Croatia just canceled the debts of its poorest citizens • Hacker News Board

Re: Croatia just canceled the debts of its poorest citizens

#81

Post by HarryHirsch » Sun, Feb 01, 2015, 5:14 PM UTC

paulojreis wrote: post #38

raverbashing wrote: post #16

Earlier quoted context omitted.

" allowing the middle class to own property, start businesses, etc," Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive I wonder what would happen to property prices if lending was severely restricted, maybe then the value would actually be affordable and not a lifelong debt that becomes unservi…

> Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive I think the point here is opportunity. You might be able to afford it in X years and pay no interest, which of course is better, but you may also have to act "now". This is where credit is adequate and needed.

Also: time. Imagine a fellow (me, as a student) who hasn't got a washing machine and does his laundry every other week at the coin launderette, which takes several hours, including the time spent on public transport. They could save up the several hundred bucks for a washing machine and buy one in a year (student, limited budget, or just simply poor), or buy one on credit now. As soon as the thing is installed you have two more afternoons each month to get more productive work done. What would you choose?

Re: Croatia just canceled the debts of its poorest citizens

#82

Post by Moru » Sun, Feb 01, 2015, 5:14 PM UTC

bsaul wrote: post #52

popee wrote: post #45

Hi, croat here. Just one detail, this year there will be elections in Croatia and current gov didn't do anything useful for our economy, so this is kind of popular measure. Don't get me wrong, it's always nice to help, but situation is little bit complicated, taxes are very high and in some way this is not fair to people that are paying everything. Also, there are huge number of people living and exploiting social me…

Your comment made me realize a more appropriate title would be : "Current croatian government cancels poor citizen's debts one year before election". But that would probably cast a VERY different light on the event. The original intent was probably to give the (positive i guess) impression that the greek trend of not paying debts is spreading.

Greek trend? I can remember quite a few american banks doing just this recently.

Re: Croatia just canceled the debts of its poorest citizens

#83

Post by TheOtherHobbes » Sun, Feb 01, 2015, 5:15 PM UTC

dingaling wrote: post #69

alextgordon wrote: post #40

Earlier quoted context omitted.

> But I wonder how this will affect the ability of non-elites to borrow in the future. Although we all like to hate our financial institutions, they really have been an incredible force against class structures over the last 100 years or so, allowing the middle class to own property, start businesses, etc, by gradually extending credit to more and more people. (I recognize it's not been perfect .) Reverting to a situ…

> The middle classes throw their weight around to prevent new houses being built Most middle- class folk I know are too busy cutting expenses to clear their mortgage sooner than to care about the ability of other people to buy houses. Why would they care? You pay off your mortgage and you're done.

Paying off your mortgage is a significant drain on resources when house prices have been driven through the roof by speculation and inflation. (See also the Bay Area.)

Disposable income drives the economy. If people are cutting instead of spending everyone loses - except property loan lenders.

Affordable housing frees up money for new businesses. Second to education, it's one of the strongest prosperity generators.

Re: Croatia just canceled the debts of its poorest citizens

#84

Post by narag » Sun, Feb 01, 2015, 5:15 PM UTC

raverbashing wrote: post #32

Sandman wrote: post #22

Earlier quoted context omitted.

Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive Yeah. Unfortunately this only works if you have enough money after you pay the bills etc. to put aside.

"if you have enough money after you pay the bills etc. to put aside." And how do you expect to afford a loan if you don't have money to put aside?! (excluding the rent to mortgage case, obviously)

And how do you expect to afford a loan if you don't have money to put aside?!

The trick is you need to live somewhere. If you can't have a loan, the money goes to rent.

Re: Croatia just canceled the debts of its poorest citizens

#85

Post by SapphireSun » Sun, Feb 01, 2015, 5:20 PM UTC

igravious wrote: post #75

juliangregorian wrote: post #44

> Among economists, the scheme is regarded as unprecedented and exceptional. Couldn't be further from the truth. In times past it was commonplace to cancel debts periodically. Moses and Hammurabi are just two examples off the top of my head.

Yes. I am not an economist but it troubles me that economists would be unawares (or claim to be unawares) about this aspect of the history of debt. As usual Wikipedia (the wise, the all-knowing) has a page[1] about it. Mass debt relief and forgiveness is unexceptional in history and certainly has precedent. Even as recently as the turn of the century (only a decade-and-a-half ago!) there was an international movement…

It kind of reminds me of how in some MMO games, they periodically reset the world to keep the game balanced. It usually means there's a defect in the world design, but it's a valid strategy for keeping the game going.

Re: Croatia just canceled the debts of its poorest citizens

#86

Post by jerf » Sun, Feb 01, 2015, 5:24 PM UTC

reqres wrote: post #10

While i applaud the motivation behind cancelling the debts of Croatia's poorest citizens, the way it was done is likely to hurt them more in the long run. Forcing banks to absorb the losses of this write-off will likely make it harder for the poorest to access credit in the future. Banks are not social institutions - they're pathological profit making entities. They will have no qualms with raising interest rates or…

"Forcing banks to absorb the losses of this write-off will likely make it harder for the poorest to access credit in the future. Banks are not social institutions - they're pathological profit making entities. They will have no qualms with raising interest rates or denying credit altogether to compensate for the increased risk of doing business with their poorest customers."

In historical terms, this readjustment of lenders to be more afraid that debts will just be forgiven, thus raising the cost of lending, is a deliberate and desired benefit of the debt holiday. Lending to those who can not pay it back is a millenia-old scheme for enslaving (to various degrees in various cultures) those poor people.

"Credit" is not a monolithic good that is either "good" or "bad"; it must be considered in context. "Credit" for an entity that can easily pay it back can be fairly good, and can grease the wheels of the economy, but "credit" to an entity that has no realistic hope of paying it back is not a virtue and not a help. It may feel good in the short term but it helps nobody in the end.

Historically speaking many cultures have acquired a fear of debt, in a long-running cycle (I italicize the word because it is important, it is not an attitude that just pops out of the normal ebb and flow of culture, it is a thing that was learned), as many other commenters are observing. If the modern world starts to reconsider its love affair with debt, it will merely be the most recent turn of the wheel, and we will hardly be the first culture to discover that easy credit can be far more destructive to everybody, from the bottom to the top, than people initially understand.

Re: Croatia just canceled the debts of its poorest citizens

#87

Post by davorb » Sun, Feb 01, 2015, 5:24 PM UTC

kghose wrote: post #78

popee wrote: post #45

Hi, croat here. Just one detail, this year there will be elections in Croatia and current gov didn't do anything useful for our economy, so this is kind of popular measure. Don't get me wrong, it's always nice to help, but situation is little bit complicated, taxes are very high and in some way this is not fair to people that are paying everything. Also, there are huge number of people living and exploiting social me…

Welcome to Democracy! :) As long as you can make fun of the politicians and not go to jail, things are nominal.

The problem is more that some of the politicians should go to jail, but don't.

Re: Croatia just canceled the debts of its poorest citizens

#88

Post by jljljl » Sun, Feb 01, 2015, 5:27 PM UTC

raverbashing wrote: post #16

rfrey wrote: post #2

The article says the government "convinced" banks and other companies to cancel the debts, but the lenders will not be compensated. It's left as an exercise to imagine how the lenders were convinced. I can see the benefits of getting a large number of people out of what must be a terrible situation - the numbers suggest most of the people affected probably didn't have enough income to even service their debt. But I w…

" allowing the middle class to own property, start businesses, etc," Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive I wonder what would happen to property prices if lending was severely restricted, maybe then the value would actually be affordable and not a lifelong debt that becomes unservi…

The benefits of saving vs. borrowing really depends on the situation, and it's possible that borrowing is actually more beneficial.

Let's say I want to save money to buy a house, and I want to pay in cash (i.e., no mortgage). I estimate it will take me about 20 years to afford the house, so I start putting away money from my pay check.

However, since I don't have a mortgage and thus no house to live in, I also have to pay rent somewhere. This means I am paying 1/20 the cost of a house + the cost of rent in my city.

Additionally, since I won't be buying a house for 20 years, there's a risk that the value of housing could change drastically in that time period, meaning the amount I've saved might not amount to enough to cover the price of housing when I'm finally ready to buy. Obviously the risk of this happening varies by how I invest my savings, and the particularities of the housing market I live in.

So the benefit to saving vs. borrowing comes down to something like:

(Cost of Housing in 20Years) + (Cost of Rent for 20 Years) - (Gains from Investments) vs. (Cost of Housing Today) + (Interest on Mortgage for 20 years)

Obviously there's a lot of other things to take into account, but it's not as simple as Savings Good Debt Bad.

Re: Croatia just canceled the debts of its poorest citizens

#89

Post by wyager » Sun, Feb 01, 2015, 5:27 PM UTC

alextgordon wrote: post #40

rfrey wrote: post #2

The article says the government "convinced" banks and other companies to cancel the debts, but the lenders will not be compensated. It's left as an exercise to imagine how the lenders were convinced. I can see the benefits of getting a large number of people out of what must be a terrible situation - the numbers suggest most of the people affected probably didn't have enough income to even service their debt. But I w…

> But I wonder how this will affect the ability of non-elites to borrow in the future. Although we all like to hate our financial institutions, they really have been an incredible force against class structures over the last 100 years or so, allowing the middle class to own property, start businesses, etc, by gradually extending credit to more and more people. (I recognize it's not been perfect .) Reverting to a situ…

>Thus society has bifurcated into the "have houses" and the "have nots".

I don't think this applies as much in the US.

A house that would cost $20,000,000 in Manhattan might cost $20,000 in Tennessee. Owning a house isn't a very good measure of wealth in the US, because almost anyone can do it.

Re: Croatia just canceled the debts of its poorest citizens

#90

Post by zo1 » Sun, Feb 01, 2015, 5:30 PM UTC

rhino369 wrote: post #67

rch wrote: post #61

Earlier quoted context omitted.

Not really - I know someone in the town where I went to school who opened a coffee shop using a combination of cash and credit cards at that level. She now owns the building the shop is in and a home in Hawaii. Not VC riches or anything, but not bad either.

A coffee shop isn't a restaurant.

Well, a restaurant isn't the only business venture an individual can get into. Just the other day I saw meme-photo (can't vouch for the validity/truthfulness) about a woman that made money at the beach by attaching balloons filled with margharita mix over her breasts. And charging party-goers (probably mostly male) for the chance to drink out of them.

Ridiculous and asinine example, but I bet she started off with no more than a hundred dollars in capital. Which means that entrepreneurship, and ingenuity are what's most important. Capital will follow.