March 28, 2024

DealBook: Japan Calls for Action Against Citigroup and UBS

TOKYO — Japanese financial regulators called on Friday for penalties against Citigroup and UBS, accusing them of trying to manipulate interest rates at which they borrow from each other, broadening an international inquiry into some of the world’s biggest banks.

In two statements, the Japanese Securities and Exchange Surveillance Commission said employees of the banks’ local units had repeatedly tried to influence the Tokyo Interbank Offered Rate, or Tibor, by asking other banks for an advantageous rate. There was no evidence that the Tibor rate was actually manipulated, the commission said. However, both banks lacked internal controls to make sure employees did not try to manipulate rates, it said, and recommended that Japan’s Financial Services Agency issue censures.

Tibor and its equivalent in Europe, the London Interbank Offered Rate, are measures of how much banks charge one another for loans. They are an important barometer of the health of the market and the financial system, and affect the payments made by millions of homeowners and other borrowers. The rates are set daily by bankers’ associations based on data provided by member banks on costs of borrowing from one another.

In a statement, the Japanese brokerage unit of Citigroup said it was taking “necessary actions” to address regulators’ concerns. Jason Kendy, a spokesman in Tokyo for the Swiss bank UBS, said, ”We take these findings very seriously, and have been working with the S.E.S.C. and the F.S.A. to ensure all issues are addressed and resolved.”

Apart from the Tibor inquiry, Citigroup is facing potential penalties in Japan over possibly failing to fully explain product risk to retail customers, according to Bloomberg News.

Article source: http://feeds.nytimes.com/click.phdo?i=db586b500e4091bf87ce79f45c593ad2

Bucks Blog: Checking Eligibility for U.S. Mortgage Refinance Program

Last month the federal government announced changes aimed at making it easier for many borrowers who owe more on their home loans than their houses are worth to refinance into lower-cost mortgages.

There are several criteria that must be met to qualify for the updated Home Affordable Refinance Program, though. For instance, your current loan-to-value ratio (the amount of your loan, divided by the value of your home) must be greater than 80 percent.

The real estate Web site Zillow.com has introduced a calculator to help you sort through the requirements to see if you’re eligible. To use it, you’ll need some basic information, like the amount of your mortgage and the date you took out the loan. You’ll also need to know if the loan is backed by one of the quasi-federal housing companies, Freddie Mac or Fannie Mae (the tool can also help you figure that out).

The changes to the so-called HARP program are intended to help homeowners who are current on their loans but have been unable to take advantage of historically low interest rates by refinancing because they are “underwater” on their mortgages.

If you give the calculator a try, let us know if you found it helpful by posting in the comments section.

Article source: http://feeds.nytimes.com/click.phdo?i=71cac6515b5c1954b553a1a1c22d17fc

DealBook: United Technologies Said to Pursue Goodrich

8:45 p.m. | Updated

United Technologies is exploring a potential takeover of Goodrich, a maker of airplane components, people briefed on the matter said Friday, as the conglomerate seeks to grow through a major deal.

United Technologies, whose wide array of holdings range from Pratt Whitney to Sikorsky Aircraft to the Otis Elevator Company, has been studying several companies as potential deal candidates, some of these people said.

They added that as recently as Friday, the company was in talks to secure several billion dollars worth of debt financing. It is possible that United Technologies may decide not to strike a deal, these people cautioned.

United Technologies has exchanged communications with Goodrich over the last several months, another person briefed on the matter said.

A spokesman for United Technologies declined to comment. A representative for Goodrich was not immediately available for comment.

Shares in companies that were rumored to be potential United Technologies takeover targets, which also include Rockwell Collins and Textron, rose on Friday. Reuters first reported United Technologies’ efforts to secure deal financing.

Shares in United Technologies closed on Friday at $75.50, down 11 cents, giving it a market value of $68.6 billion.

A deal by United Technologies would be the latest by a company seeking growth through acquisitions, at a time when companies have been hard-pressed to increase their profits internally. Financing remains relatively cheap for borrowers with strong credit ratings, while many companies have been holding billions of dollars in cash on their balance sheets since the end of the financial crisis.

United Technologies had $5.4 billion in cash and short-term investments on hand as of June 30.

Shareholders have often rewarded the deal-as-growth strategy this year. Several corporate buyers have seen their stocks rise on the day a deal is announced. That is an unusual reversal, since investors usually sell shares in an acquirer for fear that it is overpaying for a company.

A deal for Goodrich, which has a market value of $11.6 billion, would be the largest by United Technologies in recent memory. The conglomerate’s biggest deal over the last 12 years was the $3.8 billion takeover of Sundstrand, another airplane parts maker, in 1999, according to the data provider Capital IQ.

United Technologies’ top executives have made no secret that they consider acquisitions a key growth strategy. “You’re going to see us put our balance sheet to work, you’re going to see us put more cash to work on the M.A. side,“ Gregory J. Hayes, the company’s chief financial officer, said in July, according to Reuters.

The company has been an active deal maker over the last three years. In 2009, it purchased General Electric’s fire alarm and security systems unit for $1.8 billion.

In 2008, it began a hostile bid for Diebold, a maker of automated teller machines and security systems, that went on for months but called off its efforts after the onset of the financial crisis. Since then, it has shied away from unsolicited offers.

United Technologies’ shares rose 10.3 percent over the last 12 months ended Thursday.

Should it strike a deal for Goodrich, United Technologies would acquire a big maker of aircraft landing gear, as well as engine maintenance equipment and electrical systems for planes.

The company traces its roots to B. F. Goodrich, a former Civil War surgeon who founded a rubber company in Akron, Ohio, in 1870. It grew to become one of the biggest tire makers in the world, eventually diversifying into the manufacturing of components for commercial and military aircraft.

It is currently based in Charlotte, N.C., and has 25,600 employees. The company no longer has a relationship to the B. F. Goodrich tire brand, having sold that to Michelin in 1988.

Last year, Goodrich reported nearly $7 billion in revenue and $578.7 million in net income. The company’s shares rose 22.8 percent over the last 12 months ended Thursday.

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S.&P. Cuts U.S. Debt Rating for First Time

The company, one of three major agencies that offer advice to investors in debt securities, said it was cutting its rating of long-term federal debt to AA+, one notch below the top grade of AAA. It described the decision as a judgment about the nation’s leaders, writing that “the gulf between the political parties” had reduced its confidence in the government’s ability to manage its finances.

“The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenge,” the company said in a statement.

The Obama administration reacted with indignation, noting that the company had made a significant mathematical mistake in a document that it provided to the Treasury Department on Friday afternoon, overstating the federal debt by about $2 trillion.

“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokeswoman said.

The downgrade could lead investors to demand higher interest rates from the federal government and other borrowers, raising costs for governments, businesses and home buyers. But many analysts say the impact could be modest, in part because the other ratings agencies, Moody’s and Fitch, have decided not to downgrade the government at this time.

The announcement came after markets closed for the weekend, but there was no evidence of any immediate disruption. A spokesman for the Federal Reserve said the decision would not affect the ability of banks to borrow money by pledging government debt as collateral, a statement that could set the tone for the reaction of the broader market.

S. P. had prepared investors for the downgrade announcement with a series of warnings earlier this year that it would act if Congress did not agree to increase the government’s borrowing limit and adopt a long-term plan for reducing its debts by at least $4 trillion over the next decade.

Earlier this week, President Obama signed into law a Congressional compromise that raised the debt ceiling but reduced the debt by at least $2.1 trillion.

On Friday, the company notified the Treasury that it planned to issue a downgrade after the markets closed, and sent the department a copy of the announcement, which is a standard procedure.

A Treasury staff member noticed the $2 trillion mistake within the hour, according to a department official. The Treasury called the company and explained the problem. About an hour later, the company conceded the problem but did not indicate how it planned to proceed, the official said. Hours later, S. P. issued a revised release with new numbers but the same conclusion.

The company did not return a call for comment.

In a release announcing the downgrade, it warned that the government still needed to make progress in paying its debts to avoid further downgrades.

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” it said.

The credit rating agencies have been trying to restore their credibility after missteps leading to the financial crisis. A Congressional panel called them “essential cogs in the wheel of financial destruction” after their wildly optimistic models led them to give top-flight reviews to complex mortgage securities that later collapsed. A downgrade of federal debt is the kind of controversial decision that critics have sometimes said the agencies are unwilling to make.

 On the other hand, S. P. is acting in the face of evidence that investors consider Treasuries among the safest investments in the world. Yields rose before the Congressional deal on fears of default and a possible downgrade. But after a deal was struck, yields sank as money poured into Treasuries as a safe haven from sharply falling stocks and the turmoil of the European debt markets.

 On Friday, the price of Treasuries fell sharply in heavy selling, and yields rose, reversing the moves of recent sessions. The 10-year Treasury note ended the day with a yield of 2.56 percent.

The United States has maintained the highest credit rating for decades. S. P. first designated it AAA in 1941, reflecting a steadfast belief that the richest nation in the world would not default on its debt payments. The rating was also bolstered by the role of the dollar as the world’s leading currency, ensuring that demand for American debt securities would remain strong in spite of burgeoning deficits.

“What’s changed is the political gridlock,” said David Beers, S. P.’s global head of sovereign ratings, in an e-mail several days before a debt ceiling agreement was announced. “Even now, it’s an open question as to whether or when Congress and the administration can agree on fiscal measures that will stabilize the upward trajectory of the U.S. government debt burden.”

Experts say the fallout could be modest.

The federal government makes about $250 billion in interest payments a year, so even a small increase in the rates demanded by investors in United States debt could add tens of billions of dollars to those payments.

In addition, S. P. may now move to downgrade other entities backed by the government, including Fannie Mae and Freddie Mac, the government-controlled mortgage companies, raising rates on home mortgage loans for borrowers.

However, because Treasury bonds have always been considered perfectly safe, many rules prohibiting institutions from investing in riskier securities are written as if there were no possibility that the credit rating of Treasuries would be less than stellar.

Banking regulations, for example, accord Treasuries a special status that is not contingent on their rating. The Fed affirmed that status in guidance issued to banks on Friday night. Some investment funds, too, often treat Treasuries as a separate asset category, so that there is no need to sell Treasuries simply because they are no longer rated AAA. In addition, downgrade of long-term Treasury bonds does not affect the short-term federal debt widely held by money market mutual funds.

In other words, almost no one would be precluded from investing in federal debt, and even the ratings agencies have concluded that few investors would walk away voluntarily.

Eric Dash contributed reporting from New York.

Article source: http://feeds.nytimes.com/click.phdo?i=38f85b4dc2a3d77f78fe41cb83e5e4d7

Mortgages: Changes in Refinancing

Two-thirds of mortgages being written these days are refi’s, according to the Mortgage Bankers Association. Assuming your credit scores are strong, deciding whether to jump in as well may be a matter of numbers; there are plenty of Web calculators to test the what-ifs, like the ones at HSH.com. Interest rates are teasing new lows, at 4.49 percent, on average, as of Thursday for a 30-year fixed-rate loan, according to Freddie Mac.

If you grabbed a record-low rate late last year, or almost-as-low rates in mid-2009, you may decide to sit this one out. Otherwise, the average outstanding home loan still carries an interest rate of about 6 percent, according to Frank Nothaft, the chief economist at Freddie Mac. “It continues to be an attractive time for people to refinance if they haven’t taken advantage of it already,” he said.

Market changes are especially striking for those borrowers with loans taken out before the 2008 financial crisis. “They’re shocked at how much less the house is worth; they’re shocked at how much documentation we have to get; and they’re shocked at how much they have to sign,” said Matt Hackett, the underwriting manager at Equity Now.

First, don’t assume you’re going to take cash out. In the first three months of 2011, just a quarter of refi borrowers did so, according to Freddie Mac. On average, 62 percent of refi’s over the last 25 years involved getting cash out.

About half of borrowers now keep their loan balance about the same, and 21 percent cut that balance. Some want to cut debt, but others are putting in cash because the dwindling value of their home means they don’t have 20 percent equity, and the extra cash increases equity, the way a bigger down payment does.

Others want to get their loan below $417,000 to take advantage of the lowest rates, according to Philip Merola, an executive vice president of Mountain Mortgage Corporation, a lender in Union, N.J.

People still do take cash out for things like college tuition, Mr. Merola said. But the equity has to be there — don’t expect a loan for more than 80 percent of the current appraised value.

And if you don’t have equity? If your loan is insured by the Federal Housing Administration, consider an F.H.A. Streamlined Refinance, which may not require a new appraisal. There’s also the government-backed Home Affordable Refinance Program, designed for loans that have little or negative equity.

Also bear in mind that you’ll need more documentation. Expect to document all income, assets and debts. In fact, you can expect the lender to go beyond the application, said Michael Moskowitz, the president of Equity Now. Borrowers sign an Internal Revenue Service Form 4506, which allows a lender to get tax returns.

In the past, lenders used returns for quality control after closing, if they looked at them at all, Mr. Moskowitz said. But now his company reviews all tax returns. For instance, he said, a money-losing side business will show up, thus reducing the borrower’s income.

Finally, remember that disclosure forms have changed. As of last year, lenders were required to provide a revised Good Faith Estimate form aimed at making terms more transparent. One key update: In the past, some closing-cost estimates were fairy tales. The new form specifies fees that can’t change between estimate and closing, fees with changes capped at 10 percent, and others that can grow more.

Mr. Hackett warned that some lenders, when they haven’t technically accepted a loan application, fudge on estimates with informal “initial fees worksheets” they provide. Some people think they have a good-faith estimate in such cases, he said. But fees aren’t capped.

One thing that hasn’t changed, said Mr. Nothaft: “It will still come across as a thick wad of paper with a lot of forms to sign.”

Article source: http://feeds.nytimes.com/click.phdo?i=f9daedf0b662807727c826844efbdb5c

Mortgages: Financing Foreclosed Homes

Most of what people call foreclosed homes are being sold by lenders saddled with a property because there were no other takers at the foreclosure auction. The borrower on such a house owes more on it than the house is worth. These are known as R.E.O. houses, short for “real estate owned” on a bank’s balance sheet.

Distressed properties — those sold at a discount — made up 40 percent of resales in March, up from 35 percent a year earlier, according to the National Association of Realtors. (That includes not only R.E.O. but also short sales, in which a buyer pays less than the loan balance, once it gets the bank’s blessing.) Though not a record, it is a huge portion of sales compared with what used to be considered normal.

Where the money comes from depends on the buyer and the property. If a house was in relatively good physical shape — with water and power turned on — it could be eligible for standard financing.

Otherwise, right now, all-cash sales are at their highest level ever — 35 percent of total sales, according to the Realtors. Cash buyers, often investors who don’t plan to live in the home, “are a major player in the R.E.O. market,” said Tom McGiveron of Realty Connect in Hauppauge, N.Y., a real estate agent who specializes in foreclosures on Long Island. “Asset managers want to move their portfolios as fast as possible,” he added.

For would-be owner-occupants without cash, the federally insured 203(k) loan is key, said Mark Yecies, the president of SunQuest Funding in Cranford, N.J. Borrowers can roll projected rehab costs into the loan.

As Mr. McGiveron put it, “Since most R.E.O.’s are as is, and the heat, plumbing and electric are turned off frequently, a 203(k) loan is necessary to cover the borrower and the lender — a lender will not lend money on a home where the major heating and electrical systems are not operable.”

Buyers generally hire an independent consultant certified by the Federal Housing Administration to review contractor cost estimates and architectural plans for things like whether the work will bring the property up to minimum standards while not going overboard on improvements.

“In other words,” Mr. Yecies said, “if you’re buying a home in Newark and you want to put in a Viking range, it’s not going to happen.”

Yet in a higher-priced neighborhood like Short Hills, N.J., he added, you probably would be able to borrow for more upscale appliances. The F.H.A. appraiser takes the consultant’s report into account when reviewing a property and determining how big the loan can be.

Not all R.E.O. properties are eligible, Mr. Yecies pointed out. For instance, a partially built house that has never had a certificate of occupancy requires a construction loan of the kind that a commercial developer would use.

Mr. Yecies estimated that an F.H.A-certified consultant would cost $500 to $1,200, depending on the extent of the repairs and the number of units in a property.

The interest rate on a 203(k) loan is about a quarter of a percentage point higher than on a standard F.H.A.-insured loan, and a buyer also can expect to pay 1 or 2 points, he said. (A point is an upfront charge equivalent to 1 percent of the loan amount.)

As with other F.H.A.-backed loans, down payments may be as low as 3.5 percent, and loan limits apply. Currently, most F.H.A. loans in the area are capped at $729,750. (Energy-efficient rehabs may be eligible for more.)

Despite the extra steps, these loans work, Mr. Yecies said. “We’re doing a half dozen a month here,” he said. “They can be done in a normal period of time, as long as everyone cooperates.”

Article source: http://feeds.nytimes.com/click.phdo?i=bc2123a147ca22483533bff09e5cf24c

Mortgages: Dealing With Higher Costs of F.H.A. Loans

A home buyer with a down payment of less than 20 percent generally has to pay up in some other way to ensure that lenders are protected against default. (This requirement slipped during the housing boom; see “financial crisis.”)

The most popular low-down-payment loans have been those insured by the Federal Housing Administration. Borrowers can make down payments as low as 3.5 percent; they pay an upfront fee (often rolled into the loan) and a monthly premium. An alternative is private mortgage insurance, or P.M.I., available to those who put down at least 5 percent.

As the name implies, the insurance is provided by a private company rather than the government. Premiums can be paid up front, each month, or in a mix. The amount of the premium drops as the size of the down payment rises. Use of these loans has fallen off sharply in recent years as the P.M.I. companies tightened standards and F.H.A. gained popularity.

Effective on April 18, F.H.A.’s annual premium on a 30-year loan rose to 1.1 or 1.15 percent of the loan value, up from 0.85 or 0.9 percent. (The higher rates are for down payments below 5 percent.) On a $400,000 loan with the minimum down payment, that’s $83 more per month.

The monthly fee is in addition to the up-front premium, equal to 1 percent of the loan value. Which loan to go with may depend on the answer to a question: “how long is it going to take to recoup that 1 percent up front?” said Matt Hackett, an underwriting manager at Equity Now, a direct mortgage lender based in New York.

In the first quarter, 17.7 percent of new loans were F.H.A., according to Inside Mortgage Finance, an industry data provider, while P.M.I. had a 5.4 percent market share. Applications for F.H.A. loans jumped 20 percent in the month preceding the price increase, then tumbled when it went into effect, according to the Mortgage Bankers Association.

In addition to lower minimum down-payment requirements, F.H.A. has laxer rules for credit scores and debt-to-income ratios. Right now, it also has lower interest rates, said Thatcher Zuse, the president of Sound Mortgage, a lender and broker in Guilford, Conn. “Almost as a rule, as the rates stand right now, the less equity you’re putting down, the better the F.H.A. deal becomes.”

Mr. Zuse ran the numbers for two buyers able to put 5 percent down. For a buyer with a 780 credit score, the cost difference between F.H.A. and P.M.I. was negligible, but a buyer with a 650 score could save about $200 a month on a $400,000 F.H.A. loan.

There are circumstances peculiar to the New York area that could push a borrower to F.H.A., said Robert Donovan, a Bank of America senior vice president and regional sales executive. For one thing, the region has a high concentration of two- to four-unit homes, popular with buyers who want to live in one apartment while renting out another. Loans in such cases are treated much more liberally by F.H.A., he said.

The same goes for new-construction condominiums of any size: until more than half a project is sold, conventional loans may not be an option. F.H.A.-backed loans are available even if as little as 30 percent of the project is sold, Mr. Donovan said.

In the broadest terms, for someone with no special circumstances, great credit and a more-than-minimum down payment — say, 10 or 15 percent — P.M.I. may turn out to be the better deal. Someone with weaker credit or less cash may find F.H.A. works better.

To generalize, “if you qualify for P.M.I.,” Mr. Hackett said, “you should usually choose the P.M.I., because it is going to be less.”

Circumstances vary, though, so ask any lender to produce a written comparison, said Michael Moskowitz, the president of Equity Now, “just to keep the lender honest.”

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Economix: A Fresh Look at Fighting Global Poverty

Book Chat

Dean Karlan, a Yale economist, and Jacob Appel, a former field researcher in West Africa, are the authors of a new book about fighting global poverty, “More Than Good Intentions.” Richard Thaler has described the book on the Nudge blog, and Tyler Cowen has called Mr. Karlan “one of my favorite young economists.”

Dutton

I quoted Mr. Karlan in a New York Times Magazine article about economics experiments, and I explained his general approach to economics in a column about some of his colleagues.

My conversation with Mr. Karlan and Mr. Appel follows.

Q. You write that microcredit — small loans to poor people — “has generated more enthusiasm and support than perhaps any other development tool in history.” You agree that microcredit has great potential, but you also suggest that it’s been oversold. What’s known at this point about how it does, and does not, improve people’s lives?

Mr. Karlan: Rigorous evidence about the impacts of microcredit on borrowers’ lives is just beginning to roll in, and the picture for donors is mixed. The three major randomized evaluations of microcredit conducted thus far have not found it to be a universal remedy for poverty, as some advocates claim — but we have observed positive some impacts, at least for some people.

The first major revelation is that, in practice, microcredit often looks and feels very different from the standard story proponents tell: a poor, enterprising woman takes a loan, grows a tiny business into a small- or medium-sized enterprise, and lifts her family out of poverty.

Some of the most positive impacts found yet, in an evaluation conducted in South Africa, actually came from microloans made to employed individuals rather than microentrepreneurs, and at very high interest rates. I have found that most microcredit professionals hate this result, since this version of microcredit bears little resemblance to the traditional version that people are asked to support with donations. But this worker-focused version of microcredit does seem promising.

In this instance, it increased income and reduced poverty. It worked by helping borrowers weather bad times, for example by fixing a broken vehicle needed for work, or by sending money to a sick relative in a rural area instead of leaving work to tend to the relative.

Q. I imagine many people who work in this area believe their own microcredit program is more successful than the ones you and other researchers have evaluated. And they probably have some reasons for believing so. What would you say to them?

Dean Karlan, co-author of Michael Marsland Dean Karlan, co-author of “More Than Good Intentions.”

Mr. Karlan: Yes, a common retort we hear from advocates is that we have simply evaluated the wrong microcredit programs. We have two responses to this: first, many important features do appear fairly similar across microlenders, although we certainly agree programs are not entirely uniform. Second — let’s evaluate what you think is the special sauce.

Some studies under way now are doing just that, trying to evaluate programs that incorporate business training and health training, for instance. We will see in due time whether these distinctive program features really translate into impact.

A final point I believe is key: many investors, not donors, are pouring their money into large microcredit institutions. Indeed, many microcredit organizations are making a fair amount of profit. Given the positive, albeit not overwhelming, impacts found, I encourage investors to invest in microcredit. But they should be aware their investments, while helpful, are not about to solve poverty. Their rhetoric, too, needs to be toned down a bit. This is not the “bottom of the pyramid” solution to solve world poverty.

And I encourage donors to seek out either ideas proven to be more effective, or to support alternative models of microlending accompanied by rigorous evaluations so that we can find the approach that is most worthy of donor money.

Q. What are those ideas — the ones that so far have been proven more effective?

Jacob Appel, co-author of Adam Zucker Jacob Appel, co-author of “More Than Good Intentions.”

Mr. Appel: There are a few that stand out. In the area of finance, microsavings, a less-celebrated financial instrument for the poor, is emerging as a powerful tool. Specifically, commitment savings accounts, which allow savers to (voluntarily) restrict access to their deposits until they reach a time or balance goal, have stood up to rigorous testing. For example, in the Philippines we saw savings increase by 80 percent for everyone offered such an account, and we saw women gain more power in the household as a result of getting access to their own commitment savings accounts.

In education, there are two powerful ideas. First, deworming — this one is practically a no-brainer. In communities that suffer from intestinal parasites, providing free deworming medication at schools for about 50 cents per student per year can reduce absence rates by about a quarter (not to mention the health benefits from eradicating the worms!), and also lead to higher income later in life.

Second, remedial education to help struggling students: getting kids into schools is a start, but sometimes student achievement stagnates despite increased attendance.

The caveat here is that, with hundreds of rigorous evaluations going on now around the world, we are still learning. Of course, action needs to be taken; we can’t just sit back and wait for all the research to be completed. Dean’s group, Innovations for Poverty Action, just started a fund that keeps zero overhead or administrative charges and passes on 100 percent of all donations received to projects implementing proven ideas. Another source of good ideas is Givewell, a group that uses research and organizational assessments to make recommendations about which groups can most effectively use donations.

Q. You also write about programs that give money to people in exchange for certain behavior, like enrolling a child in school. Oportunidades, in Mexico, was the pioneer here. They’ve also shown to work in many settings. What about in the United States — have any worked here? Could they?

Mr. Appel: Yes, conditional cash transfer programs like Mexico’s Oportunidades have indeed been tried here in the U.S., with some success. A notable example is a series of education-oriented programs evaluated by Harvard economist Roland Fryer in the past few years. These offered cash incentives to students for achievements at school, like $50 for getting an A on a test, or $2 for reading a book.

The results were mixed. The findings suggest that incentives for behaviors students control immediately and directly (like showing up or paying attention in class) work better than incentives for outcomes that the students influence but do not control directly (like test grades). Happily, the process of modifying and rigorously testing these programs is ongoing.

Article source: http://feeds.nytimes.com/click.phdo?i=24acd5095b7436e40f6bfd448cacb4fe