Loans To The Poor: Going Postal

When the news broke recently that the US Postal Service is considering going postal on financial services, especially small dollar loans to the "under-and-un-banked," my knee-jerk reaction was the same as Cam Fine's:  "Have you ever stood in the lines at Christmastime at a post office?" I believe Cam also said it was the worst idea since the Edsel.

The proposal was floated in a white paper, and I assumed it was merely a trial balloon by the USPS. At any rate, the initial reaction of the banking industry was so negative that I also assumed that in this year of mid-term elections, partisan gridlock would assure that it was an idea that was DOA. Therefore, I didn't plan to comment on it.

However, my initial WTF? reaction was reinforced beyond a shadow of a doubt when I read last week that Princess Fauxcahontas thinks that the idea is more compelling than a vial of amyl nitrate poppers, a quart of Crisco, and Jennifer Lawrence unchained. Cutting to the chase, Liz thinks that it's unfair that the poor pay more for financial services. This fact is "unfair" according to a standard of "fairness" that has been well articulated in Das Kapital. It is the function of the federal government to rectify this "unfairness" by creating a central government-controlled lender that ensures that credit costs for the poor are "fair."

The poor pay more [for credit], and that's one of the reasons people get trapped at the bottom of the economic ladder.

The poor pay more, as a percentage of their gross monthly income, for just about everything, including food, utilities, rent, and transportation. That is why many of the poor need to borrow: they don't have enough monthly cash coming in the door to pay for the necessities of life. Many of them have a tough time paying back the principal they borrow, much less the finance charges. That's why they are considered poor credit risks and why charging them more for the credit risk they pose makes sense in a free market system.

I assume that Warren doesn't believe that the best solution to "the poverty trap" is to focus our collective efforts on creating more better paying jobs and providing an education that gives the poor skill sets to obtain and perform those jobs. Instead, based upon her world view that the real culprits here are "sky-high interest rates and tricks and traps buried in the fine print of their loan products," Warren wants to focus her (and our) efforts on taking a historically inefficient giant bureaucracy and making it the center piece for a government-controlled effort to give more loans to the poor, which I assume she believes will allow the poor to borrow their way out of the poverty trap. 

Good luck with that scheme.