Wednesday, February 12, 2014

Liberal Logic: Punishing Efficiency and Rewarding Ineptitude (Or How the Post Office is About to Become Your Bank)

Of all the exasperating creatures on this planet, there is none so strange and difficult to comprehend as the American liberal.  They see the world through a lens which apparently strips away all logic and common sense and allows them to make recommendations completely devoid of past experience or future expectations.

One day apart I found two striking examples of this absurdity. The first comes from Massachusetts Senator Elizabeth Warren. You may remember that this former professor was one of the architects of the Dodd Frank bill which has destroyed small mortgage businesses and crafted rules which have shut millions of Americans permanently out of the mortgage markets.  Warren was the first interim director of the Consumer Financial Protection Bureau, but due to her extreme left-wing political views she was not deemed suitable for confirmation in the U.S. Senate as a permanent director of the agency.  (And those same extreme left-wing political views made her the ideal senator from Massachusetts, so the story turned out just fine for her.)

Since becoming senator, Warren has proposed a number of ridiculous, unworkable ideas including raising the minimum wage to $22.00 an hour.  Now, she is back with a doosy of a suggestion--turn the bloated, inefficient, and financially insolvent United States Post Office into the nation's newest banking system.

The idea here is that the Post Office can generate $9 billion annually by providing financial services to the nation's "underserved" citizens who are currently using payday loans.  The U.S.P.O. could offer prepaid debit cards, a bitcoin exchange, mobile money transfers and small loans.  Proposed interest rates for these loans would be in the mid-20% range, which is significantly lower than the interest rate on payday loans and possibly substantially too low considering the risk involved in such loans.  Breitbart's Christopher Whalen notes that the average default rate on payday loans is around 50% and then cites a 2007 report explaining why payday lenders are able to cover this risk:
First, over half of payday borrowers default on a payday loan within one year of their first loans. Second, defaulting borrowers have on average already repaid or serviced five payday loans, making interest payments of 90% of their original loan's principal.
Of course, Warren and her compadres aren't worried about default because they are planning to have the IRS collect any unpaid amounts by withholding tax refunds due to the borrowers.

Never mind that the U.S. Postal Service is a byword for waste and inefficiency.  Never mind that, as Whalen correctly points out, bringing in $9 billion in revenue does not translate into $9 billion in profit.  Never mind that an  agency that can't successfully compete with private mail carriers now wants to approve loans and sic the IRS on those who can't pay.  None of this matters to the staunch liberals like Warren.  What is important is that the Post Office is a branch of the federal government and government is deeply, inherently, instinctively good.

Contrast this with a story that appeared today in the National Mortgage News about Ocwen Servicing. At this month's annual meeting of the New York Banker's Association, New York's banking regulator, Benjamin Lawsky, verbally attacked Ocwen--while never naming them specifically he made sure that all industry participants in the room knew exactly whom he meant. What did Ocwen do to deserve being singled out for a public thrashing?  According to Lawsky, Ocwen's "explosive" growth in the area of mortgage servicing "raises red flags" and the company's investment in technology to better serve distressed borrowers is "too good to be true."  Ocwen has announced to its investors that it has identified $400 billion in servicing rights to loans it plans to acquire in 12 to 18 months and that $1 trillion will change hands within a few years.  To Lawsky, that growth signals that Ocwen must be doing something wrong. Most of all, Lawsky is offended by Ocwen's claim that it can service delinquent loans at a cost 70% lower than the rest of the industry.  "These kinds of cost-saving claims bear special scrutiny...Regulators have to ask whether the purported efficiencies at non-bank servicers are too good to be true."

I don't know whether Ocwen's claims about its abilities to service loans effectively and cheaply are true--I have never had any experience with Ocwen on the servicing side.  I do know that this is a private company--a non-bank lender--that is experiencing rapid growth at a time when many in the private mortgage sector are suffering.  To liberals, that makes Ocwen evil.  Never mind that they have invested in cost-cutting technology.  Never mind that there is no public evidence that Ocwen's claims are untrue.  What is important is that Ocwen is a privately-owned company that is making money, and private companies that are profitable are deeply, inherently, instinctively bad.

What is absurd in both cases is the Post Office is being rewarded for their gross inefficiency while Ocwen is about to be punished for their profitability.  (Punished at least in the sense that Lawsky is signaling an unwillingness to allow the company to acquire new servicing rights--at least in the short term).  The evidence of Ocwen's wrong doing is that they are turning a profit--a fact of which no will ever be able to accuse the Post Office.  This could only make sense to a liberal.

When the mafia extorts money from you to allow you to live, they call it "protection money." When the government does it, they call it "consumer protection." Either way, you are paying for protection from someone who has the power to take everything you have.

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