Rich predators

The WSJ has been particularly vocal of late about the increasing access to credit for poor people.
I find it alarming when the editors, who would never hop off their pedestal to even ride the Metro with, much less talk to this lower class, begins to champion their causes.

Cause 1: Payday Loans. Its completely understandable that the WSJ might come out in favor of people having access to credit. But when it is predatory lending? That strikes me as just plain mean-spirited. The breakdown goes like this:
Poor people don't have bank accounts because they have marginal cash flow from week to week. Therefore banks can't make money off of them and won't give them accounts. However poor people, when they work, get paid with a check. Where does a person without a car or an account go to get a check cashed? Used to be the mob but they got pushed out by corporate America. SO the poor person has a company cash their check and the company takes its pound of flesh. OK so far. But what happens when the company that cashes checks now dangles short term loans in front of people who have a lot of needs and not a lot of capital? Yup, you set them up to fail and make a profit off of the person. In this case, the company loans money today for earnings that will be paid next week. The company then attaches an exorbitant rate of interest (well past the usual 15% rate for a cash advance on any normal credit card) and, SHOCK, the person cannot repay it. That person now has trashed what little credit they had and will now basically be owned by the company.

This is the practice that the WSJ says is "access to capital by the poor". What it really is: being a loan shark and profiting off of the poorest segment of society. Shameless how low capitalists will stoop to make a penny.

2. "Exotic loan products": Its titillating when the word exotic gets linked to anything. Exotic massage (I'm thinking of some ring tones that my co-workers have that would make nice background music for this). Exotic safaris. Exotic fish. Exotic eyes. These are all things that conjure up something new and foreign and full of allure and intrigue.

So when exotic is linked to loans, you know someone is going to get fucked - but not in a good way.

Exotic loan products have been championed by the WSJ as the way for poor people to get access to capital to buy a house. Now we've all heard the more sanitary term (and more accurate) "sub-prime". Which means that the banks charge more money to people with shabby credit (i.e. poor people). Well the sharks in the industry decided that they could originate loans to poor people with these exotic products and make a buck off of that. These exotic loans are bundled and then sold to banks. The banks then sell the debt to hedge funds while taking a little taste. The hedge funds then hold the debt.

If the economy is good, hedge fund makes money off of the high interest rates that the people have to pay - the very rich are getting even richer off of very poor people.
If the economy is bad, well the hedge fund takes the hit. In principle this sounds fair....but let's go back to the origination of these loans. These loans are not standard 15 or 30 year loans that your parents and mine have. No, these are exotic. For some reason, poor people cannot be originated a 15 or 30 year loan and that debt cannot seem to be bundled and sold to hedge funds. Seems odd to me and I am SHOCKED that the WSJ has not explained why the 30 year mortgage is so different. These exotic loans all have some features in common: teaser rates or interest only which are followed in a few years by ARMs, balloon payments, pre-payment penalties, etc. Essentially, these products are designed to ensnare the lower middle class in a never ending cycle of debt. The 30 year loan which has set payments and no surprises will generate a steady profit for the originator. But it will not get the short term and quick profit that hedge funds now demand.

This is inherently destabilizing to the country. Why would the country NOT regulate these predatory practices out of existance?

I think that it is funny how the WSJ always makes a point that the upper 10% pay all of the taxes in the country - and the lower classes are gettting a free ride. Well I would say that the lower classes are the source of the profits that the upper classes are collecting. And these two examples of "access to credit" show how much of a tax poor people pay in this country. Its not Federal or State taxes that they pay, it is high interest and predatory loans that catch this large segment of the society.

If 50% + 1 person would vote in their economic interest, this would not take place.