Maybe The Market Needs A Bank Nationalization

I keep hearing that the bottom of a bear market is when everyone just gives up and sells off. However, the market has been vacillating up and down with a downward trend, but we have not seen a huge sell-off.  We just keep on sinking.

Maybe what the market needs to capitulate is a major bank or two to be taken over by the government. Maybe that is the straw that will break the camel’s back and plunge the market to its lowest point. Then we can start to recover.

Just at thought, not an edorsment. (Or a sermon for those of you familiar with a certain mega-church.)

The Economics of Micro-Finance

In its simplest form, micro-finance is the loaning of small amounts of money to people.  It is usually done in developing countries in order to help fund and fuel development.  Small amounts of money are loaned to entrepreneurs and paid back within a year or two, usually.  Repayment rates are usually high and highest among female borrowers.

Now I will start to speculate.  I think micro-finance works better than just a hand-out because the need to repay the loan pushes people to succeed.  If you give someone $500, they take it and do what they will with it.  If you give them $500 and require it to be repaid, they need to make sure that $500 helps them to earn at least enough money to cover the principal plus interest.  Then, after the loan is repaid, they can continue to earn that money.

So, how does one get involved in micro-finance?  Well, I have two suggestions:

The first is Kiva.org.  It is a charity, and it accepts $25 donations and gives them to micro-finance organizations in various companies.  You get to choose the loan to fund.  The drawback, as far as I am concerned, is that you do not get a return on your money.  You get your money back if and when the loan is repaid, but you do not earn any interest on your money.  You also cannot claim your donation as a tax-deduction.

The second website is microplace.com.  It is a for-profit site, and allows you to give money to support micro-finance loans.  The difference from Kiva is that you do earn a return.  The highest return I have seen is 5%, which is pretty low considering there is a fair amount of risk involved.

So, until micro-finance starts providing returns commesurate to its risk, it will mostly be the domain of charities.  I am waiting for the day it does start returning the proper rate.

Excited For Class

I usually do not look forward to going to class, but my finance 301 course has me excited.  The way the professor described it, this will be  what I call a “path-finding” class.

“Path-finding” is something I discovered with stoicheometry in chemistry class.  It also appears in geometry and symbolic logic.  Basically, it consists of being given a starting point and a destination.  It is your job to find the path between the two.

In stoicheometry, you are given chemicals to combine.  Then you have to figure out what and how much product the reaction will produce.  In geometry and symbolic logic, your job is to use theorems and corrolaries to prove something.  The path is what theorems to use and what order to use them.

It appears in this finance class, I will be given a situation and have to figure out what equations to use and what information to input into them.

I love path-finding.

Getting On Top Of Finances

One of my resolutions this year was to be more active in the finances.  Right now my wife pays all the bills and keeps an eye on the accounts.  All I really do is contribute money from my paycheck.  So, I have begun accounting for us in a nifty little program:  KMyMoney2.  Even though I run GNOME, I like KMyMoney2 better than HomeBank and GNUCash.  So, I am running a KDE application on GNOME.  It is another of the features I like about Linux and Ubuntu.

This will also fit in nicely with the accounting class I am taking this semester.

Should We Bailout The Car Companies?

So, the US government has already pumped a bunch of capital into national banks.  Now the auto industry is asking for a handout.  Should we give it to them?

I think the government should loan GM (and the others) money, but with one stiupluation: they go into bankruptcy.  This does a number of things:

First, it lets a judge alter GM’s debt and labor contracts.  This would lower GM’s debt payments and labor costs.  GM’s average hourly rate (with fringe benefits) is $71 an hour.  Toyota’s is $47.  I know the labor unions will cry about it, but if GM goes under, the unions are not going to be much help to the tens of thousands of unemployed union memebers, will they?  The unions worked with the airlines that went into bankruptcy, and that allowed the airlines to come back out.  The UAW needs to consider doing the same thing or have it done for them.

Second, going into bankruptcy lets the US government give GM “debtor in possession financing.”  This lets GM keep running, but give the US government dibs on repayment and assets if GM goes belly-up.  This gives the tax-payer the most protection.

GM has been hemorriging money for years, even before the credit crunch.  They need some punishment to go along with any help they get.