7 ms·

Secret Network Connects Harvard Money to Payday Loans

78 points by tinkerrr 12y ago

jamestomasino 12y ago
What an interesting and complex network. It says some horrible things about me that what I found most interesting was the demeanor of Zeke Faux. I have rarely ever seen someone so visibly uncomfortable in front of the camera. It was kind of amazing.
harmegido 12y ago
I think this raises the interesting point that investments have become increasingly abstract. Money goes in, returns come out, and that's generally the end of the story. I certainly can't list all of the companies I have investments in, and I bet most people can't either, other than to say they have a mix of mutual/index funds.
- pktgen 12y ago
  I refuse to hold broad funds for this reason. It's much less convenient and potentially a lot costlier (making individual stock trades or at least sticking to smaller sector funds, which generally have higher expense ratios, where I can approve of each holding), but I have my own definition of evil companies and I refuse to hold even 0.0000000000000001% of them.
  - jacquesm 12y ago
    It is not only less convenient and potentially costlier it also means you carry much higher risks. I applaud you for your principled stance but you should be aware of all the consequences.
    - pktgen 12y ago
      I'm aware, such a stance is definitely on the very opposite end of the simplicity of a total market fund. Even choosing some sector funds is difficult. REITs for example would seem to be an easy one in my opinion (I see nothing wrong with renting real property for money), but the Vanguard fund VNQ still manages to own at least one company I refuse to own, Corrections Corporation of America, so I won't own that fund. (Another term for this is "socially responsible investing" and there are indexes, and associated high-fee funds, that claim to seek it. However, I feel this is a very personal issue; I wouldn't use such an index because someone's definition of socially responsible/non-evil may be very different from mine. My opinion is such indexes/funds are just gimmicks with high expense ratios.) And even if such an approach will most likely lead to lower returns (for example, due to higher fees in paying commissions, though that can be reduced or eliminated by smartly taking advantage of brokerage promos), I'm fine with that. I'll take my $1.00 earned from what I consider to be ethical means vs. $10.00 earned from what I consider to be unethical means.
  - logicallee 12y ago
    >and I refuse to hold even 0.0000000000000001% of them. You say that, but 0.0000000000000001% of even the world's largest company by market cap (Apple, at 592.44B) would be $0.000000560337 if you ever so much as glance at an ad an evil company runs, then assuming a CPM of $0.01 (two orders of magnitude lower than actual average cost), your single glance is worth $0.00001 or 17 times the value you said you would never hold. So you'd never hold $0.0000000000000001% of an evil company but you are more than happy to just give them 17 times that value for free by glancing at one of their ads at some point in your life? You need to lower your purity standards if you don't want to be a hypocrite :) EDIT: all right, I mixed my metaphor. just think of an evil ad company :)
    - pktgen 12y ago
      I'm not sure I follow you about giving them 17 times that value. If I think a company is evil, that means I won't be buying their products, so if they're paying for my ad impression, that's good from my point of view because they're just throwing money away without any chance of me buying their product. (Not that the amount of money is meaningful, but still.) But yeah, the 0.xxx1% percentage was just exaggeration :P
WestCoastJustin 12y ago
If you are interested in this topic, you should watch: Last Week Tonight with John Oliver: Predatory Lending (HBO) [1]. I think he does a pretty good job in giving an overview of what predatory lending is. Although, he does not talk about Harvard, MIT, or pension funds, this is all new as far as I know. [1] https://www.youtube.com/watch?v=PDylgzybWAw https://www.youtube.com/watch?v=PDylgzybWAw
empressplay 12y ago
Once again, ethics gets run-over by the greed bus. Nothing new to see here folks, carry on...
rbobby 12y ago
Should Google really be selling advertising to these sites? Payday loan operations really are the scum at the bottom of the barrel.
- dublinclontarf 12y ago
  You say that, but the people are taking these loans because they need them and no one else is giving them a better offer.
  - electromagnetic 12y ago
    Exactly this. These are people with poor credit histories at high risk of defaulting and usually a track record of late payments on bills. No one will touch them without charging exorbitant fees. We either stop it and let people suffer, or we allow it to continue and people at least have some ability to continue living a somewhat decent quality of life and not homeless on the streets.
    - jacquesm 12y ago
      I don't think those are the only two options. Payday loan companies have exorbitant interest rates, in other countries there are different - and less based on graft - ways of dealing with this problem. For instance in NL we have the 'Gemeentelijke kredietbank' (https://www.degkb.nl/diensten/kredietverlening https://www.degkb.nl/diensten/kredietverlening in dutch), a bank that operates without profit motive for those in situations as you described above.
      - davidw 12y ago
        > I don't think those are the only two options. Another option is that it's made illegal, and there are no good alternatives, so "unofficial" sources for loans are found. These can range from family members to Mafias.
        lotsofmangos 12y ago
cel1ne 12y ago
There's a documentation called "Master of the universe" by Marc Bauder, which really shows the insides of how finance works nowadays. I don't know if it's available in english yet, :/. Trailer with english subs: https://www.youtube.com/watch?v=OIUPWWwEclc https://www.youtube.com/watch?v=OIUPWWwEclc From IMDB [0]: "A former banker in Germany, who entered the business with the advent of modern computer systems reminisces of his working years in some of the world-leading banking corporations." [0] http://www.imdb.com/title/tt3129484/ http://www.imdb.com/title/tt3129484/
- themartorana 12y ago
  Even better, check out Last Week Tonight's bit (John Oliver's show on HBO) on payday loan companies [0] - they're utterly appalling. [0] http://m.youtube.com/watch?v=PDylgzybWAw http://m.youtube.com/watch?v=PDylgzybWAw Edit: spelling
jordan0day 12y ago
Clearly there is a need for something like payday loans, where people in dire straits can get small cash infusion to get them by. It also seems to be the general consensus that these same people are "high-risk", and so require higher interest rates. So what's the solution to this problem? Clearly a lot of (maybe all) of the payday loan-type places are evil -- is there a way to service these customers without being evil? Would a not-for-profit (or perhaps even a not-for-an-exorbitant-profit) payday loan organization be possible? Or would the typical nasty collections process, the thousands of dollars of interest on a $500 loan still be required, even if the people at the top weren't becoming millionaires? I guess what I'm asking is, in the story, we see someone paying something like $3900 on a $700 loan, made by one of these evil companies. What would their total bill be if the loan was made by a non-profit organization? Would it be more like $1000, or still closer to $3900?
- brational 12y ago
  That's pretty difficult to surmise given you don't know how much of the interest is for profit vs how much covers risk of defaulters. Arbitrarily, of that $700 turned $3900 loan a non-profit might still need to run it $3500 just to cover all the other loans that they receive nothing from.
- akgerber 12y ago
  There are proposals to bring back postal banking, including small loans: http://www.slate.com/articles/news_and_politics/history/2014/08/postal_banking_already_worked_in_the_usa_and_it_will_work_again.2.html http://www.slate.com/articles/news_and_politics/history/2014...
- a-priori 12y ago
  Instead of this, set up a non-profit payday loan company that offers loans at market rates, but uses the profits from the loans to offer free financial planning and education for its customers.
  - refurb 12y ago
    Market rates? You mean the same rate that people with good credit get? I'm guessing there would be no profit in such a situation.
yeukhon 12y ago
Personally I think if a university is as rich as Harvard is "investing" (unwillingly/indirectly accoding to the interview) in a payday loan, they might as well just make a Harvard Loan Institution which it lends students loans on a reasonable interest rate. Students CAN also invest in this loaning business and get a fair share. But I am sure IRS, the state and the federal government will jump in and make everything impossible to run.
otakucode 12y ago
The US has usury laws? I thought those were abandoned decades ago? Serious question... I thought Delaware started by getting rid of them and everyone else followed suit to attract the business of consumer lending companies? What level does interest have to be to qualify as 'usury' now?
- downandout 12y ago
  Usury is defined by individual state law. Some states have no usury laws, but many do. There are loopholes in alot of them as well. Here's a summary of the state laws: http://www.lendingkarma.com/content/state-usury-laws-legal-interest-rates/ http://www.lendingkarma.com/content/state-usury-laws-legal-i...

78 points by tinkerrr 12y ago

What an interesting and complex network. It says some horrible things about me that what I found most interesting was the demeanor of Zeke Faux. I have rarely ever seen someone so visibly uncomfortable in front of the camera. It was kind of amazing.

harmegido 12y ago

I think this raises the interesting point that investments have become increasingly abstract. Money goes in, returns come out, and that's generally the end of the story. I certainly can't list all of the companies I have investments in, and I bet most people can't either, other than to say they have a mix of mutual/index funds.

pktgen 12y ago
I refuse to hold broad funds for this reason. It's much less convenient and potentially a lot costlier (making individual stock trades or at least sticking to smaller sector funds, which generally have higher expense ratios, where I can approve of each holding), but I have my own definition of evil companies and I refuse to hold even 0.0000000000000001% of them.
- jacquesm 12y ago
  It is not only less convenient and potentially costlier it also means you carry much higher risks. I applaud you for your principled stance but you should be aware of all the consequences.
  - pktgen 12y ago
    I'm aware, such a stance is definitely on the very opposite end of the simplicity of a total market fund. Even choosing some sector funds is difficult. REITs for example would seem to be an easy one in my opinion (I see nothing wrong with renting real property for money), but the Vanguard fund VNQ still manages to own at least one company I refuse to own, Corrections Corporation of America, so I won't own that fund. (Another term for this is "socially responsible investing" and there are indexes, and associated high-fee funds, that claim to seek it. However, I feel this is a very personal issue; I wouldn't use such an index because someone's definition of socially responsible/non-evil may be very different from mine. My opinion is such indexes/funds are just gimmicks with high expense ratios.) And even if such an approach will most likely lead to lower returns (for example, due to higher fees in paying commissions, though that can be reduced or eliminated by smartly taking advantage of brokerage promos), I'm fine with that. I'll take my $1.00 earned from what I consider to be ethical means vs. $10.00 earned from what I consider to be unethical means.
- logicallee 12y ago
  >and I refuse to hold even 0.0000000000000001% of them. You say that, but 0.0000000000000001% of even the world's largest company by market cap (Apple, at 592.44B) would be $0.000000560337 if you ever so much as glance at an ad an evil company runs, then assuming a CPM of $0.01 (two orders of magnitude lower than actual average cost), your single glance is worth $0.00001 or 17 times the value you said you would never hold. So you'd never hold $0.0000000000000001% of an evil company but you are more than happy to just give them 17 times that value for free by glancing at one of their ads at some point in your life? You need to lower your purity standards if you don't want to be a hypocrite :) EDIT: all right, I mixed my metaphor. just think of an evil ad company :)
  - pktgen 12y ago
    I'm not sure I follow you about giving them 17 times that value. If I think a company is evil, that means I won't be buying their products, so if they're paying for my ad impression, that's good from my point of view because they're just throwing money away without any chance of me buying their product. (Not that the amount of money is meaningful, but still.) But yeah, the 0.xxx1% percentage was just exaggeration :P

WestCoastJustin 12y ago

If you are interested in this topic, you should watch: Last Week Tonight with John Oliver: Predatory Lending (HBO) [1]. I think he does a pretty good job in giving an overview of what predatory lending is. Although, he does not talk about Harvard, MIT, or pension funds, this is all new as far as I know. [1] https://www.youtube.com/watch?v=PDylgzybWAw https://www.youtube.com/watch?v=PDylgzybWAw

empressplay 12y ago

Once again, ethics gets run-over by the greed bus. Nothing new to see here folks, carry on...

rbobby 12y ago

Should Google really be selling advertising to these sites? Payday loan operations really are the scum at the bottom of the barrel.

dublinclontarf 12y ago
You say that, but the people are taking these loans because they need them and no one else is giving them a better offer.
- electromagnetic 12y ago
  Exactly this. These are people with poor credit histories at high risk of defaulting and usually a track record of late payments on bills. No one will touch them without charging exorbitant fees. We either stop it and let people suffer, or we allow it to continue and people at least have some ability to continue living a somewhat decent quality of life and not homeless on the streets.
  - jacquesm 12y ago
    I don't think those are the only two options. Payday loan companies have exorbitant interest rates, in other countries there are different - and less based on graft - ways of dealing with this problem. For instance in NL we have the 'Gemeentelijke kredietbank' (https://www.degkb.nl/diensten/kredietverlening https://www.degkb.nl/diensten/kredietverlening in dutch), a bank that operates without profit motive for those in situations as you described above.
    - davidw 12y ago
      > I don't think those are the only two options. Another option is that it's made illegal, and there are no good alternatives, so "unofficial" sources for loans are found. These can range from family members to Mafias.
      - lotsofmangos 12y ago

cel1ne 12y ago

There's a documentation called "Master of the universe" by Marc Bauder, which really shows the insides of how finance works nowadays. I don't know if it's available in english yet, :/. Trailer with english subs: https://www.youtube.com/watch?v=OIUPWWwEclc https://www.youtube.com/watch?v=OIUPWWwEclc From IMDB [0]: "A former banker in Germany, who entered the business with the advent of modern computer systems reminisces of his working years in some of the world-leading banking corporations." [0] http://www.imdb.com/title/tt3129484/ http://www.imdb.com/title/tt3129484/

themartorana 12y ago
Even better, check out Last Week Tonight's bit (John Oliver's show on HBO) on payday loan companies [0] - they're utterly appalling. [0] http://m.youtube.com/watch?v=PDylgzybWAw http://m.youtube.com/watch?v=PDylgzybWAw Edit: spelling

jordan0day 12y ago

Clearly there is a need for something like payday loans, where people in dire straits can get small cash infusion to get them by. It also seems to be the general consensus that these same people are "high-risk", and so require higher interest rates. So what's the solution to this problem? Clearly a lot of (maybe all) of the payday loan-type places are evil -- is there a way to service these customers without being evil? Would a not-for-profit (or perhaps even a not-for-an-exorbitant-profit) payday loan organization be possible? Or would the typical nasty collections process, the thousands of dollars of interest on a $500 loan still be required, even if the people at the top weren't becoming millionaires? I guess what I'm asking is, in the story, we see someone paying something like $3900 on a $700 loan, made by one of these evil companies. What would their total bill be if the loan was made by a non-profit organization? Would it be more like $1000, or still closer to $3900?

brational 12y ago
That's pretty difficult to surmise given you don't know how much of the interest is for profit vs how much covers risk of defaulters. Arbitrarily, of that $700 turned $3900 loan a non-profit might still need to run it $3500 just to cover all the other loans that they receive nothing from.
akgerber 12y ago
There are proposals to bring back postal banking, including small loans: http://www.slate.com/articles/news_and_politics/history/2014/08/postal_banking_already_worked_in_the_usa_and_it_will_work_again.2.html http://www.slate.com/articles/news_and_politics/history/2014...
a-priori 12y ago
Instead of this, set up a non-profit payday loan company that offers loans at market rates, but uses the profits from the loans to offer free financial planning and education for its customers.
- refurb 12y ago
  Market rates? You mean the same rate that people with good credit get? I'm guessing there would be no profit in such a situation.

yeukhon 12y ago

Personally I think if a university is as rich as Harvard is "investing" (unwillingly/indirectly accoding to the interview) in a payday loan, they might as well just make a Harvard Loan Institution which it lends students loans on a reasonable interest rate. Students CAN also invest in this loaning business and get a fair share. But I am sure IRS, the state and the federal government will jump in and make everything impossible to run.

otakucode 12y ago

The US has usury laws? I thought those were abandoned decades ago? Serious question... I thought Delaware started by getting rid of them and everyone else followed suit to attract the business of consumer lending companies? What level does interest have to be to qualify as 'usury' now?

downandout 12y ago
Usury is defined by individual state law. Some states have no usury laws, but many do. There are loopholes in alot of them as well. Here's a summary of the state laws: http://www.lendingkarma.com/content/state-usury-laws-legal-interest-rates/ http://www.lendingkarma.com/content/state-usury-laws-legal-i...