ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Thursday, January 24, 2008

Question for Bill Clinton

In this Op-Ed in the WSJ, you team up with the Governator to promote the elimination of payday loans in order to increase the savings rates of those that rely on these services. You rightly point out that the costs of cashing payday checks and obtaining small-dollar loans from these establishments is rather high (but fail to mention that the rates are high for a reason). In the Op-Ed, you make the following claim regarding how those transaction fees would best be handled:

[...]
Many nonbank customers are either leery of banks or believe they do not have the products they need. The result is that the market for basic financial services is booming. Today, the number of check cashers, payday lenders and pawnshops is more than double the number of McDonald's franchises in the United States. More than 20 million Americans cash more than $60 billion in checks each year at check-cashing businesses. Full-time workers without a checking account typically pay $40 on average to cash their paychecks. And payday lenders sell an additional $40 billion in expensive small-dollar loans each year that carry fees 30 times the average credit-card rate.

But these Americans can become bank customers if they have access to the right products at the right terms, and the support they need to make good, responsible financial decisions. People outside of the financial mainstream are the heart of America. The vast majority of people without bank accounts work, and they have an average household income of $27,000. Most are also married, have at least one child, and are employed by a small business.

And consider that, according to a new Brookings Institution report, as much as $360,000 in pre-tax wealth could be created if the average, full-time unbanked worker invested in the stock market what he will spend over his lifetime paying to cash his paychecks. That would allow one of those workers to finance about 25 years of retirement at his current standard of living.
[...]
That is indeed an interesting point. I have a proposal for you. How about we establish personal retirement accounts with automatic deposit and eliminate the payroll taxes currently being extracted from every worker to fund the social security ponzi scheme?

You make the argument that you are trying to increase the savings rate for the poor.

You make the argument that the transactions for cashing payday checks could result in significant returns over the long-term in the stock market (without even using the adjective "risky")

To be consistent, let's use the power of the market (over the long-term) to benefit all workers. And think of the "educational" opportunities (which you claim to seek in in the OpEd) to teach everyone about the wonders of finance, the Time Value of Money, and compound growth.

Your Co-Conspirator,
ARC: St Wendeler