Tuesday, December 8, 2009

Thanks Carpe Diem

A special thank you to Carpe Diem blog and Mark Perry for mentioning me, highlighting one of my comments and using it as a blog post.

My comment about the "unbanked" as posted on Carpe Diem follows:
The Unbanked: Xenophobia and Elite Paternalism

Sometimes a comment on a CD post is so good that it deserves its own post. Milton Recht's comment below on this CD post about the "nonproblem" of "the unbanked" is one such example:

If one receives a check and wants to use it to pay a bill, it is difficult at a bank to accomplish the goal. If the check is deposited into a checking account without sufficient funds in the account to cover the check, it can be several days before the check clears. You cannot pay the bank to have the cash immediately. However, you can go to a check casher, pay a fee, have the cash immediately, and get a money order to pay the bill or pay your utility bill right there at the check casher with the funds from the check. Additionally, many hard working people cannot get to a bank during their working day and check cashers and other non-bank service providers are open at more convenient times, speak the foreign languages of their customers, and if necessary, easily remit the funds to another country.

The reason there are unbanked is that banks either do not provide the needed service within the necessary time frame of people who need to live from check to check, or the total cost, including things like getting your electric turned off, are higher at banks than at the alternatives that the unbanked use.

The FDIC fails to understand it is a rational economic decision that the unbanked are making. Unless there are unmet needs of the unbanked, it should leave well enough alone. If banks could provide the needed services at a lower price and more conveniently, the banks will increase their market share of this clientele. Otherwise, the unbanked population will remain. The non-bank providers (check cashing and payday-loan companies) are filling a market need that traditional banks are not meeting.

To me it is a subtle form of xenophobia and elite paternalism. The regulatory class of people (e.g. FDIC) determines that its way of doing things is the only way and the uneducated and minority ethnic groups are too ill informed and irrational to know what they are doing and what is best for them. The groups must be converted for their own good. The regulators justify their concern and actions by doing some partial and incorrect analysis that shows the group in question is overpaying and therefore it is necessary for the government to step in and protect people against their will and voluntary actions.

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