

Is it acceptable to profit from the poor? - jyu
http://www.economist.com/finance/displaystory.cfm?story_id=11376809&fsrc=RSS

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mynameishere
The comments at the economist are pretty scary.

 _Even if the poor get high returns by investing the loan...it is not fair for
the lender to capitalise on the good fortune and/or efforts of the borrower._

Answer to the question: Yes, it is acceptable to profit from the poor. If you
disagree, please do not allow them to purchase bread or sell their labor.

~~~
eru
Yes, the comments seldom reach the quality of the articles. Some are downright
scary. Perhaps they should restrict comments to people with a subscription?
That should swing the ideologic balance in favor of hardline capitalists.

(Disclaimer: I have a dead tree subscription.)

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ComputerGuru
I don't see how it's difficult to see the "right" thing to do - it almost
never is, really.

"The right thing" (TM) is to treat the poor like you would any other social
entity. You (as a businessman) can profit off of them, but not by taking
advantage of their desperate situation. You make a fair offer, you get a fair
return, and everyone lives happily ever after.

Now if you choose to give them a more-than-fair offer (interest rates that
just cover inflation, pretty much no profit involved) out of the goodness of
your heart - kudos to you.

Keep in mind the most important thing: the current sub-prime woes were all
caused by banks taking advantage of people who couldn't afford to pay them
back; "balancing-off" the high risk of investment with even higher interest
rates - and look where that's put the global economy. There's a lesson in
there - you can't make a quick buck, and ripping people off can never help
society as a whole in the long run.

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gills
Maybe. Here is my opinion.

The poor need goods and services just like the rest of us. More to the point
of the article, they also require credit and some faith in their productivity,
to even attempt to rise out of their situation.

Theoretically, an efficient market will help provide credit to the poor people
most able to use it in a productive manner. In reality, it seems like things
get a little non-linear below the poverty line. By definition, those in
poverty can't reach up to meet the price of goods (including credit) in the
general market. Also by definition, a market exists only when buyer and seller
reach a mutually beneficial agreement. So it seems that when those who are not
poor are dealing with the poor, they are not acting as rational market
participants because they may not reach a mutually beneficial equilibrium. Who
would even try? I think this is why micro-finance needs to be a somewhat
humanitarian effort.

Coincidentally. the economic crisis engulfing the U.S. right now is an example
of why profiting from the poor doesn't work (well...without some productivity
requirements). Not lending to _the poor_ , per se, but lending to people who
had no chance (and possibly no intention) of using the credit productively and
paying it back. This has partly been due to incentives which are/were outside
of the market between lender and borrower -- fees, and a secondary market
which was hungry for securitized debt. The demand in the secondary market was
met by trying to do the impossible (lending on bad bets) and selling it off as
a package of good bets.

This last bit should actually make you upset on many levels. The U.S. patent
office won't accept inventions which violate the laws of thermodynamics, and
I'm still confused why the Federal Reserve does...sorry, on a tangent. Back to
the salt mines for me!

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LostInTheWoods
Short answer: It is always acceptable to provide goods and services to those
who are willing to buy it at a price that they are willing to pay for it.

There's been alot of anti-capitalist sentiment lately in the media, from
stories about overpaid CEOs to record oil company profits. Simply put, if a
person can not get fair market value for their good or service, they have no
incentive to provide it. What is better: that which is expensive, or that
which is not available?

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stcredzero
I would agree, for all values of "willing" that don't involve some sort of
coercion. For example, if someone is "willing" to pay $100 for a loaf of bread
if you have a gun to their head, then I would question the use of the word
"willing." Likewise, if a group of people controlled the food market in a
region and used that power to force the people to hand over their life savings
in order to buy food and avoid death by starvation, I would question the use
of the word "willing."

As always the question is -- can those involved opt out of the transaction? If
the answer is yes, then there is probably no evil involved.

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Tichy
I don't understand how an interest rate of 70% could be fair, and who in their
right mind would agree to such a rate?

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te_platt
If the default rate is high enough then 70% could be what it takes for the
lender to make a profit. Someone who thought that was the best rate they could
get could agree to such a rate.

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nostrademons
Then they should focus on lowering the default rate, not increasing the
interest rate. The Grameen bank gets repayment rates of over 98%.

Assuming a cost of capital of 3%, if they need to charge 70% interest to make
a profit then roughly 40% of their loans are defaulting. A 40% default rate
means people are using these loans for consumption, not investment. You need
better financial education then, not better access to credit.

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eru
Perhaps it's not the default rate - but the overhead. Those loans are pretty
small.

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pmjordan
Yet it's possible to run a current account on far less? I doubt that's the
problem.

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eru
Or perhaps it is just a sign of an immature market. They charge so much
because they can get away with it.

With competition the rate should go down. Even if it is mainly caused by
overhead, as companies will figure out how to operate more efficiently.

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aneesh
> _Is it acceptable to profit from the poor?_

Haven't read the article, but ... yes, it's called 1) the labor market, and 2)
the goods market

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ComputerGuru
I'm still looking for the rest of the article. For an Economist article, this
one was pretty short and thin....

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chaostheory
to me it depends. I don't see anything wrong in trying to be like a Walmart
(minus Walmart's abuses), though personally I feel that businesses such as
'payday loans' (as opposed to something good like kiva) and 'rent to own'
stores are somewhat sketchy

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hugh
Sure, but they're sketchy because they're sketchy, not because they're
targeting the poor. They're sketchy because they're bait-and-switch -- fooling
people into signing a pretty onerous contract without reading it properly.

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stcredzero
Yes, so long as you don't rig the game to keep them poor.

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albertcardona
As long as it's win+win _should_ be fine.

Other considerations involve morals and equality of opportunities in education
to be able to evaluate how unbalanced is the win+win. And that's a terrible
ground for discussions.

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xlnt
if people aren't poor after you profit from them, you need a new business
model

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eru
Scrap a negation and you have a fine comment:

If people are poor after you profit from them, you need a new business model.

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stcredzero
I think it would be acceptable if the people were still poor but significantly
less so.

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eru
Sure. Or in another way better off.

