The rule of good stewardship

J. Michael Sharman / Culpeper Star Exponent
Published: February 25, 2008

"Creditworthiness is like oxygen: you don't notice it when it's around," says Warren Buffett, the world's second richest man. 
Just as too little or too much oxygen can kill you physically, too little or too much credit can kill you financially.

For those who have been credit-starved, the Gameen Bank and other "micro-finance" organizations are trying to use very small amounts of affordable credit to help the poor in America to at least have the hope of becoming the Warren Buffett of their neighborhood.

Project Enterprise, for example, loaned Egypt Lawson $1,700 four years ago to begin her wig company in Harlem. Today, she grosses $3.2 million.  

The interest rate charged for the micro-finance loans by non-profit lenders like Gameen Bank and Project Enterprise is usually about 16 percent, which might seem high until one realizes that normally the only available credit source for the poor are the payday lenders, who charge annual  rates of as much as 1,560 percent. Nationally, American borrowers in 2007 paid $48 billion to payday lenders.

Too much credit given out in the sub-prime mortgage market has caused massive numbers of foreclosures, which then forced lenders to tighten their lending practices. Sales of existing homes have fallen in 45 states, plummeting 44.2 percent in the previously red-hot market of Nevada.

Nationally, one house out of every 100 is currently in foreclosure. Our town of Culpeper has the fourth-highest foreclosure rate in Virginia, and throughout Virginia, foreclosures have increased 728 percent since 2005. 

Foreclosures and impending foreclosures have pushed the delinquency rate for vehicle loans at the end of 2007 to the highest levels since 1991. Rod Bowser, president of the Rocky Mountain Repossession Asso-ciation, says, "It's a trickle-up effect. People don't want to lose their house. They'll lose their car first."

In his short story "Rich Boy," F. Scott Fitzgerald wrote: "Let me tell you about the very rich. They are different from you and me." Ernest Hemingway's wry response in the "Snows of Kilimanjaro" was, "Yes, they have more money."

It's worth noting, though, that Warren Buffett doesn't live on credit and he doesn't even live on his billions in cash reserves. The Financial Times notes, "He works alone from a spartan home office [and has] frugal habits."

"The money has never meant much to him," said Carol Loomis, an editor at Fortune magazine. "He still lives in the same house he lived in 40 years ago. He just is not interested in spending a lot of money." 

He isn't hoarding his wealth, either. In 2006, he began donating $37 billion to The Bill & Melinda Gates Foundation, which specializes in finding cures for disease in impoverished nations.

Personal wealth also isn't the most important thing to Mo Ibrahim. Born in Sudan, Ibrahim spent his childhood in Egypt, and from there he obtained engineering scholarships in England, where he got his PhD. Ibrahim became one of the inventors whose innovations moved the mobile phone out of the limousines of the rich and into the purses and pockets of practically everyone on the planet. He recently sold his pan-African cell phone company, Celtel, for $3.4 billion.

Now that he has gotten his billions, Ibrahim funds a $5 million annual prize which he gives to an African leader who is judged to have ruled fairly and left office gracefully with a peaceful transition of power to an elected successor.

"How come the people here could ever be hungry-" Ibrahim recalled thinking during a flight over Kenya. "Look at these spaces, huge endless spaces, animals, water. I came to the conclusion that unless you are ruled properly, you cannot move forward. Everything else is second. Everything." 

This week, take some time to contemplate how you are ruling your own finances and to consider the personal financial backgrounds of the persons who are asking to rule you and your nation. Good stewardship is like oxygen: You don't notice it when it's around, but unless you are ruled properly, you cannot move forward. Everything else is second. Everything.

J. Michael Sharman is an independent columnist who practices law in Culpeper. His column appears Tuesday in the Star-Exponent.