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 America’s evil capitalist system. Carey bases his article almost entirely on anecdotal evidence and on statements by activists with an axe to grind: apart from the borrowers themselves, every single person or group quoted in the article is at the left end of America’s political spectrum. Carey also confuses cause with effect, ignoring the possibility that homeowners facing foreclosure may already be doomed financially by the time they head to the local money mart for a payday loan.
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, LoanMartUSA.com allows loan applicants in Arizona and California to apply online by filling out a fairly simply form.
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. MacArthur Foundation. (For more on the Center for Responsible Lending, see “Demonizing Subprime Lenders: Liberal Groups Oppose Consumer Choice,” by Melanie Sans and Matthew Vadum, in Organization Trends, October 2007, published by Capital Research Center.)
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 Ohio.” However, he doesn’t bother to spell out what the acronym COHHIO stands for, which is Coalition on Homelessness and Housing in Ohio. (It’s a safe bet any group that uses the word “homelessness” in its name isn’t enthusiastic about free markets.) COHHIO advocates government-funded slush funds, or “affordable housing trust funds,” that give leftist groups access to taxpayer dollars that they can then use to push their agenda.
Carey quotes Ozell Brooklin, director of Acorn Housing in Atlanta, Georgia, endorsing an interest rate cap on payday loans: “Thirty-six percent is still very high, but it’s better than 400 percent.” The article doesn’t explain that the acronym ACORN stands for Association of Community Organizations for Reform Now, a far-left activist group routinely implicated in fraudulent voter registration schemes, and which cheats its own employees out of wages. (For more on ACORN's bustling business in electoral fraud, see here, here, here, here, here, here, and here.)
Carey cites Cleveland’ East Side Organizing Project, which is affiliated with the cuckoo-for-coco-puffs National People’s Action. On the agenda for NPA’s conference scheduled for next month in the nation’s capital are such left-wing crowd pleasers as “Housing Justice,” Healthcare Now!” “Worker Justice Organizing Models,” “Immigrant Justice,” and “Corporate Accountability.”
Carey also cites New York’s Empire Justice Center, a mini-ACLU. According to its website [accessed March 25]: “In providing a full and vibrant range of legal represenation [sic] to our clients, Empire Justice undertakes the major class actions and impact litigation that is so often needed to ensure that the rights of poor and low income New Yorkers are protected and defended.” I’m guessing there aren’t too many conservatives working to free the oppressed masses in this group’s headquarters. Ditto for the California Reinvestment Coalition, which Carey also cites. The website for the California Reinvestment Coalition indicates that group “advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services.” The site links to the Center for Responsible Lending and the left-wing National Low Income Housing Coalition which has for years –even when the economy was going gangbusters— been dedicated to ending “America’s affordable housing crisis.”
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.