Monday, March 03, 2014
Haters Gonna Hate
One of the most satisfying accomplishments of my career happened just a few weeks ago when I received my first slew of hate emails. They came all at once in response to my New York Times Op-Ed about post office banking and each one brought a smile to my face. (That’s not fully accurate—the three page hand-written letter I got from a prisoner in Georgia who informed me how difficult it is for him to even get stamps from the post office, let alone a loan, made me really sad). But I was cheered up when the Breitbart blog disparaged me and Elizabeth Warren in the same sentence—that just had me downright blushing. I was also flattered by the article that said that I was hiding my past as a high-powered bank lobbyist at Davis Polk—if only! Let me be clear, I’m not talking about nasty personal attacks that some of my friends have dealt with. I was just incredibly impressed by people who read the Op-Ed, disagreed with it, and took the time to write me a long substantive email. Although I did write each one back individually to thank them for their emails (except for the creepy ones), I would like to answer just a few general criticisms to post office banking here:
I have written about Post office banking in an article two years ago and more recently, in an essay on the HLR Forum so if you really want to disagree with me, those other sources will give you more to work with.
- Breitbart blog’s criticized me saying that “There are no economies of scale in banking” followed by the dig“anyone who actually works in banking knows this.”
Response: Actually, benefiting from economies of scale is one explanation for the trend toward bank mergers that started in the 1980s and accelerated after the recent painful events of 2008. Why should the credit markets be exempt from general economic principles? Isn’t it true that you can lower costs of a product—even a financial one—by increasing volume? Large banks can cut costs in a variety of ways, which is why as banking gets more competitive, there is more conglomeration. The post office can also lower costs: reducing collection costs by using a treasury department program that allows banks to garner tax returns of debtors, using existing infrastructure, and built-in marketing. They can undercut payday lenders and cash-checkers using their existing resources as well as economies of scale.
- If there were a solution to banking the unbanked, the market would be taking care of it. Payday lenders are doing it and they aren’t as bad as they appear. This position has appeared in several places (see here, here, and here), its main proponent being New School’s Lisa Servon who researched pay day lenders. The basic claim is that these institutions are doing the best they can and are giving people the services they actually need.
Response: While it may be the case that the payday lending industry is the best market answer to banking the poor, that’s not good enough. Their costs are just too onerous and fall on the most vulnerable group in society—the poor. So, yes, I do support more government intervention in this area. But by no means is this the introduction of government intervention into banking. It’s already there: the banking sector is far from being guided by Adam Smith’s invisible hand. There is very little market discipline in banking—and the banks have been banking on the state for years. TBTF bailouts are also not going away as they are political necessities. I think post office banking is just one way to equalize the field in banking. I obviously can’t give this argument the attention it deserves in a blog post, but I’ve written all about it here and will likely take it up in future blog posts.
- It’s never going to happen—it’s politically impossible.
Response: Maybe. I think public choice theory would say that this idea benefits a large and unorganized group of politically powerless people and hurts some of the most powerful and organized lobbies (banks, payday lenders, maybe Wal-Mart?), but as one of my favorite haters said to me: “the populists rise again.” After the Great Depression, Brandeis said that we should nationalize banks and make them public utilities, FDR doesn’t quite go that far, but he seizes on the sentiment and makes major reforms. After the financial crisis, both Occupy Wall Street and the original Tea Party were rooted in populist discomfort with the bank bailouts. While OWLS petered out and the Tea Party was co-opted, I don’t think the window is fully shut. (Warren 2016!)
Posted by MehrsaBaradaran on March 3, 2014 at 09:00 AM | Permalink
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I guess Breitbart didn't read the article that exposed the banking past you've been hiding . . .
(excellent title for the post :))
Posted by: carissa | Mar 6, 2014 3:00:00 PM