October 11, 2008

Muhammad Yunus: Casino Capitalism

The German magazine Der Spiegel has a short interview with Muhammad Yunus, founder of Grameen Bank and co-winner of the 2006 Nobel Peace Prize. Mr. Muhammad is asked about his take on the current financial crisis, but these two answers below are the real money quotes. You can read the entire interview here.

SPIEGEL ONLINE: Who do you think is guilty for the current financial meltdown?

Yunus: The market itself with its lack of adequate regulation. Today's capitalism has degenerated into a casino. The financial markets are propelled by greed. Speculation has reached catastrophic proportions. These are all things that have to end.

SPIEGEL ONLINE: The current financial crisis began as a credit crisis -- homeowners in the US could no longer pay down their mortgages. At Grameen Bank, which provides microloans, the repayment rate is close to 100 percent. Do you think your bank could be a model for the entire finance world?

Yunus: The fundamental difference is that our business is very connected to the real economy. When we provide a loan of $200, that money will go to buy a cow somewhere. If we lend $100, someone will maybe buy some chickens. In other words, the money goes to something with concrete value. Finance and the real economy have to be connected. In the US, the financial system has completely split off from the real economy. Castles were built in the sky, and suddenly people realized that these castles don't exist at all. That was the point at which the financial system collapsed.

The latter answer is also addressed in another recent blog post of mine; see I Hate to Say I Told You So...

HT: Economist's View

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