One of my chief objections to many in conservative and libertarian circles is the assumption that if someone can get someone to sign a contract with a certain provision in it, then that provision is not only legally, but also morally, binding.
I've got trouble with that idea, to put it mildly. For starters, the Scriptures DO limit the kinds of contracts one can impose on a poor man--no usury, and you cannot take a man's cloak (also his blanket) as security for a debt overnight. So clearly, there is no automatic equivalence between "what you can get in a contract" and "what is moral," especially when you're dealing with those who are poor or otherwise defenseless.
It may be only the tip of the iceberg, though. In his 1978 commencement address at Harvard, Aleksandr Solzhenitsyn noted (among other things) that our country was rapidly becoming one in which the legal standard appeared to him to be the only one that we would heed--and for that reason, our model was no longer one he could recommend for his native land.
Scary thought.
Clearing The Decks: 4/19 Edition
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In one sense, this blog hasn’t changed much in the 22 years I’ve been
running it. I get up early, I write stuff. For the past 20 years, it’s
doubled as sho...
2 hours ago
16 comments:
o.k...I can understand the frustration of lending money to poor people at high interest rates. In fact, this used to be one thing that I got really really mad about (and I don't get pissed about much). My thinking has changed a bit on that, though, and I'd like to hear your response:
Lenders to low income individuals make comparable profit margins to lenders to high/middle income individuals (due to high default rates). Removing their ability to charge higher rates of interest will simply make the cost of those loans infinite, which is a bit higher than x%, even if 'x' is 30.
With that being true...what's the option? Well, I can think that if the government were not in the welfare business, and private charities were allowed to grow up to replace it, perhaps there would be relationships that could sustain and wisely monitor the microloan that may be needed here or there, and therefore not require someone to go to a "usurious" lender. Problem is, even attempting to set up that system is going to be a colossal failure, because there really is no incentive to create the structure that would need to be in place before those kind of 'friend loans' could happen.
eh?
I am thinking it is asymmetrical, though. If a person makes a pledge, he is morally bound to keep it.
But the other party is morally obligated not to require an unjust pledge, and required to repent of it and release the other person.
I don't think the fact that the pledge is unjust releases the person who freely made it. So there is a moral obligation to keep your pledges, but there is also a moral obligation not to enforce unjust ones made to you.
Shawn, sometimes it might be just to make the loans impossible to get, believe it or not. If you look at, for example, the results in many inner cities and such from "subprime" loans these days, wouldn't you be hard pressed to argue that making credit more available for the poor wasn't exactly a good idea?
(here in MN, we've got neighborhoods in the TC area where housing prices have gone down 75% as a result of the speculative boom/bust cycle caused by loose Fed policy and subprime loans...)
Sometimes there are simply some transactions that we simply shouldn't allow, even if both participants agree, no?
It seems to me the worst thing that could happen under Bert's proposal would be that people who cannot afford property at a rate that does not destroy their financial independence and security, can continue to be tenants. And I can't figure out why that would be the worst thing in the world. Sure owning has its advantages, but not at the cost of economic slavery.
Pentamom, regarding your first post, it's a good guide, but one thing that bothers me is the question of whether we can assume that Subclause C part 14a of the fine print of a 20 page contract signed as a condition of employment is truly voluntary--or whether it was kinda "snuck in" with good faith assumptions.
...who decides whether loans should be impossible to get?
I don't like people taking high interest rate loans, but I like less the idea of legislators determining what is an "impossible" loan to get.
It's the "allowing" that scares me. If you're talking about admonishing people to stay out of the business of lending to poor people, that's one thing, and I'm fine with it...if you're talking about legislating *against* (an arbitrarily decided interest rate) loans, I vehemently oppose the idea.
and, with the admonishing...I'm thinking that may not be such a great idea. The people likely to listen to you would be the people you'd most want to be lending money to the poor, assuming they can stay in business doing so. The people who would sneak subclause c, part 14a in wouldn't have listened to your admonishment in the first place...
...and if you want to make it actually illegal...well...loan sharks don't have contracts, that's for sure...though i'd rather someone be broke than their kneecaps. Sadly, if people want money, people will lend it. They will either do so legally or illegally.
the whole conversation changes, at least for me, when you realize that those 'payday loan' people are not making huge profits. As I've heard the head of the GMU econ department say: "capital is greedy, and capital is fast" (subtext: if somebody is making a huge profit, capital will be pumped in there to create competitors which will drive down margins to more standard levels)
I fear I'm getting off topic...to drift back:
crazy point o' mine 1: Usury almost doesn't exist in the US, or in other (relatively) free market societies.
crazy point o' mine 2: unfortunately, especially given the truths of public choice research, I see no way to legislate effectively in this market in a way that will actually do more good than harm. That is not a popular opinion, and it only takes one sad story to make people hate the guy like me who defends the market, but I still submit that 30% interest is more affordable than infinite, and less painful than a loan shark's terms.
He signed the thing voluntarily, either being willing to sign something he didn't fully understand, or understanding the risk.
If it can be shown that subparagraph whatever is so misleadingly worded as to be deceptive, you've got yourself a case. Otherwise, I can't see any way around a moral obligation to fulfill what you bind yourself to (barring the other party voluntarily releasing you) even if it's a widespread practice to bind yourself to things you don't understand. That's a reason not to bind yourself, not a reason for it not to be binding when you do. Maybe if people were only willing to bind themselves to fulfill what they understood and believed themselves able to fulfill, the subparagraphs wouldn't even be there, as no one would sign contracts like that.
We don't have usury? Ever look at a credit card contract? Ever seen the interest rates that payday lenders and pawnbrokers charge? Yes, we don't allow Vinnie to come to your house and break your kneecaps if you don't pay up, but we certainly do have legal debt arrangements that would probably qualify as usury.
And there are any number of contracts that you cannot make legally--didn't Eliot Spitzer just learn that? The trick is to choose which ones are particularly abusive.
And, of course, in the case of the subprime fiasco, it actually turns out that it was the government encouraging usurious practices.
It should also be noted that a great part of what Solzhenitsyn advocates is a return to spiritual "common sense." More or less, even if the law allows you something, you think over whether it's really just.
Kinda like the Wal-Mart case. Exactly what did it tell their million + employees and tens of millions of customers except "we will sue you into the poorhouse if it suits our purposes"? Moses has something to tell us about that.
Wow! Bike this is really good stuff! Maybe we can dialogue. Your last comment was well put.
Maybe we can... "just get along."
Quote is from the great prophet Rodney King if you were wondering:)
Peace,
PS. I always wondered why people have the "word verification" thing on their blogs? Why?
...and there's the "crazy" in my "crazy point #1": I realize that people charge very high interest rates to poor people. I also realize that these people (as an industry) do not make more money off of poor people than a lender does to middle/upper income people. The rates of return are the same. So, they must charge high interest to make up for heavy defaults. How does one "fix" that? If you attempt to "disallow" such high interest rates, there will simply be no legal lenders to the poor, and then the loan sharks will come in. You may have soothed your conscience by disallowing those high interest rates through legislation, but have you really helped the situation?
Please tell me what can "be done" about high interest rates, given the size of the market (and subsequent lack of relationship between lender and borrower, as well as ease of going 'elsewhere', legal or otherwise, to get a loan if one wants it)? Again, is this admonition, or legislation that you want?
Aaron; thanks, and yes, I believe you're right. (though I cringe to think of the train wreck that has sadly been the life of Rodney King)
Dropped out of other discussions because I didn't know that I had anything constructive to add at that point.
And the word verification? Just had one too many "spammers" post links to "mal-ware," that's all. It's the "blog" equivalent of bars in front of the windows after business hours, I guess.
Shawn; aren't there loansharks already for those who have nothing to offer to the pawnbrokers? Are we under the impression that they're going to step in and start offering subprime real estate loans?
Of course not; the loan shark was the guy you went to to cover a foolish gambling debt, or to get enough money to cover next month's rent, not to finance your home. You end "community reinvestment," and what you get is a drop in real estate prices, and then the bankers move in with regular loans for those who qualify.
So what I'm asking for, more or less, is for people to return to what they knew a century ago about debt--and for government to stop promoting bad kinds of debt.
AH!!!
well, if we're talking about dropping fake loans, that wouldn't exist in the market, you and I are speaking the same language, because it's a language that recognizes incentives (if money is cheap to get, more people will get it, and if it's too cheap to get, too many people will get it). So, if it's limited to that, then we are completely in agreement.
I didn't realize it was limited to that. When you get into regular market-rate loans (at high interest rates for poor people), i'm afraid there's nothing that can be done to "fix" those (because that's when the loan shark comes in...you're right, he doesn't have a thing to do about loaning $$ for your house).
I do believe, however, that if the govt were to get out of "community redevelopment", there may be systems that develop to assist with smaller scale loans; even loans to cover bad gambling debt, if you agree to put yourself under the eye and tutelage of a local church, for example.
Maybe people would be willing to do that, rather than go to the shark in the first place. One can hope...and that would be a great boon to the kingdom.
sorry, that's to read "when you get into regular market-rate loans for smaller things, such as the ones offered by credit cards, pawn brokers, and payday advance places, i'm afraid there's nothing that can be done to "fix" those..."
Certainly dropping fake loans that wouldn't exist in a real market would be the place I'd start. Interestingly, that would also put the kibosh on 30 and 40 year mortgages, which were created by Fed edict.
Shoot, might be a decent idea to shut down the Fed, too, but that's getting off on a tangent.
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