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Thread: The Federal Reserve's last throw of the dice: Direct Payday Loans

  1. #1

    Default The Federal Reserve's last throw of the dice: Direct Payday Loans

    Despite pumping in more money into the system in the past 2 years more than the entire of history beforehand the US economy is rapidly shrinking again. The idea of another round of Quantitative Easing of around $5 Trillion has been suggested. The only problem is the first round did not work, partly due to the fact that the demand for loans from people is now muted and banks are buying up bonds and equities.

    To circumvent this the Federal Reserve is tinkering with the idea of lending directly to the public in the form of payday loans, in 1 last desperate attempt to save the dysfunctional financial system. You couldn't script this lunacy.

    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?
    Will The Government's Entry Into Small Dollar Lending Mean Bernanke Is About To Start Handing Out Cash To Everyone? | zero hedge
    “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - Friedrich A. Hayek

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    Is this the Feds version of a sub on your wages?

    A guy can get an advance on his wages and have it deducted from the next 6 months pay cheques?

    Jesus they will not be satisfied until their citizens have to get a line of credit for a sandwich.

  3. #3

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    So helicopter Ben is keeping to his namsake.
    ''The tattoo has a profound meaning: the superficiality of modern man’s existence.'' - Theodore Dalrymple

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    My next paycheck is 1 Billion Euro, honestly. Can I have 75% of that now please?
    “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - Friedrich A. Hayek

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    Politics.ie Member roc_'s Avatar
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    They should just do what they need to do and put the money straight into their pockets without any of this talk of loans, or having to pay the money back etc.

    For anyone who struggles with that concept, or thinks that it is going to automatically lead to inflation, this paper is good - http://www.missouriwestern.edu/orgs/...g26-31-pdf.pdf

    And regarding the supposed threat of inflation, read this paper - Google Docs

    Basically, it is not a major threat while real means of payment is still diminishing rapidly and unemployment is high. And if it does become a threat, it is easily addressed if the political will is there. Deflation is MUCH more difficult to address.
    “Words are animals, alive with a will of their own”.

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    Quote Originally Posted by roc_ View Post
    They should just do what they need to do and put the money straight into their pockets without any of this talk of loans, or having to pay the money back etc.

    For anyone who struggles with that concept, or thinks that it is going to automatically lead to inflation, this paper is good - http://www.missouriwestern.edu/orgs/...g26-31-pdf.pdf

    And regarding the supposed threat of inflation, read this paper - Google Docs

    Basically, it is not a major threat while real means of payment is still diminishing rapidly and unemployment is high. And if it does become a threat, it is easily addressed if the political will is there. Deflation is MUCH more difficult to address.
    Their whole concept is that a tiny elite own all the money and the rest of society borrow from this elite in order to meet their everyday obligations.

    This way they sit on their fat holes and you do all the heavy lifting and better still they will lend you money not pay you money for all your productive activity.

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    Politics.ie Member roc_'s Avatar
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    Quote Originally Posted by MPB View Post
    Their whole concept is that a tiny elite own all the money and the rest of society borrow from this elite in order to meet their everyday obligations.

    This way they sit on their fat holes and you do all the heavy lifting and better still they will lend you money not pay you money for all your productive activity.
    Exactly, that's why the fed and other central banks should just print up a rake of money and hand it straight over to anyone and everyone on say under 60K a year.

    So these people can pay down their debts and go spend a bit in each others businesses.

    They should stop printing and then handing it over to the fat-cats and f**king greenies, at least!
    “Words are animals, alive with a will of their own”.

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    Nothing wrong with a bit of deflation now and then. The only people who really don't like it are the fractional reserve bankers hell-bent on enslaving everyone - deflation messes with their plans to turn everyone into wage-slave debtmonkeys. And cos they own the politicians and the meeja then the relentless message is "Deflation is bad, mm'kay?"

    Consumer Electronics and IT have been in a state of deflation for a couple of decades now, not done them any harm has it? In fact deflation can be triggered by - and in turn helps to further drive - technological innovation. In the right circumstances deflation rocks.

    As to payday loans - FFS, they really scraping the dregs from the barrel of insanity now. Anyone else getting a nice whiff of terrified panic from the banksters now?

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    Politics.ie Member roc_'s Avatar
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    Quote Originally Posted by SideysGhost View Post
    Nothing wrong with a bit of deflation now and then.
    As long as it doesn't kill off too much business - which it has a tendency to do. I agree that some business should be killed off - as they're not fit to compete and add nothing of value to our society. But a balance has to be striven for - very quickly, deflation and people not spending can kill off all of the good business too.
    “Words are animals, alive with a will of their own”.

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    Politics.ie Member roc_'s Avatar
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    As regards the point on wage slavery, imo it really is a help to business to have this leeway - to be able to periodically renegotiate wages based on employee performance and the business performing well. If we didn't have this little bit of room to manouevre, a little shock to the business could easily spell the death-knell.
    “Words are animals, alive with a will of their own”.

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