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By Norman Macrae
The Nobel Peace Prize for 2006 was controversially awarded, in Oslo, to a “ banker for the poor” from Bangladesh.. Since the microcredit system pioneered by this Dr Muhammad Yunus really has lifted record millions of Banngladeshi women from the world’s direst poverty., Yunus was greeted on his recent visits to London largely ny . the misunderstanding Left.. But, as an aged ex-Thatcherite, I also had lunch with him - and thrill fully to his stated aim to “harness the powers of the free market to solve the problems of poverty”
To his fans’ delight and astonishment , he is achieving exactly that. In the past quarter of a century, his Grameen bank has lent (without collateral or lawyers) billions of dollars to millions of poor women in the previously starving villages of Bangladesh., and has got an extraordinary 99% repayment back. .His often-illiterate customers have started millions of successful small businesses in unimagined fields like mobile- telephone- ladies and saleswomen of the world’s cheapest most nourishing yoghurt. All the successes have been won by keeping costs incredibly low. A banking operation that would cost Goldman Sachs $100 in New York or London would cost Grameen in Bangladesh well under 100 US cents.
This is a huge development in human history. Money can now be directly channelled into productive use by the world’s poorest billion people, solving problems statesmen won’t yet believe..
eg 1 Microcredit would best woo poor Afghans off growing heroin., which drug - barons buy from them at pence per gram,. then sell that gram in London for up to £100 ( not a distribution system with the needed cheapness and efficiency at which microcredit excels). Yunus would set Afghans, like Bangladeshi, more profitably selling yoghurt instead. ...
eg 2 Bizarrely efficient microcredit's lending to the poor has emerged to work its miracles. , just as mega-costly banking to the rich threatens to cause some sort of initially inflationary world slump . Words like “inflattionary” and “slump” will soon prove dottily incompatible, but the west is dotty in assuming only manufacturing must move to cheaper lands -the biggest threats of crashes face the three occupations our politicians have deliberately made more expensive by cartelising or otherwise protecting, them - our farms, our lawyers , and now our banks
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Slump ahead - Japanese style?
If a Grameen branch consistently falls below 98% repayments, it closes; if that first branch in 1974 had failed, it would have cost $27 ..In 2006 giant American banks grossly overlent on subprime mortgages, then sold these loans on in securitised and even “derivatised” (ie, misleading) packages to weaker banks, who have been trying desperately to hide the consequences from their shareholders ever since. The bad debts consequently held by financial institutions worldwide are estimated at $200 billion by the most glib bankers, and at nearly $1 trillion., by the more independent IMF . These are march 2008's vast under-estimates of exponential destruction still compounding. Note how these overhangs are already bigger than that at the start of 1929-33’s great depression.
There is still a small risk of a 1929-33 in 2008-12, so read on for two more paragraphs of bad news. Most reputable historians of 1929-33 have concluded that the wisest advice given in 1929 was that by the Cambridge economist Maynard Keynes, - namely, increase budget deficits before a slump strikes. That is not the view of current European finance ministers, Their first plea has been that all banks should be honest about the extent of their bad debts, . Eh? If each bank’s statement in early 2008 had been appallingly honest about its share of bad debts, runs by depositors out of them would quickly have accelerated far beyond anybody/s control.
But 2008’s aptest cautionary tale is almost certainly Japan in 1989. In its miracle decades up to the mid-1980s, Japan had a relaxed system of banking to the poor, not unlike Yunus’s. The big companies like Nissan bought their ball bearings and other components very cheaply from tiny firms to whom Nissan’s own bankers lent without collatera or lawyers. Then Harvard taught Japan its factories should buy components by computer just in time from bigger firms.. Japanese banks switched to lending only to the rich, and ballooned real estate prices so that by 1988 one golf course near Tokyo had a greater nominal land value than the whole US state of California. When this bubble burst, all Japanese banks had bad debts, which the government helped them to hide (very much as western central banks are now doing by letting banks turn their bad mortgages into safer gilts) .Japanese living standards stopped rising dynamically, right until now. This is the sort of long stagnation-slump into which western’ politicians are most likely leading us, and they will wrongly say it is an inevitable result of Chinas and Indias pinching our jobs.
chris macrae 301 881 1655
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