4 ms·

GP starts with a fairly simple premise, the rate of default is high, so that much interest is required to make up the shortfall. Of course the rest of it is hin

GP starts with a fairly simple premise, the rate of default is high, so that much interest is required to make up the shortfall. Of course the rest of it is hinged solely on this premise, rather than acknowledging that the very act is taking advantage of people who can't or won't think far enough ahead to see why it is a very bad idea. It is of course the old argument that some economists use a little too regularly that all participants in the economy are rational actors.

rayiner 8y ago
The idea that selling products and services to poor people is “taking advantage of them” in the terms reality demands is bonkers.
- king_magic 8y ago
  You can’t possibly be serious w.r.t. payday lenders. I mean seriously, come on. It’s one of the most predatory types of lending that exists. They often provide loans with intentionally confusing and borderline disingenuous lending terms with the explicit goal of taking advantage of people. > The result is denying poor people access to credit. Lol, I mean, if being practically tricked into loans you can never pay off to the point that it drives entire cycles of poverty is your idea of credit, yeah, then sure, you’re right.
  - doctorpangloss 8y ago
    > The result is denying poor people access to credit. I think it sort of boils down to rayinier's wrong, or at least hopelessly unsophisticated, understanding of credit. When you don't pay your landlord on time, you definitely enter a debt relationship with your landlord. That's credit in every sense but financial. Payday loan companies securitized a form of credit that had low effective "interest" (e.g., late payment penalties) and converted it into something with high interest. Yes, nobody wants to be evicted. But surely, in a strictly rational economic sense, landlords don't want vacant properties either. It's not so obvious what is the "efficient rate," as rayinier says, because based on eviction rates for late payments of rents, it's probably not that high. Foreclosing on people's homes, of course, was a huge disaster and the source of an incredible amount of national economic and emotional misery. So again, just within an economic positivist framework, it's not at all as simple to arrive at "efficient" rates as rayinier assumes. I'm not sure if payday loan companies, which charge a higher interest rate to essentially victimize the same population at an industrial scale, is an economic positive, you know? I wish he would just admit that while some human beings will sometimes be landlords, and therefore deserve some protections, no normal person will literally ever be a payday loan lender, so it seems fit that we ought to use a credit system (late rental payments) that people can imagine justice inside of rather than an usurious credit system nobody will ever be on the right side of.
- Arbalest 8y ago
  Stating that still assumes rational actors. It is based off the premise of "freedom" above all else. The problem with freedom is that the way it is defined really depends on what you want to achieve. Infinite choice is the simplest form of freedom, but in this case, you are enabling market forces to remove the ability for people with poor judgement to lose any capacity for future financial freedom, a form of freedom I would argue is more important that short term choice. Edit: I would also like to state that extending credit also increases demand, pushing up prices in the rest of the market, increasing the demand for credit for all players. This is exactly how housing bubble flames are fanned, and it applies at any level of the economy. If people at the bottom are unable to afford necessities, providing them more credit doesn't actually increase their capacity to afford necessities, it is simply a time shift. If that is the scenario that is coming up, a different solution must be found, otherwise you just end up with more interest going to people who already have the money. Classic Gamblers ruin.
  - rayiner 8y ago
    Yes, I’m assuming poor people aren’t irrational. Silly me.
    - stouset 8y ago
      We’re all irrational. We all lack access to complete information about any market we’re acting in. Entire business models have been created to take advantage of and even maximize this type of information asymmetry. Legislation exists to curb the most egregious offenders. You can argue whether or not this specific case is egregious enough to warrant regulation. But implying we’re all fully rational actors who can make perfect (or even good) decisions in times of great distress and who don’t ever need sort of safety rail to protect us from our own ignorance, urgency, or rashness is just arguing in bad faith.
      - rayiner 8y ago
        Information asymmetry results in market failures, and can justify regulation. But the Obama payday regulations aren’t directed to information asymmetry. They do not, for example, require certain transparency measures. Instead, what they do is place limits on who lenders and lend to.
- thaumaturgy 8y ago
  Right, payday lenders are well known to be not-for-profit organizations, focused entirely on their customers' best interests.
- chipotle_coyote 8y ago
  So reality demands that we categorize charging desperate people an APR of 200%, 300% or more as "selling products and services to poor people," as if doing so is functionally indistinguishable from selling them a cheeseburger?
  - perl4ever 8y ago
    I don't think that just because a business exists, it isn't predatory. Maybe payday loans are on net bad and should be eliminated. Perhaps what people say about trapping customers in a cycle is true. However, I don't think that just because an APR sounds extremely large, that makes the loan predatory or otherwise unnecessary. Just like with housing and everything else, when you rent something for a short period of time, there is a fixed overhead, and if you annualize it you can clutch your pearls over how high it is. But that doesn't in itself mean it's not a useful or even vital service at a fair price. If people need money for a few days to avoid being evicted, jailed, losing their job, whatever, and the APR includes, say, a $20 service charge, it seems disingenuous to attack it solely on the annualized interest rate. You might as well say that we should eliminate $100/night hotels because that equates to a $3,000/month price which is clearly outrageous. On an unrelated note, I wonder if the payday loan places are the same as the check cashing places where you take your paycheck if you don't have a bank account. Should public policy consider that attacking one side of the business might affect another?
- iambateman 8y ago
  In that framework, is it possible to sell someone something (anything) they ought not purchase? Is there such a thing as a “poor choice”? The answer is yes! Fentanyl has a market. Student loans for a degree in Modern Studies have a market. Impossible health supplements have a market. Selling products can certainly take advantage of a person.
  - perl4ever 8y ago
    "Fentanyl has a market" Are you saying that a cancer patient ought not to use Fentanyl when Oxycontin no longer is enough and go directly to morphine? This is not obviously a "poor choice" from my perspective.
    - dlp211 8y ago
      No. How would you even come to that conclusion? They are clearly talking about the black market for the drug.
      - perl4ever 8y ago
        "How would you even come to that conclusion?" The parent comment had a parallel construction where the drug was the odd one out, having legitimate value in some contexts. One implication of that might be that the commenter was unaware of the legitimate value, because if they were aware, they could have avoided the unsatisfactory parallel.

rayiner 8y ago

The idea that selling products and services to poor people is “taking advantage of them” in the terms reality demands is bonkers.

king_magic 8y ago
You can’t possibly be serious w.r.t. payday lenders. I mean seriously, come on. It’s one of the most predatory types of lending that exists. They often provide loans with intentionally confusing and borderline disingenuous lending terms with the explicit goal of taking advantage of people. > The result is denying poor people access to credit. Lol, I mean, if being practically tricked into loans you can never pay off to the point that it drives entire cycles of poverty is your idea of credit, yeah, then sure, you’re right.
- doctorpangloss 8y ago
  > The result is denying poor people access to credit. I think it sort of boils down to rayinier's wrong, or at least hopelessly unsophisticated, understanding of credit. When you don't pay your landlord on time, you definitely enter a debt relationship with your landlord. That's credit in every sense but financial. Payday loan companies securitized a form of credit that had low effective "interest" (e.g., late payment penalties) and converted it into something with high interest. Yes, nobody wants to be evicted. But surely, in a strictly rational economic sense, landlords don't want vacant properties either. It's not so obvious what is the "efficient rate," as rayinier says, because based on eviction rates for late payments of rents, it's probably not that high. Foreclosing on people's homes, of course, was a huge disaster and the source of an incredible amount of national economic and emotional misery. So again, just within an economic positivist framework, it's not at all as simple to arrive at "efficient" rates as rayinier assumes. I'm not sure if payday loan companies, which charge a higher interest rate to essentially victimize the same population at an industrial scale, is an economic positive, you know? I wish he would just admit that while some human beings will sometimes be landlords, and therefore deserve some protections, no normal person will literally ever be a payday loan lender, so it seems fit that we ought to use a credit system (late rental payments) that people can imagine justice inside of rather than an usurious credit system nobody will ever be on the right side of.
Arbalest 8y ago
Stating that still assumes rational actors. It is based off the premise of "freedom" above all else. The problem with freedom is that the way it is defined really depends on what you want to achieve. Infinite choice is the simplest form of freedom, but in this case, you are enabling market forces to remove the ability for people with poor judgement to lose any capacity for future financial freedom, a form of freedom I would argue is more important that short term choice. Edit: I would also like to state that extending credit also increases demand, pushing up prices in the rest of the market, increasing the demand for credit for all players. This is exactly how housing bubble flames are fanned, and it applies at any level of the economy. If people at the bottom are unable to afford necessities, providing them more credit doesn't actually increase their capacity to afford necessities, it is simply a time shift. If that is the scenario that is coming up, a different solution must be found, otherwise you just end up with more interest going to people who already have the money. Classic Gamblers ruin.
- rayiner 8y ago
  Yes, I’m assuming poor people aren’t irrational. Silly me.
  - stouset 8y ago
    We’re all irrational. We all lack access to complete information about any market we’re acting in. Entire business models have been created to take advantage of and even maximize this type of information asymmetry. Legislation exists to curb the most egregious offenders. You can argue whether or not this specific case is egregious enough to warrant regulation. But implying we’re all fully rational actors who can make perfect (or even good) decisions in times of great distress and who don’t ever need sort of safety rail to protect us from our own ignorance, urgency, or rashness is just arguing in bad faith.
    - rayiner 8y ago
      Information asymmetry results in market failures, and can justify regulation. But the Obama payday regulations aren’t directed to information asymmetry. They do not, for example, require certain transparency measures. Instead, what they do is place limits on who lenders and lend to.
thaumaturgy 8y ago
Right, payday lenders are well known to be not-for-profit organizations, focused entirely on their customers' best interests.
chipotle_coyote 8y ago
So reality demands that we categorize charging desperate people an APR of 200%, 300% or more as "selling products and services to poor people," as if doing so is functionally indistinguishable from selling them a cheeseburger?
- perl4ever 8y ago
  I don't think that just because a business exists, it isn't predatory. Maybe payday loans are on net bad and should be eliminated. Perhaps what people say about trapping customers in a cycle is true. However, I don't think that just because an APR sounds extremely large, that makes the loan predatory or otherwise unnecessary. Just like with housing and everything else, when you rent something for a short period of time, there is a fixed overhead, and if you annualize it you can clutch your pearls over how high it is. But that doesn't in itself mean it's not a useful or even vital service at a fair price. If people need money for a few days to avoid being evicted, jailed, losing their job, whatever, and the APR includes, say, a $20 service charge, it seems disingenuous to attack it solely on the annualized interest rate. You might as well say that we should eliminate $100/night hotels because that equates to a $3,000/month price which is clearly outrageous. On an unrelated note, I wonder if the payday loan places are the same as the check cashing places where you take your paycheck if you don't have a bank account. Should public policy consider that attacking one side of the business might affect another?
iambateman 8y ago
In that framework, is it possible to sell someone something (anything) they ought not purchase? Is there such a thing as a “poor choice”? The answer is yes! Fentanyl has a market. Student loans for a degree in Modern Studies have a market. Impossible health supplements have a market. Selling products can certainly take advantage of a person.
- perl4ever 8y ago
  "Fentanyl has a market" Are you saying that a cancer patient ought not to use Fentanyl when Oxycontin no longer is enough and go directly to morphine? This is not obviously a "poor choice" from my perspective.
  - dlp211 8y ago
    No. How would you even come to that conclusion? They are clearly talking about the black market for the drug.
    - perl4ever 8y ago
      "How would you even come to that conclusion?" The parent comment had a parallel construction where the drug was the odd one out, having legitimate value in some contexts. One implication of that might be that the commenter was unaware of the legitimate value, because if they were aware, they could have avoided the unsatisfactory parallel.