Wednesday, 22 August 2012

Stella Creasy & The Loan Sharks

Let's take a chap, me, who's overspent in a month (on mandatory, regulator-imposed exam-fees, as it happens but also on a holiday for the bird, a bike for me and a really rather extravagent piss-up in which I lost all sense of proportion, and mistakenly let my 'friends' loose on a tab). The Fee from the bank to go over an overdraft limit: £25 plus additional fees of £5 PER DAY over 9 days, this would be nearly £70. by comparison, the cost of a £200 loan from for 9 days £23.74.

Stella Creasy can work out that the £23.74 fees & interest on a £200 loan is an APR of 481%. This she thinks is terribe. By comparison, if the payday lender were not there, the APR to the chap who's overspent is 1,419%, which he would have no choice or ability to avoid. Yet again, the tighter regulation suggested by fucking morons drive people into the tender embrace of the banks who make an absolute killing. One may be paying an APR of 481%, but I'm saving £46.26. Of course the solution is to not go over your limits, but when you do, would you rather pay £23.74 or £70?

Regulation favours the banks, over insurgent competition. Again.

Update. I had a conversation on Twitter about this with the MP in question, who came accross as ill-informed and rather smug. OF COURSE, FINANCING YOUR LIFE USING WONGA IS STUPID. The assumption that this service is bad, and exploitative is made a-priori, without considering the costs of offering a £200 loan for 2 weeks for less than £30 to people who are, by definition struggling for money. Meanwhile Twitterer, @rfrst was trying in vain to make the point that 1% a day plus a fiver is a HUGE APR, which in no-way reflects the cost of borrowing. Wonga for exampe, don't compound the interest, so APR is an absurd measure. I pointed out that other short-term lenders do not enjoy a big return on equity, so they're not making abnormal profits. It's true, a lot of money is spent on advertising. But that's inevitable in a new sector with low barriers to entry.

All I got from the MP from Walthamstow was ad-hominem and a-priori statements not backed up by argument, logic, reason, or economic rationale. Worse, she refused to admit that limiting the cost of credit would affect supply. Finally, she seems to think credit unions are a solution. They are, to those on the carousel of debt, or who are looking to finance purchases more effectively than store credit. They are not a replacement for Payday loans, because the money isn't instant, and so cannot be used to avoid bank debt.

Rather than going after the reputable, and reasonably well-known Wonga, it would be better to go after the less reputable lenders who do overcharge, make multiple claims against an account in a day. Better still, go after the banks, with whom APRs of over 1,000,000% are possible.

Tuesday, 14 August 2012

Train Fares

I'll declare an interest: I use the rail network, but not to commute. There has been an astonishing amount of bollocks being spoken about train-fare rises. Especially commuters, whose season tickets are rising by hundreds of pounds. "The trains are crowded" they complain. Yes, and cutting rail fares will help that, how exactly? "It's too expensive" Well move house, or change jobs. Or travel off-peak. This crowding is because more people try to use the network than is optimal at peak hours.

The effects are not just stress and misery on the journey. This underpriced peak-hour rail drives up house-prices along the rail corridors, and sucks life and employment out of the towns. It also makes people unhappy. People make bad decisions about what makes them happy. They overvalue big houses, and undervalue time not spent on an hour-long commute into town. They overvalue money, and undervalue social contact and family time. And they're aided and abetted in this happiness-destroying cultural artefact by heavily subsidised commuting.

 If the crippling over-dependence of the country on London is to be addressed, the market must be allowed to do its work on rail fairs. Shifting economic activity out of London is to be desired. Britain does not benefit from shifting millions into town and out again every day, when with a bit of thought, much of this economic activity could happen in Reading, or Northampton or Brighton or Hull. Making it easy to live in Cambride and work in London doesn't help Cambridge or its economy.

 You may FEEL you have no choice but to buy the season-ticket, and in the short-run you're probably right. But in the longer term, every person deciding the commute isn't worth it, and seeking a job locally helps the local economy. Every person moving nearer their place of work reduces stress at peak hours on the transport system. In the long run, people respond to economic incentives. It shouldn't be the government's role to insulate people from the reality of their choices.

So, you want to get into central London by 9am? Why not do what I did when I lived in London, and live in a grotty part of town instead, within cycling distance? OH! You want a big house out of London? So you want ME to subsidise your big house by keeping your rail-fare down? Is that fair? It's not like you're without choices: there are no solutions, only trade-offs. Compromise on your house, or compromise on your job. Or accept the real cost of rail-fares. You want a seat, guaranteed? Buy a first-class ticket. Overcrowding in the carriages is merely evidence that the price is wrong.

If there was a free market, rather than fares being regulated, peak hours would certainly be more expensive, and off-peak would probably be cheaper. So renegotiate your hours. Capacity-smoothing fares make sense. Ultimately the problem is one of mis-priced resources, especially space on the world's second busiest rail network. Like the Roads, the Rail Network is overused at peak times and underused off peak. Prices reflecting this are a step in the right direction.

Sorry, rail commuters, your fares are not going down any time soon. I don't mind paying for a rail ticket when I buy a ticket. I do mind paying for rail tickets I'm not using, subsidising people to drive up the price of a house I want where I live, when I fill in my tax-return. The fare rises are necessary, and will have positive economic effects, if you let them. It's not all bad news.

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