I’m neither surprised nor heartbroken…

Dave

Dave is a part-time blogger that writes about whatever suits him at the time.

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74 Responses

  1. Vikram Bath says:

    Is this a good thing?

    That’s the eternal question, right? How much nannying is appropriate? Most of us looking from our middle-class perches see this as a product that helps virtually no one and struggle to think of a situation in which someone would be better off for having the option.

    I think a person’s answer depends on how trusting they are of their own intuitions on the matter and how distrusting they are of the abilities of consumers to look out for their own interests.Report

    • LeeEsq in reply to Vikram Bath says:

      I prefer the term state paternalism, thank you. You don’t necessarily have to see restrictions or over bans on pay-day loans or lots of other behavior as a form of nannyism anymore than making other ethnically questionable business practices like selling snake-oil or committing fraud a form of nannyism. You could simply see pay-day loans as the sort of nefarious activity that people shouldn’t legally be allowed to engage in and want it banned on those grounds.Report

  2. J@m3z Aitch says:

    It’s easy to look at the cases that go bad and see how many people are harmed by payday lending. Those cases are also dramatic, so they make compelling stories. It’s harder to discern the cases where people are harmed by lack of payday lending, and they’re possibly not as dramatic.*

    *Dramatic is related to but not identical to severity of harm.Report

    • Dave in reply to J@m3z Aitch says:

      I’d also say that there are people that are one-time borrowers so they do use the loans for the intended purposes and get out as advertised. I don’t think they constitute more than 15% of total borrowers but that’s not a small number.Report

  3. zic says:

    Dave, is pad-day style loans a part of what’s being suggested for the USPS? I know basic financial services — debit cards, check cashing, etc. are included — but short-term lending? I don’t recall hearing that; so I’m not sure.

    Profits on short-term loans to low-income families seems to be a problem; squeezing water from a stone. That profit sets them further behind; while access to short-term capital is necessary to conduct their lives. So if the USPS could do this with no-interest or low-interest loans, maybe. But at the loan-shark rates of pay day loans? Doesn’t sound too smart to me. I’d prefer the micro loan model, and see the lending coupled with some sort of ongoing financial-planning/education service.Report

    • Dave in reply to zic says:

      @zic

      Small dollar loans are mentioned in the report and in Senator Warren’s op-ed. Some of the left-leaning sites focused on that as well.

      So if the USPS could do this with no-interest or low-interest loans, maybe. But at the loan-shark rates of pay day loans?

      There are a lot of issues with this, but I’ll give you a numbers example to demonstrate one of them.

      Assume a loan of $300 for one month at an annual interest rate of 12%. Using simple math, that’s a 1% monthly rate. 1% of $300 is $3. It will costs a lot more than $3 to originate that loan.Report

      • zic in reply to Dave says:

        I totally get that there are a lot of problems with low/no interest micro loans.

        But the payback may not be in the loans themselves; rather, the greater purchasing power they bring to low-income borrowers; in the multiplier of dollars floating in their communities that stems from the difference between a high APR interest loan and a low-interest loan.Report

      • DavidTC in reply to Dave says:

        There’s actually a solution hiding there. No one is going to issue loans that they can’t make *at least* a profit of $30 dollars on, or whatever the number is. It’s simply not worth it to even hire the staff to make them.

        The problem is, loan repayment is based entirely by interest. So if a bank want $30 for a month loan of $300, they have to charge the cartoonishly insane rate of 120%.

        What would actually make sense here is a flat fee, perhaps a percentage of the amount, to issue the loan, then a reasonable interest rate. The problem is, for some reason, we’ve decided that’s not the way we want banks to work.

        And, on top of that, there’s no reason banks couldn’t make this a *credit line*, instead of a loan. There’s a cost to setting up the account, yes, but there’s not really any more cost to letting them take out another $50 if they’ve already paid back $50.

        That is what a *responsible* banking entity would do, one that actually existed to fulfill the business needs of their customer. Sadly, such things do not exist.Report

      • DavidTC in reply to Dave says:

        Of course, now that I’ve said that, I realize it is almost exactly the same as my suggestion of a *reasonable* way to handle bank overdrafts:

        Whenever you go over, you get hit with (just one) $30 fee, *and* have to pay interest on your deficit. (Then you get a 30 day reset that counts as the same incident of overdraft before they can hit you with another fee.)

        When people do not have enough money to operate, it is entirely reasonable for banks to say ‘We will help you out, but be aware you have to pay us a bit extra when you get back on your feet’.

        The keyword there is a *bit* extra. $30, $50, as a one time fee for the help, whatever. Hundreds of dollars for a *loan* of $50 or $300 or whatever is completely and utterly insane and should not be allowed. It is the *job* of banks to loan people money.Report

      • Dave in reply to Dave says:

        What would actually make sense here is a flat fee, perhaps a percentage of the amount, to issue the loan, then a reasonable interest rate.

        Ok. Assume a $300 loan with a 1 month term. Assume a flat fee of $27 and one month of interest at 12% per year. That’s an APR of 120% using simple interest. If that’s too much, what do you propose?

        The problem is, for some reason, we’ve decided that’s not the way we want banks to work

        Certain kinds of loans do have upfront fees (mortgages). Banks don’t need this for larger dollar loans because they can price the upfront costs into the interest rate and capitalize those costs over the life of the loan. When the loan principal is high enough, the bank is generating sufficient interest income from the loan.

        A lot of borrowers prefer it this way.Report

      • DavidTC in reply to Dave says:

        Ok. Assume a $300 loan with a 1 month term. Assume a flat fee of $27 and one month of interest at 12% per year. That’s an APR of 120% using simple interest. If that’s too much, what do you propose?

        I think you misunderstood me. My point was not that charging $30 for the first month was bad. I have no complaint with banks saying ‘We must make at least a floor of $X dollars, or we’re can’t even pay a person to sit down at the desk with you.’

        And if the loan is only for one month, it obviously has to make that $X off the first month, because there are no other months, at least none intended.

        My point is it should be charging that much *for just the first month*. Or rather, have a fee. If the loan is not repaid, continuing to charge that much *each* month is incredibly abusive.

        I’m not proposing *any* sort of cap using a naively calculated APR that includes the processing fee. If I had to propose something, I’d allow a processing fee of 10%, (And assume the banks won’t make loans smaller than $300.) and a cap on yearly interest at, I dunno, 20%, which doesn’t include the processing fee.

        And need something about any late fee in there, also.

        Certain kinds of loans do have upfront fees (mortgages). Banks don’t need this for larger dollar loans because they can price the upfront costs into the interest rate and capitalize those costs over the life of the loan. When the loan principal is high enough, the bank is generating sufficient interest income from the loan.

        Well, yes, but we’re specifically talking about loans where the principal amount *isn’t* enough to cover the issuing of the loan at a normal interest rate, especially if it’s only for a month.

        The *correct* solution would be to simple charge a processing fee. The *current* solution is to charge an insane amount of interest.

        (Of course, when I say ‘normal interest rate’, I *am* aware that payday loans are issued to people with bad credit, and may, actuarially, require higher interest rates than most bank loans. I’ve got no problem with that.)Report

      • J@m3z Aitch in reply to Dave says:

        If the loan is not repaid, continuing to charge that much *each* month is incredibly abusive.

        Big win for deadbeats.Report

    • J@m3z Aitch in reply to zic says:

      So if the USPS could do this with no-interest or low-interest loans

      But wasn’t one of the goal to help USPS’s bottom line?Report

      • zic in reply to J@m3z Aitch says:

        I believe that was the original reason for suggesting the proposal.

        But I don’t seem much harm in considering it through other lenses, either. USPS has one great advantage — it’s all ready got an infrastructure that extends to every community. A second is that it’s a not-for-profit; and part of the problem here is that the for-profit markets aren’t earning enough profit to offer basic financial services to low-income earners.

        So I’m just pondering the other possibilities, good liberal who believes in fairness and all.Report

      • J@m3z Aitch in reply to J@m3z Aitch says:

        Fair enough, as long as we’re clear that we’re advocating something a little different.

        I’m a bit skeptical about that infrastructure claim, though. Speaking impressionistically, it seems to me USPS did some consolidating. Was this just central sorting facilities or was it counter-service facilities? And in my own rather low-income town, we have one post office and at least 8 bank/CU branches (a quick count off the top of my head).Report

      • Troublesome Frog in reply to J@m3z Aitch says:

        If we want to help USPS’s bottom line, I hear there’s a lot of money to be made in Herbalife.Report

      • Brandon Berg in reply to J@m3z Aitch says:

        USPS has one great advantage — it’s all ready got an infrastructure that extends to every community.

        So do banks, pretty much. See the report Creon Critic linked at economicinclusion.gov (eyeroll). Only a tiny percentage of people without bank accounts gave the inconvenience of the bank’s hours or location as a reason for not having one.

        A second is that it’s a not-for-profit; and part of the problem here is that the for-profit markets aren’t earning enough profit to offer basic financial services to low-income earners.

        That doesn’t sound right to me. It doesn’t make sense to me for a business to stop operating a profitable service just because it’s not profitable enough. Either it adds to the bottom line, in which case it’s worth keeping, or it doesn’t, in which case it’s not (putting aside losses incurred as part of a long-term strategy).

        Also, the cost advantage of non-profit management is hugely overstated in the popular imagination. It takes capital to operate a service. Unless a non-profit is being funded on donations, it has to borrow that capital. And the lenders are going to expect to be paid back with interest. So while it’s technically nonprofit, there’s still someone skimming off the top, namely the lenders.

        Which is to say, unless the Post Office is subsidizing its banking operations with profits from its other services or government funding, there’s no particular reason to think that it’s going to be able to do this any more cheaply than banks can.Report

      • Zane in reply to J@m3z Aitch says:

        @brandon-berg “It doesn’t make sense to me for a business to stop operating a profitable service just because it’s not profitable enough. Either it adds to the bottom line, in which case it’s worth keeping, or it doesn’t, in which case it’s not (putting aside losses incurred as part of a long-term strategy).”

        Businesses drop profitable services and products because there are opportunity costs associated with offering any particular service or product versus another. If providing profitable service Y uses 0.20 FTE time per location, and I can instead offer the more profitable service Z for that same 0.20 FTE time per location, I’m going to switch to Z (after evaluating transition costs, of course). I’m not going to hire an additional employee so that I can do both because Z only needs that 0.20 FTE per location. .Report

      • zic in reply to J@m3z Aitch says:

        @brandon-berg it’s well established that many poor communities are underserved when it comes to financial services. Here’s a study of NYC.
        http://www.nyc.gov/html/ofe/downloads/pdf/NFS_Compiled.pdf

        I can show you remote communities all over the nation with similar problems, too; it’s not just a rural thing.

        Yet those places do have post offices and mail delivery.Report

      • Dave in reply to J@m3z Aitch says:

        @brandon-berg

        Damn you. You’re making arguments I’m making elsewhere!!!

        Just kidding. I expect some overlap and it helps me get organized.

        @zic

        I’m not sold on the infrastructure argument. Payday lenders operate out of retail strip centers and in a lot of underserved communities, I’d venture an educated guess and suggest that a lender could find a small commercial property, a storefront in a strip center or a recently vacated bank branch that can be built out, occupied and open for business in a very short period of time.

        I think I’ve said too much.Report

      • Brandon Berg in reply to J@m3z Aitch says:

        @zic On page 27 of that report, it says they found no relationship between bank density in a zip code and the likelihood of respondents living in that zip code having a checking or savings account. The report says that they’re “underserved” because banks don’t offer services that fit their needs, not because banks are too far away.Report

      • Brandon Berg in reply to J@m3z Aitch says:

        Intuitively, at least, I find the idea of the Post Office being able to serve communities unserved by banks much more plausible in rural areas than in urban areas. Unlike the Post Office, banks don’t use urban branches to subsidize rural branches, so I would not at all be surprised to find rural communities with Post Offices but no banks. Cities are densely populated enough, though, that there’s pretty much always a bank nearby.Report

      • zic in reply to J@m3z Aitch says:

        @brandon-berg I’m not sure there’s a difference between ‘no bank,’ and ‘no bank that offers services that fit their needs.’ And as I said, there are rural places where there are literally no services without many a miles drive.

        What I did say is that those places are already served by the USPS; that there’s infrastructure already in place, including post offices and mail delivery.Report

      • Brandon Berg in reply to J@m3z Aitch says:

        @zic You said that the Post Office had an infrastructure advantage due to branch locations. If the problem is not “there’s no bank nearby,” but “the banks don’t offer the services I want,” then the Post Office’s supposed infrastructure advantage is irrelevant. If the banks can’t offer these services profitably despite having branches in the necessary locations, then there’s no particular reason to expect that the Post Office will be able to do so without losing money.

        Like I said, maybe the Post Office does have an infrastructure advantage in rural areas. But not in urban areas, and all the American literature I can find (in my admittedly cursory search) seems to be devoted to the urban “unbanked.” A search for rural unbanked just turned up a bunch of stuff from India.Report

      • J@m3z Aitch in reply to J@m3z Aitch says:

        @zic,

        That article says nothing about availibility (location) of banks. And it even emphasizes that sometimes banked and unbanked neighborhoods are side by side, which squashed the bank availibility argument.

        Unbanked is primarily a function of low income, at least in urban areas with mass transit. As far as rural areas go, I’m with Brandon.Report

      • zic in reply to J@m3z Aitch says:

        @jm3z-aitch and @brandon-berg

        I didn’t draw a correlation between lack of banks and the unbanked. I said:

        But I don’t seem much harm in considering it through other lenses, either. USPS has one great advantage — it’s all ready got an infrastructure that extends to every community. A second is that it’s a not-for-profit; and part of the problem here is that the for-profit markets aren’t earning enough profit to offer basic financial services to low-income earners.

        When Brandon drew that correlation, I responded that lack of services that fit the need was no different then lack of banking facility. And then I responded with two sources of information on the unbanked, both demonstrating my point.

        So this is pretty much a straw man argument, no?Report

  4. Zane says:

    The problem I see in payday lending is the business model you describe accurately here. At the same time, I see payday lending offering a service that people are interested in. There are other ways that that service can be profitable enough to continue without the rank exploitation involved. As I understand it (and I’d like to learn more) pawn shops can offer a less exploitative way for those with few resources to get ready cash but still allowing the lender to make a profit. I need money. I bring in my TV as collateral. If I can’t pay the loan back, the pawn shop keeps the TV and the loan is settled. My failure costs only my collateral, and the pawn shop is typically willing to deal with me again.

    Payday lending requires a clear asymmetry of information and economic savvy between the lender and most borrowers. Neo-classical economists would view this as a violation of important assumptions that are necessary to a well-functioning market.Report

    • Dave in reply to Zane says:

      @zane

      My guess is borrowers would rather go the route of a payday lender because the loan isn’t tied to specific collateral.Report

      • Zane in reply to Dave says:

        I suspect that’s true. But that’s also a result of the asymmetry of information and knowledge. The pawn shop route is far less risky and often less expensive, but I suspect consumers really aren’t aware of that.

        I wonder if the development of payday lending has hurt pawn shops? I suspect it varies by state due to regulations.Report

  5. Brandon Berg says:

    Even though the banks were able to offer lower fees than the typical non-bank payday lender, those fees still translated into triple digit APRs.

    Golly! It’s almost as though APR were a bad measure of the cost of a very short-term, very low-principal loan.Report

    • Dave in reply to Brandon Berg says:

      @brandon-berg

      You and I were on the same page on this issue in my original post and I apologize if I made it sound like we have any kind of disagreement here. To clarify, the fees don’t surprise me given the short-term and the low loan balances.Report

    • Zane in reply to Brandon Berg says:

      APR isn’t a great measure of very short-term, very low-principal loans. I think that regulations that require APR disclosure were made because 1) the numbers are shocking to middle-class consumers, and 2) legislators and regulators were attempting to provide information to borrowers that would make them better consumers of such loans.

      An alternative would be some disclosure of what the actual mean and median payback costs are for a loan of the amount the borrower wants and the mean and median numbers of additional rollovers on the initial loan.

      The problem is that it’s difficult to try to address information asymmetries in this way. The information is not easily understood and all consumers (not just poor ones) think they are above average and unlikely to be trapped in debt they cannot escape.Report

      • Dave in reply to Zane says:

        @zane

        It seems to me that transparency and disclosure are the primary issues that the CFPB will address once it makes the rules for non-bank payday lenders. I don’t think the CFPB will push as hard with the payday lenders as the FDIC and OCC did with the banks.Report

      • Zane in reply to Zane says:

        @Dave The problem I see is that it may not be possible to address the problem of information and knowledge asymmetry with transparency and disclosure in the case of payday lending. Not because consumers are dumb, but because regulators can’t figure out what kind of information will be useful and how that information is best communicated.

        And, if transparency and disclosure does result in consumers who make better informed decisions about payday lending (leading some to find other means of obtaining cash or “toughing it out” when the cash is needed in non-emergency situations), can the payday lending industry survive? You’ve already made a strong case that the industry relies on people rolling over loans and subsequently paying far more in interest and fees than the amount originally borrowed.Report

    • J@m3z Aitch in reply to Brandon Berg says:

      For political purposes it’s an ideal measure.Report

    • Mike Schilling in reply to Brandon Berg says:

      “I don’t know how to fix this. No matter how we rework the numbers, meth is just really bad for you.”Report

  6. Creon Critic says:

    Furthermore, the banks made their money the same way non-bank payday lenders make theirs – multiple back-to-back loans where the loan isn’t paid off but rolled over.

    So this indicates to me banks just wanted to get in on the action of exploiting a vulnerable population of oftentimes unbanked and underbanked individuals. So yes, it makes even more clear the state need to step in. And one route would be direct provision of some basic financial services via postal banking.

    I don’t see the market solving economic inclusion ( http://economicinclusion.gov/ ) problems anytime soon in any way that isn’t exploitative. The figures should be startling, combined unbanked and underbanked figures (2011): CA 25%, NY 29%, TX 40%.

    I look forward to the feature length post on the topic.Report

    • Brandon Berg in reply to Creon Critic says:

      And one route would be direct provision of some basic financial services via postal banking.

      Do you think that this can be done without subsidy, or are you saying that the government should subsidize financial services?Report

      • Damon in reply to Brandon Berg says:

        Oh yes, let’s have a subsidy!

        After all, when you incent something, you don’t get more of it. That’ll solve the problem of payday loans. Hell, if the subsidy is low enough, you just might get the middle class folks using them, if the subsidized rate is lower than what they can get at a bank. But then we can introduce means testing…and…and….Report

      • Honestly, I don’t know. I wouldn’t object to subsidy.

        Also, not that you agree(d) with it mind, but our regular banking system operates with considerable subsidies – up until like five minutes ago, the US taxpayer stood behind a variety of financial institutions to the tune of trillions of dollars of implicit and explicit guarantees.Report

      • zic in reply to Brandon Berg says:

        @creon-critic not to mention home-mortgage interest rate deductions, etc. While not a direct subsidy to the bank, one that helps greatly enlarge their potential pool of customers.Report

      • Damon in reply to Brandon Berg says:

        @Creon Critic

        To our everlasting detriment. Now that we’ve privatized the profiles and nationalized the losses, what incentive is there for rigerous lending polices? Nada. Thanks Bush and Obama.Report

      • Kim in reply to Brandon Berg says:

        Damon,
        Bullets.Report

      • @damon
        I think Greg Mankiw wrote a blog post in the midst of the financial crisis about being generous to the folks at Treasury and the Fed. Basically, as armchair pundits, or Mankiw, a Harvard econ professor, we can criticize at our leisure. But for those holding the policy positions, with the financial system seizing up around them, we should be willing to give them a bit of latitude. (Not meant to be a decisive argument, just something to keep in mind.)

        Moral hazard is all well and good, but could the US sustain the loss of multiple major financial institutions? Simultaneously, institutions on the scale of Citigroup, AIG, JP MorganChase going bust? And at what cost to the broader society?Report

      • @damon
        This may not be the exact Mankiw post I was thinking of, but near enough the point (emphasis mine),

        If I were a member of Congress…

        An economics professor I know who teaches at a leading business school (who prefers anonymity, as he is still untenured) sends me a critique of our profession and a plea:

        Dear Greg,

        This is a strange email, but these are strange times.

        I saw that your name was absent from the Shimer/Kashyap/etc initiated “letter” to the speaker and senate pro tempore. I don’t know if that is reflective of your view about the appropriate course of action or not. But as a person with a very large microphone at your disposal I wanted to share the following, which is informed by my experience in the private sector prior to graduate school.

        Let me preface this by saying that my personal view is that Ben Bernanke and Hank Paulson are very, very smart people who have better information than anyone who signed that letter, and that questioning their view to the point where it is used by senators to justify inaction is reckless at best–and ideologically driven white-anting at worst.

        But I digress. A LOT of payrolls get paid at the end of the month. The next for many companies is September 30. Three different people with hugely relevant knowledge said to me today words to the effect of: “Why don’t your economist buddies want [insert fortune 100 company/companies here] to be able to pay their employees on Tuesday. If Washington doesn’t do something now, they won’t be able to”. That just scared the hell out of me. I can go into more details if you like, but all of them involve the four horsemen of the apocalypse.

        As I say, I don’t know what your view is. And if it is that the problems with the “bailout” exceed the benefits then I obviously respect that.

        But I am terrified about the consequences of inaction–and our profession seems to be advocating just that. If you do favor action then please avail yourself of your microphone. If not, free disposal!

        Best,

        [name withheld]

        What is my opinion about all this? I am of two minds about the complex situation we find ourselves in.

        On the one hand, I share many of the concerns of the letter signers and other critics of the Treasury plan.

        On the other hand, I know Ben Bernanke well. Ben is at least as smart as any of the economists who signed that letter or are complaining on blogs and editorial pages about the proposed policy. Moreover, Ben is far better informed than the critics. The Fed staff includes some of the best policy economists around. In his capacity as Fed chair, Ben understands the situation, as well as the pros, cons, and feasibility of the alternative policy options, better than any professor sitting alone in his office possibly could.

        If I were a member of Congress, I would sit down with Ben, privately, to get his candid view. If he thinks this is the right thing to do, I would put my qualms aside and follow his advice.

        http://gregmankiw.blogspot.com/2008/09/if-i-were-member-of-congress.html?m=0Report

      • Damon in reply to Brandon Berg says:

        @Creon Critic

        I could be more supportive of TARP and such IF there were more repercussions for those who were responsible, but years later and after all that debt and printed money, few have been punished, the “too big to fail banks” are still too big to fail, and nothing signifiicant has changed, other than the tax payer and the debt taking it in the shorts.

        I’m sure Ben and his pals are smart folks. But the Fed and most every economist in academia, most politicians, and bureaucrats, are Keynesians, so there ain’t much “diversity of viewpoints” when they all get together and seek to work out a problem. The only response is: print more money/spend more money.

        And let’s not forget that anyone with half a brain that was paying attention knew that we were in a bubble.Report

      • Kim in reply to Brandon Berg says:

        Damon,
        When you’re at ZIRP, Keynes starts looking awful awful good (that said, my “liberal” economist friend would rather favor Mises). I doubt you really have that many folks that are Keynesian when you aren’t in a liquidity trap (please note that JR, who is a gov’t economist, disagrees with the liquidity trap formulation). Heck, I’m not so sure Krugman and Stiglitz would be Keynesian if we were above zero interest rates (though, as always, the bearish liberals are likely to look for bubbles, and want to counter them).Report

      • Damon in reply to Brandon Berg says:

        @kim

        I wouldn’t agree. Their behavior indicates Keynes. Most econ profs wanting to get tenure is going to go with the crowd and conform to the Keynes standard. The vast majority of politicians want to tax/spend. They aren’t Miseans.Report

      • Kim in reply to Brandon Berg says:

        Damon,
        Like these guys?
        http://dailycaller.com/2012/08/20/more-than-500-economists-5-nobel-laureates-back-romneys-economic-strategy/
        Econ, like the hard scientists, has traditionally had more Republicans than Democrats in it.

        With actual politicians, I agree, it is hard to judge whether people are Anything other than Gravy Train Pols. But, I suppose a good acid test would be to look at the 2002 recession, and say “who was asking for fiscal stimulus — as opposed to the “mostly successful” monetary stimulus?”Report

      • Troublesome Frog in reply to Brandon Berg says:

        Most econ profs wanting to get tenure is going to go with the crowd and conform to the Keynes standard.

        Econ is one of those academic fields that participates in the Grand Conspiracy to Keep My Preferred Ideas Out, like evolutionary biology or climatology, I guess.Report

      • Dave in reply to Brandon Berg says:

        @creon-critic

        Moral hazard is all well and good, but could the US sustain the loss of multiple major financial institutions? Simultaneously, institutions on the scale of Citigroup, AIG, JP MorganChase going bust? And at what cost to the broader society?

        No it could not have sustained those losses. The losses we experienced led to complete loss of faith in the system at that time. There was so much uncertainty given what happened to Lehman, AIG and the Reserve Fund that any company that would have attempted to raise capital in that environment would have been seen as weak.

        The broader cost was starting to happen when the run on money market funds threatened the viability of the commercial paper market. Had that market frozen, companies would not have been able to raise short term money like they typically do for things like payroll, cash management, etc. Companies would have done everything they could to horde cash. It was not unreasonable to think that companies would have attempted to negotiate with bondholders so they could delay payments. Imagine the trouble that could have caused in the credit default swaps market.

        General Electric was particularly exposed due to its mortgage business and the fact that it was the largest originator of commercial paper. No one was safe at this point. It was quite scary to think about.Report

      • Kim in reply to Brandon Berg says:

        Dave,
        Did you have a good pile of cash on hand?
        I know I did (and I was telling folks that they should, as well).
        Other folks bought land in the country and headed out there.

        The world economy might not have withstood a severe breakdown
        of the American financial system.Report

      • Damon in reply to Brandon Berg says:

        @Troublesome Frog
        No. Name me a some influential academic economists that are Misean? They are few and far between, if they exist at all.Report

      • Damon in reply to Brandon Berg says:

        @kim
        Excellent site. Sadly, the links in that link led to dead websites. However, I did look up the names of the named nobel winners. Two from the Chicago school, a more free market university, and a smattering of other schools (carnige mellon, etc.). It’s difficult to tease out how “non keyesian” any of these guys are, but I’ll go with the assumption that they all are less keyesian that the rest of the pack. I’ll conceed the two from the Chicago school are probably not keyesian, but I have no effecient way to determine the rest. Bare in mind that, while these economists were advocating a political postion that doesn’t necessarily have to be anti keyesian to be so.Report

      • Kim in reply to Brandon Berg says:

        Damon,
        The guy I know has worked with a bunch of decently sized stars, and was pretty positive about krugman’s work on the liquidity trap.
        His specific critique of Keynes was that he wasn’t interested in why there were problems, just how to fix them. Mises was far better at describing causes…

        But, tell me truly, were you in favor of the government sending “stimulus checks” to everyone?Report

      • j r in reply to Brandon Berg says:

        I’m sure Ben and his pals are smart folks. But the Fed and most every economist in academia, most politicians, and bureaucrats, are Keynesians, so there ain’t much “diversity of viewpoints” when they all get together and seek to work out a problem. The only response is: print more money/spend more money.

        Quantitative easing isn’t particularly Keynesian. Keynesians downplay the effectiveness of monetary policy and support more fiscal spending. The unconventional monetary policy being tried now is much more of a Monetarist thing.Report

      • Kim in reply to Brandon Berg says:

        jr,
        last I checked, even Krugman was mostly in favor of monetary solutions, where they’re feasible (aka when we’re not at ZIRP).

        How many true Keynesians do we have around? Does Zandi count?Report

      • Damon in reply to Brandon Berg says:

        @kim
        “But, tell me truly, were you in favor of the government sending “stimulus checks” to everyone?”

        Nope. But in all honesty, I’ve never been a big fan of the gov’t spending money. 🙂Report

      • Damon in reply to Brandon Berg says:

        @jr
        “Quantitative easing isn’t particularly Keynesian.” Nor Misean.Report

      • Troublesome Frog in reply to Brandon Berg says:

        @damon

        No. Name me a some influential academic economists that are Misean? They are few and far between, if they exist at all.

        My point is that there are explanations for the failure of a particular pet school of thought to gain traction that don’t require an appeal to widespread academic bias or anything like that. Sometimes fringe positions are fringe positions for a reason.

        It’s hard to keep good ideas down forever, so if your school of thought hasn’t made any inroads for decades, it may not be everybody else who has a problem.Report

  7. NewDealer says:

    There are just so many world views and seeing this issue and it seems like we just go around and around and around because everyone has their world view and is sticking to it without finding a middle ground or conceeding any validity to an opponent’s way of viewing the problem.

    I view this from the liberal position that payday loans are exploitative for reasons listed above and for numerous reasons. I’ve mentioned it before but I am not much of a cavaet emptor kind of guy I don’t see it as a great infringement on liberty to prohibit certain practices in the name of broader justice or health.

    Yet everyone has their version of the slippery slope while mocking their opponent’s slippery slope.

    Libertarians will obviously argue for a different worldview.

    This is not about payday loans in particular. I am just musing on ideological divides and worldviews in particular with Tod’s constant claims that ideology is the enemy yet ideology and worldviews seem to be hardwired into human nature and cognition. What’s the solution?

    It might very well be that everyone is right:

    1. Payday loans serve an underserviced community and done right and prudentially they can be an economic benefit.

    2. Payday loans are horribly exploitative and take advantage of a people with a lack of information.

    The question should then be is 1 > 2 or is 1 < 2 or 1=2 and then what policy to create. I tend to be on the 1 < 2 scale of the issue.Report

    • Dave in reply to NewDealer says:

      @newdealer

      There are just so many world views and seeing this issue and it seems like we just go around and around and around because everyone has their world view and is sticking to it without finding a middle ground or conceeding any validity to an opponent’s way of viewing the problem.

      If you think I did this in my 2013 post, please let me know, especially with respect to the last part of your comment.Report

      • NewDealer in reply to Dave says:

        I don’t think you did it in your post. The topic just seems like a good musing place for world views and Tod’s ideas of ideology is the enemy.Report

    • Damon in reply to NewDealer says:

      I think the important thing to recognize re ideology is that it should be tempered with common sense and other things. 1 IS > 2 but 2 CAN be a problem. How can we solve that with the least amount of red tape and interference in the business and people’s lives?Report