As a recovering journalist, it has always amazed me how little journalists, even those specializing in financial reporting, know about the basic principles of economics. Similarly, it has always fascinated me how otherwise reasonable reporters can be reduced to self-righteous anti-capitalist ideologues, spouting the kind of anti-market drivel that one might have heard at a Communist Party meeting in the 1930s.
Nowadays journalists routinely attack lenders who take a chance on the poor. Take the case of “‘Pay day’ loans exacerbate housing crisis,” an article by Nick Carey of Reuters. In it, Carey lectures his readers, identifying with certainty what is making the “housing crisis” worse. The culprit he identifies is the payday lending industry, a subset of the subprime sector so regularly vilified by liberals, including Senators Barack Obama and Hillary Clinton.
Subprime lenders are the Devil incarnate to the mainstream media, and especially so when people are nervous about the economy. The media is currently saturated with stories about subprime lending, or as liberals usually call it, “predatory lending.” Press stories typically start with a profile of a poor person down on his luck who takes out a loan at a high interest rate. Or perhaps the story is about a homebuyer stretched to the limit who takes out a loan at what seems to be an initial low interest rate. The story then describes how after a time the unfortunate borrower is stuck with exorbitant fees and crippling monthly payments, having failed to understand the terms of the loan or anticipate changing economic conditions.
The Reuters article treats all payday borrowers as victims, oppressed by
By the way, a payday loan is a short-term unsecured loan typically for a very small amount. Think of it as consumer bridge financing on a small scale. The idea is for borrowers to repay the principal and interest (and any applicable service charges) on their next payday. Such loans are easy to obtain. For example, Loan
Payday lenders charge a significant premium in the form of interest to such borrowers, who are typically not creditworthy and often poor – sometimes very poor. If payday borrowers can’t get the money they really, really, really need, they have to go without, or seek illicit financing.
The stench of socialism permeates the article, in which Robert H. Frank, an economics professor at Cornell University, is quoted saying giving out payday loans is the same as “handing a suicidal person a noose.” Such loans “lead to more bankruptcies and wipe out people’s savings, which is bad for the economy.” Deregulation of the financial services industry in the 1990s is to blame, Frank says. Translation: bigger government is the solution because people can’t be trusted to run their own lives.Left out of the article was the fact that Professor Frank has long been a cheerleader for activist government. Frank’s website links to his published works, among them gems such as “The Income Gap Grows” (Philadelphia Inquirer, November 27, 2005), “Overrated: Repeal of the Estate Tax” (New York Times, December 27, 2003), and a guilt-tripping ode to tax increases entitled “Which Do We Need, Bigger Cars or Better Schools?” (NYT, July 31, 1999).
Carey quotes Uriah King, a policy staffer at the Durham, North Carolina-based Center for Responsible Lending. “We’re hearing from around the country that many folks are buried deep in pay day loan debts as well as struggling with their mortgage payments,” King says. This is anecdotal evidence from a group that treats market fluctuations as an excuse for government intervention in the marketplace. Not surprisingly, the Center, and other groups pushing for a crackdown on payday lending, take big grants from left-wing funders that don’t trust people to run their own lives. From 2002 to 2005, the Center accepted $100,000 from George Soros’s Open Society Institute, $100,000 from the Ford Foundation, $150,000 from the Rockefeller Foundation, and $500,000 from the John D. and Catherine T.
Carey also quotes Bill Faith, executive director of Columbus-based COHHIO, as saying payday loans “are insidious because people get trapped in a cycle of debt.” (Well, maybe they’re already trapped in a cycle of debt before they apply for payday loans.) Carey describes COHHIO in innocuous language as an “umbrella group representing some 600 nonprofit agencies in
Carey quotes Ozell Brooklin, director of Acorn Housing in
Carey also cites
To sum it all up, the groups that Carey treats as impartial experts, are anything but. These are the same groups that coined their own neologism –the “unbanked”—to describe those who lack bank accounts, as if conducting transactions using financial institutions were somehow a basic human right.And journalists wonder why the American public doesn’t trust them.