Bad Financial Regulations don't mean Lending Stops

Usury laws - the creation of "price ceilings"/limits on capital do far more harm than good. As it is with coercive banking regulations. From the Economic Observer:

Research by the Federation estimated that Chinese companies raised some 800 billion yuan through informal channels last year, among which researcher Chen Yongjie said over 20 billion yuan likely came from Wenzhou.

Businesses that raised money in this fashion would likely be charged a 5% monthly interest rate, amounting to around 60% in one year.

While China hasn't opted for an outright cap on interest rates, their restrictions and regulations on banking have forced people to borrow privately - at far higher interest rates and lesser efficiency. The irony is that this results in the implemented banking regulations having less influence - with their current attempts aimed at controlling inflation and coolling the market - than intended as the black market for loans grows.

With the economic success of Compartamos in microfinance, this has only added to calls by some to cap interest rates in the interest of the poor. Economics and public policy are bizarre beasts in that most gut reactions on "what we should do" turn out to be wrong. They're wrong because they're short term and short sighted. It's one of the major reasons there's an upswing in protectionism in this year's US elections. Gut reactions feel good politically and may even result in short term gains, but it's in the aftermath when the costs often far more substantial than the initial crisis to begin with, really start adding up.

I find it bizarre though that there are enough people who enjoy learning the same lessons over and over again... then again this is a testament to the progress the US has made. It's probably one of those 'two steps forward, one step back' sorts of things.