Microfinance in the USA: Predatory lending to the lower middle class

Posted on August 17, 2012 by Brewster Kahle

I saw Hugh Sinclair speak and just finished his fabulous book:  Confessions of a Microfinance Heretic: How Microlending Lost Its Way and Betrayed the Poor .   It shows how Kiva, Citi, and a famous VC, Vinod Khosla, among many others have made high returns off of the poorest women in the world with loans with interest rates that are often over 100% per year.

I am now in Georgia with my inlaws and was stunned to see the number of “microfinance” institutions here.   I would say over 15 are in this 1 mile strip occupying the most expensive roadside real-estate.  These are financial services organizations that “serve” the working people of Rome Georgia.

You can take a your own stroll with Google Street viewto see all the signs.   But here are some:

 

 

Title Pawn, or Title Loan places take your car, and lease it back to you. A high interest loan secured by your car. Banks are paying about 0% to the fed for money, the poor are paying much more.

Weekly payments are the same as how the microfinance places work in developing countries. The Nobel Peace prize winning approach to poverty eradication has arrived in the USA. Like what you see?

Title Pawn your JetSki.

Smiling beautiful women.

Car Showrooms here are surrounded by barbed wire.

Serving the latin american population, for a fee.

“Buy Here, Pay Here” means you go back weekly to make your payments rather than dealing with a bank.

Renting and Leasing has replaced owning. This place will rent a computer.

No need to go to a bank– used car lots will make the loan for you.

Car sales locations now look like places your car tow lots. Maybe they are car tow lots.

I hear there is a TV show called “Pawn Stars”. Here it a store named the same thing.

Pawn shop? They say they sell computers.

By “Finance”, I think they mean they are not a regulated bank.

Jail Bond places are a rip-off: if you want to get out on bail and can not afford the full bail amount, you pay 10% to one of these places and do not get your money back. Judges price bail so the middle class can just afford this amount.

Title Pawn is when you surrender your car title and then you lease back the car. These are all over the south.

Posted in Uncategorized | 3 Comments

An Answer from Bali? — Money as a Garnish

Posted on July 29, 2012 by Brewster Kahle

Chinese Coins (round with square hole) Made into a Doll

Up until the mid-20th century, the villagers of Bali mostly did not use money, or at least not for anything real.   They used rice.   Rice has the great characteristics that hording does not work (it rots), you can use it to plant more rice, and you can eat it.     This changed with the foreigner-imposed “green revolution” which is another story, and a sad story.

The Chinese hundreds of years ago tried to introduce money into Bali, and the coins are all over Bali, but they are used for decoration.  The make dolls out of them, or decorate offerings, make jewelry out of them, to dress a

Offering which included a coin

pig for a cremation (see photos below).    But money did not become central to their interactions with others.

For a thousand years, money for the Balinese was a garnish.    I think they are on to something.

Coinage is good for trading with people you don’t trust.  Herodotus writes about the first time he finds coins used (they were not used inside ancient Greece).   They were used in border towns between the Greek and Persian peoples– he wrote that these coins did not lead to good things (great write-up in Buchan’s book Frozen Desire: the Meaning of Money).

Cremation offering with coin attached to the ear

Coinage was often introduced in order to supply provisions to distant professional armies in the 6thC BC, as reported by Graeber in his fabulous book Debt: the first 5000 years.  This was an ingenious system.  If you were a King and your people mostly lived on giving credit to each other, then if you soldiers arrived in a village, they were not likely to get credit because they were transient and possibly untrustable.  To keep your soldiers from stealing what they wanted they came up with a system.   They gave the soldiers

Cremation offering close-up

tokens with the kings face them, and then demanded these tokens back from merchants as taxes.     So the Merchants had to get these tokens, the way to get them was to sell things to the soldiers.    This historically corresponds with currency creation being synchronous with the rise of professional armies in 600BC and the surge in the issuance of money with the rise of war debts.

But now bank credit and coinage are firmly linked.   Credit does not have the flexibility it did when it was between family members or community members– it now mostly issued by banks and enforced by police or armies.

What would it mean to treat “Money as a Garnish”?

Wall decoration incorporating coins

It would mean that the essentials of life would not go through money: housing, food, education, health.    Fun and non-essential things could still go through money– travel, movies from big studios, commercial rock concerts, trinkets from China.      But your essentials would not depend on your continuously winning the money game– it would be secure and reliable.   It would depend on community, friends, and family.    There might be credit systems set up between people, as all social relationships fundamentally are,

Coin left on temple step

but they could or might now be denominated in the coin of the realm.   Having ones house depend on always having a money flow means being homeless if the money is stopped for some reason.   This is scarey.

Money as a garnish would mean all money would be “fun money”, or “pin money”.    Our livelihood would be secure.

Money as a garnish.   Maybe the Balinese were onto something.

Doll made with mask and coins

 

 

Posted in Uncategorized | Comments Off on An Answer from Bali? — Money as a Garnish

Heart Warming Graffiti in Bangkok’s Chinatown

Posted on July 29, 2012 by Brewster Kahle

Posted in Uncategorized | Comments Off on Heart Warming Graffiti in Bangkok’s Chinatown

Singapore Airport :)

Posted on July 6, 2012 by Brewster Kahle

Posted in Uncategorized | Comments Off on Singapore Airport :)

Is there a way to decrease total debt?

Posted on June 10, 2012 by Brewster Kahle

“Spend less, save more” is the advice for the individual to decrease debt, but what about thinking system-wide?  What does it take to have less total debt in society?

Counter-intuitively, the key to having less total debt is to have less total money.    This stems from the fact that money and debt create each other.   The more total money there is in people’s bank accounts, the more debt there will be.    So when the government talks about “increasing the money supply” or “increasing bank liquidity” or “recapitalizing the banks” they are also saying they want there to be more debt.     With more total debt comes more total interest payments, which moves more total money from debtors to creditors.    In short the rich get richer.

This is the key concept– with less total debt or total money, the less money moves from debtors to creditors because of interest.   This is a systematic issue that can be rethought at a systematic level.    At most times in human history, interest was a sin and illegal.   David Graeber in his book Debt, the First 5,000 Years, shows that interest comes and goes on long historic cycles, so we can assume interest will become illegal again, but this could take decades or centuries.

To decrease total debt and therefore total money we have to hold wealth in other forms.     Paying off all home debt, for instance, would remove trillions of dollars from the total debt rolls.    The mortgage system is quite recent and has been a boon to bankers and creditors since they benefit from this new and massive form of total debt.     Student loans has now scaled into a multi-trillion dollar bonanza.   New debt products seem to rip through our culture because of the profits that come from increasing total debt levels.   Putting villagers in debt with microfinance schemes is one of the most recent “financial innovation.”

This sounds very nice to decrease debt, but how do individuals do their part to decrease the total debt?   Some think renting is different from owning/debt, but this does not bear closer scrutiny.   Renting is mostly paying someone else’s debts.    Muslim’s still have the prohibition on money-at-interest, as most religions have had, and some schemes have been invented to try get around these such as renting rather than buying as was tried in Toronto, but renting is not that different front debt.

Approaches to decrease total debt by decreasing total money:

* One approach is to own shares of things, like houses, rather than debt contracts.     Shares have flexibility that debt does not, there is shared risk, and there is no money flowing or stored in bank accounts.

* Many families support family members by helping buying, say one half, of a house that is lived in by a family member and then when the house sells, they split the resulting money.   Is this fair?   Well, one member gets to enjoy the house and the other does not, but on the other hand the one living there will pay to fix up the house and the other will not.

* Informal exchange of dinner parties can decrease restaurant use.    This helps de-monetize  food and increase sharing.   Enduring positive relationships come from this.   I know because I have been doing this every Thursday for 25 years.

* Sharing couches or staying in our apartments when we are away takes more trust than hotels but this has its own rewards.   Many popular Internet services have tried to help with logistics and trust (through reviews and reputation).

* Hitchhiking can be promoted as well as a way to share more and spend less.

* Shares in companies has some of these positive aspects, but does not seem to have the positive values of shares in more local and personal assets.    Local shares are often renegotiated as time goes by which is a key difference from debt contracts.

Basically, investing in more complex relationships rather than hoarding money in bank accounts will help keep the total debt down, which would have systematic benefits.  For those that might go into debt, try giving and giving, and often benefits come back without monetary charges.

Posted in Uncategorized | Tagged , , | Comments Off on Is there a way to decrease total debt?

Non-Financial Endowments for Public-Benefit Organizations?

Posted on June 3, 2012 by Brewster Kahle

I would like to help the Internet Archive thrive for very long time.    An endowment is one tool, but financial endowments have some issues, so what about exploring non-cash endowments?   Non-financial endowments, if done correctly, appears to create longer term sustainable foundations for public-benefit organizations.   Here is the reasoning.

Endownments, meant to help sustain a public benefit organizations over the long term, are generally managed by investment firms and banks.   The idea is that they spin off cash that can help run the organization or grow the endowment.      At UC Berkeley, the school may spend up to 5% of the endowment as that is what is thought to be the annual growth rate after inflation.  In other words, the bankers should get 5% on the holdings on a continuous basis, so the organization can spend that much and not decrease the principle, even after inflation.

My financial holdings over the last 15 years seem to do a bit better than inflation, but not 5% over inflation.   Furthermore, what financial endowments are often managed to make money rather that support the goals of the organization, and can even be in contradiction to the aims of the organization.   Also, the periodic hyper-inflation and financial collapses can wipe out holdings.

How can we endow an organization without putting money in a bank account and hoping for interest to pour out?

For the Internet Archive, about 70% of the spending goes to salaries, the rest to computers electricity bandwidth and other things.    The facilities are have been purchased so these expenses have already been minimized.   So if there were some way to support the employees salaries, that would be the best way to support the organization.    We can either come up with the cash our employees expect, or maybe we could find a way to offset their cash needs.

Our employees spend 30%-60% of their income on housing.   Therefore, if equal or better housing appeared at a reduced cost, we might be able to reduce salaries.    Similarly if food, healthcare, education, transportation expenses could be reduced then the need for salaries could be reduced.

I do understand this is counter-trend, but there are precedents.   Universities, armies, religious, and other intentional communities have had subsidized housing and other services bundled into their overall function.

Maybe it is better to talk about communities rather than employees since we would like to support families not just workers.

Therefore, supporting the housing, farming, schools, and health needs of the community that makes up the public-benefit organization can be a form of endowment.

Investing in debt-free housing, low labor farming, custom schooling and ways to keep our selves healthier could help significantly.

Rethinking our endowment approaches to be better foundations for our public-benefit organizations is ripe.   Any help would be most appreciated.

Posted in Uncategorized | Tagged , , , | Comments Off on Non-Financial Endowments for Public-Benefit Organizations?

Encourage Hitchhiking Again?

Posted on May 22, 2012 by Brewster Kahle

A form of sharing can be reignited if we want it to.     Although maligned, hitchhiking is a form of car-sharing, ride-sharing, and mass transit– things we think of as virtuous.   Hitchhiking is part of the gift economy: you give without asking in return, at least not directly, until you need a ride sometime.    It could reduce road congestion, energy consumption, and reduce car production.   It could increase cross-cultural and cross-class interactions to form more of a community in our increasingly isolating cities and suburbs.

I found hitchhiking a wonderful experience and one that helped me find the humanity in our communities.    I used to hitchhike explicitly to regain my faith in human nature.

The people that picked me up, now decades ago, were almost always people that hitched when they were younger and needed the help.    They were returning the favor.   The only people that would pick me up were ones that were interested in having a stranger in their car, so it selected for friendly relations among strangers.

Yes, there were those needy people that were looking to get lucky or looking to convert me to something they believed in, but I found this rare and even when it happened could be redirected and avoided.

California encouraged ride-sharing for a while by bridge toll discounts for carpools and a carpool pulloffs just before the bay bridge.    While this was not explicit government endorsement, it worked.

So why not encourage hitchhiking?   During the depression, hitchhiking was somewhat encouraged by the US government, but by the 50’s and 60’s educational films trained kids to think of it as dangerous.    The media played a shrill role of shouting about dangers to a few, rather than a balanced view of the benefits to the many.

So maybe it is time to bring this old sharing tradition back.   Yes, there will be abuses making formal endorsement unlikely, but we can bring it back non-the-less if we want to.

Posted in Uncategorized | Tagged , , | 4 Comments

Virtue in Failing the Credit Game?

Posted on May 12, 2012 by Brewster Kahle

I was turned down for an American Express card.   Repeatedly.

I have plenty of money and, when I enquired about my “credit score” I found it in the 700’s which they say is quite good.   So why was I turned down?   Well, I don’t have any recent credit history.   It seems you have to owe money to be thought of as a good borrower.     But I did not want to borrow, I just wanted a card so I could use it as a money substitute.   And that seems to be the problem.

I didn’t really want to borrow money from them.   So they turned me down.   I was bemused and perplexed.    Now I am thinking that failing the credit game is a virtue.

A few reasons:   This “credit score” thing seems to resemble the discredited “IQ score” and “SAT score” as measures of worth or worthiness.   Maybe we can fast-track this one into the dustbins with phrenology.

I sat next to a woman on a plane as we flew to Florida.   She was sick because she was living in a house with poisoned wallboards from China, that had a mortgage for more than it was worth.  I asked why she did not just give the keys back to the bank and leave, and she said:   she was suing the builder and that might turn out good (she said she would repair the house by taking out all the walls), and besides if she turned in the keys and lived in a cheaper house or apartment, she would “ruin her credit score.”    Something seems wrong.

Another example.  Great New York Times piece on our paying for services that were mostly done by friends or common sense: The Outsourced Life by Arlie Russell Hochschild May 5, 2012. We seem to have injected commerce into almost everything.

And with commerce seems to come debt.    With living in a house comes debt.   With getting an education now comes debt.

So, what if we fail at the Credit Game?    Well, people will not extend you credit.    Isn’t not being in debt a good thing?    As more people turn from credit cards to debit cards and forgo the month interest payments, maybe we should celebrate those that just don’t play the game.

So I am credit free, and loving it.

Posted in Uncategorized | Tagged , | 5 Comments

GlobalInet talk notes of Jimmy Wales talk: Predictions for the Future of the Internet

Posted on April 23, 2012 by Brewster Kahle

#1:  mass connectivity
2billion people access the internet
easy parts are done

$80 for smartphone in kenya: encouraging.

developing countries are doing what we do on the internet: google/facebook/ etc

#2: no one will notice when hollywood dies
large scale collaborative stories/filmmaking coming

nupedia to wikipedia, but top down: failed.
ward cunningham invented wiki’s in 1995
wikipedia is not a tech invention, it is social innovation:
blend with the search engines
save all history, makes it more robust

new opportunity is in video.  it is where text was in 1999
geocities were individual contribution, we need group contribution

what tech exists for 6 years now, that has not coalesced yet?

communities will make hollywood and better movies.

britannica sold 3k copies this last year of being in print.   it died with a wimper, hollywood could as well.

Posted in Uncategorized | 1 Comment

Gave 2 Talks in 1 day: Russia and Massachusetts while being in San Francisco

Posted on April 22, 2012 by Brewster Kahle

I don’t know how the talks were to the participants, but I gave a talk at Wellesley College and then at an Internet Conference in Moscow, both via Skype.    It certainly worked for me even though the Russian one was at 2:30AM.   With the one at Wellesley, I gave the talk by showing me at first, then my slides (by screen share), and then me for Q&A.   They said they were happy.   On the Russian one, it was a 15 minute Q&A with a moderator.    I never saw the audience there, so that was a bit difficult.    I have heard the Tim Berners-Lee does most of his talks remotely.

When I totaled my “carbon footprint” the biggest issue by far was air flights.    I know that there is nothing that replaces face-to-face, but the time and stress it takes to travel costs and costs.

Flying is one of the most magical things I get to do.    I would enjoy it more if I went less often and stayed for more time– basically like vacation travel.     I think other fellow travelers would agree given the looks on their faces as I walk the airplane aisles.

Posted in Uncategorized | Comments Off on Gave 2 Talks in 1 day: Russia and Massachusetts while being in San Francisco