Anyone awake enough to look through a paper of mine?

[Dreamofunity]

So I'm a procrastinator, and my paper is due tomorrow at 9:30am. Considering it's 3am now and I'm not done with it, my comprehension is slipping and I can't decide if what I've wrote makes sense. If anyone's awake (and bored) enough to look through it it would be greatly appreciated.

Also I need about 200-700 more words if anyone has any ideas, as well as one more source.





1. Why do you suppose the government regulates interest rates on consumer credit (as with credit cards) but generally does not do so with commercial credit (as with loan businesses)?

Nearly seventy-eight percent of American households have a credit card, or more accurately, an average of 5.4 cards each to be exact. More than $2.1 trillion was charged in 2008, while the average card user ended the year with around $10,679 in debt. (Woolsey, & Schulz, 2010) The increased focus on consumer credit verses commercial credit is simply a game of sheer numbers for most. For politicians, the numbers cause them to follow the median voter theory to accommodate as many people as possible that could potentially vote for them in order to not end up out of office and unemployed like millions of other Americans. There are exponentially more consumers affected by the recent credit card debacle than there are businesses, which means there are exponentially more votes to be won over by attempting to help the consumer.


In addition, consumers have a much worse relationship with credit providers than businesses do mainly due to the fact that much of what consumers borrow is done through unsecured loans, whereas businesses have assets to back up the loan, making it secured. Consumer credit is seen as having a higher risk of return considering most of consumer credit is people borrowing money to buy non-durable consumer goods they do not particularly need, while businesses typically borrow to invest. A credit provider may go out of its way to establish a long term relationship with a business seeking loans, but may only see the average consumer as an expendable short term profit provider. Often times the ones getting screwed over by credit providers are consumers, not businesses, and so the perceived need for government help and intervention often times comes from the consumer.



There of course could be a less cynical reason than just reelection for government officials to focus on consumer credit; they may actually want to help. Unfortunately, as shown throughout the Credit-Card Crunch article, policy makers have fallen within the economic fallacy of ignoring secondary consequences; what was intended for doing good ended up having negative effects on various people. Henry Hazlitt, an economist and founding vice-president of the Foundation for Economic Education, set out to explain what he described as the seen and unseen in his book Economics in One Lesson. According to Hazlitt (1979), “the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” (p. 17) The provisions to help the consumers are what is seen, the unintended consequences that result are what is unseen. However noble their intentions are, policy makers are plagued with only being concerned with the short term effects of their deeds and only how they affect a specific group for which they intended to help. To them, any other consequences that arise are of no affect and can be solved at a later date with more regulation, forever continuing the cycle of economic fallacies while putting off the repercussions of such policies long enough for the politician to get reelected.






4. Why would a limit on interest rates on old credit-card balances reduce the inventive of firms to issue new cards?

In order to understand a question like this, one has to understand what interest rates are and what effects a limit on it would cause. An interest rate is the price that one pays in order to have immediate access to loaned capital, for which the loaned capital acts as a good. Similar to all goods, the supply and demand of said good affects the price, which in the case of loaned capital is the interest rate. (Woods, 2009) When the government puts in regulation to limit interest rates on credit-cards, they are essentially setting a price control. If the price ceiling is set below the equilibrium price, a shortage of credit is created. Due to the lower price, or interest rate, a higher demand for the product is also present. The shortage causes companies to be cautious with their supply, for example, if they only have X amount of credit available to loan out and X+1 is demanded, they have to deny the extra unit demanded. In terms of credit-cards, it makes more sense to continue with customers you currently have that continue to make payments on time than to add new ones which may not be as creditworthy.



When a businessman goes to hire a new employee, the only available option (bar someone newly entering the workforce) for him to choose from were previously unqualified applicants; similarly with credit-card companies, if they wish to find new customers the only option is to choose from those previously unqualified. The opposite is true for the current situation, as supply decreases companies become more prudent with their allocation of credit, potential future customers begin to be scrutinized more for previous bad habits. Whereas before the company could afford to take the risk of supplying credit to a less creditworthy person because of the increase in profits they received from higher interest rates as penalties, the new limit prevents these previous profits and now disallows, from the company’s perspective, the less creditworthy person to have access to credit.

[nate895]

As a fellow procrastinator, I'll help if you put space in between the paragraphs.

[Dreamofunity]

As a fellow procrastinator, I'll help if you put space in between the paragraphs.

Format failure. Editing now.

[nate895]

In response to question 1, It is pretty good, except for this sentence in particular:

The increased focus on consumer credit verses commercial credit is simply a game of sheer numbers for most.

I'd revise to say "The increased focus on consumer credit is about politicians seeking votes in the greater number of consumers as opposed to businesses."

For question 4, it is also fairly good overall, but I'd revise a couple of sentences:

In order to understand a question like this, one has to understand what interest rates are and what effects a limit on it would cause.

This sounds kind of insulting. I'd say something like "The first thing to know about interest rates in this situation is that it is a price for a product like any other." That gets straight to the point.

Also, this phrase, "potential future customers begin to be scrutinized more for previous bad habits," is kind of awkward. It is painful to read. Something more along the lines "future customers will be scrutinized more for bad marks on credit reports."

Overall the thing to watch for when writing late is all the clutter that winds up scattered about from a slow mind.

As for expanding or sources, I probably could think of some during other parts of the day, but I am having too many brain farts this time of night.

[teacherone]

Don't really have time to fix the errors. Highlighted sentences/ phrases that sounded funky to me or unclear.

The piece kind of rambles. Let me see if I can summarize?

Point 1: Politicians are held accountable by their constituents and therefor need to appear to be protecting them from big business only interested in profits.

Point 2: The public usually acquries credit through unsecured loans-- (unclear why this would require more government regulation.)

Point 3: Government regs. have unintended consequences--(true, but doesn't answer the prompt.)


Nearly seventy-eight percent of American households have a credit card, or more accurately, an average of 5.4 cards each to be exact. More than $2.1 trillion was charged in 2008, while the average card user ended the year with around $10,679 in debt. (Woolsey, & Schulz, 2010) The increased focus on consumer credit verses commercial credit is simply a game of sheer numbers for most. For politicians, the numbers cause them to follow the median voter theory to accommodate as many people as possible that could potentially vote for them in order to not end up out of office and unemployed like millions of other Americans. There are exponentially more consumers affected by the recent credit card debacle than there are businesses, which means there are exponentially more votes to be won over by attempting to help the consumer.
In addition, consumers have a much worse relationship with credit providers than businesses do mainly due to the fact that much of what consumers borrow is done through unsecured loans, whereas businesses have assets to back up the loan, making it secured. Consumer credit is seen as having a higher risk of return considering most of consumer credit is people borrowing money to buy non-durable consumer goods they do not particularly need, while businesses typically borrow to invest. A credit provider may go out of its way to establish a long term relationship with a business seeking loans, but may only see the average consumer as an expendable short term profit provider. Often times the ones getting screwed over by credit providers are consumers, not businesses, and so the perceived need for government help and intervention often times comes from the consumer.
There of course could be a less cynical reason than just reelection for government officials to focus on consumer credit; they may actually want to help. Unfortunately, as shown throughout the Credit-Card Crunch article, policy makers have fallen within the economic fallacy of ignoring secondary consequences; what was intended for doing good ended up having negative effects on various people. Henry Hazlitt, an economist and founding vice-president of the Foundation for Economic Education, set out to explain what he described as the seen and unseen in his book Economics in One Lesson. According to Hazlitt (1979), “the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” (p. 17) The provisions to help the consumers are what is seen, the unintended consequences that result are what is unseen. However noble their intentions are, policy makers are plagued with only being concerned with the short term effects of their deeds and only how they affect a specific group for which they intended to help. To them, any other consequences that arise are of no affect and can be solved at a later date with more regulation, forever continuing the cycle of economic fallacies while putting off the repercussions of such policies long enough for the politician to get reelected.

[nate895]

Don't really have time to fix the errors. Highlighted sentences/ phrases that sounded funky to me or unclear.

The piece kind of rambles. Let me see if I can summarize?

Point 1: Politicians are held accountable by their constituents and therefor need to appear to be protecting them from big business only interested in profits.

Point 2: The public usually acquries credit through unsecured loans-- (unclear why this would require more government regulation.)

Point 3: Government regs. have unintended consequences--(true, but doesn't answer the prompt.)

+1 to this post. A lot of that stuff could be eliminated and it would be perfect, but sadly you need more words, not less. I'd go tot he economics subforum for ideas in one of the threads, I'm sure they have something.

[teacherone]

This one is better.
Point 1-- capping interest rates is akin to imposing a price control on available loans. All price controls result in shortages. Banks stick to their known customer base in the interest of safety.
Point 2-- because banks cannot charge enough fees to cover the risk of loaning to low qualified customers, those customers lose access to credit.

--tip avoid passive sentences.



In order to understand a question like this, one has to understand what interest rates are and what effects a limit on it would cause. An interest rate is the price that one pays in order to have immediate access to loaned capital, for which the loaned capital acts as a good. Similar to all goods, the supply and demand of said good affects the price, which in the case of loaned capital is the interest rate. (Woods, 2009) When the government puts in regulation to limit interest rates on credit-cards, they are essentially setting a price control. If the price ceiling is set below the equilibrium price, a shortage of credit is created. Due to the lower price, or interest rate, a higher demand for the product is also present. The shortage causes companies to be cautious with their supply, for example, if they only have X amount of credit available to loan out and X+1 is demanded, they have to deny the extra unit demanded. In terms of credit-cards, it makes more sense to continue with customers you currently have that continue to make payments on time than to add new ones which may not be as creditworthy.

When a businessman goes to hire a new employee, the only available option (bar someone newly entering the workforce) for him to choose from were previously unqualified applicants; similarly with credit-card companies, if they wish to find new customers, the only option is to choose from those previously unqualified. The opposite is true for the current situation, (unclear--what is the current situation?) as supply decreases companies become more prudent with their allocation of credit, potential future customers begin to be scrutinized more for previous bad habits. Whereas before the company could afford to take the risk of supplying credit to a less creditworthy person because of the increase in profits they received from higher interest rates as penalties, the new limit prevents these previous profits and now disallows, from the company’s perspective, the less creditworthy person to have access to credit.

[Dreamofunity]

Thanks guys.

Teacherone: Most of it is just filler, the questions can be answered in a few sentences and the teacher mentioned some of the other stuff as things we could mention. Unsecured vs secured was supose to show the types relationships creditors have with consumers/businesses, that when they have something backing the loan they're more willing to continue a long term relationship since the borrower shows the ability to keep coming back instead of just screwing the guy over -- so government regulation isn't required because of this, however government feels the need to step in because of this

[parocks]

Remediate power disparities. Banks have power, individual citizens don't.
That's the theory. The government needs to step in to help the little guy.

I did a google search for the words power disparities justification government
there's 866,000 results. Scholarly papers and the like

http://www.google.com/search?hl=en&source=hp&q=power+disparities+justification+government&btnG=Google+Search&aq=f&aqi=&aql=&oq=&gs_rfai=

Wow, google updates often

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=578578
Bargaining Power in Contract Theory

"In other types of transactions - such as labor agreements, consumer credit contracts and intrafamily gifts - one or both parties lack legally cognizable bargaining power and the resulting transaction is subject to relatively greater degrees of public ordering."

[Dreamofunity]

Oh, and my teacher is extremely liberal and Keynesian, I can't wait for him to read the subtitle to Woods' book.

I could have got the definition of interest rates anywhere, but I made sure I used that book.

[nate895]

Oh, and my teacher is extremely liberal and Keynesian, I can't wait for him to read the subtitle to Woods' book.

I could have got the definition of interest rates anywhere, but I made sure I used that book.

Aren't they all liberal? I always assume I'm dealing with a liberal psychopath until he/she proves otherwise.

[teacherone]

Sorry for the confusion-- I didn't mean that you should cut out the filler, was just trying to identify your theses which weren't so clear after the first read.

If I got your theses right, then you should make sure your "filler" (each and every sentence of it) is EVIDENCE proving your theses in clear language.


Thanks guys.

Teacherone: Most of it is just filler, the questions can be answered in a few sentences and the teacher mentioned some of the other stuff as things we could mention. Unsecured vs secured was supose to show the types relationships creditors have with consumers/businesses, that when they have something backing the loan they're more willing to continue a long term relationship since the borrower shows the ability to keep coming back instead of just screwing the guy over -- so government regulation isn't required because of this, however government feels the need to step in because of this

[Philhelm]

Line 3: verses should be versus.

"Credit provider" should probably be replaced with "creditor".

"Often times the ones getting screwed over by credit providers are consumers..."
-Don't use "screwed over".

"To them, any other consequences that arise are of no affect..."
-effect

"When a businessman goes to hire a new employee, the only available option (bar someone newly entering the workforce) for him to choose from were previously unqualified applicants"
-I would replace the parentheses with commas.

[Dreamofunity]

"The increased focus on consumer credit seems to be about politicians playing the political game of seeking votes from the greater number of consumers as opposed to lesser number of businesses. Nearly seventy-eight percent of American households have more than one credit card, with an overall average of 5.4 cards each. More than $2.1 trillion was charged in 2008 alone, with the average card user ending the year with around $10,679 in debt. (Woolsey, & Schulz, 2010) The severe size of these numbers alone causes politicians to adhere to the median voter theory of doing what’s desired by the average voter in an attempt to remain in office and not end up like the millions of Americans that are unemployed. Politicians will try to accommodate as many people as possible that could potentially vote for them, regardless of the unintended consequences the result from their actions. There are exponentially more consumers affected by the recent credit card debacle than there are businesses, which means there are exponentially more votes to be won over by attempting to help the consumer."

Better so far? I want to catch some of you before you go to sleep/leave for work.

Also thanks to everyone that mentioned something, it gave me a different perspective of what was written allowed me to change whats needed. Before I just kept reading what I had written on autopilot

Any suggestions for replacing screwed over Phil? I know I shouldn't use it but I couldn't think of anything to replace it with.

Swindled?

[parocks]

ones getting screwed over by

ones being disadvantaged by

[parocks]

Often times

frequently

[teacherone]

Much better! Clearer and more to the point. :D


The increased focus on consumer credit seems to be about politicians playing the political game of seeking votes from the greater number of consumers as opposed to the lesser number of businesses. Nearly seventy-eight percent of American households have more than one credit card, with an overall average of 5.4 cards each. More than $2.1 trillion was charged in 2008 alone, (unclear-- are you refering to bank fees or customer purchases?) with the average card user ending the year with around $10,679 in debt. (Woolsey, & Schulz, 2010) The severe size of these numbers alone causes politicians to adhere to the median voter theory of doing what’s desired by the average voter in an attempt to remain in office and not end up like the millions of Americans that are unemployed. Politicians will try to accommodate as many people as possible that could potentially vote for them, regardless of the unintended consequences that result from their actions. There are exponentially more consumers affected by the recent credit card debacle than there are businesses, which means there are exponentially more votes to be won over by attempting to help the consumer."

[foofighter20x]

1. Why do you suppose the government regulates interest rates on consumer credit (as with credit cards) but generally does not do so with commercial credit (as with loan businesses)?

Because commercial loans are made by banks, and they have the money to buy off the Congress critters. First the people get pissed, so Congress regulates everyone. Then the banks later buy off the Congress critters to have them deregulate the commercial side. "Who cares about the little guy's freedom? He can fend for himself," laugh the J.P. Morgan executives.


4. Why would a limit on interest rates on old credit-card balances reduce the inventive of firms to issue new cards?

Reduced ability to generate revenues on old credit lines make new credit issuance an inherently riskier activity. Cost-benefit analysis will skew without the former revenue of older, well-established borrower to cover the risk of new, lesser-established borrowers. Or, as the Democrats would have you believe, the lenders are racists.



That was easy.

[Dreamofunity]

Customer purchases.

"...charged on these cards" ".. was purchased using these cards"

something completely different maybe?




Also, does anyone know of a source that shows what people purchase with consumer credit? I know our economy is close to 2/3 consumer, much of it in the service sector, but my claim of "Most consumer credit is spent on non-durable consumer goods people do not particularly need" seems rather big without a source - even if its correct.

[Dreamofunity]

Because commercial loans are made by banks, and they have the money to buy off the Congress critters.



Reduced ability to generate revenues on old credit lines make new credit issuance an inherently riskier activity. Cost-benefit analysis may skew without the former revenue of older, well-established borrower to cover the risk of new, lesser-established borrowers.



That was easy.


Now do it in 1500 words while slightly pandering to your liberal teachers talking points :P

[foofighter20x]

Now do it in 1500 words while slightly pandering to your liberal teachers talking points :P

I tweaked my answers some after you quoted me. :cool:

[parocks]

screwed over

harmed

[Dreamofunity]

"In addition, consumers usually have a much worse relationship with creditors than businesses do, which accounts for the governments urging desire to intervene on the consumer’s behalf. This poor relationship is mainly due to the fact that much of what a consumer borrows is done through unsecured loans; whereas businesses usually have assets to back up the loan, making the loan secured. Consumer credit is seen as having a higher risk of return. Most consumer credit is spent on non-durable consumer goods, as evident by our 2/3 consumer based economy, which can’t be held as collateral or used to repay the loan; businesses typically borrow to invest. A creditor may go out of its way to establish a long term relationship with a business seeking loans, but may only see the average consumer as an expendable short term profit provider. More often the ones getting swindled by creditors are consumers, not businesses, so the perceived need or outcry for the government to help and intervene often times comes from the consumer himself."

paragraph 2 revised. Is himself at the end too sexist? lol

[parocks]

This is an economics class in college I take it, rather than a law school class on commercial paper. So you might only be looking for economic arguments

The reason why congress passes laws to protect the consumer is because the consumer does not have the power that the banks do. The transaction is not fair, and congress steps in to help the consumer.

That is the basic reason, and the near "official" reason. It may be that these laws don't help the consumer, but the reason the people passing the laws site fall along the lines of fairness and equalizing power disparities.

There's a problem with knowledge. Consumers don't know much at all about banking and credit cards and whatnot. Banks know all about that stuff. Banks can pull tricks on people without them knowing because the consumer doesn't have the knowledge and the banks do. With Commercial loans, the business has a guy that knows this stuff, so there's no knowledge gap in this equation.

There's a problem with negotiation. Consumers are not able as a practical matter to negotiate the terms of their credit card. It's a take it or leave it situation. With Businesses, they sit down and hammer out a custom agreement that both sides have input on. Perhaps this does not describe precisely the negotiation process in these cases, but the element of full and fair negotiation does exist in commercial contracts where it may not in consumer Ks.

K is short for contract btw. If you were in law school, and this was a test, you'd be putting K in there occasionally.

[Dreamofunity]

Yeah, macro economics in college.

Thanks for that insight Parocks.

[MelissaWV]

Whoops. There was a lot I could have done to help out with this... if only you hadn't waited until the last minute :D

[Bruno]

Oh, and my teacher is extremely liberal and Keynesian, I can't wait for him to read the subtitle to Woods' book.

I could have got the definition of interest rates anywhere, but I made sure I used that book.

He should read a lot more than just the subtitle. ;) Consider offering to provide him a copy to read. :)

[Dreamofunity]

Whoops. There was a lot I could have done to help out with this... if only you hadn't waited until the last minute :D

Ha, I kept hoping you'd come on. I've seen multiple posts where you just correct every grammatical error for the hell of it.

I think it turned out much better than previously posted, I got a second wind and around 5am I was thinking clear enough to recognize my rambling.

Around 7am I noticed in the rubric it said no commerical websites, so hopefully he doesn't take off for my news articles that aren't academic journals.

Thanks for the help everyone, this can die/be closed now.