The Financial Crisis – What Happened?

I’m assuming that most the readers of this blog are not (like me) reading virtually every opinion and analysis of what happened in financial markets over the past few years. So, I’m going to try to give a somewhat brief version of what I think happened, pulling together what I’ve read so far. I’m not going to list a lot of references – if you’re interested in some, ask me.

I. Long Term Trends

1. The Unequivocal Goodness of Housing in the United States. The “American Dream” since the Depression (and the formation of Fannie Mae and Freddie Mac) has been to own a house, and home ownership has steadily risen until it is now about 65% of the population. I’m not going to debate the merits of this cultural phenomenon, just stating it. The population and politicians alike think that the more people own houses, the better. So there are many, many programs to help those with marginal credit get homes (as most of those with good credit already own or live in NYC). Even now, it continues.

2. The demand for riskless assets. Let me explain this one, because it is important. Governments want a bank account just like you and I. When you get your paycheck, you want to put it somewhere safe until you need the money, so you get an FDIC insured checking account. These don’t exist for governments. Remember, currency now is basically backed by “the full faith and credit of the XXX Government” which is to day, when you give someone $1, you are basically giving them a check that says the US government backs the value of this note. So what does the government do?

Well, the US government is unique, we won’t get into that. Everyone else wants dollars. Or rather, Treasury Bills, which are basically IOUs written by the government — but this isn’t all that different from a dollar bill, right? They are written in dollars and repaid in dollars. A typical Treasury Bill will pay $100 in some set amount of time (3, 6, 9 months, 1, 5, 10 30 yrs) at some interest rate (3% or something). Foreign governments see these as their checking account. When they have some extra cash or want a “savings” account, they buy treasury bills.

Note for later: US Treasuries are AAA rated assets.

II. Medium Term Trends

3. The Asian Crisis in 1997. In 1997, most of the southeast Asian economies (Malaysia, Thailand, Phillipines, etc.) had currency and debt crises. The IMF was called in and administered some stiff medicine: large cuts in subsides and programs, currency stabilization, etc. But mostly, what these governments learned was that they never, ever wanted this to happen again. So, when their economies picked up again after 2000, they did what anyone would do who just went through a crisis like that: they started saving a bunch of money. China, nearby, wasn’t involved in the crisis, but saw the effects. China, already saving money, saved even more.

4. The Dotcom Bust, Y2K, and September 11th. These three events seemed like they were going to topple the US Economy into a recession, so the Federal Reserve responded by keeping interest rates very low for very long. I won’t go into exactly what this means, but basically they were making it so that money could be borrowed cheaply; this is way to ‘stimulate’ the economy. When you can borrow for less, you’re more likely to spend more.

5. Government Regulations which favor AAA assets. This was known as the Basel Accords, which mandated that banks hold a certain amount of “safe” capital for every dollar (or euro) of “risky” capital, weighted by how risky it was. Makes sense. Riskier capital requires more safe assets. Safe assets were defined as AAA rated by ratings agencies.

Note, banks don’t really like AAA assets because they don’t make much money on them. Remember the “cheap credit” that the Federal Reserve enabled after 9/11? The lenders make virtually nothing on it. So what banks want is the highest interest they can possibly get on AAA rated assets if they have to hold them.

======= Now, how do these trends come together? ======

Result 1: The United States gets cheap, cheap credit. Everyone: businesses, banks, consumers. Cheap credit almost always finds its way into housing, so housing starts to become more in demand and prices rise. Housing looks like a pretty good investment.

Result 2: AAA assets get expensive, yet they pay virtually nothing. Why? All of the Asian governments want the really safe AAA assets, eventually growing economies like Brazil, India, and Eastern Europe join them. Most of these government just want a safe place for their money. But all of the major multinational banks need AAA assets also. But the US only needs to issue so much debt. Even if you can borrow for cheap, eventually you run out of things to buy, right? So these AAA assets with very low interest rates which banks don’t want to hold anyway get more and more expensive to buy. But they have to buy them because their governments require them to do so. Banks don’t like this.

III. Necessity is the Mother of Innovation.

Result 1 meets Result 2. Banks come up with a way to convert risky home mortgages (and other risky loans) into (mostly) AAA assets via all these fancy acronym-named products you’ve heard of. Here are the “good” things that happen as a result:

A. Foreign banks get their ‘savings accounts’ at a lower cost. Banks didn’t want AAA US Treasuries anyway, so they don’t buy them any more, which reduces demand for them, which reduces the cost to those who do actually want them.

B. Banks buy these securitized AAA assets which allow them to comply with their regulations, but make more money.

C. More and more “marginalized” home buyers are able to buy houses. This is great, right? I’ll post some other time on subprime loans and why nobody should ever, ever get one. If we want more people to own homes, we need to help them get better jobs and better credit, not allow them to “buy” a home with awful credit.

IV. Supply and Demand still work.

As banks securitize and buy these AAA groups of home mortgages, more and more people become “eligible” to buy houses, so housing demand rises and rises, more and more homes are built. When prices go up, everyone looks like a genius. We now know how this ends. These new AAA packages of mortgages were not so “riskless” after all. In fact, nobody ended up being able to understand exactly what they did when home prices didn’t rise all the time.

V. Some Thoughts on Other Culprits

Credit Ratings Agencies: These are the guys that decided that a bunch of mortgages put together in a pot and stirred could be AAA. Those that say “the government did it” will note that the Ratings Agencies are Outsourced Government Regulation because they decide what is AAA and what is not and most government regulation is tied to holding AAA rated securities. I don’t think you can say they caused the crisis per se, but they could have stopped it. But, as is usually true, all of the A students worked at the banks, the C students worked at the ratings agencies and really wanted to work at the banks. So they thought the bankers were really, really smart. Sure, they’re AAA. Who am I to question it?

Secondly, in the name of “transparency” the ratings agencies published their methodology of how they decide on a AAA rating. So the banks knew how to make their products as risky as possible and still get AAA.

Greed. This one I don’t buy. Greed is as old as humanity, so I’m not sure how there was some new influx of greed which caused a crisis. Yes, there was greed. But that’s like saying Ambition and Desire for Power caused WWI and WWII. Sure they did. But we need a bit more, there.

Bad Incentives for Bank Traders. Yes, this is true. These guys formed these securitized assets which had multi-year payouts and they were compensated when they sold them. So they got massive bonuses in 2002-2006 and then no penalty when it all came down in 2007-2008. But this is just a “commission” style sales model – just like cars, houses, etc.  It certainly didn’t help, but there is no real evidence that it caused the crisis. In fact, recent research has shown that the banks with the strongest incentives to be cautious – i.e. the ones whose CEOs and top executives had the most to lose if things went badly – were Lehman Brothers and Bear Sterns. The executives at JP Morgan, B of A, etc. had much less equity and would have lost a lot less, yet they were more cautious. It seems that corporate culture seems to matter a bit more than contracts. JP Morgan famously refused to securitize mortgages back in the late 90′s because they weren’t comfortable with how to price them (see Gillian Tett’s Fool’s Gold).

There may be more, but that’s all I’ve got for now. Hopefully that has helped a bit piece together what happened in 1500 words

IMF: The US needs to act in order to avoid Greece’s fate

From the Financial Times.

I’m just going to give you the important part:

The Fund has calculated that almost all advanced economies need to tighten fiscal policy significantly in the coming decade in order to stabilise debt at 60 per cent of national income by 2030 and the tightening needed in the US, Japan and the UK is just as bad as that required in Greece, Spain, Ireland and Portugal.

The US must tighten fiscal policy by 9 per cent of national income to achieve a stable position, the Fund estimates for example, something Mr Buiter believes its politics will make very difficult. “The way things are now, the Republicans will veto all tax increases and the Democrats all public spending cuts,” he says.

This week, a survey of former senior US economic officials, unanimously agreed the US was on an unsustainable path and warned that there would be another economic crisis in the US unless the deficit was addressed.

Peter G. Peterson, chairman of the non-partisan Peterson Foundation said: “It is significant to see such an overwhelming proportion of these former senior officials, Republicans and Democrats alike, agree that we must address our long-term structural deficits to avoid another economic crisis, and that we must do so now.”

The consequences of inaction? We can take a look at Greece, but really that’s the best case scenario. The US cannot be bailed out – it really is Too Big To Save. From The Economist:

A three-year reform programme being put together by the IMF, the European Commission and the ECB aims to cut the budget deficit from 13.6% to 2.7% of GDP in just three years, an ambitious target in a shrinking economy. A new pensions law, which is due to be adopted in May, will raise the retirement age for both men and women and reduce the pensions paid by state-controlled corporations. Applications by civil servants to take early retirement under the existing scheme have already jumped by 30%.The overstaffed public sector will be severely pruned. No one is certain how many jobs will go. But if the programme is rigorously implemented, more than 100,000 Greek public-sector workers will be put out of work by 2013—by a government that came to power promising “more social protection”.

Note that in Greece, a public-sector job is supposed to be permanent.

Basically, all of the things we need to do anyway will happen all at once. Social Security age will jump immediately because we can’t afford it. Medicare will get slashed effective immediately because we can’t afford it. The new healthcare program? Also slashed. Why? Because these are the biggest budget items. All others (besides Defense and interest on the debt) account for about 15-18% of the total budget. And if we’re in crisis, that number will be lower because the crisis will be caused by soaring medical costs driving Medicare costs and higher interest rates driving up the cost of financing the debt.

So who pays? Government employees, who thought they had secure jobs, suddenly are laid off with no warning. Seniors who depend on Medicare suddenly find their benefits scaled way back and out of pocket costs for them skyrocket. Anyone who foolishly (don’t let this be you) depended on Social Security to fund their retirement finds they can’t retire.

Here is the reality: We know what we need to do. We can do it now so people can alter their plans and adjust slowly, or we can do it all at once when a crisis is upon us.

Update: Note that if Greece does default, as predicted by a very experienced emerging market investor, then it could be just the first. Portugal, Spain, Ireland, Italy, and perhaps Hungary may follow. Here’s a post on how sovereign defaults, a few years after the 1929 crash, were really the bottom of the Great Depression. Things could get very bad.

Pay attention to Greece

I assume that readers of this blog are not really paying attention to the debt problems and potential default faced by Greece, but you should. The reason why is that it is an example of a “rich world” country whose politicians gave generous handouts to it’s citizens without the taxes to pay for it. My personal feel is that there is a higher probability that the US will have a debt crisis like Greece than there is of a major climate change problem.

I’ll post at some other time about the specifics of the US debt problem, but here is a summary: if our politicians do nothing, entitlement spending will put us in the same position as Greece by 2030. Yes, just 20 years from now. Debt will be over 100% of GDP, Deficits will be 9.4% of GDP, and debt will be about six times annual tax revenue. And the way it will happen is what is called a “sudden stop” as in, markets have full confidence right up until they don’t any more. The Greeks were doing just fine until the cost to finance their debt jumped:

The primary cause of the US Debt problem is health care expenditures, which have still not been addressed; they have been increased with the new health care bill. Fixing Social Security by increasing the retirement age is unpopular, but simple, and needs to be done sooner rather than later so people can alter retirement plans as needed. Fixing the health care cost problem is unpopular, complex, and much larger.

How Wal-Mart can help the poor better than Ten Percent is Enough

The idea of monopoly is generally associated with the idea of enormous firms. And the idea of Wal-Mart is generally associated with crushing cute mom and pop firms. But oftentimes smallish incumbent firms are a kind of local monopoly, extracting rents out of a geographically delimited customer base. And Wal-Mart can be part of the solution:

Wal-Mart already has “MoneyCenters” in 1,000 of its U.S. stores, and the company said yesterday it plans to to add 400 more by the end of the year. The centers offer services like check cashing and bill pay that are often considered part of the broader “fringe banking” system. [...] Lots of those people go to local check-cashing outfits that often charge high fees. So Wal-Mart, which charges $3 to $6 cash a check, can be a good alternative, said Alejandra Lopez-Fernandini, who works for a New America Foundation program that aims to help low- and middle-income people build wealth.

If you’re cashing, for example, a $1,000 biweekly paycheck then $6 is almost one third the price MoneyGram is asking. Nothing too earth-shattering about this, but it underscores the point that a lot of the time the best solution to abusive business practices is to find ways to get competing firms into the business.

Incidentally, the Wall Street Journal notes that Wal-Mart once tried and failed to get a full bank charter which would have allowed it to accept deposits and make loans. If they had the license, how many of the 17 million Americans who currently lack a bank account would have one today? And how much damage would it have done to the business models of incumbent depositary institutions?

From Matt Yglesias, who is a left-leaning progressive, by the way.

interest rates on the way up

From the NY Times. What does this mean for most of us?

1. Get out of debt. Not that people are usually sanguine about it, but this should add some urgency. The reality is that savings rates are really, really low right now, so you are likely better off paying down debt than increasing your savings account (assuming you have some buffer already).

Another area in which higher rates are likely to affect consumers is credit card use. And last week, the Federal Reserve reported that the average interest rate on credit cards reached 14.26 percent in February, the highest since 2001. That is up from 12.03 percent when rates bottomed in the fourth quarter of 2008 — a jump that amounts to about $200 a year in additional interest payments for the typical American household.

With losses from credit card defaults rising and with capital to back credit cards harder to come by, issuers are likely to increase rates to 16 or 17 percent by the fall, according to Dennis Moroney, a research director at the TowerGroup, a financial research company.

2. Get a fixed rate mortgage if you don’t already have one

The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.

…

“Mortgage rates are unlikely to go lower than they are now, and if they go higher, we’re likely to see a reversal of the gains in the housing market,” said Christopher J. Mayer, a professor of finance and economics at Columbia Business School. “It’s a really big risk.”

Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Mr. Mayer.

3. Change your mindset. We’ve had falling interest rates for 30 years (for most of us, our entire adult life) but that is likely to change.

For young home buyers today considering 30-year mortgages with a rate of just over 5 percent, it might be hard to conceive of a time like October 1981, when mortgage rates peaked at 18.2 percent. That meant monthly payments of $1,523 then compared with $556 now for a $100,000 loan.

This includes credit cards (don’t be surprised if annual fees come back and/or ‘points’ cards disappear or become less valuable), this includes car financing, and probably student loans as well.

4. This means the government too. This is the hardest to predict, but it is yet another squeeze on governmental finances.

Washington, too, is expecting to have to pay more to borrow the money it needs for programs. The Office of Management and Budget expects the rate on the benchmark 10-year United States Treasury note to remain close to 3.9 percent for the rest of the year, but then rise to 4.5 percent in 2011 and 5 percent in 2012.

Add increasing costs to fund our rapidly expanding public debt to our worries about taxes and spending, which Travis was posting on this week. More to come on that topic.

sigh. more on usury.

As I said in the comments to Travis’ post, Rachel Anderson’s definition of a bad loan is wrong. Banks mostly lose money on bad loans – the fees and penalties simply limit the amount of losses. These are only “extra” profits if the borrower is somehow able to turn it around and eventually pay back most if not all of the principal. This doesn’t usually happen.

A much harder scenario is this: Say you are actually a scrupulous banker, but since you are a large bank, you need to provide guidelines to several hundred loan officers about how to approve a loan based on any application you want to design. How do you do it? How do you know a person will pay you back? Remember, not only do you have to give this guidance to hundreds of people, but they will themselves be dealing with hundreds of customers. Most big banks do not do “relationship banking” with individual consumers, so you can’t use that. You’ve got a paper application and perhaps an hour interview. What do you want to know?

Then, what do you tell your hundreds of loan officers to do when they are each dealing with hundreds of defaults? Mass forgiveness? If you get a reputation for that, then you’re a sucker who will attract unscrupulous borrowers (yes, those exist also). I think you may have some sort of penalty for non-payment to deter the worst borrowers from attempting fraud – it is easier to prevent the prosecute after the fact.

The false dichotomy here is one of a “good” lender who forgives debts and a “bad” lender who imposes penalties for non-payment. Yes, there are unscrupulous bankers, but I doubt they consist of a majority of employees or loan officers at big banks. Most of them are trying to deal with a very difficult scale problem. Economies of scale allow lower borrowing costs – that is why big banks exist. But to scale up, they need to deal with people in large groups based on common characteristics.

We are talking about big banks and mass lending. Scale is a big, big problem when you are talking about things like forgiving debts, fines, penalties and like. How do you tell the difference between someone who is genuinely in need versus someone telling you a story who is just trying to sucker you?

Anyone who has been approached for money on the street has faced this problem. Let’s say you could talk to the person requesting money for an hour. What would you ask to determine if they were honest or lying? Let’s say you could force them to provide documentation. What would you want to see? Then, you make the decision on the spot to “loan” them money. Now, let’s say this is your business. How will you make enough to have money to pay your mortgage?

That is why I advocate the use of local community banks – you get more context and relationship. Trying to impose context and relationship on big bank lending is a waste of time. If you want less “usury” as defined as penalties and high interest rates for risky borrowers, then let’s focus on the financial regulation legislation and see if we can get a cap on bank size to start with.

Health Care – Economic Implications

$800B of the $900B cost of the health care bill is subsidies – i.e. payments from the government to individuals or families to help pay for health care. This is necessary for the mandate part of the bill to be remotely feasible. Most people want health care, they simply can’t afford it, so fining them won’t help. They need subsidies to pay for expensive health care.

The problem is that subsidies cause higher spending on the thing subsidized as we all worry about the burden of higher health care costs. We’ve done nothing to lower costs, we’ve simply shifted them from the uninsured and underinsured to the government (i.e. all of us taxpayers who fund the government’s operations).

Remember Cash for Clunkers? How about the first time homeowners tax credit? Both are subsidies – the government handing out money to assist people in buying cars and houses. What was the goal? To increase purchases of cars and homes. So, we now subsidize health care without cost controls means we ease the pressure on doctors and hospitals to lower costs: the government is now helping all sorts of folks get health care. But this was the point, wasn’t it?

The problem is that by releasing this pressure, we will see costs rise again. Markets work like this: if prices rise, many people get priced out of the market, which causes demand to drop. This drop in demand means that less gets sold at those higher prices. Competition then rewards the innovator who can provide the same service for less – they get no only those who have exited the market due to higher costs, but will also get some switching who were paying more. Thus prices go down. This competition mechanism is what is broken in the current system – we only see the cost of healthcare via monthly or annual premiums, not each time we go to the doctor, so the cost-consumer link is separated by space and time. And this bill continues to separate them for those who are assisted by it:

The second part of the subsidies, estimated to cost $466 billion during the next decade, would limit out-of-pocket expenses for deductibles and co-payments. This help, for individuals with salaries of $27,000 and families with income of $55,000, would be significantly more generous than any version of the legislation Congress has considered.

What we now know is that 50 million uninsured and premiums at $10-12K per year (or whatever they are now) is a socio-political breaking point. The current legislation will provide subsidies to ease this tension by reducing that annual cost with subsidies and reducing the uninsured to about 20 million or so. But, what happens now? With no cap on the cost and no incentive with copayment or coinsurance to say ‘no’ to procedures, the cost of healthcare will continue to rise until the costs after subsidies are once again $10-12K per year and we again have 50 million uninsured, but now we’re spending billions each year, let’s say the subsidy is $8K per family, so now the total cost is $18-20K. What happens now? Those same folks are again priced out of the market, and Congress is forced to increase the subsidy. Or, perhaps, they do this:

One part of the subsidies would consist of tax credits to help Americans afford insurance premiums, guaranteeing that they would not spend more than a specific portion of their income for them, ranging from 3 percent to 9.5 percent.

Which guarantees that nobody is priced out of the market, but guarantees that as the costs continue to skyrocket, the government picks up the increase, year after year.

And then what? Remember, Medicare and Social Security are mandatory spending on entitlements, just like this health care bill. In 1965, they accounted for about 25% of federal expenditures, now they are around 55% of spending and growing. Defense spending? About 50% in 1965 and about 20% now.  All other spending has been basically flat.

The problem is that Medicare, Medicaid, Social Security, and now this Health Care entitlement are all mandatory (in that no politician will touch them), mostly tied to an aging baby boomer population, and highly linked to rapidly escalating health care costs. I do not see how this ends well for us as a country. If the debt markets start losing faith in the US and the interest we pay on our growing debt starts going up, this will go from ‘bad – we should do something’ to ‘terribly awful – our government may default on it’s debt’ really fast. Things like hyperinflation or a massive dollar devaluation (both basically the same thing) follow. We are not that different from Greece.

Comments on Dan’s article

I just posted this in the comments section of Dan’s article to which Travis just referred:

========================
1. Caps on interest rates will cause credit rationing – meaning limiting access to credit. This means that for all of the examples of people stuck with high interest credit card debt, you need the alternate scenario to be what their situation would have been if they had no way to get a credit card at all. The alternate scenario is not a credit card at 10%. For some, this is a feature, not a bug (i.e. living beyond their means) but for others (just trying to pay their bills) this is a personal tragedy involving eviction, loss of utilities, etc. Is that better or worse than what we have now?

2. Usury can only exist in the presence of market power or collusion. If many banks across the country are charging about the same rate to the same people, I’m more inclined to call that a market rate, otherwise one of these banks could lower it from 21% to 19%, advertise and get all of the ‘profitable’ customers. Those who claim a high interest rate is usury need to explain why this isn’t happening. Are the big banks colluding? If a high risk borrower with a lot of debt and a 21% interest rate is so profitable, why doesn’t a small local bank then offer 19% to steal them away and make the profit? There are, literally, thousands of banks in the US, so I have difficulty believing that market power exists in setting interest rates, thus I have difficulty calling it usury.

3. The reason why I am opposed to the actual setting of an interest rate cap is that I think we will take the most marginalized and move them from a high market interest rate to a true situation of usury. When someone cannot go to the market to get a loan, and they need money to pay their bills, they go to more, ahem, ‘creative’ means – i.e. illegal. *Then* you have market power and usury. Tony Soprano can charge whatever interest rate he likes and he doesn’t use actuarial tables. This happens because we limit the interest rates banks can legally charge, then the highest risk people are denied credit altogether. Those who are truly in need either don’t pay their bills and are evicted, or they go to payday lenders and loan sharks. I’d rather have the status quo.

Now, I have no problem in raising awareness about interest rates and the concept of usury. Re-introducing it to our vocabulary is a good idea in my opinion. Actually setting caps on interest rates is a bad idea.

What do I propose instead?
1. Let business be business and charity be charity. We, the church, should steal their customers. People living beyond their means need financial counseling and the act of discipline and contrition in paying off the debt they got themselves into is probably a good thing. People truly in need the church needs to help pay their bills without debt – as a previous commenter noted, this isn’t sustainable for them anyway.
2. We need to advocate for education and jobs. People with a steady income are generally lower credit risk and get lower rates for short term borrowing.
3. Address the materialism and other idols we know exist in our communities. Many Americans do live beyond their means on cheap credit. Even for those with manageable interest rates, this is not good for their soul.

More on usury

A new article in the Christian Century by friend Jesse DeConto. The Center Way’s own Jesse Blocher is quoted. Check it out, especially for the excellent history of usury laws.

For many Christian leaders, who are the main recruiters for the interest-cap movement, concern for interest rates is rooted in biblical texts and traditional teachings of the church against usury—that is, against charging a fee for the use of money, otherwise known as interest. Medieval Christian thinkers attacked usury, but allowed moneylenders to profit in cases of shared risk, lost business opportunities or late repayment. The Reformers expanded the possibilities for charging interest, but urged that interest rates be kept at 5 percent or lower. The Reformers helped redefine the meaning of usury as “excessive interest.”

the decline of credit cards

I’ll just reproduce this post in its entirety since I can’t say it any better:

Ezra Klein, on what he considers a vicious cycle in credit cards:

The problem is that the people who migrate toward debit cards are the people who have enough money not to need much credit and are responsible enough to not want it. The good risks, in other words. The people left in the credit card market will be disproportionately bad risks, which means rates will go up and standards will tighten, which will in turn drive more people out of the market, starting the cycle over again.

I’m not convinced that this is a bad thing. Credit cards are useful payment devices, but atrocious borrowing devices. (Steve Waldman has a great post explaining the distinction further.) We want to move to a world where people use charge cards for transactional purposes, and personal loans for credit purposes. The way we’re going to get there is, essentially, by taxing the stuff we want less of — and that means increasing the interest rates and annual fees on credit cards.

Sometimes this is going to happen in an underhand and less-than-honest way: Odysseas Papadimitriou has a great blog entry on how Bank of America is denying that introducing a $50 annual fee constitutes a repricing of its credit cards, for instance. But the big move, away from credit cards and towards alternate means of payment and sources of credit, is surely to be welcomed.

The sad aspect to all this is that millions of people hold large credit card balances and have no ability to refinance them with personal loans, or even any particular notion that such a thing might be possible. They’re going to be harmed by this move. But over time, if things go right, their numbers will naturally dwindle, and we’ll be left with a much healthier system of consumer finance.