Predatory lending practices

August 20, 2008

This is a very good 9 minute summary of what happens when governments look the other way.

In this example, it the U.S. subprime mortgage market which has reached over $1-trillion. It is rapidly causing a worldwide recession.

  • The mechanisms used in the U.S. mortgage industry (predatory lending practices: loan pushing, sales agents, etc.) are routinely seen within the franchise industry.
  • The exact same process was used in the +$84-million Blue Chip fraud in New Zealand.

If these financial practices have affected your family, I would suggest you take the action as suggested at the end of the video.

Thanks to Loan Sharking – Creditoris Squaliformes for posting this.

Regulatory Capture in Banking, Hardy

April 3, 2008

IMF Working PapersThis is an important paper in understanding the role of financial institutions in a modern economy. It introduces several key concepts.

Regulatory capture: the regulated controls the regulator.

Banks will want to influence the bank regulator to favor their interests, and they typically have the means to do so.

Further, financial service providers pose a natural hazard to their customers and the public:

Finance and in particular banking is necessarily characterized by asymmetric information between banks and their clients, and by systemic effects. Moreover, risk is an inherent feature of the industry. Confidence effects among banks and between banks and their creditors create various form of externality.

In the extreme, banks can reap the benefits of predatory lending while pushing off the costs associated with this type of behavior on other customers or the public.

Regulatory capture, externalities, asymmetrical information., fraudulent expert credence good providers..these all be introduced as I try to explain the mechanisms of that drives modern franchising and the financial sector that enables its actions.

Hardy, Daniel C., “Regulatory Capture in Banking” (January 2006). IMF Working Paper No. 06/34, 26 pages, Free download from

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