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

Re: Croatia just canceled the debts of its poorest citizens

#261

Post by mrow84 » Mon, Feb 02, 2015, 8:56 AM UTC

The idea that lenders will stop lending to poorer people seems very popular, but can someone explain why this situation will remain immune from market effects?

Markets are not an exercise in rationality, they are an exercise in making a return on investment, and, investment will occur where people think they can make a return, almost irrespective of the existence of crashes (in this case, government cancelling debts). I really don't see why people won't invest under the belief that they will be smart enough to pull out in time, just as they do in lots of other markets such as housing and shares.

It seems to me that this "no lending to the poor" argument is popular more because it fits with a particular set of politics, and is justified only by an appeal to its rationality as an idea, rather than to whether or not it might actually obtain.

Re: Croatia just canceled the debts of its poorest citizens

#262

Post by antman » Mon, Feb 02, 2015, 8:59 AM UTC

galfarragem wrote: post #219

BSousa wrote: post #211

Earlier quoted context omitted.

Ok, let me go point by point a) you are right. I was only referring to the pre-euro accounting. Sorry if I didn't make myself clear. b+c) I don't know the exact figure, but if I remember correctly, private loses were about 20% only. "One estimate is that Greece actually subscribed to €156bn worth of new debt in order to get €206bn worth of old debt to be written off, meaning the trumpeted write-down of €110bn by the…

Would you be happy if the your country lend them your taxes money, knowing that they decide the loan terms, not knowing when and if they will pay you back? I wouldnt.

The foreign taxpayer is paying loans to the greek taxpayer, who is paying taxes to the greek government, who is repaying debt of private greek companies(mostly banks), who are repaiing debt to foreign private companies(mostly banks), who ignored or sidetracked the Basel treaty that clearly stated who can get loans or not. Deutsche Bank was one of the most hard hit from bad loans.[1]

The german media is misrepresenting their request for debt cancellation of private losses, by saying that german taxpayers would have to pay them instead, which ofcourse nobody said that but certain german politicians. (and I would not use spiegel as a credible source).

[1] http://www.forbes.com/sites/kylesmith/2011/09/28/book-review... "When Goldman Sachs helped the New York hedge fund manager John Paulson design a bond to bet against — a bond that Paulson hoped would fail — the buyer on the other side was a German bank. Iceland, Ireland, Greece — all of their profligacy came from Germany."

Re: Croatia just canceled the debts of its poorest citizens

#263

Post by saiya-jin » Mon, Feb 02, 2015, 9:12 AM UTC

deciplex wrote: post #222

bjt wrote: post #220

Earlier quoted context omitted.

The obvious possible failure is that these people may find it hard to get credit in the future, as described in the last paragraph: > Some economists, among them Baker, are skeptical whether the scheme will succeed: "I am not sure that this is the best way to help low-income people. If lenders think this can happen again they will charge very high interest rates to low-income borrowers," Baker said. If you were a ban…

> If you were a bank that had just been pressured into forgiving a bunch of loans, how likely would you be to make new loans to the same class of people? Considering that many of those loans are predatory in nature, that may not be a bad thing.

agreed, these lowest (if any) income class should stay away from any kind of debts as far as possible. It's a spiral that they've already fallen through at least once

Re: Croatia just canceled the debts of its poorest citizens

#264

Post by vidarh » Mon, Feb 02, 2015, 9:17 AM UTC

JamisonM wrote: post #136

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…

Most of this is fairly incorrect. The risks involved lending money to poor people are largely unchanged by this and the bottom lines of all of the businesses involved are essentially unchanged. All of these outstanding amounts are delinquent as the people being relieved of these debts have to have been in financial trouble for at least 12 months by the conditions set out in the program. This means that all of these d…

In the UK, most of these people - if they were unable to have the debt outright written off because they were missold (if the banks lent them money without a reasonable belief they were affordable for the recipient at the time they were issued) - would almost certainly have been able to get an IVA (Individual Voluntary Arrangement) which would in effect see massive writeoffs as well (you have to set out a strict budget, and then apportion the remainder of your income to service a portion of the debt for 12 months, after which the rest is wiped out - this is basically mostly a hurdle to avoid having people speculate in it). As a result most banks here will fall over themselves to be flexible about repayment arrangements if people just call them to discuss matters. Getting interest rates frozen and payment amounts reduced is fairly normal, as it's way preferable to them to an IVA.

Yes, as you say: it's worked into the rates and credit qualification cutoffs, and the UK isn't exactly a hard place to get credit despite these very flexible mechanisms for people to get out of debt.

Here's the other thing: These mechanisms are as flexible as they are because the banks have a duty to not give credit to people who can't afford it. If a large number of people go for IVAs, then the banks are probably failing their in their duty even if it is hard to prove individual cases. So it serves as a safety valve to ensure the banks have an ever stronger reason to not make it easier for people to get themselves into trouble in the first place.

Re: Croatia just canceled the debts of its poorest citizens

#265

Post by dsirijus » Mon, Feb 02, 2015, 9:22 AM UTC

Responsible countries handle this through a simple legislated idea - personal bankruptcy; this is a political populist move not inspired by any actual reasoning into effects of this on economy. Not that I think effect is of any serious impact, for anyone.

This move is exactly of the category that is crippling Croatia. We (yes, a Croat here) are in a bit of a pickle, and let me explain the core of the it...

Even excluding astonishing amount of pensioners (many from previous regime) and war-inflicted disabled persons (whose actual condition is matter to be looked upon suspiciously) and other non-working class of people, work-force segments into two distinct categories - directly or indirectly dependant on the goverment as source of income, and the good "old" private sector. The trouble here is that former is riddled with catastrophic inefficiency, corruption and evades competitive market, and the latter carries the burden of former. The issue is - in democratic elections, majority wins, and the former here is the majority.

So we keep up with this cancerous tumor of goverment-dependants who won't ever vote for someone who'll put a stop to it (hey, they're not crazy, why would they vote against their immediate interests), and violently cut it out of the system.

Maybe, and just maybe (haven't crunched the numbers), within a generation, when few factors align (war-disabled die off, unemployed numbers increase even more), the actual critical mass of value-adding work-force outweighs the tumor, brighter days await us. And even that is under assumption there will be an election choice that'll be catalyst for those changes at that point.

I personally don't hold an optimist view. Hell, even our geographical geometric shape looks unstable and unnatural. War ended by higher powers putting a stop to it, not resolution. And as far as EU membership goes - meh, we're again at the age-old role of a border country as a proxy for keeping the region stable and keeping the muslims out. Important role, but hardly grateful.

Not to end on a completely sour note - I did notice a sentiment of unity last few years. Particulary noted during holiday sales (or the lack of excessive spending), people seem to coalesce in misery, slowly perceiving that we're in this shit together, unlike during last two decades, where they would aspire beyond means, due to many factors including prominence of war-profiteers. Like my grandma said: "It was never worse here during my lifetime. After WWII at least everyone was poor."

Re: Croatia just canceled the debts of its poorest citizens

#266

Post by vidarh » Mon, Feb 02, 2015, 9:27 AM UTC

sgustard wrote: post #188

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?

Per capita car ownership: http://en.wikipedia.org/wiki/List_of_countries_by_vehicles_p... shows the US at 809 cars per 1000, vs Italy at 682, Germany 588, and so on. Which I would interpret as "Europe has slightly fewer cars per person", not "Europe has NO NEED for cars". It's hard with a straight face for anyone who's visited Paris or Rome to observe there's not serious traffic. (And, in fact, woe to any pedestrians…

In most European cities you really do not need a car. That does not stop a lot of people from owning cars anyway out of convenience, and because they can afford it.

Re: Croatia just canceled the debts of its poorest citizens

#267

Post by dang » Mon, Feb 02, 2015, 9:42 AM UTC

arielpts wrote: post #230

ricardobeat wrote: post #177

Earlier quoted context omitted.

These exact same words could come out of a Brazilian. Word by word. I don't know about Croatia, but in that case they are only half-truths. The idea that there are 'people who pay for everything' is usually misguided. There are the exploited, and the less exploited. Both pay in one way or another, and only a very small elite group is actually well off. You say "the situation is complicated" and "this is not fair", bu…

I'm sick of people like you. You really do not know anything about the socio-political situation on Brazil nor Croatia to state that. Probably you are just a high class "worker" that compose the high income "class" which only say and trust their peers, wihtout seeking to know this huge country of ours. You probably do not go to the city hall to get a say about the year's budget planning nor associate with peers to in…

> I'm sick of people like you.

Personal attacks are not ok on Hacker News. Please be civil.

Re: Croatia just canceled the debts of its poorest citizens

#268

Post by ptaipale » Mon, Feb 02, 2015, 10:10 AM UTC

riffraff wrote: post #179

briandear wrote: post #174

Earlier quoted context omitted.

And why is Greece in bad shape? Mightn't the deficit and fiscal mismanagement be the problem? How else should they solve it?

you can negotiate the option to pay the debt in 30 years and avoid shutting down public healthcare, or you can fire a million people and try to pay it in 3 years. The common feeling is that the "shock cure" has not been effective in any way, cause it in turn has caused a spiraling recession. I'm not defending either position, but it's something that has been debated ad nauseam. Also consider that a lot of the policie…

> you can negotiate the option to pay the debt in 30 years

The Greek repayment schedule has already been negotiated to extend to 2054. That is in 40 years.

I would say that if Greece can't handle a debt in 40 years, we can forget about it.

(With the Greek history, that is. Elsewhere there are longer debts; in Sweden, a mortgage for a house may be amortized in 100 years - but it can be handled because people pay what's due).

Re: Croatia just canceled the debts of its poorest citizens

#269

Post by runj__ » Mon, Feb 02, 2015, 11:28 AM UTC

ptaipale wrote: post #260

Sandman wrote: post #165

Earlier quoted context omitted.

What hurts people the most is VAT (Value-added tax), and Croatia has one of the highest VATs of all the EU countries [1]. The US doesn't have a VAT, but it does have a sales tax, which is pretty low compared to VAT in most European countries[2] [1] http://en.wikipedia.org/wiki/Value-added_tax#EU_countries [2] http://en.wikipedia.org/wiki/Sales_taxes_in_the_United_State...

VAT hurts, but not as much as taxing income. People do not like consumption taxes, but even with high VAT, they still consume, while taxing employment or corporate incomes hurts economies more because they have a stronger impact on economic activity. Land value tax would be even better, because the land does not run away or stop working. How's that in Greece?

VAT is easier to "cheat" than income tax. Just don't buy stuff in your own country.

Land Value tax makes the rich pay a lot but hits the poorest really hard since the threshold to owning land (and creating wealth) is substantially raised.

Re: Croatia just canceled the debts of its poorest citizens

#270

Post by carona » Mon, Feb 02, 2015, 11:55 AM UTC

ricardobeat wrote: post #177

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…

These exact same words could come out of a Brazilian. Word by word. I don't know about Croatia, but in that case they are only half-truths. The idea that there are 'people who pay for everything' is usually misguided. There are the exploited, and the less exploited. Both pay in one way or another, and only a very small elite group is actually well off. You say "the situation is complicated" and "this is not fair", bu…

I don't know the exact scenario in Croatia or Brazil; In general, writing off loans sets a bad precedent. People would again take loans, and will want the Govt. to bail them out. I have seen these things happen in India. There were cases people took loans and were waiting for the next election, to get their loans waived off.