Archive for the ‘News of Interest’ Category

I started listening to “Falling into Grace”, by Adyashanti (available from Sounds True, or from Seattle Public Library via Overdrive!) a book recommended by a friend of mine. So far I’m liking it, it’s sensible basic Buddhist advice. He starts off emphasizing that the simple basics are more important than the complex subtle so-called advanced meditation or thinking. I was listening as roomie & I were cooking and right as dinner was ready he was going through several explanations about how people suffer fundamentally because they believe their own thoughts.

I have come to believe the truth of that statement, but it still triggers a reaction for me to hear it stated. Of course I believe my own thoughts, how else am I to function? It helps a little when he says “you don’t automatically believe someone else’s thoughts when they state them.” Ok, but I don’t necessarily have the experience of built trust with that person that I have with myself. Still, there are people in my life I know well and respect and so yeah, why should I automatically hold the value of my own thoughts above theirs?

Thinking from that perspective, my mind flashed to an article from Strategic Finance magazine that I’d been meaning to photocopy for my business friends. It was about why we make poor business decisions. It basically also says that the problem is A) we believe our own thoughts because B) we believe we can have the whole truth of a situation, so ergo our thoughts are correct. The SF article was about specific ways in which we usually DON’T have the whole truth, in hopes of helping us design a “Professional Judgement Process” to get better results as teams.

Examples of why we don’t have the whole truth:
We are subject to Groupthink – the tendency to suppress divergent views. We are subject to Anchoring – a preference for not moving far from an initial numerical value. We are subject to Overconfidence – the tendency for confidence to grow more rapidly than competence as we gain experience. We are subject to Availability – the tendency to only consider easily accessible information and ignore other relevant information.

Hopefully you find those concrete, specific examples helpful in understanding the Buddhist notion that you should not automatically believe your own thoughts. Another phrase I like is “Pain is inevitable, Suffering is optional.” In this case, Pain will be when you inevitably (because you are human) make one of the above mistakes. Suffering will be if you beat yourself up about it, perhaps because you read this blog or that Strategic Finance article. Awareness of the mistake you made, graceful acceptance of your humanity (one way to describe Equanimity), and then calmly making the best correction you can will have you on your way to enlightenment!

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Traditionally lenders and insurers mitigate risk by screening borrowers and charging higher-risk borrowers higher rates.  This is done across all types of borrowing and insuring – home, auto, life, business, personal credit. This has always bothered me because it strikes me as self-fulfilling prophecy. Charging higher rates can only increase the risk of default. It’s also penalizing the people who need help the most. This is the opposite of the kind of system Americans like to see; we prefer one that reinforces opportunity for those who work hard, rather than just raising the bar for those who start closer to the bottom.

Recently a friend sent me an NYT article about Bruce Marks and the Neighborhood Assistance Program of America.  NACA focuses on the subprime market and has found a new way to mitigate risk. They mitigate the risk for the borrower rather than mitigating the risk purely for the lender. They do this by working with borrowers to create financial plans as part of the lending process. Instead of making borrowers with low down payments buy mortgage insurance, those borrowers pay into a neighborhood Membership Assistance Program.  Membership in the MAP gives them access to free financial and credit counseling. Further, the MAP can provide up to three months of mortgage payment assistance.  All assistance that protects the mortgage – by protecting the borrower.  Further, they engage the homeowners by creating Peer Lending Committees to review requests for assistance.

This is the kind of risk mitigation thinking we can use more of – ways of working together instead of against each other.  Reading the articles below it seems this hasn’t spread further because the founder is still very much in the culture of working against, he’s just redefined who he works against as other lenders.  Still, the ideas are good ones and remind me very much of grameen bank and their lending circles.

A Nonprofit Lender Revives the Hopes of Subprime Borrowers – NYTimes.com.


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4 stories catch my eye this week:

Social Impact Bonds – a new instrument being used in the UK.  From the described first test case, the idea seems to be: 1) private investors buy the bonds to fund an innovative new program that, if successful, will reduce social service costs for the government in the future because some needy population will have been aided.  2)  If the program is successful and the program DOES reduce government costs, the government shares the wealth by paying a return on the bonds.    How this makes sense to me: I once heard a theory of foundation funding being that foundations fund innovative new social programs for 3 or so years, long enough to prove their efficacy (or lack thereof) with the expectation that government will pick up the effective programs.  However government stopped picking up effective programs and foundations haven’t been able to sustain funding.  This instrument seems to me to solve that problem by making it a government program to start, but allowing private capital to take the risk of experimentation.  But better yet, if the risk pays off not only does the program stick but the innovators get some capital back!

Social Capital Marketplace:  Olivia Khalili does a nice roundup of the leaders in the social venture funding space in her blog: 15 Social Venture Capital Firms You Should Know About.  On the more traditional end of this range (but still very much in the range) I would also add my favorite Community Development Venture Capital firms: Pacific Community Ventures, Sustainable Jobs Fund, and Coastal Enterprises, Inc.   On the more social side there are a number of foundations that could be added:  RSF Social Finance for one.

Investors often talk about the importance of alignment of interests: between investors and entrepreneurs, and among the group of investors themselves.  One way to ease those tensions and keep everyone focused on the long term goals could be to create a revolving equity fund- returns on equity come back into the fund to be re-invested in more enterprises.  Two folks in NYC are establishing a fund to test it out. Check out the Presumed Abundance fund.

Something that as a member I’ve actually put energy behind: Investor’s Circle will pilot a new tool to do a social/environmental assessment of presenting companies at the conference this April 19th!   IC is partnering with the Global Impact Investing Network (GIIN) to use the Global Impact Investing Rating System (GIIRS) to rate presenting companies.  What that means at the implementation level is that all the presenting companies should be taking the B-Corporation survey now, and we investors will receive copies of their survey ratings at the conference.   We did a pilot last fall but the ratings were not shared with all investors.  B-Corp is designed to be entrepreneur-friendly and a little protective, part of working to gain wide acceptance, so my first experience was that it was a little opaque to me as an investor.  IC is now in a two-year effort to work with the ratings and see if we can’t make them more investor friendly as well.

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I’ve got a tab that’s due for update on the online money marketplace focused more on investing and lending. That field has evolved over time as we work out the question of what’s appropriate to offer to non-accredited investors. MicroPlace came out and registered as a broker to offer securities from the get-go. Prosper started out as peer-to-peer lending but was eventually pushed by the SEC to register to offer securities. Kiva has as-yet avoided registration and the key difference seems to be that they don’t pay a return – when you lend via Kiva you don’t earn interest, so it’s not an investment.

The online marketplace for tracking and analyzing spending is also booming. Mint is a prominent example – it will link to your accounts and read the data and compile a view of your personal finances across all your accounts. Mint will then help you sent and stick to budgets by sending you customized emails and texts with updates about your spending an alerts when you hit budget limits. I found it a little creepy but they only view accounts, you can’t make changes or move money. Their business model seems to be to recommend other products and services to users and earn fees on the referrals. Mint was acquired by Quicken in 2009.

Fast Company has an interesting article about a few websites to get crowd-sourced financial advice, and a new website called Bundle that somehow mines marketing data to summarize the spending habits of people like you. Check out their article on “wanna know how your neighbors spend their money”.

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Wells Fargo seems to be ahead of its time in implementing sensible bank policies which are now standing them in good stead as banks try to weather the financial crises. Perhaps they should thank Socially Responsible Investment and Community Welfare advocates, who began raising the issue over four years ago and targeting Wells Fargo because of their aggressive lending practices. A historical tour of this campaign is simply fascinating given the news today.

This very worthy read, a September 2008 review of SRI Activity, notes that attention to predatory lending started in 1999: “Shareowner activists took note of this trend as early as 1999 after a keynote speech at SRI in the Rockies by Martin Eakes, founding CEO of Self-Help, a North-Carolina-based community development financial institution (CDFI.)”

April, 2004 – from a report issued by the Center for Responsible Lending on “A Review of Wells Fargo’s Subprime Lending”.

“One of the biggest drivers in Wells Fargo Bank’s steady income growth is its mortgage business, which contributes approximately one-third of the company’s earnings year after year. Des Moines-based Wells Fargo Home Mortgage (WFHM) is one of the nation’s largest mortgage originators and servicers. At the end of 2003, WFHM originations hit $470B and mortgage servicing reached a record $664B. Wells Fargo’s subprime mortgage lending totaled $16.5B in 2003. While this is modest volume compared to Wells Fargo’s prime mortgage originations, the company now ranks # 8 among B&C lenders and generally has been doubling its subprime volume each year since 2000.”

This detailed 10 page report covers the merger of Wells Fargo and Norwest and many lending practices, ending with the sad conclusion “Lulled by favorable analyst reports, Wells Fargo investors may not realize they are subsidizing a predatory lender. In addition, limited regulatory oversight and loopholes in regulations have enabled Wells Fargo Financial to hide predatory practices from federal regulators. Sadly, the people who see these problems most clearly are the unit’s customers, who too often face the loss of their home or financial ruin as a result.”

April 14, 2005 Responsible Wealth issues a press release:

On April 26, at the company’s headquarters in San Francisco, Wells Fargo shareholders will vote on a resolution that links CEO pay to the company’s progress on eliminating predatory lending practices, such as excessive fees, poor disclosure and interest rates that are higher than warranted by customers’ credit scores.
The resolution was filed by members of Responsible Wealth (RW) [with support of many other advocacy orgs], a network of affluent investors. [Who advocate for greater social opportunity, one of their top issues is preserving the estate tax!] … Since a similar resolution was put forth in 2004, Wells Fargo has met with representatives of Responsible Wealth and the Center for Responsible Lending (CRL) to discuss changes in their lending practices.
Nevertheless, the company has lagged behind other companies that have eliminated predatory practices. For instance, following a similar campaign by RW, CRL, and the Association of Community Organizations for Reform Now (ACORN), Citigroup agreed to cap fees, reduce prepayment penalties and ensure that all customers received rates appropriate to their credit history, regardless of which division of the company handles the loan application. “

Now isn’t that interesting… Citigroup. And how are they faring today?

August 31, 2005 – Wells Fargo Implements Borrower Protections, LA Times.

Wells Fargo announces a series of changed lending practices, including “include more clearly defining and limiting upfront fees, easing penalties for borrowers who refinance or pay off loans early, and eliminating mandatory arbitration of disputes”. ACORN made a grudging statement “glad that the company has finally acknowledged the damage that their practices have been causing and have agreed to change them.” However, they weren’t satisfied, and only a couple months later were out picketing Wells Fargo’s national headquarters contending that the company’s lending still discriminated against minorities: “Nationally, black Wells Fargo borrowers are nearly four times as likely to pay extraordinary loan rates as whites, according to information compiled by Responsible Wealth. Nearly 30 percent of blacks taking out first-year loans from the company pay high interest rates.”

The Minority Wealth Gap is a real issue, but the changes Wells Fargo made at the time apparently satisfied at least one investor; what’s really interesting to me as I do this research, is the discovery that around Q3 2005 is when Warren Buffet decided to buy in, according to this report:

“Warren Buffett also revealed his holdings in Wells Fargo & Co. (WFC) today [Feb 4, 2006], after disclosing his holdings in H. R. Block (HRB) and Torchmark Corp. (TMK) in January. During the third quarter of 2005 Buffett kept his holdings in these companies confidential. As revealed by the amended filings of Berkshire Hathaway, Warren Buffett added his positions in Wells Fargo & Co. (WFC) by about 50%. Currently Berkshire holds 85 million shares of Wells Fargo. Wells Fargo is now the 4th largest equity holding of Berkshire Hathaway, behind Coca-Cola Co. (KO), American Express Co. (AXP) and Procter & Gamble Co. (PG).”

The stock wasn’t particularly pounded and “the street” wasn’t really paying attention. I checked the stock price on Yahoo (NYSE:WFC) and it had increased mildly over 2005, fluctuating between a high of 31 and a low of 29.

By 2007, at least one traditional investment newsletter was raving about Wells Fargo. Dan Ferris, of Daily Wealth reports: “Of all the companies involved in the subprime space, the one that really leaps out at me is Wells Fargo (NYSE: WFC). Wells Fargo is without a doubt the highest-quality mortgage underwriter I’ve found in my research.” He concludes “were I in the market for a large-cap stock, I’d back up a U-Haul and fill it with Wells Fargo common stock.”

It so clearly needs to be said, so I’ll say it: Thanks SRI Community!

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forwarded by Meredith…

Finland is a leading example of the northern European view that a successful, competitive society should provide basic social services to…

Full story: http://seattletimes.nwsource.com/html/opinion/2002516538_sundayfinland25.html

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