Micro-Credit?

Micro-Credit Group in Africa

I enjoyed the pros and cons presented about micro-finance and its effect in poor communities. I think the chapter does a great job going through a brief history of micro-finance and presenting the reader with statistical evidence supporting and negating the impacts of it. In this chapter Micro-finance is almost presented as a gateway from the chains of poverty. Statistical evidence proved otherwise. The authors use statistics at the beginning to show just how costly it is to obtain a loan from a moneylender and to exemplify that, family aside, the poor have little places to turn for cheap money. I understand that lending to the poor is difficult because of the potential of default rates, but, micro-finance seems to be just an undermining of over-priced, predatory, community moneylenders and shady figures. The evidence produced in this chapter gives light that, yes, micro-finance is working in poor communities but the chapter also gives statistical evidence that it is not working at the level that was intended. On page 171 the authors state, “families that started a new business over a fifteen-month period went up from about 5 percent to just over 7 percent – not nothing, but hardly a revolution.” In my mind, other than the reasons the authors state, there could be a few reasons for this. Most micro-finance institutions believe in primarily lending to women. This is wonderful, I completely support giving women the opportunity to become entrepreneurs and build a business to support their families. However, there have been many studies completed showing that men typically are “riskier” and are willing to and have started more companies. I understand that for the better part of history women have been marginalized, so this isn’t completely a far comparison but I think it is important to note. Would allowing men more access to this micro-credit, show the growth promised by these institutions. Subsequently, will the institutions be will to do this because with more risk there is a greater reward but also the potential for a greater loss. Does the “play it safe? mentality that micro-credit promotes give individuals and families for that matter the ability to even build out the next Google( That may be a stretch)? I do not believe so. In my mind micro-credit does a wonderful job at giving the extreme poor credit to enable themselves to better educate and advance themselves. This approach can slowly change poverty as we know it. Will the next major company be financed by a micro-credit institution, most likely not, but micro-credit gives the ability to families worldwide to explore a better life for their children.

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Subprime Mortgage Crisis and Predatory Lending

“Minority lending and the U.S. Subprime Mortgage Foreclosure Crisis” written by Hencock Lewis, does a great job analyzing Country level data about predatory lending techniques during the housing boom from 2004 to roughly 2007. Essentially, the article touches on the techniques that loan officers presented to minorities during this time. Some techniques were zero down payment loans, increased credit scores – which approved individuals for houses they could not afford, as well as outright lying to individuals about particular loans. I understand that individuals need to be economically sound, especially when purchasing something as meaningful as a home, but the data exists that minorities were targeted through these practices. This article looks at the number of foreclosure rates by minorities (minority defined as: Black, Hispanic, and Native Americans) as compared to subprime loans. This article was great in explaining my research topic because it gave an alternate analysis why minorities were affected by the subprime mortgage market. Other variables that I may want to include in my data set are variable of “Steering” (when real estate agents drive minorities to certain neighborhoods), Education, and Marriage. I think these variables will help me to discover linear tendencies in wealth creation within minority communities and the overall subprime mortgage crisis. I have used this article to read about the history of “streamlining” ( a predatory housing practice that took place in the 1940s and 1950s ) and how that technique is not all that different from what happened in the mid-2000s. The more I have learned about my topic, the more I have discovered that, some practices, have been re-occuring themes. 

 

 
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“Gordon Gekko”

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Movie Analysis

Barbarians at the Gate is yet another movie that takes a shot at the greed present on Wall St. during the 1980’s. The movie, specifically, deals with the leveraged buyouts which became extremely popular during this decade. At the time the LBO of RJR Nabisco was the biggest LBO in history at $31.1 Billion. What struck me about the movie was the utter dis-regard the upper level management had for the actual health of the company and the emphasis that it placed on its share-holders. I understand that when a company becomes public the board of directors has a duty to make its shareholders profit, but to what extent. This movie is strikingly (although not completely the same) to (my favorite movie) Wall St. As we saw, leveraged buyouts, with a lack of regulation, can lead to stock manipulation and an insurmountable amount of debt, both of which can cripple a company. On the contrary, since the early 2000’s we have seen a tremendous amount of Private Equity firms arise and show the positive effects of leveraged buyouts especially for those companies who are not large enough to offer an initial IPO. While the movie seems to poke fun at the leverage buyouts I think the real concern is the amount of debt that these companies are allowed to take on. This is not all that uncommon from what has recently happened with tech IPO’s. Companies such as Groupon, Facebook, and Zynga have been valued too high from their IPO’s and have had a tremendous negative affect on the market. What we are seeing is that the market isn’t currently pricing in certain risks, and there has been downward pressure on these symbol’s within the last few months. I thought the movie did a great job portraying the cut throat nature of Wall St. Although things have changed since the 80’s I believe it is still the same game, with more regulation. Having said this, I don’t know if this is truly a fair depiction. Yes, New York, and Wall St. specifically is the financial capital of the world but I don’t believe pointing out a select few who exhibit this greed is completely fair.

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Outline

  1. Introduction

a)      The question I am answering is: The housing crash of 2008 had an adverse effect on minority wealth creation in the United States. However this crash, along with a failing MBS market, leveled out housing prices across the Country.

i)                    I will also look at this at the State level .

b)      This question is interesting because this is biggest housing crisis since the 1930’s and it will be intriguing to see how it has affected minority wealth creation. Housing is the way that families for decades have built wealth, what will the data show us?

c)       I was able to take a look at the CMBS market this summer, and it was extremely interesting to see the adverse effect that the housing crisis had on not only the overall economy but the commercial market and household markets as a whole.

d)      In the following paragraphs I will outline the a brief history of wealth creation in the United States through housing, talk about the market prior to the crash and post-crash, outline minority housing markets in the United States, briefly touch on the Mortgage Backed Securities Market, and finally conclude my work with the data I have found and tested.

  1. Literature Review

a)      I want to make the reader aware, through others articles and data, just how important the housing market is to the overall economy.

b)      After looking through articles, there have been papers written on the correlation between the housing market and minorities however I have not come across the correlation between the crisis effecting wealth creation in minority communities.

c)       I have defined wealth as a measurement of Equity/Property Value. I will be looking into the Income, Equity, Property Value of Nationwide statistics as well as State statistics. I have also looked into the number of home applications over a 5 year period based on race, gender, and sex.

d)      I think it is important to analyze the market over a specific time period. I am picking to analyze the market from 1994 to date. The reason being, is that during this time we have had bubble and crashes, and it will be a good indicator of true wealth.

  1. Data

a)      I am using data from the Freddie Mac and Fannie Mae websites as well as other data that I have found from government sites.

b)      The idea data would to have information on individuals assets, this way we could look at an all-encompassing definition of wealth, rather than the way I am defining it.

c)       My data has come from a collection of sources, including Ginny Mae, Freddie Mac, Fannie Mae, the census bureau, and information from leading investment banks.  The time frame I am analyzing is 1994 to 2012.

  1. Conclusion

a)      Bring together my paper in a concise manner where I state how I either proved or disproved my initial hypothesis.

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The Economist – Education in South Africa

This is the article I read about Education in South Africa.

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Education

This chapter presented a unique view and an analysis to schooling in poor countries. The article that I read in the Economist touched on the similar problems of schooling in South Africa. What I found interesting in the article I read was the almost “incentive” process that the school system provided. Albert Dove, an extremely poor student attending a public school in South Africa was given free food daily to attend school. This is not too different than the PROGRESA program that Poor Economics talks about. The PROGRESA program provides cash rewards to families for school attendance. What I find interesting is the idea of a  reward system. After reading both the book and the article, it makes sense. While most parents want to give their kids an education, many times, keeping their kids home to work is a better economic decision. The data behind both programs was successful. In both cases, the individual or individuals had a higher school attendance and completion rate because of the programs. What I am not understanding, and Poor Economics does a wonderful job touching on this, is the idea that its not that parents need to be forced to send their kids to school, its the underlying fact that they need help financially. 

I understand that I only picked one topic in a pretty expansive chapter but in this chapter this is what really interests me. It is the idea that the amount of education a child receives is based on how financially stable the family is. It almost seems that its another poverty trap. Without education there is minimal chance of a child “moving up” but without the backing of a financially stable family it is unlikely that a child will attend school, and more importantly learn, where he/she can advance themselves. While the book offers some ideas that have worked, I don’t think that there is a universal answer how to best solve the education problem.

Wes

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