February 25, 2012
Reading Jezebel’s Are Fertility Finance Companies as Shady as They Seem?, I started to get a familiar feeling I get while reading this kind of Jezebel article. I grow weary of Jezebel’s irrational, baseless, scare-mongering regarding certain kinds of commerce.
When describing the likelihood that fertility financing is a bubble, writer Katie Baker writes, “Hey, regulators, don’t you remember a tiny little incident called the subprime mortgage crisis?” Okay, first, increasing demand does not equal bubble.
So many people are invested
in something with so little real value
that the investment way exceeds the possible net returns.
Unless you know that prices are way above value due to outside market manipulation, you don’t know whether something’s a bubble until it bursts.
A burst necessitates people en masse realizing the true value of their investments. This leads to a quick price reset and many people losing their shirts.
So are so many people invested so heavily into something, something I’ve literally just now heard of for the first time, that has so little actual value, that when the value resets, they’ll all lose their shirts?
This is silliness. So why would you want regulators to protect families from something that could do them so much good? With every kind of loan, there is risk for default, yes. But we don’t use that risk to ban car loans, or the loan you can take out to buy a TV. Why should you be able to borrow $24,000 to buy a car, from the same person who’s selling you the car, BTW, but not able to borrow $24,000 for the chance to get pregnant? Without outside influence, the credit market self regulates. If credit prices (interest rates) exceed demand, prices fall and money gets cheaper. When people start wanting to borrow more, prices (interest rates) go up. Demand for money rises when people feel confident that they’ll be able to make enough money on the borrowed money that they’ll realize a profit. Supply of money rises when people think their money (savings) will make more money by being available to others to invest. No one makes any money if money from savings is lent to people who can’t pay it back. In this way the right people get the right amount of money for the right price.
But let’s say for the sake of argument that fertility lending could be predatory without government assistance (even though in reality that would just lead to them defaulting). Well let’s look back to the aforementioned tiny little incident called the subprime mortgage crisis. Far from the result of a lack of regulation protecting people from predatory lending, federal policy actually encouraged lending to people who could never hope to pay the loans back. First, through the Community Reinvestment Act, which punished lenders for discriminating against poor and minority borrowers, the people the banks knew were the least likely to be able to pay back their loans. Then, through the creation of Fannie Mae and Freddie Mac, which created a secondary market for mortgages, assuring lenders they’d always be able to clear their books of the coming defaults they were creating by lending way more to people than they could hope to pay back. No risk, all reward for predatory lenders. Outside of regulation, the mortgage market would have self regulated. There would be no disincentive to not lend to people who can’t pay back their loans, so only worthy borrowers would receive loans. There would be no market for bad loans, so banks would have to decline to lend to overly risky borrowers or risk defaulting themselves.
So Katie wants to see those same regulators tweaking the fertility market? There isn’t a bubble now, but just get the government involved, and you’ll see the kind of poor investment choices that only outside coercive market manipulation can create.