Jamie Dimon of J.P. Morgan Chase reported that, "In the future, we no longer will be offering credit cards to approximately 15% of the customers to whom we currently offer them. This is mostly because we deem them too risky in light of new regulations restricting our ability to make adjustments over time as the client's risk profile changes."
Todd Zywicki predicts that these consumers will turn to other sources of credit, like loan sharks.
The least surprising event of 2010 was that, in the wake of new federal limits on how credit-card issuers can price risk and adjust interest rates, more Americans had to go to payday lenders, pawn shops and local loan sharks in order to get credit. It's simply the latest installment in the old story of regulators thinking they can wish away the unintended consequences of consumer credit regulation.
This seems like a nice example of Merton Miller's hypothesis that most financial innovation (although it is hard to think of loan sharking as an innovation) is driven by ill-conceived regulation.
In our textbook, the main theme of chapter 2 is that "inefficiency implies opportunity." Every wealth creating transaction deterred by regulation also represents opportunity for someone resourceful enough to figure out how to circumvent the regulation.
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