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Post a Comment On: Steve Sailer: iSteve

"Thomas Geoghegan calls for anti-usury laws in Harper's"

34 Comments -

1 – 34 of 34
Anonymous rightsaidfred said...

...except now my risk of defaulting isn't 10%, it's a higher number, so I need to be charged an even higher interest rate, which in turn gives me a higher default likelihood. And so on.

I would say this is a converging series. Pawn shops have a stable business charging 10% a MONTH, and the people using them pretty much know the score and accept it. Another example is Fingerhut, where the payers know they subsidize the deadbeats.

...now I and my descendants unto the 7th generation are supposed to pay off the damn things.

If we had a few more market forces at work, lenders would have charged the subprime borrowers a much higher interest rate pace pawn shops and Fingerhut, thus weeding out some deadbeats and having more scratch to cover the rest. But our liberal brethren insist that everyone use the fine china, and now the breakage costs are sucking up all our money.

4/1/09, 4:01 AM

Anonymous Henry Canaday said...

It seems that usury or usury-like laws should logically be set by a combination of the interest rate, the size of the principal (and thus payment obligation) relative to the income of the borrower and the duration of the loan. House purchases are obviously the largest danger, for most borrowers, on the two latter measures. But long before legal usury limits are reached, one would think that sane lenders, or sane regulators overseeing these lenders, would set their own more prudent limits.

Keynes also speculated that usury laws might have value, contra the standard opinions of economists even in his day. But I believe he was thinking of the necessity of encouraging investments in difficult conditions.

4/1/09, 4:06 AM

Anonymous Lloyd G. said...

I wonder how long it will be before Obama bails out the car title loan place down the block.

But seriously, the upshot of Geoghegan's argument -- that we're in the trouble we're in now because of predatory lenders' charging too much for loans -- is just plain wrong. Lenders were charging too little. People who should not have bought as much house as they did (or should not have taken out a loan at all) bought in because the cost was low, hurdles non-existent, and the anticipated return was great.

4/1/09, 5:05 AM

OpenID ironrailsironweights said...

Even if usury laws had been in place, I'm not sure if most of the subprime mortgages of recent years would have been in violation of them. Interest rates on these mortgages were higher than on primes, but not by any extreme amounts. 10% vs. 5% might have been a typical difference.

What seems to have been the cause of many subprime defaults was the resetting of interest rates from extremely low initial teaser rates to higher permanent rates. These permanent rates were not so high that they would have violated any usury laws. The increases from the teaser to the permanent rates were not the sort of thing that would be within the scope of usury laws, which AFAIK only concerned themselves with absolute rate levels.

Peter

4/1/09, 6:00 AM

Anonymous Anonymous said...

The flaw in this argument is that we do have usury laws -- just at the state level (with a handful of exceptions, such as North Dakota -- must be all those Jews on the ND legislature).

4/1/09, 6:13 AM

Anonymous bbartlog said...

Usury laws are basically irrelevant to the current crash. The two main issues are
- low interest rates (not high) that allowed for the creation of mountains of debt. For this you can mostly blame the Fed and Greenspan.
- the political arrangement that allowed for losses to be passed off to the public rather than realized by those that incurred them.

Now, if you accept the standard narrative the we had no choice but to bail out (AIG/Merrill/whoever), then you can add to this list a general lack of regulation. I don't accept that story; I regard Paulson's Chicken Little performance as a masterpiece of political theatre. Not to say that he didn't believe it; *his* social world was certainly in danger of sinking like Atlantis!

Anyway, it's true that restricting the creation of debt might make bubbles less likely, but since it's cheap credit and not expensive credit that causes these crashes it doesn't seem like usury laws are a useful angle.

4/1/09, 7:01 AM

Anonymous Anonymous said...

Of course, Allah in the Koran condemns usury in the strictest possible terms (along with alcohol consumption, but not slavery).

4/1/09, 8:06 AM

Anonymous Anonymous said...

Many credit card companies will raise their interest rates to 30% for "defaulters" - people who have a late payment or two, or who they just consider to be an "excessive risk." While 20 or even 30% might be a necessary rate for lending to certain people, I suspect it's also more likely to drive other people to bankruptcy when they realize there's no way they'll ever pay off a balance with a 30% rate.

You can assume that lender's charge rate X because it's the rate they need to charge to be profitable. But among higher risks, they also charge it because they can.

What's more, easy lending policies are just one more way society enables those at the bottom to continue their lifestyles. These people mostly don't need easier access to credit. They need to get (and hold) a job.

4/1/09, 8:53 AM

Blogger John Seiler said...

Well, things would have been so much better the last 38 years if Nixon had not taken us off gold in 1971, leading to massive inflation, as gold went from $35 an ounce to $800 in a few years.

And things would be so much better now if we went back to honest money -- that is, gold. China and Russia are talking about doing so. Maybe that's because they're now capitalist, while America, after Bush and Obama, is socialist.

4/1/09, 9:13 AM

Anonymous RKU said...

Good posting...

Ha, ha, ha!

4/1/09, 9:32 AM

Blogger agnostic said...

Indeed, it might be worth exploring more generally how the ascendancy of Wall Street and the paucity of criticism of finance in recent decades was related to would-be critics' fears of being accused of anti-Semitism.

Check GNXP.com sometime today. I just got the data and made graphs, but need to write it up into a post.

4/1/09, 9:45 AM

Anonymous AllanF said...

It's taken me many years to gain the requisite cynicism, er widom, specifically, a 20-something Libertar[d]ian wouldn't recognize this nuance, but the thing to about anti-usury laws is it puts banks first in line when the currency is debauched. Since banks typically have the ear of power, this is a good thing. I figure if banks figure they can easily pass through inflation, that's one less party in favor of holding the line on a solid currency for us small time savers.

Contra that thought, it didn't work in the 70's and it doesn't work if you have a latin-style demagogue running your govt. So I'm still working on it.

4/1/09, 11:14 AM

Anonymous testing99 said...

Steve, Jews and accusations of anti-Semitism have nothing to do with anti-Usury laws or the move to abolish them.

You are looking for something that is not there.

Anti-Usury Law proponents: Non-White interest groups, the Urban League, NAACP, etc. charging that usury type interest rates are harmful to non-White poor people.

Those favoring high interest rates: banks, credit card companies, etc. who want to make a profit on otherwise unprofitable potential customers.

Contrary to your assertions, most of the time high interest rates plus default are not a problem for issuers of in particular, credit cards, which work far differently than loans, and even loans.

Say Person A defaults on his credit card account. USUALLY the credit card company has collected enough profit that their response: cancel the account, sell the loan for collection, still makes them money. If the collector gets cents on the dollar, all well and good.

Say Person B defaults on his home loan. Still the loan issuer has collected money (or likely the group it was sold to), and simply retakes the house. True the neighbors suffer, but that's the price of living in a declining neighborhood. The house is retaken by the loan group and sold on the market.

The real problem comes in taking bad loans, bundling them up as an instrument, and selling them on the financial market. Often heavily hedged.

All that stuff was HEAVILY regulated, and the regulators due to political pressure from Barney Frank, Chris Dodd, Barack Obama, failed to do their job.

None of this had anything to do with either Jews or fears of being called anti-Semitic.

The battle was fundamentally between banks and credit card companies wanting to make more money, and the groups like the Urban League. Even so things worked reasonably well until these toxic debts were bundled and sold on the global marketplace with regulators failing to do their job so non-Whites and others could be put in houses they could not afford.

In that case, the Urban League and NAACP switched sides and joined with the loan companies.

4/1/09, 11:35 AM

Blogger Concerned said...

Can you supply names, cites, links, to people who charged the anti-usury proponents with anti-Semitism? I really can't take this on your word. I need sources.

4/1/09, 11:57 AM

Blogger Vernunft said...

"You can assume that lender's charge rate X because it's the rate they need to charge to be profitable. But among higher risks, they also charge it because they can."

If there were a lower rate they could charge while still covering the risk of default, they would charge that because of competition, plain and simple. What's impeding competition?

4/1/09, 12:33 PM

Anonymous Pia J said...

Testing, what's today's date?

OT, does anyone else think Obama is letting his daughters choose gifts for foreign monarchs/heads of state? I mean did he really give Queen Elizabeth a personalized iPod?

4/1/09, 12:58 PM

Anonymous MQ said...

Senator Durbin has a bill (S. 500) setting a national interest rate limit of 36 percent, inclusive of all fees and charges. (Except I think a $15 application fee and late fee or something like that). Durbin is influential and is serious about the bill so it may actually move.

It would be easy enough to tie an interest rate limit to the CPI or even anticipated inflation, which is now directly observable through TIPS.

4/1/09, 1:07 PM

Anonymous Anonymous said...

If there were a lower rate they could charge while still covering the risk of default, they would charge that because of competition, plain and simple. What's impeding competition?

When rates are increased, on a credit card, for example, it may be on an individual who has already maxed out their credit. They may not have the option of going to another lender. If they're smart, they'll close the account. If they're not smart, or desperate, or uninformed, they won't. "Competition" is nice in theory but doesn't always work perfectly in practice.

4/1/09, 1:07 PM

Anonymous Anonymous said...

, Allah in the Koran condemns usury in the strictest possible term
so did Plato.

4/1/09, 1:13 PM

Anonymous Beastmaster said...

"I don't have a strong opinion on whether or not we should have legal limits on interest rates, but I do agree with Geoghegan that the subtle costs of not having any limits are too widely ignored in economics classes."

This is my opinion on the Culture of Critique. It isn't the whole argument, but because it is mostly ignored, it leaves a huge blind spot in any pro-American or pro-white effort. It's an important PART of the reason for our current problems and their solutions.

4/1/09, 1:21 PM

Anonymous Anonymous said...

This is totally off-topic, but from the "It ain't over 'til the immigrant wins" file: Zeituni Onyango (Barack Obama's aunt) gets yet another extension on her bid for "asylum" in the US. She came here in '01, was ordered deported in '04, and yet she's still here.

Asylum? She'd be welcomed back in Kenya with open arms to screaming throngs. "Hail the conquering half-aunt of the Obamessiah!"

But here's the money quote: "'Ms. Onyango case is being treated just like any other case before an immigration judge,' Fatimah Mateen, a spokesperson for the court, told reporters."

Yeah - treated just like everyone else. Maybe that's the problem.

4/1/09, 1:28 PM

Anonymous Anonymous said...

Allah in the Koran condemns usury in the strictest possible terms..

so did Plato.

Just about every culture, everywhere, condemned usuary. Also, when the moneylenders have access to the FEd/low interest, and make their money essentially, not off their money but the rules, licenses and regulations that ALLOW them to lend money THEY DO NOT HAVE then it is a little bit silly for WSJ types to balk about a free market - wall street is the most cuddled, protected and subsidized industries in the US>

4/1/09, 1:59 PM

Anonymous Jonathan Holdeen said...

I'm surprised at how shallow the critiques and understanding of usury are here, not just regarding its devastating place in history, but in the failure to acknowledge its absolute untenability in a world of finite resources. Wealth cannot breed - only debt can. Debt is slavery. Geoghegan roughly gets it.

4/1/09, 2:11 PM

Anonymous Dave R. said...

Geoghegan's argument is plausible, but the whole article ignores that a truly free market has natural caps on impossible interest rates and default risks, that were actually preempted by law. Two our host has been posting on already are anti-discrimination laws driving lenders to make loans they otherwise wouldn't, and the moral hazard of bailing out failed institutions, that is, socializing the failure of high risk loans.

I'm starting to think the second point is even more important than the first. If there had been no bailouts, and markets had been allowed to clear and settle to natural prices, we'd have had a short, sharp recession, but we'd already be on the way up and out of it. And the market would now be rejecting the high-risk, high-interest loans that inflated the bubble. (More than it is already I mean, since the current state of credit is partly a general contraction of loaning, and partly temporary until it comes under the same pressures against red-lining and "discrimination.")

In effect, it's the old fallacy of blaming the free market for the failures of government intervention, then demanding still more government intervention to correct it. It's a never-ending spiral of unintended consequences.

Conceivably, easy-credit and non-discrimination constituencies are so well entrenched that anti-usury laws might have a net positive effect by approximating the interest rates and loan offers of a truly free market. That's an argument I'm willing to entertain. (Though there's a risk the affordable housing constituency will still claim its seat at the table and demand rates below the definition of usury.) But I'm not impressed by an "economist" who denigrates the value of two parties freely negotiating high interest for high risk.

4/1/09, 3:12 PM

Blogger Jim Bowery said...

I remember when I became an "antisemite" it was because, even accepting the "fat tail" "smart fraction" explanation for "Jewish overrepresentation" Jews were even further overrepresented in those attacking my last-ditch attempt at political action, proposing a way to reign in rent-seeking in the public and private sectors by taxing non-homestead net assets at what economists call "the risk free interest rate", rather than taxing economic activity for government revenue.

That was it for me -- henceforth I had what Derbyshire calls "The Jew Thing".

The key to understanding the significance of "the risk free interest rate" in the present context is that it is a fundamental parameter of the Capital Asset Pricing Model of Modern Portfolio Theory -- one of the cornerstones of the way Wall Street establishes asset valuation.

4/1/09, 3:36 PM

Anonymous Anonymous said...

Anonymous...
When rates are increased, on a credit card, for example, it may be on an individual who has already maxed out their credit. They may not have the option of going to another lender. If they're smart, they'll close the account. If they're not smart, or desperate, or uninformed, they won't.


Except that closing a longstanding credit card account actually harms your credit rating, making it even harder to go to another lender. Better to pay it off and keep the account open but use it sparingly afterwards.

4/1/09, 3:48 PM

Anonymous Anonymous said...

The entire story of the 20th century could be told by something along the lines of "how people were persuaded not to believe thier eyes".

Playing both ends against the middle is the what allowed these sharpies to prevail against common sense. It is a simple case of the strongest ethnic ethic prevailing.

4/1/09, 7:35 PM

Anonymous Anonymous said...

Except that closing a longstanding credit card account actually harms your credit rating, making it even harder to go to another lender. Better to pay it off and keep the account open but use it sparingly afterwards.

Taking a minor hit to your credit rating is better than paying 20-30% interest. To avoid that you may have to close the account if you have a balance you can't pay off immediately.

4/1/09, 8:11 PM

Anonymous K@rt 18 said...

'that Wall Street is run by WASPs, when you sit down and tote up the NAMES of Wall Street big shots, it turns out that Wall Street isn't as Jewish as some might assume.'

This is not an accurate way of determining if someone is of Jewish origin.

4/2/09, 6:18 AM

Anonymous Anonymous said...

you may have to close the account if you have a balance you can't pay off immediately.

How do you close an account that still has a balance? Do you mean default?

4/2/09, 11:53 AM

Anonymous Anonymous said...

How do you close an account that still has a balance? Do you mean default?

You're generally allowed you to close the acocount while still paying off the balance. You just can't make any new charges. So if the credit card company sends a letter telling you they're changing you're variable rate from (Prime + 3.9) to (Prime + 9.9) you call/write and tell them you want
to close the account. They generally (legally?) can't raise your rate on your existing balance. If you keep charging then your interest rate, even on your present balance, goes up.

If they ever do that, make that call.

4/2/09, 2:02 PM

Anonymous Sinuspolyp said...

Being underemployed, I work at a credit card call center. We are one of the few banks doing the majority of store (PLCC) cards in the US today.

In my tenure there I have seen several initiatives that even frontline management admits are designed to shave billions on late fees and higher APR. If you have two late payments in 12 months-even by one day-your APR may go to 26 to 30 percent. And they have carefully designed ways to make more people late, such as making Saturday due dates due at 5 pm.

I say they need a good kick in the ass, even though they pay my salary (such as it is.)

4/2/09, 6:52 PM

Blogger Lucille said...

does anyone else think Obama is letting his daughters choose gifts for foreign monarchs/heads of state?

Heh. If that were the case, you would probably have seen a rather different selection of DVDs...

4/3/09, 7:24 AM

Anonymous Maximilian said...

'that Wall Street is run by WASPs, when you sit down and tote up the NAMES of Wall Street big shots, it turns out that Wall Street isn't as Jewish as some might assume.'

This is not an accurate way of determining if someone is of Jewish origin.

I have a short story collection with a story called "A Trip Around Manhattan" (if my memory is correct) which is very insightful. It's about a Jewish family who emigrate to New York, and every time they prosper they change neighborhoods and they change their name.

The story was written in the thirties about the earlier wave of immigrants. As I recall, the family name changes in the course of a few years from Rosenfeld to Rosen to Rose to Ross.

4/8/09, 4:14 PM

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