of men. She says,

I have fallen in love more times than I care to count with the highest potential of a man, rather than with the man himself, and then I have hung on to the relationship for a long time (sometimes far too long) waiting for the man to ascend to his own greatness. Many times in romance I have been the victim of my own optimism.

I've done the same thing and felt the same way as her. One of the biggest things I have learned about guys and relationships is that you're not going to change anyone just because you love them, and you can't expect people to be more than they are. Too often we create the perfect version of someone in our head and then expect the person to live up to that expectation. Then we are disappointed when they turn out to be a weak, flawed, wonderfully broken human being. We don't give them the grace to simply be themselves, quirks and failings and all. We do this in friendships and courtships, with our pastors and our parents, with politicians and even to ourselves. If we could just accept that we are all broken and live together through the process of becoming better versions of ourselves, knowing that this is a process that takes a lot of time and blood and sweat and tears, how much more joy we could have.

Liz's book gave me my new mantra: Diligent Joy. How true it is that Joy is not something easy to come by. It requires diligent pursuit to attain, and diligent nurture to maintain. As I pray through this Lenten season, I'm grateful to be reminded of that.

Living off Plastic

This post will be quick. I'm writing a longer post on world economics and capitalism, a topic I am woefully unqualified to speak about, but I can't help myself. I just finished reading Muhammad Yunus' Banker to the Poor. If you haven't read it, I highly recommend you do. But more on that later.

So while I was reading and researching the other day, I came across this article on the economy, and was perturbed at the following:

Len Blum, managing director and partner at Westwood Capital, said the drop in credit-card use showed that consumers were "in trouble."
"It reinforces the view that consumers are struggling with the bad housing market and tight credit. It doesn't bode well for the economy," Blum said.

Why is a drop in credit card use a problem? The fact that people are choosing to not overspend makes me think that perhaps we are realizing that living off of credit is not the wisest thing to do. Perhaps our economy needs to correct itself, needs to be based on something other than plastic debt.

Credit should not be used for financing a lifestyle beyond our means. I'll speak a little about credit in the market when I review Mr. Yunus' book, but I will say that supporting the idea of investment capital is not the same thing as buying a TV on a credit card because you just can't watch the game on a 27-inch regular TV, and have to have that new plasma now. Personally I agree with Suze Orman:

The economy isn't floundering because we aren't spending enough; it's floundering because we're spending too much, largely on credit. So do the opposite of what the government is hoping for -- it's far more important for people to boost their savings, not their spending.

So when you do eventually get that tax rebate check, do as Suze recommends and pay off some of that debt, or if you are one of the few who has no debt breathing down your neck, save the money. Or another recommendation that Suze probably wouldn't make: find a worthwhile cause to donate that check to.

Frances Taylor and Foreclosures

This story gives me hope.


When I first read the story of Frances Taylor a month or so ago I was appalled, yet unfortunately not surprised. This was not the first time I have heard of or witnessed an elderly person being exploited and robbed of their hard-won financial freedom. Working in banking sometimes gives you a unique perspective on people. A previous manager of mine used to say it was like we were looking through someone's underwear drawer, all of their dirty, embarassing secrets laid open to us. Their debts, their mistakes, their addictions. And in this case, the ability of one person to manipulate and abuse another for financial gain.

Unfortunately, we have seen an entire group of people manipulated for financial gain in this recent subprime credit catastrophe. Borrowers who had insufficient income, inflated collateral value, and a dubious credit history were sold loans by mortgage brokers and lenders out to make a killing off of them. Home ownership has become such an important part of our "American Dream" that it is easy to tell someone who can't afford a home that they should be able to afford one, that it is their right to sign their life away in pursuit of a white picket fence. A good majority of these loans have been peddled in low-income and minority areas; one study I found reported that African Americans and Latinos are three times more likely to have a subprime loan. Multiple other articles and reports I found debated this, as well as the assertion that much of the increased foreclosure rate is due to predatory lenders. Just google search "minorities foreclosure delinquency" and see what you find. While there is a lot more to say about the mess in the larger market due to the CDOs, SIVs, and other derivatives based off these subprime mortgage portfolios, certainly we might have avoided this collapse if the foreclosure rates hadn't doubled in the past year.

I don't want to beat a dead horse; certainly there is enough in the blogosphere regarding these questionable activities in the mortgage field. Personally, I am glad I work for a conservative lender that had one of the lowest exposures to subprime mortgages among all major banks (less than 3% of its portfolio). And I am even more glad to be out of the business of lending. Not having to review credit reports and debt to income statements makes me a happier person. Still I grieve for people like Frances Taylor and families who have lost their homes. And I grieve for the souls of the people who have inflicted this pain, all in the name of the almighty dollar. But I am encouraged by this group of girls who visited Frances, who sought to bring her a little joy in the midst of her suffering, knowing that they would receive nothing material in return. My thanks to Tammy Ko, her friends, and the YWCA program that helped them reach out. Thanks for being a light in Frances' world.