Monday, August 01, 2005

Fed’s Recent Educational Effort Deficient

Ignores --40.6% of Americans
Ignores--Financial Slums Built by Greenspan

The Federal Reserve’s recent announcement ( ) that is was setting up an educational program with USA Today to teach middle/high school students about economics and personal finance by having them create a front page of a newspaper is glaringly deficient.

The Federal Reserve continues to ignore all those ‘financial derivatives’, or miracles of "innovation’ as Greenspan calls them in fringe banking that bilk a vast number of Americans.
Payday loans, rent to own, Auto title loans, Anticipatory Refund loans, Pawn shops, check cashing, wire transfer etc. are not mentioned on the Fed’s educational web page All charge exorbitant fees and are lumped together under the term fringe banking.

As we have pointed out, most of these supposed ‘innovations’ were not around before the onslaught of financial deregulation and the rise of Alan Greenspan to Fed Head. ( )

How can the Fed with a straight face claim to be educating children about economics and finance when it ignores the financial "innovations(?)", spawned during the Greenspan era, that a vast portion of Americans are forced to use because they have no other alternative?

The Stephens company finds that the area of fringe banking is growing at a breakneck pace that is far outstripping the growth in conventional financial markets:

"This is the first issue of the 3U Report. It is focused on the companies we
cover that offer financial products to the consumer. In general, most of these
products are not what most investors would consider mainstream. Basically, we
would include these types of companies in this category: pawnshops, payday loan
operators, check cashers, rent to own stores, small loan operators, used car
dealers catering to the sub prime market and sub prime mortgage providers.
Customers are generally in the $15,000 to $50,000 household income bracket and
lives from paycheck to paycheck. This income group makes up 40.6% of all
households, according to the latest census data. Many of these financial
products are not well understood by Wall Street or are considered suspect for a
variety of reasons. We think that this industry is growing faster than the
general financial services industry."
(The 3U consumer finance Monthly,
March 29, 2004)

The report goes on to say that it was forecasting revenue in the Payday loan market alone, to exceed $40 billion in 2004. The report drools over the financial opportunities present in fringe banking by pointing out the rapid growth of pay day stores from zero in 1993 to an excess of 22,000 stores across the USA. In a pictorial graph in conjures visions of the great gold rushing by calling the growth a "land grab" in a chart.

Imagine as many as 40.6 % of Americans may be resorting to fringe bank services and the Federal Reserve makes no mention of this in its educational page.

The Stephens report also mentioned that it is estimated that "18 to 22% of Americans do not have a bank account". I found the same. ( ). I also found that the Fed was both negligent and in error when it did report on Fringe banking.

The Fed could at least educate children about the dangers and exorbitant fees of financial innovations in fringe banking.

It could say that Pay Day loans are worse than a loan shark:

Or teach them how a $200 TV could end up costing $700.

The Federal Reserve will never do this especially under Fed Head Alan Greenspan, because he Greenspan, as an Ayn Rand acolyte firmly believes that he is aiding the greater good when he lets the less well-off suffer at the hands of the merciless.

With Greenspan set to retire historians will be keenly set about writing his legacy. Financial slum lord should be at the top of their list.

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