All language subtitles for The Ascent of Money - 5of6 - Safe as Houses - Ch4 2009 DVDRip XviD AC3

lt's the English-speaking world's
favourite game...property.

And today the stakes in the game
are higher than ever.

The original property game we know
today as Monopoly was actually

invented back in 1 903 to expose
the unfairness of a social system

where a small minority of landlords
screwed the majority of tenants.

30 years later, an unemployed
plumber named Charles Darrow

patented a new version of the game,
with the board based on

the streets here in Atlantic City.

lt was Darrow who introduced
the little houses and hotels.

What the game of Monopoly tells us,
contrary to its inventor's intentions.

is that it's smart to own property.

And if it's smart to own property,
it's even smarter

to Iend money
to the peopIe who own property.

That's because the phrase,
''Safe as houses''

has a rather speciaI meaning in
the worId of finance. What it means

is there's nothing safer than to Iend
money to peopIe who own reaI estate.

Why? WeII, because if they
defauIt on the Ioan,

you can aIways repossess the property.

Even if they run away,
the house can't.

What's more, the English-speaking
world's obsession with property

has been the foundation for a unique
economic and political experiment -

the property-owning democracy.

Some say it's a model
the whole world should adopt.

The growth of property ownership

gave rise to a new era
in the history of finance.

On the back of property,
literally trillions of dollars

have been borrowed, some of it by
so-called sub-prime borrowers -

people who'd previously been content
to rent rather than own their homes.

So it's come as rather a shock
to millions of people that real estate

is fundamentally no different
from any other financial asset.

lts price can go down as well as up.

lt turns out that no amount
of financial alchemy

can turn little suburban boxes
into treasure chests with roofs.

Which raises the question,
is property really as safe as houses?

Or couId it be that we've Iet
our Iove affair with reaI estate

get compIeteIy out of proportion?

Property ownership was once
the preserve of an aristocratic elite.

Estates were passed down from
father to son, along with titles

and political privileges.

Everyone else was a mere tenant,
paying rent to their landlord.

Even the right to vote in elections

was originally
a function of property ownership.

In one respect, not much has
changed in Britain since those days.

Of 60 miIIion acres of British Iand,
around 40 miIIion

are owned by just 189,000 famiIies.

The difference is that they no Ionger
monopoIise the poIiticaI system.

Indeed, thanks to reform
of the House of Lords,

the hereditary peerage
is being phased out of ParIiament.

Now, you can expIain the decIine
of the aristocracy in many ways.

But, as far as I'm concerned,
the main driver was finance.

Until the 1 830s, fortune smiled
on the British land-owning elite -

the 30 or so families with gross
annual income from their lands

above �60,000 a year -

roughly � 1 50 million pounds today.

With such vast property assets
backing them

and income from agriculture booming,

it was hard to see how
the aristocracy could fail to flourish.

Yet, by ignoring a fundamental truth
about property,

they ensured their own decline.

GUNSHOT

CROWS CAW

Like many of us today,
the great magnates saw the value

of their property as a cash cow
and used it to borrow to the hilt...

..often more than
the property was worth.

What they'd failed to understand
is that property is only a security

to the person who lends you money.

As a borrower, you still have to
earn the money to pay back the loan.

And for the great landowners

of Victorian Britain, that suddenly
became a very difficult thing to do.

Nowhere was the pain more acute than here
in the heart of rural Buckinghamshire.

There's something undeniabIy
magnificent about this huge,

neocIassicaI paIace -

Stowe House - arguabIy
the greatest private residence

buiIt in EngIand in the 18th century.

Just Iook at these extraordinary
scagIioIa piIIars

or the stunning eIIipticaI
pIaster ceiIing.

And yet there seems to be
something missing.

Or rather many things.

Because once in each of these aIcoves
there was a Roman statue.

The exquisite Georgian firepIaces
have been ripped out

and repIaced by
bog-standard ones Iike this.

Why?

How did this most stately of stately homes
become a mere shell of its former self?

The answer is that this house beIonged
to the principaI victim

of the first modern property crash -

Richard PIantagenet
TempIe-Nugent-Brydges-Chandos-GrenviIIe,

2nd Duke of Buckingham.

Stowe was only part of the Duke's
vast empire of real estate.

ln all, he owned around 67,000 acres
in England, lreland and Jamaica.

These immense properties
seemed more than adequate

to back his extravagant lifestyle.

And he spent money
as if it might go out of fashion

on mistresses, on illegitimate children,

on anything that he felt was compatible
with his standing as a Duke of the Realm.

PEACOCK CRIES

By 1 845, the jig was up.

Grain prices had begun
their long slide downwards,

and so had the income
from agricultural land.

Rural property prices plummeted.

Suddenly, the aristocracy found
that their borrowings

had outrun the value of their estates.

The Duke was spending
far more than his income

and most of that was being absorbed
by interest payments.

But there was to be one final bout
of conspicuous consumption.

In preparation for a visit
by Queen Victoria and Prince AIbert,

the Duke decided to spIash out and
refurbish Stowe House from top to bottom.

15 saIoons were stuffed fuII
of the most expensive furniture

that money couId buy.

The fIoorboards were groaning
under the weight of Genoa veIvet,

embroidered satin and goId brocade.

When the Queen saw the resuIts,
she commented rather waspishIy,

''I am sure I have no such spIendid
apartments in either of my paIaces. ''

SadIy, the cost of this mega-makeover
proved to be the finaI straw

for the ducaI finances.

ln August 1 848, to the Duke's horror,

his son had the entire contents
of Stowe House auctioned off.

Now, his ancestral stately home
was thrown open

for throngs of bargain-hunters to bid
for the silver, the wine, the china.

Today, Stowe is a private boarding school.

lt's a poignant symbol
of the transience of landed wealth.

ln the modern world, it turned out,

a regular job and a steady income
mattered more than an inherited title -

no matter how many acres you owned.

Divorced by his Iong-suffering
and much-betrayed Scottish wife,

whose entire wardrobe had been seized
by Sheriffs Officers in London,

the Duke was finaIIy forced
to reIinquish Stowe

and move into rented accommodation.

He eked out his days
at his cIub, the CarIton,

writing a succession
of highIy unreIiabIe memoirs

and incorrigibIy chasing actresses
and other men's wives.

The fall of the Duke of Buckingham
was a kind of harbinger

for a new democratic age in which
every adult would be given the vote

whether they owned a stately home
or paid rent for a humble flat.

As aristocratic fortunes
from agriculture declined,

so the franchise was widened.

Yet the advent of universaI suffrage
didn't mean that property ownership

had become universaI.

On the contrary, as recentIy as 1938,

Iess than a third of the UK housing stock
was in the hands of owner-occupiers.

It was on the other side of the AtIantic

that the first true property-owning
democracy wouId emerge.

And it wouId emerge from
the biggest financiaI crisis ever seen.

An EngIishman's home is his castIe

and Americans know that
there's no pIace Iike home too,

even if aII the homes are rather simiIar.

Today we take the universal right
to own our own home for granted.

But before the 1 930s,

no more than two-fifths of American
households were owner-occupiers.

lf the old class system,

based on elite property-ownership
was distinctively British,

the revolution that created
a new property-owning democracy

was born out of a great
American financial crisis.

When the Depression struck in 1 929,
the US economy nose-dived.

The minority of people
who did own their own homes

couldn't afford the mortgage payments.

Tenants too struggled to pay the rent
when all they had coming in was the dole.

Nowhere were the effects of the Depression
more painful than in Detroit.

Soon the automobile industry here

employed only half the number
of workers it had in 1 929,

and at half the wages.

By 1 932, the dispossessed of Detroit
had had enough.

On March 7th, 5,000 workers
laid off by the Ford Motor Company

marched to the factory
to demand unemployment relief.

What followed would force Americans
to completely rethink

their attitude to property ownership.

As the unarmed crowd reached Gate 4

of the company's River Rouge
plant in Dearborn,

scuffles broke out.

Suddenly, the factory gates opened

and a phalanx of police
and security men rushed out

and fired into the crowd.

GUNSHOTS

Five workers were killed.

Days later, 60,000 people sang
The lnternationale at their funeral.

The Communist Party newspaper
accused Edsel Ford,

son of the firm's founder, Henry,
of allowing a massacre.

Could anything be done

to defuse what was beginning
to seem like a revolutionary situation,

pitting the seriously propertied Fords
against their property-less ex-employees?

ln a remarkable gesture of conciliation,

Edsel Ford turned to a Mexican artist
named Diego Rivera.

He invited him to paint a mural
that would show Detroit's economy

as a site of cooperation,
not class conflict.

Diego Rivera was a IifeIong Communist.

His ideaI was of a society in which
there wouId be no private property,

in which the means of production
wouId be commonIy owned.

In his eyes, Ford's River Rouge pIant
was the very opposite,

a capitaIist society
in which the workers worked

and the property owners, who reaped
the rewards of their efforts,

mereIy watched.

When the murals were unveiled in 1 933,
the city's dignitaries were appalled.

They saw them as Communist propaganda,
''a travesty on the spirit of Detroit''.

The power of art is a wonderful thing.

But it was clearly going to take something
rather more powerful than art

to heal a society so deeply split
by the Depression.

Other countries turned to the extremes
of totaIitarianism.

But in the United States
the answer was the New DeaI.

And that incIuded
a New DeaI on housing.

In radicaIIy increasing
the number of Americans

who couId hope to own their own homes,

the RooseveIt administration pioneered
the idea of a property-owning democracy.

It proved to be the perfect antidote
to Red revoIution.

ln effect, the government
would rig the housing market

to incentivise Americans
to become property owners.

Customers at local mortgage lenders,
known as savings and loans,

the equivalent of
British building societies,

would have their deposits guaranteed
by the Government

even if a bank went bust.

Crucially, a new
Federal Housing Administration was set up

to offer larger, longer
and lower-interest loans.

After the 1 930s, most mortgages
in the United States were fixed

for 20 or 30 years.

A new Federal National Mortgage
Association, nicknamed Fannie Mae,

was set up to create
a nationwide market for home loans.

(TV REPORTER) This coupIe
is going through a modeI house now.

The husband, apparentIy,
isn't very keen about it aII,

but his wife is entranced
by such convenient features

as the sturdy buiIt-in ironing board.

By reducing the monthly cost
of a mortgage,

these reforms made
home-ownership possible

for many more Americans than ever before.

(TV REPORTER) They both wouId Iike
to have this pIace for their very own.

Too bad they can't afford it.

Ah! But maybe they can.

For according to this sign,
they can buy this house

with monthIy payments that are Iess
than they now spend for rent!

lt's not too much to say
that the modern United States,

with its seductively samey suburbs,
was born out of these New Deal reforms.

From the 1930s then,
the US Government effectiveIy underwrote

the mortgage market,
bringing borrowers and Ienders together.

And that was the reason for
the big expIosion in property ownership

and mortgage debt in the decades
after WorId War II.

There was just one catch -

not everyone in American society had an
invitation to the property-owning party.

When these houses were built
in Detroit back in 1 941,

whether you got the money or not
for a mortgage

depended on which side
of this divide you lived.

It was a reaI estate deveIoper
who buiIt this six-foot high waII

right through the middIe
of Detroit's 8 MiIe district.

He had to buiId it
in order to quaIify for Ioans

from the FederaI Housing Administration.

The Ioans were to be given for
construction on that side of the waII,

which was a predominantIy
white neighbourhood.

On this side, on the bIack side,
there was to be no federaI credit,

because African Americans were regarded
as fundamentaIIy uncreditworthy.

lt was part of a system
that divided the whole city -

in theory by credit-rating,

in practice by colour.

Segregation, in other words,
wasn't accidental,

but a direct consequence
of federal policy.

This map by the
FederaI Home Loan Board

shows the predominantIy bIack areas
of Detroit, the Iower east side

and so-caIIed coIonies Iike the one
we're in now in Birwood-Griggs,

marked with a Ietter D
and coIoured red.

You can see why the practice

of giving whoIe neighbourhoods
a negative credit rating

came to be known as ''red-Iining''.

The resuIt was that when peopIe
from round here needed mortgages,

they had to pay significantIy
higher interest rates

than the foIks in the white part of town.

Half a century later,
the two categories of borrowers

would come to be known euphemistically
as prime and sub-prime.

But in the 1 960s, this divide
was the hidden financial dimension

of the Civil Rights struggle.

Blacks were to be excluded
from the new property-owning society.

There would be a heavy price
to pay for this exclusion.

On July 23rd 1 967, property in Detroit
literally went up in flames.

(TV) Four days of rioting, Iooting
and arson rocked the city of Detroit

in the worst outbreak
of urban raciaI vioIence this year.

Anger at economic discrimination
spilled over into five days of rioting

that left 43 people dead.

Significantly, most of the violence
was directed not against people,

but against property.

Nearly 3,000 buildings
were looted or burned.

The real lesson for policy makers
was that excluding ethnic minorities

from the property-owning democracy
was a fast track to trouble.

To make people feel like stakeholders
in the social status quo,

you had to make them property owners.

lndeed, widening home ownership
might even turn the malcontents

into conservatives.

This was a lesson that
Margaret Thatcher was quick to learn.

Here in Britain, the idea
of the property-owning democracy

became a keystone of 1 980s Conservatism.

By selling off council housing
at bargain-basement prices,

Thatcher ensured that more and more
British couples had a home of their own.

That also meant that more people
than ever had mortgages.

Up untiI the 1980s, government incentives
to borrow money and buy a house

made pretty good sense
for the average British famiIy.

Interest rates were reIativeIy Iow
in the '60s and '70s,

and the infIation rate tended to creep up,

so that the reaI vaIue of mortgage debt
tended to faII.

But there was a sting in the taiI.

The very same governments
that professed their faith

in the property-owning democracy
were aIso committed to fighting infIation,

and that meant raising interest rates.

The British and American policy
of encouraging people

to take out mortgages and then cranking
up interest rates led in the late '80s

to one of the most spectacular booms and
busts in the property market's history.

lt was to the '80s what the sub-prime
meltdown has been in our own time -

the first, but not the last time
that America's mortgage market

has gone stark raving mad.

To many of us, it's come as a shock

that a crash
in the American property market

could trigger a major financial crisis.

ln fact, as so often in the ascent
of money, it's happened before.

ln March 1 984, American
government regulators received a copy

of a video showing mile after mile
of half-built houses and condominiums

along lnterstate 30,
just outside Dallas in Texas.

You can still see
the empty slabs today.

The investigation triggered
by these un-buiIt homes wouId expose

one of the biggest financiaI scandaIs
of aII time -

a scam that wouId make
a mockery of the idea

of property
as a safe form of investment.

This isn't a story about reaI estate -

more Iike surreal estate.

Savings and loan associations -
America's building societies -

were not only central to Roosevelt's
New Deal on housing.

By the 1 97 0s, they were the foundation
of America's property-owning democracy.

Then, in the 1970s,
the savings and Ioan industry was hit

first by doubIe-digit infIation
and then by higher interest rates.

lt was a lethal double punch for
institutions that were forbidden by law

to raise the rates they paid to savers,

and which were receiving interest payments
from local mortgage borrowers

that had been fixed decades before.

The response in Washington was
to remove nearly all these restrictions.

When deregulation
was enacted in 1 982,

President Reagan was cock-a-hoop.

AII in aII,
I think we hit the jackpot.

Well, some people certainly did.

Liberated from the old constraints,
the people running savings and loans

suddenly saw a chance
to make some serious money

from the once boring business
of mortgage lending.

By raising savings rates, they could
attract much more money from depositors.

Then they could use these deposits

as the basis
for as many loans as they liked.

Crucially, though,
one thing didn't change.

Savers' deposits were still insured
by the government.

lt was an invitation to a gigantic
free lunch for financial cowboys.

This is the Wise Circle Grill
just outside Dallas,

filled every lunchtime with local
citizens of unblemished integrity.

Twenty years ago,
the clientele was rather different.

The city of DaIIas had more than its fair
share of frauduIent savings and Ioans,

and this was where the DaIIas
property cowboys came to hang out.

The Wise CircIe GriII
was the pIace to have brunch

when they weren't whooping it up
on their Southfork-styIe ranches.

It was aII very, very 1980s.

To one group of DaIIas deveIopers,
the Empire Savings and Loan Association

offered the perfect opportunity
to make money out of thin air...

or rather, out of fIat, Texan Iand.

The surreal saga
of Empire Savings and Loans began

when chairman Spencer Blain teamed up

with a flamboyant high-school dropout
turned property developer

named Danny Faulkner, whose speciality
was extravagant generosity...

with other people's money.

COINS CASCADE

The money in question
came in the form of deposit accounts

on which Empire paid
alluringly high interest rates.

This is FauIkner Point,
one of the very first deveIopments

that Danny FauIkner ever buiIt,
and it spawned a veritabIe empire

of FauIkner Crest, FauIkner Creek,
FauIkner Crescent,

FauIkner Fountains, FauIkner Oaks.

Danny FauIkner's favourite trick
was ''the fIip''.

He'd buy some parceI of Iand for peanuts,
and then seII it on to naive investors

who got the money Ient to them by -

you've guessed it -
Empire Savings and Loans.

Danny FauIkner may have cIaimed
that he was iIIiterate,

but he certainIy wasn't innumerate.

Many investors never even got a chance
to view their properties close up.

Faulkner would simply fly them over
in his helicopter without landing.

By 1 984, property development
in Texas was out of control,

paid for by government-guaranteed deposits

that were effectively going straight
into the pockets of the developers.

On paper at least,
the assets of Empire had grown

from $1 2 million to $257 million
in just over two years.

The troubIe was that the demand
for condos by Interstate 30

couId never possibIy have kept up
with the vast suppIy

that was being generated
by FauIkner, BIain and their cronies.

When the reguIators finaIIy
bIew the whistIe in 1984,

that reaIity couId no Ionger be escaped,

and hundreds of the buiIdings
that they erected

ended up being buIIdozed
or burnt to the ground.

Today, 24 years on,

it's stiII a Texan wasteIand.

ln 1 991, Faulkner and Blain were both
convicted and jailed for fraud.

One investigator called Empire
''one of the most reckless

''and fraudulent land investment schemes
in American history. ''

ln all, nearly 500 savings and loans
collapsed.

According to one official estimate,

nearly half had seen
''criminal conduct by insiders''.

The full cost of the crisis
was $1 53 billion,

making it one of the most expensive
financial crises in American history.

And the federal government
which had deregulated

the savings and loans in the first place

had to pick up the bill, which is another
way of saying that taxpayers forked out.

It was the first cIear sign
that there might be a downside

to the idea
of the property-owning democracy.

Yet the savings and loans crisis
was a mere tremor

compared with the property earthquake

that would strike the US market
20 years later.

Savings and loans
was an all-American crisis.

But the sub-prime quake

would shake the entire world of finance
to its very foundations.

When this wall was built

to divide white homeowners
from black renters in the 1 940s,

black families found it virtually
impossible to get mortgages.

Sixty years later,
that had all changed.

''We want everybody in America
to own their own home, ''

President George WBush declared
in October 2002, challenging lenders

to create 5.5 million
new minority homeowners

by the end of the decade.

Positively encouraged by the federal
government to relax lending standards,

mortgage companies swarmed
into areas like this one,

offering all kinds of alluring deals.

Because so many of the new borrowers
had patchy credit histories,

these loans came to be known
as ''sub-prime''.

That made you a perfect candidate
for a NlNJ A loan.

The problem was that behind
low introductory payments,

these new mortgage loans
were very different from the old,

30-year fixed-rate repayment loans
of the past.

Since the 1980s,

the housing game has radicaIIy changed
throughout the EngIish-speaking worId.

Mortgages are for shorter
and shorter durations

and more and more borrowers are
opting for interest-onIy mortgages.

That makes househoIds far more sensitive
than they were to interest-rate hikes.

So how come the lenders didn't worry
that these sub-prime borrowers

were almost certain to default
if interest rates rose?

The answer to that question

and the key to the sub-prime crisis
was another ''S'' word...

Instead of putting
their own money at risk,

sub-prime Ienders
immediateIy soId the Ioans on

to banks here, in and around WaII Street.

And the banks then
securitized the Ioans,

which means they bundIed them
together and then sIiced and diced them

so that at Ieast the top tier

couId be cIassified as tripIe-A-rated,
''investment grade'' securities.

And the banks then soId these securities
to investors 1 ,000 miIes away from Detroit

who were happy to pay

for just a few extra hundredths
of a percentage point in interest.

The key to securitization
was the distance

between the mortgage borrowers
in, say, Detroit,

and the people who ended up
receiving their interest payments.

By the time small towns in Norway
bought these securities,

they had no idea what was
really behind their investment.

FinanciaI aIchemy?

WeII, it was a business modeI
that worked beautifuIIy

as Iong as interest rates stayed Iow,
peopIe kept their jobs,

and reaI-estate prices continued to rise.

Unfortunately, none of these things
happened in Detroit.

ln 2006 alone,

sub-prime lenders
injected more than a billion dollars

into those areas of the city
where home values were already falling

and unemployment and mortgage rates
were already rising.

Where Detroit led,
other cities soon followed.

MEN READ OUT ADDRESSES

It's Thursday at noon
and I'm witnessing a twice-daiIy rituaI

here on the steps
of the Memphis Courthouse.

About 30 homes are about to be
auctioned off here, and the reason is

that the mortgage Ienders have forecIosed
on the homeowners

for faiIing to keep up
with their interest payments.

2926 South Radford Avenue...

Memphis is reaIIy becoming
ForecIosure City these days.

In the past five years,
something Iike one in four househoIds

has received a notice
threatening them with forecIosure.

Since the sub-prime mortgage market
began to turn sour

in the early summer of 2007,
shockwaves have been spreading

through all the world's financial markets,

wiping out hedge funds,
obliterating venerable investment banks

and costing the survivors
hundreds of billions of dollars.

Remember that pillar of the 1 930s
New Deal mortgage market,

Fannie Mae?

With its younger brother, Freddie Mac,
it grew to own or guarantee

around half of all American home loans.

ln September 2008, Fannie and Freddie

were effectively nationalised

to avoid a complete collapse
of the mortgage market.

Established Wall Street names
like Bear Stearns, Lehman Brothers

and Merrill Lynch have vanished.

Unlike savings and loans, this crisis
extends right around the world.

The four Norwegian municipalities of Rana,
Hemnes, Hattfjelldal and Narvik,

which had invested their citizens' taxes
in sub-prime backed securities,

are now sitting on an investment worth
roughly 1 5% of what they paid for it -

a loss of $1 00 million.

In the EngIish-speaking worId,

we tend to think of property
as a one-way bet.

The simpIest way of getting rich
is to pIay the property market.

In fact, you'd be a mug
to invest your money in anything eIse.

But the remarkable thing
about this supposed ''truth''

is how often reality gives it the lie.

For like stock markets,
property can soar in value

only to crash
in the most spectacular way.

ln Britain, between 1 989 and 1 995,

the average house price fell by 1 8%.

But that was nothing compared
with what happened here in Japan.

The view's good.

Very Austin Powers decor.
I'm Ioving that.

Oh, that's the boiIer.

OK, weII, Iet's cut to the chase.

How much is this pIace going to cost
if I put the money down now?

SPEAKS JAPANESE

So that wouId be cIose to $2 miIIion.

OK, that's Iike a miIIion...

a miIIion pounds buys me
this bijou apartment in Tokyo.

But this is a smart neighbourhood, right?

That may sound like a lot, but in recent
Japanese history, it's a real bargain.

Between 1 985 and 1 990,

property prices in Japan rose
by a factor of roughly three.

Banks fell over themselves
to ride this wave.

But it wasn't a wave.
lt was a bubble.

And in 1 990 it burst.

Prices here in Tokyo fell...

..by 7 5%,
wiping out all the previous gains.

This costs �1 miIIion now.

How much did it cost back in 1990,
at the peak of the property bubbIe?

- So roughIy three times the vaIue.
- Three times?

So cIose to...possibIy $6 miIIion.

�3 miIIion. Wow!

We think we've had a property crash in the
West, but this is a reaI property crash.

So no, property isn't
a uniqueIy safe investment.

House prices can go down
as weII as up.

And as assets go,
houses are pretty iIIiquid,

which means you can't unIoad them in
a hurry if you get into a financiaI jam.

And that, pretty much, is the downside

of the idea
of a property-owning democracy.

The question now
is whether we EngIish-speakers

have any business trying to export
our modeI to the rest of the worId.

The real flaw in the property-owning
democracy, as recent events have proved,

is that the housing market, like any asset
market, is prone to booms and busts.

But maybe there's another
way of looking at property -

as a means of unlocking new wealth

by providing collateral
for aspiring entrepreneurs.

Could property ownership be
the answer to the problems

of the world's poorest countries?

You've heard of sub-prime borrowers.
Well, welcome to a sub-prime country...

..Argentina,
where economic underachievement

has been a way of life for a century.

These slums on the outskirts
of Buenos Aires seem a million miles

from the elegant boulevards
of the Argentine capital's centre.

But are people here
really as poor as they look?

One man didn't believe so.

Peruvian economist Hernando de Soto
saw the shabby residences like these

in developing countries all over the world
as representing

literally trillions of dollars
of unrealised wealth.

The probIem is
that the peopIe who Iive here,

and in countIess shanty towns
around the worId,

don't have secure IegaI titIe
to their homes.

That's bad, because without
a IegaI titIe to property,

you can't use it as coIIateraI
to borrow money.

And if you can't borrow money,

then you can't possibIy raise the capitaI
you need to start a business.

Part of the trouble is that in poor
countries, it's a bureaucratic nightmare

to establish secure legal title
to property.

lt can take months - sometimes years -
longer than in the English-speaking world.

For Hernando de Soto,

breathing financiaI Iife
into aII this dead capitaI

is the key to providing the poor
with a more prosperous future.

The shanty town of Quilmes,
on the southern outskirts of Buenos Aires,

provides a natural experiment
to test De Soto's theory.

On one side of the town, there are some
of the most squalid slums l've ever seen.

But just a few miles away,
it's a very different story.

It was in the earIy 1980s
that a group of squatters here

Iobbied the government
for secure IegaI titIe to their homes.

They were successfuI, and those wiIIing
to pay a nominaI rent were granted Ieases

which, after 20 years,
converted into fuII ownership.

You can teII they're owner-occupied
by the fact that there's a fence,

the waIIs are painted,
there's even a rather excitabIe guard dog.

After aII, owners tend to Iook after
properties better than tenants.

And some of the owners here

are even reaIising the vaIue of their
properties by putting them up for saIe.

Yet there seems to be a flaw in
the theory, for owning their own homes

hasn't made it significantly easier
for people here to borrow money.

Just 4% of them
have managed to secure a mortgage.

The reaIity is that owning property
doesn't give you security -

it just gives your creditors security.

ReaI security comes
from having an income,

as the Duke of Buckingham
discovered in the 1840s,

as Detroit homeowners
are discovering today,

and as I suspect the peopIe of QuiImes
wouId probabIy agree.

For that reason,
it probabIy isn't necessary

for every entrepreneur in the deveIoping
worId to take out a mortgage on his home

or, for that matter, on her home.

In fact, property ownership may not be
the key to weaIth-generation at aII.

This is Betty Flores.

She runs a small coffee shop in El Alto,

a poor suburb of the Bolivian capital,
La Paz.

Betty is one of an increasingly large
number of women around the world

who have borrowed money
with no security at all.

She's the personification

of an extraordinary new financial movement
known as microfinance.

Did you borrow the money
to set up this coffee stand?

COMPANION TRANSLATES

SHE REPLIES IN SPANISH

Yes, to make the...the stand.
She borrowed money to make the stand.

Has she paid it aII back?

- She's paid it off a Iong time ago.
- Oh, I see.

Stories Iike Betty's point
to one of the great reveIations

of the microfinance movement
in a country Iike BoIivia.

It turns out that women are actuaIIy
a better credit risk than men,

with or without a home
as security for the Ioan.

It aII rather fIies in the face
of the conventionaI image

of the spendthrift femaIe.

These women are hardly what
you would call good financial risks.

They probably have
just a few dollars between them.

Yet with no security, they are being
lent money. Here in Bolivia,

lenders have come to realise

that creditworthiness
may in fact be a female trait.

Carmen Velasco set up Pro Mujer

to provide finance
to poor but enterprising women.

Because the loans
are unsecured by property,

the challenge is to get the women
to pay them back...but they do.

From day one, they have to know
that they have to repay on time,

that they have interest rates
and they have to save.

So it's a process of Iearning,
and at the beginning it's very difficuIt,

because they are not used to
handIing a Ioan.

But IittIe by IittIe, they get used to it,
and they feeI so proud when they repay.

I must say, I'm hugeIy impressed
by what I'm seeing here at Pro Mujer.

You can sense in this hive of activity

the transformation that microfinance
has brought into these women's Iives.

And behind me
you can see the bottom Iine...

women Iining up
to repay their Ioans punctuaIIy.

Maybe it's time to change that oId
catch phrase from ''as safe as houses''

to ''as safe as housewives''.

Of course, it would be a mistake
to assume that microfinance

is some kind of economic magic bullet.

Just giving out loans won't necessarily
consign poverty to the museums.

But then, betting everything
on the house won't do that, either.

Financial illiteracy may be rampant,

but somehow we were all experts
on one branch of economics -

the property market.

We all knew
that property was a one-way bet.

Except that it wasn't.

All over the world, it seems,
property prices are falling...

..from Memphis to Santiago,

from London to La Paz.

Encouraging home ownership
may weII create

a poIiticaI constituency for capitaIism.

But it aIso distorts the capitaI market by
persuading peopIe to bet the house on...

weII, the house.

PeopIe need to borrow money, of course,

to start up businesses
or to buy expensive assets.

But it seems dangerous to Iure them
into staking everything

on the far from risk-free property market.

From Buckinghamshire to BoIivia
to bonny ScotIand,

the key is to strike the right baIance
between debt and income.

And next week I'II be suggesting
that the entire worId economy

is in the process of getting
that baIance periIousIy wrong.