If you have to play your master’s game, by all means play to the best of your ability. If you need to borrow, go for cheaper money.
The structure of debt has been altered from its of original form, to the advantage of the finance industry. The natural state of things is for a lender to make a loan based on his understanding of the likelihood that a borrow will pay it back. If they made a loan to someone who couldn’t make the payments, it was a bad loan. Default ensued and it was the bank’s loss. There was a risk to both sides of the contract. The natural rate of interest that covered such default risk was around 6%.
But now, loans are a one-sided risk. 1. Because 90% of loans are made on real assets (property) and are no longer made for business ventures, there is always an asset for the bank to redeem.
2. Debtors prisons are a real thing, and the possibility of imprisonment alters the mathematics of a potential debtor who cannot pay a loan—perhaps he’ll sell his child into slavery instead of defaulting on a bad loan.
3. Banks have written their own laws to make default impossible for some loans. If a graduate cannot pay 7% on her student loans, too bad. A 200k loan for a cooking degree would have been considered a bad loan in any other generation. The banks know it cannot be paid back. But now default is impossible.
4. Large default is no longer absorbed by the banks who are responsible for their poor business decision. Obama made it clear in ‘08 that losses would be passed on to taxpayers.
Even low interest rates are far higher than are needed to cover a loan that has no counterparty risk. 3% seems like a deal only because 18% credit card loans exist. A reversion to fair lending practices must happen, but will never happen so long as the banks write their own anti-default laws.
Aurelius
npub169…v2thg
2023-07-06 11:53:12
in reply to nevent1q…j3q7
Author Public Key
npub169yu4d6xl8a6d4xvfyhstjdxr0cc7qtfq5pch5kwv4k2wkapa3pq8v2thgPublished at
2023-07-06 11:53:12Event JSON
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"content": "If you have to play your master’s game, by all means play to the best of your ability. If you need to borrow, go for cheaper money. \n\nThe structure of debt has been altered from its of original form, to the advantage of the finance industry. The natural state of things is for a lender to make a loan based on his understanding of the likelihood that a borrow will pay it back. If they made a loan to someone who couldn’t make the payments, it was a bad loan. Default ensued and it was the bank’s loss. There was a risk to both sides of the contract. The natural rate of interest that covered such default risk was around 6%. \n\nBut now, loans are a one-sided risk. 1. Because 90% of loans are made on real assets (property) and are no longer made for business ventures, there is always an asset for the bank to redeem. \n2. Debtors prisons are a real thing, and the possibility of imprisonment alters the mathematics of a potential debtor who cannot pay a loan—perhaps he’ll sell his child into slavery instead of defaulting on a bad loan.\n3. Banks have written their own laws to make default impossible for some loans. If a graduate cannot pay 7% on her student loans, too bad. A 200k loan for a cooking degree would have been considered a bad loan in any other generation. The banks know it cannot be paid back. But now default is impossible.\n4. Large default is no longer absorbed by the banks who are responsible for their poor business decision. Obama made it clear in ‘08 that losses would be passed on to taxpayers.\n\n\nEven low interest rates are far higher than are needed to cover a loan that has no counterparty risk. 3% seems like a deal only because 18% credit card loans exist. A reversion to fair lending practices must happen, but will never happen so long as the banks write their own anti-default laws.",
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