Payday Lending HB 545

[Stoock]

Ohio house Bill 545 passed Wednesday 29-4.
This will cap interest at check cashing-type outlets at 24%.
The no votes were Senators Buehrer, Mumper, Seitz and Schuler. Because there were some minor changes, House concurrence is expected next week. The bill will then go to the Governor for signing.

Thanks to Ohioans for Responsible Lending, an outgrowth of The Cleveland Diocese's Wayne, Asland & Medina (WAM) Counties Social Action offices.

All good things come from the grassroots.

[Macpherson]

Cui Bono? Seems like it would be those politicians and the credit industry.

and people who don't fully understand how the rates are structured and get sucked into debt up to their eyeballs without going through the credit industry.

[Duemellon]

So, it is better to create laws to prevent the exploitation of the impulsive & uneductated than to create programs to educate & address compulsive spending.

Gotcha.

Sure, what you've done is capped the syphon on one drain but you still left the pool of victims waiting to be tapped into by a new spout.

[the happy prole]

Well golly, another dumb law that can only hurt those who need the service

Name the people who truly need the service. Seriously. Who are they?

[the happy prole]

Since you care so much about these poor people, how about we raise minimum wage or just outright give them some cash?

[Predot listener]

The nice thing about the payday lending industry is if you needed the service this week, those robust interest rates will guarantee you need it again two weeks from now.

[frizgolf]

Since you care so much about these poor people, how about we raise minimum wage or just outright give them some cash?

Do I smell a straw man?

[the happy prole]

No. He said this was going to be a horrible blow to poor people, not me.

I'm not suggesting we hand every poor person millions of dollars but if you need say, $500 to get you through the next payday there are more efficient ways to help you out than lending you the cash at a ridiculous interest rate.

The most modest proposal I guess would be to cap the loan rate at 20% and then the government would underwrite part of the loan so that the lender can make a decent profit at a 20% rate instead of 24%. Of course that's how we got in trouble in the first place, and I bet no one would agree with that more than Nick.

The reason against capping interest is because if people want to borrow at 24% we should let them. It's their money, and if they go bankrupt trying to pay it all back that's their business. In the long run, the market is more efficient. It's possible that the increase efficiency does the "rising tide" thing and improves the lives of the poor.... but I highly doubt it. The population of borrowers here is far too small to make an impact.

[classicgrrl]

The nice thing about the payday lending industry is if you needed the service this week, those robust interest rates will guarantee you need it again two weeks from now.

per usual, no one listens to logic.

[REMgirl]

This is an informative website:

http://www.creditinfocenter.com/pressreleases/LegalLoanSharks.shtml

The payday lenders are essentially legal loan sharks. I agree that it would be best if people were informed about lending practices like this, as well as those furniture rental places where you end up paying five times what you're renting is actually worth. Maybe we need to create a high school course, mandatory for graduation, that explains basic finance and money management. It might make stuff like this less of a problem. Maybe.

[classicgrrl]

This is an informative website:

http://www.creditinfocenter.com/pressreleases/LegalLoanSharks.shtml

The payday lenders are essentially legal loan sharks. I agree that it would be best if people were informed about lending practices like this, as well as those furniture rental places where you end up paying five times what you're renting is actually worth. Maybe we need to create a high school course, mandatory for graduation, that explains basic finance and money management. It might make stuff like this less of a problem. Maybe.

poor is poor whether you know about money management or not. makes no difference if you've got no money to manage.

[REMgirl]

Sadly true. But one can't get away from being poor if you don't know how to manage whatever money you get. :(

[Duemellon]

poor is poor whether you know about money management or not. makes no difference if you've got no money to manage.Having no money to manage, living impulsively, or having no opportunities, are independent of each other but mesh together to form a mess.

Payday loans are only good for you if you are someone who is responsible with your money. If you aren't, then how could it matter how much money you had/have... you're still irresponsible with it.

[jneale]

I've had EEs get into trouble with them & I've had other EEs be saved by them

there are people who cannot utilize banks and have no reserves

I can tell you about 2 EEs that used them & it worked - one had zero $ & the tire blew out on her car - she used them to buy a new tire - it got her through till the next check

In the other case someone goofed & bounced 2 checks - the bounced check fees she'd face were wayyy more than the charge @ the check cashing place

I would have rather read that someone is doing something about bank fees vs. these cash places.

To be fair and balanced - I had an EE going from one company to the next never paying them off in full - it got ugly.

While I don't think they are ultimately good - I don't think they are as evil as people make them out to be.

[Macpherson]

i think the money management education issue is separate from regulating the lenders as well.

just because people are in a pinch and need money shouldn't be a reason to take advantage of a situation by charging 300%-1000% interest.

these places don't solve problems, they create larger ones. if they needed $500 to pay to get their car fixed, what happens when they can't payback the $1500 they owe the lender?

[Duemellon]

I used them a few times in my life due to bill pressures & stuff like that. I was responsible with my money & didn't get stuck in it.

As JNeale was saying, & I was saying before:It depends on if the person is responsibleHowever, the education I'm talking about isn't about basic math or what's the capital of Maine, but an education enough to measure risks, plan ahead, personal economics over a stretched-out period with focus on urgency & long term results. Sometimes I think people use "education" too broadly & miss what education can look like.

[the happy prole]

I can tell you about 2 EEs that used them & it worked - one had zero $ & the tire blew out on her car - she used them to buy a new tire - it got her through till the next check

I think there are a (very) few situations where people genuinely need the cash in short term pinch and they can come in handy. However, those occasions do not occur nearly frequently enough that there needs to be a check-cashing place on every block in certain areas of the city.

Basically, it's loan sharking to people with addiction issues or who are extremely unsophisticated with money.

I'd agree that they are not as evil as some people think, but they also aren't good. I don't see why they couldn't have settled for a "reasonable" APR of 100% or something to allow a few such places to stay in business while getting rid of the ones that are outright preying on the poor.

[markalot]

We must protect the stupid people from themselves!!!

[the happy prole]

We must protect the stupid people from themselves!!!

Arguably--and I'm not convinced of this, but hear me out-- what you might actually be doing is protecting yourself from stupid people.

When people borrow stupidly and run up debts they can't pay back, the economy gets messed up. In fact, that's why our economy is taking a hit right now. Greedy and/or stupid people borrowed too much money on balloon mortgages and greedy and/or stupid people were willing to lend it to them. Now you know I've bitched about this situation, so it's not just me playing bleeding heart liberal.

Still, the fact remains that these idiots tanked the economy and now we are between a rock and a hard place where no matter how repugnant it might be, we have to bail out some portion of stupid borrowers and Bear Stearns just to preserve our own assets.

In order to avoid this situation, I'm willing to say that I really don't care about the poor. You might need that 300% interest loan desperately. Too bad, because I don't think you can pay it back. And I don't think the guy loaning you the money can absorb the risk. What's gonna happen is it won't work out and then you'll be looking at me to bail you all out. I am going to save you from your own stupidity for my own self-interest.

So there's a sort of balancing act where you wish that people would not be so damn stupid and you don't want to help them... but in the end sometimes it's better to be practical than take a moral stand. Arguably.

But if you disagree, the other side of it is this: if you're going to be all hardcore about libertarian values and fiscal conservativeness, don't ever mention unemployment or how it hurts the poor. Because you shouldn't care. Poor people are poor and unemployed people are unemployed because they don't contribute to the economy. If you mention the poor, you're being just as hypocritical as liberals. This is my objection to nick's point.

If you blame the government for everything, you are only justifying further government intervention. Do you know what I mean? I understand and sympathize with the theoretical objection, but ultimately you're just being an enabler.

You're saying "It's not your fault stuff is messed up. It's the government's fault. They bamboozled you." But in fact, it is your fault. You borrowed too much money stupidly. Don't blame anyone else for that decision.

If you want take the government out of the equation, then you have to quit talking about the government. It's the people who make bad decisions and vote for big government to bail them out that are the source of the problem. Stupid government is merely a symptom of stupid people.

[the happy prole]

oh, and inflation helps borrowers and hurts lenders. The poor are usually neither so pure, across-the-board inflation has little net effect on them.

I wouldn't say the notion of inflation hurting the poor is a myth, but it's certainly not a truism either. It just depends on the kind of inflation and the reason behind it.

Take minimum wage, for example. Minimum wage causes inflation of prices. That hurts the poor because they don't have a margin to absorb price increases. On the other hand, corporations that employ minimum wage workers tend to be large borrowers. That inflation just made them a whole lot better off. Now they can afford to hire more workers or pay them more.

In the short term, the companies may out-source jobs. But eventually that shift in demand will cause wage prices to go up and balance the scales again.

A minimum wage indexed to inflation probably doesn't help the poor, but it may have a stablizing effect on the economy by limiting wage booms and busts.

[Duemellon]

Well, this thread just jumped the shark when tHP decided to be all "logical" & explain things again. What a fucktard. Why can't he just stick to one-liners using hyperbole & absurdity in an attempt to solicit laughs from sympathizers & derision from those who disagree.

[markalot]

Arguably--and I'm not convinced of this, but hear me out-- what you might actually be doing is protecting yourself from stupid people.

No long argument needed. So in fact we have to protect ourselves from the stupid people. Unfortunately we can't take away their rights and lock them all up in infirmaries for the dumb. I would do it in a second.

So what do we do then? Education is a big start, as I've said before I think finance classes should be mandatory starting in 7th grade and continuing yearly through high school. What about the other problems that lead to poverty? Deadbeat dads, having too many kids? etc?


The average IQ of the population as a whole is, by definition, 100. IQs range from 0 to above 200, and among children, to above 250. However, about 50% of the population have IQs between 89 and 111, and about 80% of the population have IQs ranging between 80 and 120, with 10% lying below 80, and 10% falling above 120.

http://www.geocities.com/rnseitz/Definition_of_IQ.html

Assuming IQ is an accurate measure of intelligence (and I'm not assuming people have been accurately tested, only that IF accurately tested this is the result) there are a lot of dumb people out there.

Do we structure our world to protect us from the folks who can't understand or don't have the ability to make sounds judgments?

Can we make laws that somehow weed out the idiots while still allowing the smarter one to take advantage of a service?

Should we let the economy naturally weed out devices that don't work (sub prime mortgages for example)?

It's been my experience that if you don't let people learn their own lessons (experience pain) then they will never learn and continue the bad behavior. Appropriate education can minimize this, but education assumes the person being edumacated has the ability to absorb the lessons and apply the knowledge. I'm sure there is a group of people out there that can be helped, I'm just not sure how big that group is.

[Macpherson]

Silly...if you say HB 545 is a stupid law meant to close off a service to people who need/want it, you aren't advocating more government.

This law is not closing off a service, it's just capping the maximum interest rate they can charge.

[Duemellon]

This law is not closing off a service, it's just capping the maximum interest rate they can charge.For some reason I do believe getting up to 24% return on loans is a pretty good business. Sure, it's less than some people's credit card annual, but these people don't have credit. That's pretty much the point,... they don't have credit, where do they turn? To the company that offers them credit-card like rates.

[the happy prole]

They already bought the pre-inflated goods and services when they took out the loan.

[the happy prole]

I borrow $100,000 at 10% to buy a house. You have $100k but opt to save it, putting it in the bank at 10% interest.

Massive inflation hits. A year from now, that house costs $600k. I can turn around and sell my house for $600k, pay the bank back $110k and have $490k left over. What do you have? $110k. $490,000 > $110,000.

Unless the bank can raise interest rates with inflation rate, the lender and the saver get screwed while the borrower makes out like a bandit. There are plenty of people who have borrowed money at fixed rates, including myself.

[classicgrrl]

I borrow $100,000 at 10% to buy a house. You have $100k but opt to save it, putting it in the bank at 10% interest.

Massive inflation hits. A year from now, that house costs $600k. I can turn around and sell my house for $600k, pay the bank back $110k and have $490k left over. What do you have? $110k. $490,000 > $110,000.

Unless the bank can raise interest rates with inflation rate, the lender and the saver get screwed while the borrower makes out like a bandit. There are plenty of people who have borrowed money at fixed rates, including myself.

unless it's the year 2008 and then your house sells for 75K.

:D

[dannyboy]

I borrow $100,000 at 10% to buy a house. You have $100k but opt to save it, putting it in the bank at 10% interest.

Massive inflation hits. A year from now, that house costs $600k. I can turn around and sell my house for $600k, pay the bank back $110k and have $490k left over. What do you have? $110k. $490,000 > $110,000.



But because of the inflation, that $490k can only purchase what the 90k (after you would have presumably paid back to the bank) would have purchased pre-inflation. It's a wash.

[the happy prole]

It's not a wash.

At the start of the example, you were $110k in debt. At the end of the example, you have paid back your debt and have another $490k left over. How are you not better off?

Moreover, you now have $490,000. The bank has $110,000 and the guy who had his money saved in the bank also has $110,000. Again, how are you not better off comparatively?

Basically, it turns out that US currency was a bad investment and what you did was sell short on it like you can with stock or any other asset. You "sold" money for a house when money was valuable. You then later "bought" the $110k from the bank when money was cheap.

[the happy prole]

Exactly.

And lets talk about the lender, the bank. They give you the $100k and expect $10k extra in return. What did they risk given our fractional reserve system? 10k. When the loan is paid off they have made $100k. They hardly got screwed over, even with inflation.

They had $100k in 2008 dollars. Now they have $110 in 2009 dollars. Because in that example the inflation rate was well over 10%, $110 in 2009 dollars is worth a shit-ton less than $100k in 2008 dollars. About $500,000 in 2009 dollars less.

When the interest rate is lower than the inflation rate, the lender loses money. When you make an investment, you want you rate of return to be higher than inflation. That difference over the life of the return is your profit. If it's less, then that is your loss.

Seriously, people. It's finance 101. Get the most hardcore econ/fiscal conservatives on the board, they'll tell you the same. Or anyone with a mortgage. markalot? marlowe? Back me up on this one.

[dannyboy]

Moreover, you now have $490,000. The bank has $110,000 and the guy who had his money saved in the bank also has $110,000. Again, how are you not better off comparatively?



You're not better off. The $490k you have is really only worth $90k. You lost the equivalent of $10k.

[markalot]

You're not better off. The $490k you have is really only worth $90k. You lost the equivalent of $10k.

If inflation was the same for everything then yes.

I agree with what Prole is saying, and I think something in Nicks argument is irrational. Corrupt banks might be it.

Nick, if you lost money on an asset, and if most people lost money, wouldn't we see deflation?

[the happy prole]

You're not better off. The $490k you have is really only worth $90k. You lost the equivalent of $10k.

If you're going to discount the $490,000, then don't you also have to discount the $110,000?

[dannyboy]

If you're going to discount the $490,000, then don't you also have to discount the $110,000?

Yes you do. It doesn't mean you came out ahead, it just means you didn't get screwed as badly.

That's why inflation hurts the poor and middle class so much. They don't have extra income to invest in hedges. That's also why the gap between the rich and poor keeps getting bigger.

[the happy prole]

Well, I wasn't talking about that. I ignored the example in lieu of talking about the corrupt banking system. Their profit was still 10x the risk.

You have absolutely no idea what the risk the bank took on. Loaning me $100k is a completely different risk than loaning some homeless guy $100k vs lending Bill Gates $100k.

(edit) And they didn't have 100k. So wait, no they still didn't get screwed over.

They may or may not have had it. Banks are both lenders and borrowers. As a lender they may have lost on one side of the transaction, but if they borrowed $100k they can come out ahead on the other side.

Investors-- which includes banks, companies and all of us with loans and mortgates-- leverage money. If you do it wrong, you can lose your shirt. If you do it right, you create money. Money is created without a central bank. All the time. Like every millisecond. That is what markalot and I keep telling you. Fractional reserve transactions are a natural outcome of a freemarket.

The problem is finance 101 didn't teach debt money 101.

Obviously.

[markalot]

Oh yea, the old gold standard again. :)

The banks did not create the money out of thin air, money is still tied to a virtual pool, but not to a hard asset. I know we covered this disagreement.

[markalot]

Lazy is my middle name.

What does that mean anyway, do I have to use the correct terminology to have this discussion? Every dollar is accounted for, it's just not tied to gold. I know you don't like it, but saying money is created out of thin air does nothing to bolster your argument. If it was created out of thin air then why did they need to borrow it from someone? Buy some treasury bills.

[the happy prole]

1) To keep it simple, when you borrow money from the private banking system, money is created out of thin air. When you pay back the loan, it is destroyed. What increases the money supply is the interest that you pay and the money that has yet to be destroyed.

Isn't that what markalot and I have been saying this whole time? There is no money being physically destroyed or created. What is being destroyed and created are promissory notes but that is the general concept.

The problem is, that with $10 worth of physical gold tied to $10 worth of physical currency we can still create through a series of leveraging transactions $1000 worth of promissory notes. The more you leverage, the greater the reward and the greater the risk.

In the international scheme of things, the central bank is just one more party out there leveraging money. Granted it's a gigantic lever which means that mis-steps or mismanagement on their part can totally screw us over.

But they really do not need to (nor do they) screw us over by printing money. They do it the same way everyone else does-- by borrowing stupidly. We are in a pickle now because the government is borrowing money from Japan and China, not because we don't have a gold standard or we're printing too much currency.

I don't think I've made any secret of the fact that I think the US both as a collection of private entities and as a single entity via the central bank has been doing a poor job of managing finances.

If ditching the central bank and going with a free market will help us manage our money better, that's fine. I have no objection. But all the rest of this nonsense about fractional reserve banking being corrupt and gold standards and the printing of money etc. has very little do with anything.

Japan lends us X yen. We then print Y number of notes. The problem isn't the printing of the notes, it's the borrowing from Japan when we can't pay it back.

[markalot]

Are you asking why the bank needs to borrow money if they can create money out of thin air?

Another basic concept is that money exists as debt. Without debt there is no money. That concept takes a while to seep in though.

Not at all. Money is just a thing you trade to get stuff. It used to be gold but people realized it was stupid and meaningless to tie everything to a precious metal. Mine more, get more. The max quantity of gold is unknown.

I just don't get why it's a difficult concept to grasp. Money is worth what people think it's worth. Kind of like gold.

[Shlep]

The most modest proposal I guess would be to cap the loan rate at 20%...

Am I to understand that the option of having the working poor raise funds by selling their kids to the well-to-do to be used as food and/or quarry for organized hunts is currently off the table? :D

As far as minimum wage, there is a good case to be made that it hurts poor people by limiting access to the labor market. You could read Walter Williams "The State Against Blacks" for those kinds of arguments.

During my freshman year at George Mason U, I took a 100-level lecture hall class in economics taught by Walter Williams. It was really something else, I'm here to tell ya, and I cherish the experience to this day.

The payday lenders are essentially legal loan sharks.

Not really. That is to say, I'd wager that the average garment district loan shark wouldn't have the gall or the big shiny chrome-plated cajones to charge the sort of interest on cash loans that most cash advance places do.

For some reason I do believe getting up to 24% return on loans is a pretty good business.

It would certainly explain the mass proliferation of these sorts of businesses.

Sure, it's less than some people's credit card annual...

Good Lord, what card would that be? The Bend Over, Here It Comes Visa Platinum card?

No wait, I got one: The Circuit City Card. Talk about a teachable moment...way back in like '92 or '93 I found myself with a big hair (nee, a whole toupee) up my ass to get a camcorder. This was shortly after I got out of the Corps and entered a new life as a full-time undergrad student; the latter being something we all know, especially if it's from experience, practically synonymous with "stone motherless broke."

Thus, one pleasant Saturday afternoon, I went across town to the local Circuit City and purchased one using a Circuit City card I acquired during that very same day to cover the transaction; looking back, I seem to recall that the sales staff were falling over each other helping me get the card. Turns out the APR was something like 22% to 24%, a factor which a wiser man might have taken into account before maxing the damned thing out. After that, as I was paying it down, I continued to make other minor purchases as I deemed them necessary (read: "christmastime" was "home electronics time" for folks on Shleps' gift list).

The thing was a fucking albatross around my neck until some time about 5 years or so later when I got a big fat tax refund roughly in the amount of the balance I was carrying on the card (about 1,000 smackaroos, give or take). The day I got it, I dropped it into my account, and then promptly stroked a check for the entire sum to Circuit City before celebrating my emancipation from my Circuit City card (and its forced sodomy of an interest rate) by turning the card into a pile of plastic confetti.

[the happy prole]

Yes you do. It doesn't mean you came out ahead, it just means you didn't get screwed as badly.

That's why inflation hurts the poor and middle class so much. They don't have extra income to invest in hedges. That's also why the gap between the rich and poor keeps getting bigger.

No. You really come out ahead. Look, if I gave you $100,000 of real money in exchange for $100,000 of Monopoly money wouldn't that be a great deal for you and a really shit deal for the guy who gave you the $100k?

That's what happened here. You got $100k (or in this case $82k due to a bit of interest owed and the fact that the money wasn't totally useless), the bank lost that amount.

Remember, you BORROWED the $100k. Essentially you started off with $0 of your own money. After you pay off your debt, anything left in your hand at the end of the series of transactions is profit. Anything the bank and the saver has less than $100,000 is their LOSS.

When you apply a 600% discount rate, you'll see that the other two sides have considerably less than $100k-- something like $18k. And you will have $82k in profit. That's no accident. The money the bank lost in depreciation went right into your pocket.

Of course if the inflation continues, your $490k which is really $82k is rapidly depreciating now. And to borrow $100k in the first place you probably had to have some savings in the bank which have probably also screwed you horribly.

So as net, you may in fact be worse off. But you really did make a profit on that one transaction.

It would be pretty tough to determine whether the poor are truly worse off via inflation. You'd have to have a lot of data and run some sophisticated models.

The thing is, if you have $1 and inflation reduces it to $.50 what have you lost? 50 cents. Big deal. On the other hand, a millionaire would have lost $500k.

The other way to look at is if you don't have any money do you really give a shit if money becomes worthless? I have a house. Fortunately I bought my house early so I'm not sweating the downturn to much.... yet. On the other hand, classicgrrl who previously couldn't afford a house, can now finally get one.

But then again, if I lose $100k in the housing market it just means I have to move into an apartment. Big whup. I still have cash. If a poorer guy who can only rent loses $10k, that might put them on the street.

So you'd have to do a lot of trickery looking at elasticity of demand for various goods and what sectors appear to be getting hit the hardest to really know whether the poor or middle class or rich are getting the shaft overall.

The biggest individual winners and losers are probably going to be from the very wealthy as those are the guys leveraging their cash like mad and taking the big gambles.

What else? oh the rift between the classes.

It turns out that the biggest determinant in future income is a college degree. College degrees cost a shitload and it's going up all the time. I don't care how stupid you are; if you can afford $100k some college will take you. On the other hand, you can be pretty smart and still have a hard time paying for college.

Thus, the rich stay rich or get richer and the poor get poorer. Part of it is maybe that the average job in the US may actually require more smarts and rich people go to better schools. But part of it is that people overvalue a stupid sheet of paper somewhat intentionally. Because that's the way to keep the rabble from rising up and grabbing your cash. Your degree is your ticket to money. Why share it?

[markalot]

You want money to maintain a stable value so that your expectation for what you can trade it for is held constant. That is the whole point of a gold standard. Price stability was maintained pre 1913, whereas the dollar of 1913 is worth 4 cents today. But see, you still got to read and learn. Money is not worth what people think it's worth unless you are being purposely vague as to not have to explain anything (like saying "virtual pool"). That is nonsense.

Nick,

why would the value of gold remain stable over time? The desire to build wealth combined with the means (industrial revolution, technology, etc) is what's changed.

[dannyboy]

why would the value of gold remain stable over time?

Presumably, because there is only a finite amount of it. I'm sure modern day alchemists will have something to say about that in the future however.

That's why DeBeers is fighting so hard to keep synthetic diamonds off the market, or at least make sure that are clearly marked and sold as synthetic and not natural. They don't want the diamond market devalued because it became flooded with synthetic diamonds which the public values exactly the same as natural ones.

[dannyboy]

The thing is, if you have $1 and inflation reduces it to $.50 what have you lost? 50 cents. Big deal. On the other hand, a millionaire would have lost $500k.


But the loaf of bread that used to cost $1 is now $2 and now all you have to buy it is 50 cents.

[the happy prole]

Well you're double-counting inflation. I was discounting the dollar already saying your dollar only has half the purchasing price. If a $1 loaf of bread now costs $2, it's like your old dollar is now only worth $.50.

But yeah, didn't I make that point in my post? There's a certain group of people that are living on a razor-thin margin and every penny lost is a huge deal. A rich guy loses $500k, a poor guy loses $.50. Because of diminished marginal utility, the $500k for the rich guy might end up affecting him less than the poor guy even though it is a greater amount in currency.

Then there are people who are so poor it doesn't matter. If you can't buy a loaf of bread now and you're living on the streets, do you care that now you double can't afford a loaf of bread?

[Dirk]

For some reason I do believe getting up to 24% return on loans is a pretty good business. Sure, it's less than some people's credit card annual, but these people don't have credit. That's pretty much the point,... they don't have credit, where do they turn? To the company that offers them credit-card like rates.

Except because they are dealing with clients with little or no credit, they are taking an incredible risk lending to them. Capping them at less than credit card rates means that it isn't worth the increased risk. The fact of this type of business is that you are often not going to get paid back. Whether it is scams, people skipping town, or people declaring bankruptcy, a lot of times these places don't get their money back. To compensate for this chance, they charge high interest rates.

Pretending that they should be charging the same (or even less) of a rate than credit card companies is a joke. If you want them to take a risk by lending to high risk customers, you have to give them the ability to make money doing it.

[the happy prole]

Nonsense. The value of all things is determined by supply and demand if not by government fiat.

Exactly. So there's no reason to assume gold prices will remain stable as supply and demand are constantly fluctuating.

If you want to keep gold prices stable vis a vis US currency notes, you would need to constantly tinker with the money so that it's value fluctuates in accordance with gold. And to do that you're gonna need...... A CENTRAL BANK.

As a matter of fact, there really isn't a gold standard without a central bank since who is going to go and purchase and hold the gold?

Without a central bank, anyone can issue any note tied or not tied to whatever they choose at any rate they choose. If that leads to price stability, it's only because free market forces and consumer preferences drive things that way.

Which means that what is truly driving the economy in that case is supply and demand, not some fake-tie in to the price of gold.

[dannyboy]

Meh...that's not true.
I was partly being factitious just to illustrate my point. :p

[the happy prole]

Except because they are dealing with clients with little or no credit, they are taking an incredible risk lending to them. Capping them at less than credit card rates means that it isn't worth the increased risk. The fact of this type of business is that you are often not going to get paid back. Whether it is scams, people skipping town, or people declaring bankruptcy, a lot of times these places don't get their money back. To compensate for this chance, they charge high interest rates.

Pretending that they should be charging the same (or even less) of a rate than credit card companies is a joke. If you want them to take a risk by lending to high risk customers, you have to give them the ability to make money doing it.

Just remember we're actually talking about people charging 400% interest, not 24%. I agree that 24% is too low.

As for your last sentence, you're exactly right. However, I'm comfortable saying I don't want them to take a risk by lending to high risk consumers. If that makes them and their borrowers unhappy, tough shit. I think some of that risk actually ends up getting passed on to me, so I'm feel like I have some say in the matter.

While I think markalot's suggestion of putting poor, stupid people in prison is overkill, I don't have a problem with limiting their "freedom" to take stupid loans that end up being partially subsidized with my money.

[the happy prole]

That is news to me. If gold is money, demand is constant. And I haven't heard of supplies of gold popping up everywhere. See, I think you are making this up.

As far as bank notes, counterfeiting is illegal.

Yeah, you're right. Gold prices never change. No one ever tries to make money buying and selling gold. There are no gold futures or gold mutual funds. Or actually they are but no one invests in them because there's no profit margin since the price of gold is always constant.

I made all of that up.

[markalot]

Why are you so sure a finite supply of gold is the magic bullet? Mining exploitation, large mining enterprises, etc. Different, not better, and at some point we'll run out of gold to mine and then we'll be better off?

[the happy prole]

If the demand for gold is not constant-- and it isn't-- and gold can be converted to money and vice versa according to the gold standard, then the demand for money won't be constant.

What gives you the ridiculous notion that demand for money would ever be constant, anyway? Demand for UTILITY is constant. Money is just currency, and any country's currency is subject to rise and fall outside of fiscal policy. In other words, it's just another commodity.

[dannyboy]

In other words, it's just another commodity.

If that's the case, then money really isn't just a substitute for bartering.

[markalot]

Well, it is not a magic bullet. That is why I reject libertarianism...you can't create the perfect society. It is rather simple...I don't want to give the power to some entity to create money. Give me that power and I could do some pretty awful things to you. As far as running out of gold...good. We don't need more money. We need more goods.

What motivates people to labor to create goods? Wealth drives everything, without that driver you get poor productivity and end up in a cycle of poverty and corruption unmatched by capitalist systems.

[markalot]

OK. What is wealth? Wealth is having a bunch of stuff. You purchase stuff with money. You want your money to be worth something. If it's not, productivity suffers because you know it is all bullshit when you get paid at the end of the day. When money is created out of nothing, it loses value. Capice?

Why does tying money to a metal make it not bullshit? Gold will lose and gain value based on supply and demand. Eventually the gold supply will run out and the value of your money will begin to inflate. You seem to think that this is somehow better then the value of money slowly deflating. Why? If there is a finite supply of money then who do you think will suffer and how is this better than the current system?

[dannyboy]

Why does tying money to a metal make it not bullshit? Gold will lose and gain value based on supply and demand. Eventually the gold supply will run out and the value of your money will begin to inflate.

When the gold supply runs out, the value of gold will increase. Why would the value of money necessarily increase because gold is more valuable when our current monetary system isn't backed by gold?

[tempo]

Gold is heavy and unwieldy. Let's tie the monetary system to something more practical. Like rainbows! Rainbows and smiles. :D

Or maybe just get the Fed to stop printing money and eventually get the politicians to stop spending it on public largess and foreign wars. :D:D

[frizgolf]

Gold is heavy and unwieldy. Let's tie the monetary system to something more practical. Like ferrets! Ferrets and cheezburgers. :D


Fixed that for you. :D

[tempo]

Fixed that for you. :D

I'M IN UR MONUHTERRY POLICEE, DEVALYOOWIN UR CURRENTSY

[the happy prole]

If that's the case, then money really isn't just a substitute for bartering.

Kind of. I mean, there are things money can't buy.. or at least not easily. I think most economists will recognize that fact. You're kind of zen-type dude, right? So like inner-peace... that has to come from you. Can't be purchased or bartered.

But money is no worse than anything else, either. Every commodity is an equal substitute for bartering. $15 can be converted to a CD, or 9 cups of coffee. If you want to get on Craig's List and trade a vacuum cleaner for a tattoo machine you can. Or you can go to Ebay and sell your vacuum cleaner for $125 and buy a tattoo machine.

That's why there's absolutely nothing special about gold. It does nothing that money can't already do.

The major limitation is that you know, if you want to buy a car for 15 vacuum cleaners, it gets kinda difficult to carry that many vacuum cleaners around. And what if something is worth between 15 and 16 vacuum cleaners? You can't cut one in half.

And in fact we have even transcended paper currency and physical promissary notes. If I buy a share of Microsoft do I get like a chair from some Microsoft office somewhere as a physical asset from the company? I don't even get a stock certificate. It's just blobs of data being moved around

And in fact I can sell 50 shares of MS right this minute despite the fact that I don't own a single share even as a virtual representation on computer. If Wall Street, my broker, your broker, you, or me are lying bastards the whole transaction is fucked.

The idea that we are physically trading currency, much less gold is so far removed from that financial transaction that a gold standard doesn't accomplish anything. Ultimately, I either trust you or Fidelity or Charles Schwab or I don't.

[dannyboy]

That's why there's absolutely nothing special about gold.

I agree with that. But there's also nothing intrinsically special about money either. If money is unto itself a commodity then there is nothing to keep that value of it from reaching inflated or deflated values separately from other commodities that it might otherwise be linked to (i.e. gold). Therefore theoretically, all other commodities could maintain their normal or even higher values, but money itself could actually be devalued. That's the loss of purchasing power due to inflation.

[the happy prole]

OK. What is wealth? Wealth is having a bunch of stuff.

No. Wealth is measured by the fictional unit of "utils" or whatever as a measure of happiness. As stated above, there are some things that have to come from you. You can't trade for them.

You purchase stuff with money. You want your money to be worth something.

If I purchased shit with money, it was worth something. Kind of by definition. If you think my garishly colored green-orange piece of paper is worth a cup of coffee, and I agree, than that's exactly what it is worth. No more or less.

If you think my garishly colored green-orange piece of paper is not worth a cup of coffee unless it also somehow represents some fictional sliver of yellow -colored metal sitting in a warehouse somewhere, then that's your problem. Because I could give a shit. And I will be happy to trade my silly little paper with the vast majority people who feel the same way I do.

Now, if you care then you are free to trade your silly piece of paper for a blob of computer data that represents someone's promise that there is fraction of an ounce of little yellow metal waiting for you somewhere. And if you wish, you can actually go and demand that someone shave a little sliver or yellow metal from a gold bullion. And then you can take that little sliver to Starbucks and try to purchase a cup of coffee with it. Good luck with that.

Everything that is exchanged between two parties is worth what those parties agree it is worth. If your trading partner does not share your hard-on for gold, then you are SOL.

[the happy prole]

I agree with that. But there's also nothing intrinsically special about money either. If money is unto itself a commodity then there is nothing to keep that value of it from reaching inflated or deflated values separately from other commodities that it may be linked to (i.e. gold). Therefore theoretically, all commodities could maintain their normal or even higher values, but money itself could actually be devalued.

No there is nothing intrinsically special about money other than everyone seems to accept it in exchange at this moment. If we all changed our minds tomorrow then money would be worthless.

Theoretically, there is nothing keeping US currency from reaching inflated or deflated values vis a vis another commodity like gold. There is also nothing keeping gold from reaching inflated or deflated value vis a vis another commodity like US currency.

Yes, US currency can actually be devalued relative to everything else (or most everything else). In fact, it's happening right now.

And like I said before, what we are really trading right now is not even currency but rather bits of electronic data that theoretically represent currency that in turn theoretically represents absolutely nothing. Or perhaps trust in the US government.

So no. There is nothing special about money. There is nothing special about gold. There is nothing special about tying money to gold. It's all about trust. You put your trust in gold or US dollars or the Yen or Berkshire Hathaway as suits you personally.

I think we agree on all this, don't we?

[Ambassador V3.0]

So no. There is nothing special about money. There is nothing special about gold. There is nothing special about tying money to gold. It's all about trust. You put your trust in gold or US dollars or the Yen or Berkshire Hathaway as suits you personally.

I find it all very special indeed. Silver, Gold, Platinum, Kruggerands, Dollars, Yen, Yuan, Euros, Pounds, etc.

Any naysayers are welcome to submit any unwanted currency and/or precious metals to myself. I know exactly what to do with it. :D Make more money. Duh.

[tempo]

So no. There is nothing special about money. There is nothing special about gold. There is nothing special about tying money to gold. It's all about trust. You put your trust in gold or US dollars or the Yen or Berkshire Hathaway as suits you personally.

I think we agree on all this, don't we?

Well.... gold is a little bit different in the sense that a gold-based system of exchange requires less trust than a system of paper notes, which requires less trust than a system of electronic records. But yeah, in principle they are the same.

A trustworthy system reduces the costs associated with exchange. The devil's in the logistical details. Building and maintaining trust is no small trick (as any holder of mortgage-backed securities could tell you).

[DaHood]

If someone really doesn't trust their money they should give it to me. I will protect you from it.

[the happy prole]

No one is arguing that the current system is great. We're simply pointing out to you that a gold standard does nothing to fix things.

As markalot and I have pointed out several times, the US government doesn't simply just print more bills when it needs money. It expands or decreases the money supply by buying and selling government securities.

Right now, we are selling bonds to China. Essentially we're borrowing from them.

Guess who is the world's biggest supplier of gold? China. So all that's gonna happen is we will borrow gold from China instead of yuan. And China can choose to let us borrow a lot or a little gold just like they can with yuan. There's no difference.

In order for the gold standard to work, you need a central bank. And that central bank has to be disciplined enough not to borrow money and do all the stupid things it does right now. And if we had a central bank capable of that kind of discipline, then we wouldn't need the gold standard.

Look at Greenspan. He's a huge backer of the gold standard and it still didn't stop him from dorking around with the money supply.

It's like telling a smoker all he needs to do is stop buying cigarettes. It has a surface logic, but it's completely impractical advice. It's not like they don't know that. But if they stop buying cigarettes for a week, they'll bum cigarettes from friends. And after awhile, they'll go back to buying cigarettes again.

The smoker has to really want to quit, and have the will power and discipline to ride out the cravings and even then they may need some nicorette. Now if they get their shit together, then they will stop smoking cigarettes and eventually stop wanting cigarettes. And then the whole "stop buying cigarettes" bit will take care of itself. Which was really not the problem in the first place. It was the smoking of the cigarettes, not the buying.

You've got the cart before the horse. You are addressing a symptom and not the cause. It's a "who will bell the cat" problem, etc.

[the happy prole]

I thought I made it clear. What we need to fix is that the government has to stop borrowing so much money.

The government won't stop borrowing money until the people stop demanding low taxes and gigantic government programs. And until they stop making stupid fiscal decisions themselves and asking the government to bail them out.

People won't stop making stupid fiscal decisions until 1) They are made to pay for their stupid decisions and 2) They understand that it was THEIR FAULT. Not fractional reserve banking. Not the lack of the gold standard. Not the government messing with interest rates. Not corrupt banks.

You can't reduce the size of government or the problems with the budget until people take personal responsibility. The government is not screwing people over. It's doing exactly what people ask it to do. People are screwing themselves over. It applies to this situation and most other small government/libertarian type-principles as well.

Unfortunately, calling a people a bunch of dumbasses is a hard way to win people over. It's much easier to blame everything on the government. That's why we never get anywhere. Everyone-- liberals, socialists, conservatives, libertarians, I don't care who-- tells you that it's someone else's fault and not yours.

[the happy prole]

Dude, no offense but I'm pretty much done with this conversation.

My opinion is that everyone borrows too much money, from individuals to corporations to the government. People make stupid decisions, and they elect stupid officials and demand they make stupid decisions. Garbage in, garbage out.

That is the problem. Not fractional reserve banking, or the central bank, or the lack of a gold standard.

The fact that you don't understand something as basic as how borrowers benefit from inflation is to me just another sign that people are nowhere near ready for a smaller government.

[classicgrrl]

I have loads of debt due to school bills and just paid off a $3660 medical bill for an emergency apendectomy.

am I candidate for the payday predators?

[markalot]

Anyway, have a good one.

But Nick, I'm not done.

You have mentioned a few times now that gold is a finite resource so allow me to take it to the extreme and then please explain to me how anything is different.

There are 1,000,000 equivalent gold coins (no more gold available).
There are 1000 people in the world starting at year 0.

Let's say the economy is stable. All transactions are done in gold, or paper and coins that represent a fixed amount of gold.

Year 20.

There are 2000 people in the world, all needing jobs. Assuming the pay rate remains the same and food costs remain the same the only thing that's changed is the amount of money exchanged. As the population grows business has to grow to keep up with production. Business wants to build wealth, that's the motivation to produce, so they are a constant drain of gold out of the system and into the coffers of the business (owners, etc).

At some point this system breaks. You either have to devalue the paper so that more paper represents less gold, or you accept a larger and larger separation between the haves and have nots. You might also accept a limit on growth, meaning that population controls would have to be instituted so that.

Please tell me how you envision a gold standard (finite resource) system working. What are the assumptions made of this system that allows it to work? Where in my above scenario did I misunderstand something that you can correct.

I give you free reign to mock what little economic understanding I have. :)

[the happy prole]

markalot, it's not really an economics debate but a moral one. That's why you aren't going to come to an agreement. It's not so much about the Austrian school vs Keynsian economics or anything like that.

It's really about the Austrian school as filtered through the lens of objectivist/llibertarian philosophy that attaches values to economic behaviors that should, in a scientific approach, be valueless. I'm not that much of a Keynsian and you are less of one than I am. In fact, there's plenty of reason to argue against central banking under the good ol' neoclassical Adam Smith laissez-faire model.

The Austrian school came about at a time when people were arguing against Marxist and Keynsian theories that to a large extent are already out of vogue and have been for some time. It exists today primarily because of its tone rather than the intrinsic value of the thought. It's a good base from which to push the objectivist-type view that anything that the government is involved with isn't just like, a bad idea or inefficient.

It's actually evil. In fact, it's pretty much the definition of evil. Every government action takes away your freedom, and having your freedom to act restricted is wrong. So yeah, it's basically like physical violence and government=evil.

So the idea here is to remove government as much as possible. The gold standard does this by removing the government's freewill. If you get the government out of the picture, good has triumphed over evil. Anything else is allowing evil to continue to exist, and how can that be good?

You don't really have to concern yourself to much with what the practical outcomes. You've stamped out evil, so anything left has to be good.

It's a moral equivalent of saying killing is always wrong. It doesn't matter if you are killing one mass murderer to save hundreds of lives. As long as you condone murder in any shape or form, you are condoning evil. There is no "lesser of two evils" or room for compromise. You don't compromise with what is wrong.

The gold standard is the closest thing you will get to a compromise. And it's not so much a compromise as it is a red herring. The stability of gold prices is completely irrelevant. If gold tanks, smart investors will simply buy houses or silver or Berkshire-Hathaway shares or anything else which holds it's value.

The "gold standard" in the absence of a central bank is really no standard, and that's the key to the whole deal. We could use monopoly money or any other commodity and it would be the same thing. What nick is really trying to do is take the government out of the equation.

Every other argument about the poor, unemployment, corrupt banks, fractional reserve, gold standard, etc. is pretty much BS.

[purple_octopus]

Now, say the man and woman satisfy their basic humping needs and produce children, and then the children grow up and have children of their own, and so on.
Who knew West Virginia was an island? :D

[the happy prole]

the idea is to advocate the system you think is best, not to poo poo one system while ignoring the flaws of the other.

Let me know when you decide to get around to that.