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

Re: Croatia just canceled the debts of its poorest citizens

#151

Post by mseebach » Sun, Feb 01, 2015, 7:46 PM UTC

raffomania wrote: post #140

bmmayer1 wrote: post #116

Let's just look at the predictable consequences of this move: 1) Banks and other corporations will never lend money to poor people again. Full stop. If there is a chance that the government will write off that debt (effectively stealing future earnings from banks) for these loans, banks just won't issue them. Say goodbye to educational loans, healthcare loans, car loans. Say goodbye to home loans and mortgages. If yo…

Did you read the entire article? > Prime Minister Zoran Milanovic has convinced multiple cities, public and private companies, the country's major telecommunications providers, as well as nine banks to clear some of their citizens of their debt. This means that the losses happen with consent of the corporations involved.

Well, it's vague at best. If, indeed, the case is that these institutions voluntarily did cancel some debt, first, they have abysmal PR teams, letting the PM run with the credit for it. Second, the headline is just wrong. "Croatia" didn't do anything, a number of creditors did. Third, it's unlikely that all poor debtors had all their debt to these creditors, and any debt to creditors not participating in the scheme would not have been cancelled.

Either that, or the somewhat more plausible explanation, that the word "convinced" just doesn't quite describe the process that is taking place.

Re: Croatia just canceled the debts of its poorest citizens

#152

Post by maxerickson » Sun, Feb 01, 2015, 7:47 PM UTC

themartorana wrote: post #147

maxerickson wrote: post #41

Earlier quoted context omitted.

Saying TARP had no oversight is a bit much. The money mostly got paid back, it wasn't a festival of stealing from the government: http://projects.propublica.org/bailout/ The best way to look at TARP is as a preservation of the status quo. Whether that was the right thing or not, given how many people have investment assets that are exposed to banking and insurance, the benefits were a lot wider than just to the banki…

Well, yes, except for where not entirely or at all. [0] [0] http://www.npr.org/blogs/thetwo-way/2011/11/28/142854391/rep...

Could you explain more about what you mean? I don't understand what I am supposed to get out of your link (I see where it says banks profited from a program designed to help them profit, but I don't see anything about money they didn't pay back).

Re: Croatia just canceled the debts of its poorest citizens

#153

Post by fengb » Sun, Feb 01, 2015, 7:49 PM UTC

JoshTriplett wrote: post #94

narag wrote: post #84

Earlier quoted context omitted.

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…

The homebuyer can simply buy a smaller home and extract the difference between paying mortgage and renting.

Re: Croatia just canceled the debts of its poorest citizens

#154

Post by adventured » Sun, Feb 01, 2015, 7:50 PM UTC

ptaipale wrote: post #145

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…

Just nitpicking one thing: > taxes are very high Doesn't seem so: Croatia's tax to GDP ratio is 26.6 %. Compare that to 46.8 % in Belgium, 43.4 % in Austria, 40.6 % in Germany, 45.8 % in Sweden. 26.9 % in U.S. which is internationally known as a low-tax regime. Surely some taxes are high, and taxation is not necessarily fair, but I'd say that Croatia's taxes overall are not high. I would also expect that the "black m…

The US is not regarded internationally as a low tax economy, it's regarded as a medium tax economy. There are about 110 countries with lower tax takes per GDP than the US.

Singapore (14% of GDP) and Hong Kong (13% of GDP) are low tax economies.

Japan and Australia are similar to the US, and are not considered low tax countries. The US and Japan also share the distinction of having among the highest corporate tax rates on earth.

Re: Croatia just canceled the debts of its poorest citizens

#155

Post by mseebach » Sun, Feb 01, 2015, 7:53 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…

> Unlike the developing world, the developed world is perfectly capable of building a house for every man, woman and child.

The trick isn't building n houses. It's building n houses where people actually want to live. Oh, and also the bit where the houses should be of the kind people actually want to live in. The UK, as you are no doubt aware, but for quite understandable reasons you neglected to mention, ran with pretty much exactly that idea in the decades following WWII. To the extent that solved anything, it was in a strictly numerical sense.

Re: Croatia just canceled the debts of its poorest citizens

#156

Post by ChuckMcM » Sun, Feb 01, 2015, 7:54 PM UTC

bmmayer1 wrote: post #116

Let's just look at the predictable consequences of this move: 1) Banks and other corporations will never lend money to poor people again. Full stop. If there is a chance that the government will write off that debt (effectively stealing future earnings from banks) for these loans, banks just won't issue them. Say goodbye to educational loans, healthcare loans, car loans. Say goodbye to home loans and mortgages. If yo…

I had similar thoughts but then I reconsidered.

In theory banks price risk using interest rates. That is to say that high risk individuals have to pay a higher interest rate on their debt than lower risk individuals. This reflects the banks concern that they won't get paid back.

If they (the banks) are doing their jobs right then having their highest risk people default is already covered by the interest rates other less risky clients are paying.

The trick though is actually making the bank take the loss which is something they have worked around with the help of the various governments. And that is where we get a conflict of interest where the bank is pricing the loans with the expected risk but actually taking much less risk due to government back stops. That difference is, as you would expect, profit for the bank.

Re: Croatia just canceled the debts of its poorest citizens

#157

Post by baddox » Sun, Feb 01, 2015, 7:55 PM UTC

hellbanner wrote: post #146

baddox wrote: post #135

Earlier quoted context omitted.

How do poor people in Europe get cars? Or are you saying they don't need them?

Public transportation is quite good in Europe compared to say, the USA, where car companies purchased intranational train tracks, dismantled them for highways http://en.wikipedia.org/wiki/General_Motors_streetcar_conspi...

I suspect Europe's population density being 3 times that of the USA doesn't hurt either.

Re: Croatia just canceled the debts of its poorest citizens

#158

Post by adventured » Sun, Feb 01, 2015, 7:55 PM UTC

ivanhoe wrote: post #141

bsaul wrote: post #52

Earlier quoted context omitted.

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.

Actually, this law was proposed way before the elections in Greece were held, so it wasn't related in any way.. except that Croatia and Greece are in a similar positions debt wise, so similar political moves can be expected

To be fair a portion of the Greek government has been arguing - quite publicly - for debt forgiveness for a long time. That didn't begin with the Greek elections.

Re: Croatia just canceled the debts of its poorest citizens

#159

Post by briandear » Sun, Feb 01, 2015, 7:57 PM UTC

ptaipale wrote: post #145

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…

Just nitpicking one thing: > taxes are very high Doesn't seem so: Croatia's tax to GDP ratio is 26.6 %. Compare that to 46.8 % in Belgium, 43.4 % in Austria, 40.6 % in Germany, 45.8 % in Sweden. 26.9 % in U.S. which is internationally known as a low-tax regime. Surely some taxes are high, and taxation is not necessarily fair, but I'd say that Croatia's taxes overall are not high. I would also expect that the "black m…

The U.S. is known as a low tax regime? They have among the highest corporate taxes in the world. Taxation as a percentage of GDP is not a good measure because that doesn't address the tax burden as a percentage of income, but as a percentage of GDP. That also doesn't measure the value received for the tax burden endured. As an extreme example, if you are receiving value from those taxes (perhaps education or public transport,) then you would pay less out of pocket for those services. However if you had a low tax rate but we're required to pay for everything directly (such as paying for education,) then the real value of those taxes to the citizen is much less. So at the end of the day, you may pay lower tax, but you spend more because those taxes aren't delivering value. The raw ratio is meaningless; the value derived per dollar is much more meaningful.

And yes, the Baltics do have a bad ratio of taxes collected, versus value received.

Re: Croatia just canceled the debts of its poorest citizens

#160

Post by swatow » Sun, Feb 01, 2015, 8:00 PM UTC

ChuckMcM wrote: post #156

bmmayer1 wrote: post #116

Let's just look at the predictable consequences of this move: 1) Banks and other corporations will never lend money to poor people again. Full stop. If there is a chance that the government will write off that debt (effectively stealing future earnings from banks) for these loans, banks just won't issue them. Say goodbye to educational loans, healthcare loans, car loans. Say goodbye to home loans and mortgages. If yo…

I had similar thoughts but then I reconsidered. In theory banks price risk using interest rates. That is to say that high risk individuals have to pay a higher interest rate on their debt than lower risk individuals. This reflects the banks concern that they won't get paid back. If they (the banks) are doing their jobs right then having their highest risk people default is already covered by the interest rates other…

Banks do take the loss via bankruptcy, or people just not repaying. If the banks had lobbied the government to repay these debts with taxpayer money, I would agree that this was trying to eat their cake and have it. But the government's actions go too far in the other direction. They impose a loss on the banks that the banks would never have expected or priced in.