Buffett says recession may be worse than feared - Yahoo! News

Just when you thought it was safe to poke your head out again.....

Buffett says recession may be worse than feared - Yahoo! News

The importance of separating globalization from politics

I don't really want to get into politics on this blog, but Nicholas Kristof makes some excellent points in his oped Better Roses Than Cocaine.

While I am an admirer of both Hillary Clinton and Barack Obama, I have been quite disappointed with their take on globalization (for the record I consider myself, among other things, both pro-trade and liberal).

At the core of the world's troubles is a question of economic security; you are more likely to be tempted by radical ideologies if you don't have it. In effect, when you have nothing to lose you become fertile ground for anti-social behavior.

Obviously, a lack of economic security isn't the only cause of radical ideologies, and there are many examples of those who are economically secure acting in anti-social ways. (I'm currently reading Confessions of an Economic Hit Man which provides enough examples)

All that said, global stability is obviously good for everyone, but it is especially good for the US as many of the world's problems often come washing upon its shores. Promoting economic security around the world is a far more effective way of, to paraphrase, fighting problems abroad so they don't have to be fought here.

The issue is neatly summed up here:

As she clips flowers in a vast greenhouse, Ms. Reynosa knows that her future depends on access to the American market. She agrees that Colombia has human-rights problems, but she argues passionately that the free-trade agreement is the way to register continued improvements. More trade will mean more jobs and more security and human rights, she argues.

Food inflation and biofuels

Food inflation is terrible but even more worrying are some of the steps being taken in an attempt to manage it.

Run-down on the whole problem in this article: Food Inflation, Riots Spark Worries for World Leaders

Here are some money quotes:

The global effect of export barriers, however, is to drive food prices even higher than they would be otherwise. Such policies "distort global prices," said Mr. Simsek, the Turkish finance minister, in an interview.

Yep, totally agree.

During informal conversations and interviews, ministers mainly agreed that the U.S. policies on biofuels were especially harmful. U.S. ethanol is made from corn, which, ministers said, could be exported to feed the hungry, and benefited from tariffs that block Brazilian ethanol, which is produced much more efficiently from sugar cane.

Ummm... Where have I heard that before?

For good and for profit

An article in the NYT talks about the controversy surrounding Compartamos, a publicly traded for-profit microlender in Mexico. I don’t know anything about Compartamos, so I won’t defend them directly. But I will take on the criticism that they are making too much profit off the backs of their clients, who are poor micro-borrowers.

But Compartamos’s decision to go public last April became a flashpoint in what had been a genteel debate over how microfinance could tap into the financial markets’ vast resources. The initial public offering gets special mention at every microfinance conference, and has been condemned by Mr. Yunus, the Nobel laureate.
Alex Counts, president of the Washington-based Grameen Foundation said Compartamos’s poor clients “were generating the profits but they were excluded from them.”

They key point in my opinion is made here in the story:

After Compartamos became a for-profit company in 2000, costs fell as efficiencies increased, but the bank kept interest rates high. On average, customers pay an annual interest rate of almost 90 percent, which includes 15 percent in government tax. In much of the world, microfinance interest rates range from 25 to 45 percent. But in Mexico, high costs, inefficiency and limited competition keep interest rates much higher. Compartamos’s rates are only a few percentage points higher than Pro Mujer’s, for example.

Simply put, in their quest to become profitable, Compartamos has become a highly efficient lender. As other microlenders were non-profit and not as efficient, Compartamos could afford to offer essentially the same market rates as the other lenders and pocket some money for themselves and their shareholders.

If Compartamos can offer essentially the same service as other banks, then it is hard to see how they are taking advantage of their customers. Sure, rates are high (90%?!?!?!?!...geez!), but all microlenders are offering similar rates.

The answer here is not to discourage for-profit microlender, but to encourage it! Hopefully others will see Camportamos’ success and seek to replicate it. This will bring more for-profit players into the market and in their quest to compete, they will begin to offer loans at lower rates.

After Success, Problems for Microfinancing in Mexico

Food inflation

The FT talks about a worrying trend to restrict global trade in food.

Countries are reducing import tariffs (a good thing) but to maintain some semblance of control over their food supplies, they are propping up export tariffs, which is bad. By reducing foreign competition (because countries aren't exporting as much), such export taxes on a global scale could have the impact of driving up local prices and limiting local supply.

If no supply is coming in from abroad, local producers of a restricted item (say corn or rice) will have an incentive to limit local production in order to drive prices up and make more profit.

I can hardly bemoan a poor farmer trying to make a healthy profit, but the end result is more hardship across a society. With a profit-maximizing farmer reducing supply, there is obviously less food to go around which increases prices and, ultimately, misery.