Sunday, June 08, 2008

Restricting Credit to the Unsophisticated -- And Are You Really Any Better?

After years of arguing that expanded credit is critical for the poor, and attacking banks for "red-lining" poor and minority districts, the liberal-left of this country has reversed directions, and has decided that the poor can't handle credit.

I particularly like this point:

However, for those who think they are ever so much smarter than payday loan customers, who are charged a lot of money for small liquidity boosts, consider this: Let's say you take out $40 each week from an ATM to keep you liquid and that the ATM fee is $1.50. You are therefore spending $1.50 or 3.75% for a one week liquidity boost of $40, which you must again refresh next week. Annualized, you are effectively paying 195% to get liquid with your own money. For this kind of vig, at least payday loan customers are getting the use of someone else's money.

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