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

Re: Croatia just canceled the debts of its poorest citizens

#91

Post by sgift » Sun, Feb 01, 2015, 5:33 PM UTC

paulhauggis wrote: post #74

sgift wrote: post #49

Earlier quoted context omitted.

You somehow seem to equate debt with guilt. That is not what debt is, although lenders love it when you believe that. You also seem to think that the main reason people cannot pay of their debt is that they "smoked pot all day" - the notion of debt as guilt shines through here again. Debt is debt. Nothing else. It is not some moral failing if you cannot pay it back, it can have many reasons. And the idea that just be…

So here is another example. If I start a Kickstarter campaign and raise $100,000 from multiple backers and never deliver on the product but keep the money. Should I feel guilty? After all, it's just debt..right? Or does this only apply to "evil" bankers? If everyone had this thinking, nobody except the rich would get loans. As a bank, why would I ever loan someone money if they felt like they were entitled to it and…

I have the feeling that your cousins experience clouds your judgement here. From all that I've read the count of people who file bankruptcy multiple times is very low as is the count of people who file because of irresponsibility. There are usually very valid reasons (loose your job, get sick, good luck!)

For your example: That is exactly the reason that Kickstarter is not a preorder service, but project funding. There is always a risk that you won't get anything for the money you've invested and you are expected to consider these risks. That's also part of the reasons that professional lenders expect a certain rate of interest (another part of the interest rate is obviously for the fact that the lender could do something else with his money if he didn't lend it). If you have a higher risk, you pay more. So, if you fault multiple times you won't find anyone who will give you money anymore in the future or they will want more interest or they will want some securities .. and so on. I don't see how that somehow makes debt guilt. It is debt. Are you expected to pay it back? Yes. What if you cannot pay it back and you would be crushed under the weight of it? Don't pay it, go bankrupt and your lenders will have to pay the price of their risk-taking.

My point stands that there's a reason we've abolished debtors' prisons: Debt is not guilt.

Re: Croatia just canceled the debts of its poorest citizens

#92

Post by anon4 » Sun, Feb 01, 2015, 5:35 PM UTC

jljljl wrote: post #88

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…

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 t…

Well to be fair, borrowing with interest works really well only in the presence of endless growth.

Re: Croatia just canceled the debts of its poorest citizens

#93

Post by jljljl » Sun, Feb 01, 2015, 5:36 PM UTC

TheOtherHobbes wrote: post #83

dingaling wrote: post #69

Earlier quoted context omitted.

> 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.

If you are in the middle of paying your mortgage, and housing prices rise, you actually benefit, because the equity of your home will increase.

It's new homeowners who will struggle to pay.

Re: Croatia just canceled the debts of its poorest citizens

#94

Post by JoshTriplett » Sun, Feb 01, 2015, 5:36 PM UTC

narag wrote: post #84

raverbashing wrote: post #32

Earlier quoted context omitted.

"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.

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

The difference is that a landlord wants a tenant who can actually pay the rent, but banks often hand out loans that are far more than the new homeowner can afford.

If a tenant can't pay their rent, the landlord will have to go through a long and painful process to remove them and find another tenant, and they'll likely be out many months of rent in the process, with nothing to show for it. If the bank doesn't get their money, they own the house, they get paid whatever costs they can't recover by PMI (which the former owner had to pay for), and they can potentially offer a loan to the next sucker to buy that same house.

Re: Croatia just canceled the debts of its poorest citizens

#95

Post by nofutureagain » Sun, Feb 01, 2015, 5:37 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.

Yeah... the thing is, some of us have had a higher standard than that for generations and are now being sucked into the abyss of corruption under the flag of the EU.

Re: Croatia just canceled the debts of its poorest citizens

#96

Post by mcintyre1994 » Sun, Feb 01, 2015, 5:41 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…

> If it did, poverty would all but disappear; it's hard to be poor when you have your own house.

I disagree. It's not so much a case of having, as a case of owing, a lot of money. Direct experience from my own family, it's really really easy to make yourself poor when you have a mortgage - because you can remortgage. And way too many predatory lenders are more than happy to let you do that until you owe more than the value of your house. Having a house makes it easy to borrow too much because you have an asset you can leverage and that way too many predators will let you leverage terribly.

I agree with your comment in general, it seems reasonable - and I'm sure things would be better if everyone had their own house. But that wouldn't stop people being poor, not if their house came with tens of thousands of debt and they could leverage it to borrow more.

Re: Croatia just canceled the debts of its poorest citizens

#97

Post by zo1 » Sun, Feb 01, 2015, 5:43 PM UTC

bmajz wrote: post #18

rhizome31 wrote: post #14

Earlier quoted context omitted.

I'm reading Graeber's Debt, the first 5000 years which explains how this practice is as old as debt itself. It already existed in ancient Mesopotamia. I highly recommend this book to anyone interested in the topic. It also shows how debt is deeply linked to slavery, women slavery in particular, through the phenomenon of debt peonage.

Sounds awesome - will have to check it out. Totally random aside: does it talk about the evolution of debtor's prisons after slavery was no longer an option? I always wondered why people thought it made sense to lock someone up with no economic recourse to pay down a debt. There were probably much better options to deal with the potential moral hazard.

Why are you removing responsibility from the debtor? It's just as much the fault of the creditor to give the (maybe unpayable?) loan, as it is for the debtor to take/agree to it.

On the one hand, the debtor pretty much ends up stealing. And on the other hand, the creditor took a too-risky loan without considering the repayment ability of the person he was giving it to. We're conditioned to think this as some sort of cruel injustice (and it is indeed a sad situation), while completely ignoring the actions of the debtor.

You could go one step further and say that perhaps the debtor was committing fraud by tricking the creditor into giving out the loan when he knew the chance of repayment was low. (Assuming debt-slavery wasn't the goal of the creditor in the first place). Also exclude accidents and life-altering events (corner case). I'd imagine that after a few of these horrible incidents came to light in a connected world (i.e. modern times, not centuries past) creditors would start adding clauses into their contracts about possible re-payment plans/options, etc. Hell, they might not even offer to give the loans out if they were too risky.

If there is one thing I'd like individuals to take from this comment, it's that laws and regulations aren't the only solution to society's problems. I'd argue that they merely "mask" away the problems, without ever giving individuals a chance to resolve it amongst themselves in peaceful and non-barbaric ways. This is true now more than it has ever been in the history of our world, with the advent of modern communications and the internet. At least, give it a brainstorm/thought next time you jump to government intervention for any perceived injustice in this world.

Re: Croatia just canceled the debts of its poorest citizens

#98

Post by JamisonM » Sun, Feb 01, 2015, 5:53 PM UTC

http://www.reuters.com/article/2015/01/15/us-croatia-welfare...

   The government program involves major local banks,
   leading telecom operators, the four biggest Croatian
   cities and several public utility companies. The
   government will not pay the debts; the creditors
   will simply absorb them.

Frankly in the absence of consumer bankruptcy laws it is clear why these particular creditors are willing to go along with this scheme, even though it will cost them some revenue, without much of a fight. These were likely amounts small enough, given the parameters of the debt-cancellation rules, that recovery was never a particularly practical option anyway. If the debt on the books of utilities or a bank is not good enough to sell to a third party and is not considered recovery internally then the accountants would be quite happy to simply have these amounts off the books and the corporations and governments probably reap more rewards in positive PR than the debts were worth.

The perhaps larger problem that I think is being solved here, besides the debt itself, is the bank account "blocking"[1] that appears to be a provision in current law that the government is not interested in changing. Once someone's bank accounts are blocked I presume that they are forced into the cash economy and that is bad for the government in lost taxes as well as citizens with respect to many things, including good old fashioned "getting ripped off".

[1] http://www.croatiaweek.com/over-300000-accounts-blocked-due-...

Re: Croatia just canceled the debts of its poorest citizens

#99

Post by gmunu » Sun, Feb 01, 2015, 5:56 PM UTC

sergiosgc wrote: post #51

gmunu wrote: post #19

Earlier quoted context omitted.

This is a very interesting comment and I used to think similarly, but Matt Levine over at Bloomberg convinced me over several articles (couldn't find exactly which ones on a casual searching) that it's a little more subtle than that. In contracts between big companies, this is absolutely true. Financial institutions expect that companies will act as rational economic actors and discharge their debt when it's benefici…

You make a common economy error. You are assuming the price of a good or service is defined by its cost. This is only true in very liquid (competitive) markets. Banking is no such market. You make a perfect case of justifying that the cost of providing the lending service would be higher. However, prices are not defined by cost. They are defined, loosely, by what the market can bear. The cost is a lower limit, but no…

It is certainly not the case that cost == price, I agree. Price is determined by supply and demand. But if you change the cost of mortgages, you probably change their supply curve and hence the market clearing price. To argue that raising the cost of mortgages doesn't change the market clearing price is make a pretty strong claim about the shape of supply and demand curves.

Re: Croatia just canceled the debts of its poorest citizens

#100

Post by Frondo » Sun, Feb 01, 2015, 5:56 PM UTC

MichaelGG wrote: post #76

Frondo wrote: post #17

Earlier quoted context omitted.

It was probably a mistake in judgment to give yourself health problems for anything money-related.

How common a mistake, though. It's not uncommon for people to even suicide over a debt. Even if the debt isn't something legally enforceable.

It would be good to keep talking about it, I think, and work to reduce some of the social/moral pressure around debt-paying--no one should injure (e.g. through overwork) or kill themselves over money.