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Will The Government's Entry Into Small Dollar Lending Mean Bernanke Is About To Start Handing Out Cash To Everyone?
Deep in the bowels of Donk (DOdd-fraNK Financial abomination bill, whose 2315 pages nobody has read in their entirety), in Title XII: IMPROVING ACCESS TO MAINSTREAM FINANCIAL INSTITUTIONS, section 1205 is a provision titled "Low-cost alternatives to payday loans" in which the government outlines its plans for establishing what is essentially a payday loan advance business (and even odder, the title of Sec. 1205 in the Index references "payday" loans while the actual title of the section is "small dollar" loans - was mere "payday loans" too narrow a definition for the government and got changed in drafting, with the index remaining unchanged?)
In Section 1205, LOW-COST ALTERNATIVES TO SMALL DOLLAR LOANS we read:
(a) GRANTS AUTHORIZED.—The Secretary is authorized to establish multiyear demonstration programs by means of grants, cooperative agreements, financial agency agreements, and similar contracts or undertakings, with eligible entities to provide low-cost, small loans to consumers that will provide alternatives to more costly small dollar loans.
(b) TERMS AND CONDITIONS.—19 (1) IN GENERAL.—Loans under this section shall be made on terms and conditions, and pursuant to lending practices, that are reasonable for consumers.
Does this mean the government is going into the business of direct lending and bypassing the stingy banks completely? As payday loans tend to be the most usurious of all short-term credit instruments for the lower classes, will the government's intervention into this most recent arena result in the obliteration of the existing business model for payday lenders? But far more importantly, will the government use this platform as a means to provide cash to virtually anyone in exchange for shoddy collateral and mere promises to repay the loan? And nowhere in the text is it said the loans are even collateralized with something like a deferred paycheck: these loans could very easily be on par or even worse than NINJA loans, in which the ability to breathe and walk at the same time is sufficient for eligibility, while the ability to actually repay never even figures in the loan officer's mind?
And lastly, what will be the penalties for delinquency and/or charge offs? Since this will come straight from the government's balance sheet (i.e. the Treasury), without bank intermediation, this will be the perfect forum for the government to lend out at any terms it desires, with the implicit understanding that it has no interest in getting paid back.
Is Ben loading up the chopper for one more flight in which he will start handing out non-recourse, no-collateral, no interest rate loans to all of America in one final, valiant attempt to reflate the economy?
h/t Geoffrey Batt
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Grameen micro-lending goes up the socio-economic ladder.
When Bangladesh implemented these programs of non-collateralized micro-loans to the rural poor, it was done so to alleviate destitute poverty and starvation. Exactly what does this new bill in the United States alleviate besides the usurious interest rates?
This will end up the same story as when Hoover broke the mafias' monopoly on lotteries. Soon enough the government will ran the lotteries and the odds of winning and total payout rates were lower than when the mafia ran the racket.
Here we'll see the government attempting to bring payday loan monies INTO THE IRS STREAM OF COMMERCE and TAX COLLECTION NET. THis is another step, along with the new 1099 for all transactions over $600, to institute a progessive VAT tax in the United States.
Bank of America thought it was a great swell idea to give home loans to undocumented illegal aliens with NINJA mortgages.... so I have no doubt BoA will be leading the way into this new travesty.
Thank to legalized accounting fiction, then, the provisions for NPLs will be -10%, since it'll be assumed people is so happy with this initiative they'll overpay Uncle Sam.
The impressive returns achived by taxpayer money will then be boasted aloud.
Well, that's it.. The bringing forward of future demand to keep the ponzi machine chugging has now reached its final, desperate climax - Joe sixpack can now buy that sixpack 2 weeks early.
Guess I'll hold back on my dried breadcrumb fund.
I take fees in the form of toast!
The collateral for your loan will be one vote.
It's incredible how here in Italy peaople think America is the quintessence of capitalism. Now they're even setting up statal retailers for consumer loans.
It won't work anyway, I think.We're seeing it with the housing market, where even if mortgage rates are at historical lows, they can't spur demand.
sheer brilliance! Well the bill will solve the problem of taxpayer bailouts of banks...
We will just funnel cash from working/saving taxpayers to crack pots who can not manage cash flow, have some hairbrained biz idea no bank would take the risk on.
Where do I sign up?
The Frank Dodd Financial Regulation legislation authorizes the US Government to establish a small dollar loan program to compete with payday loan corporations such as EZCORP, and Cash America. One can reference these companies in the chart of EZPW and CSH.
I consider payday loans to be usurious and addictive and as such have never used one. The legislation extends the current moral hazard seen in Freddie Mac and Fannie Mae, GSE lending; and presents the moral risk of the Government as seignior to the public at large where the Government becomes provider of credit and money for daily transactions
In my article Debt Deflation And Competitive Currency Devaluation Means The Loss of National Sovereignty To The Rise Of Global Governance I write that eventually a sovereign will come to rule universally (Revelation 13:5-10); he will be complemented by a great spiritual leader who has a unifying vision for humanity; this individual will also be the seignior, meaning top dog banker who takes a cut (Revelation 13:11-18) who will direct the 666 credit system (Revelation 13:17-18), which is the seigniorage system whereby one will be given the charagma, or mark, necessary to conduct commercial activity
Wow, I hope the Fed doesn’t go into the lending business for scientific research companies. The competition could put my small equipment leasing business out of business. Most of our clients are small to medium sized companies too, and I guarantee our line of financial products and services are better for them than anything the Fed might come up with.
On the other hand, if the Fed wants to loan me money at the same preferred rates they give to their trading and investment banking friends on Wall Street, I can get behind that. If I don’t have to pay those pinstriped pirates to lend me money, I can reduce the rates I charge my clients.