Americans are increasingly being
financially pinched in our modern profit driven economy. Don't get me wrong, I
believe the profit motive is a natural solution to many problems and that
American capitalism has been a great engine that has lead our country to
worldwide economic dominance over the past 100 years. Nothing is perfect, but
the American model has been, in my opinion, as good as it gets. As we move away
from an industrial base and towards a service based economy, and as farms and
ranches consolidate and move into the hands of fewer but more economically
strong people, and as business' grow larger and have fewer competitors, the gap
between the rich and the poor continues to grow.
In the financial industry this was
the case as well, when I was growing up in the 60's and 70's I could go to a
bank and get a short term loan. There were many banks and a lot of competition
who served the large middle class. By the 1990's, as the middle class shrunk
and the lower-middle class grew, the traditional banks had moved away from
small dollar, short term lending. This change was largely due to the high cost
of servicing these loans as compared with profit made. The banks made a simple
business decision to cease short term lending. At the same time the banks made
another business decision to improve profits, after all isn't that what
capitalism is all about in the first place? The banks decided to greatly
increase the cost of bounced checks, overdraft protection fees and late payment
penalties. Instead of providing short term credit to Americans, they decided to
profit from the lack of it. Today more than ever, a large percentage of bank
profits are made through fees and penalties. Again, I can't blame the banks for
making the decisions they did, the decisions were based on the profit motive,
and it is not necessarily the duty of banks to provide credit to everyone.
Every business I have ever
associated with has a profit motive, most of them would be glad to charge you
whatever the market will bear for their products or services. Luckily, American
Capitalism is about supply, demand, and competition. So when a company starts
to charge too much for a product, another company comes in and says we can make
some good money providing that service for that same price or less, this is
what has historically kept prices in check. When the traditional banks limited
the availability of short term credit and increased fees and penalties, a
demand was created for short term lending, One day in the early 1990's the
first payday loan business opened in response to that demand. There goes that
free market again!
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