Saturday, April 7, 2012

Unintended Consequences of Financial Regulation

And, following the morning trend, here is a post from the Volokh Conspiracy on the Cordray Index.  The author of the blog post is Todd Zywicki and his source for the Cordray Index is Reuters.
Along these lines Reuters has now constructed the “Cordray Index,” which shows how the onslaught of federal regulation as well as the continued struggles of the retail banking system to work off bad debt has created a boom time for alternative lenders as consumers have been pushed into these products.  Of course, the response of regulators to increased consumer use has been predictable, albeit tragic–to try to take these options away from people (which will, of course, simply push them further down the chain of products).  The logic turns conventional economics on its head–so when we see increased demand for this product we are supposed to think that consumers are worse for using it instead of available alternatives?  I don’t get why the ordinary rules of economics don’t apply in this market–it seems to me that increased demand for a product is generally evidence of consumer satisfaction relative to other available choices.
Have I recently mentioned the War on Arithmetic?

Regards  —  Cliff

1 comment:

nealcroz said...

I don't agree that ordinary rules of economics aren't in operation here. In fact, they are operating just as they are supposed to. Folks go to retail banking to avail themselves of money, and because of the convoluted regulations imposed by an overreaching Federal government, are turned away empty handed. Instead, they are turned toward an unregulated sector of the retail banking industry, but pay a significantly higher cost for those same services sought in the mainstream retail banking sector.

Try to buy a mortgage lately? This is precisely why bottom feeders like Quicken Loans have sprung up overnight.

Where there is a market need, there will always be someone to satisfy it.