Opinion

The Great Debate

from Breakingviews:

German soccer glory was predictable – with luck

By Robert Cole

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Brazil’s World Cup was first-rate entertainment thanks to its many surprising results. For its part Breakingviews, also somewhat surprisingly, predicted that Germany would win the competition as long ago as last Christmas.

Many media pundits, and some respected financial institutions such as investment bank Goldman Sachs or global accountant PricewaterhouseCoopers, also braved the World Cup prediction challenge. They deployed a dizzying variety of sporting and non-sporting criteria. The consensus was that Brazil, the host nation, would triumph.

Breakingviews kept its focus on the numbers, shunning direct reference to the teams’ sporting prowess. We looked for simple demographic and financial factors that, in logic, would produce a winner. So we rated the World Cup teams according to population, participation, fan base and squad value. Why? We assumed that good soccer teams would come from populous countries with a large base of players. And that it would help if the game had produced big stars basking in the adulation of fans. A market-derived view of player quality also seemed sensible.

The model got results right in 27 of the first 48 group-stage matches. It went wrong, embarrassingly, in promoting the chances of Italy, England, and Japan. But it correctly forecast 14 of the 16 second phase games, including the outright winner.

Servicing the underbanked

A new report from the United States Postal Service inspector general proposes that the agency offer non-bank financial services, including payday loans. Opinion pieces and blog posts praised this idea as a way for the post office to solve its fiscal woes while reaching a portion of Americans outside the traditional banking system. A Reuters “Great Debate” piece, “Transforming Post Offices into banks”), called the proposal a “win-win.”

These pieces overlook some practical problems, however, and leave numerous questions unanswered about implementation. While government and charitable-sponsored financial services should play a role in consumer lending, they cannot replace market-based solutions.

Notably, the USPS proposal underestimates the challenge of offering consumer financial services in an increasingly competitive marketplace regulated by complex federal and state laws. Without a sizable government subsidy, the report’s suggested interest rate for small-dollar loans would not even cover basic operating expenses.

Transforming Post Offices into banks

The U.S. postal service inspector general put out a report last week suggesting an intriguing way to shore up the ailing institution’s finances: Let the mailman double as a bank teller.

The plan? The post office would offer services designed to appeal to America’s unbanked and under-banked — the more than 50 million adults who either have no checking or savings account, or use high-cost, predatory services like payday loans to supplement traditional banking needs.

This sounds like a win-win. Americans — particularly low-income Americans — clearly need greater access to low-cost financial services. At the same time, many financial institutions have been complaining for years that providing banking services to low-income Americans is costing them money. So much so that they can barely bring themselves to open bank branches in anything less than well-heeled neighborhoods.

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