Taxes also had a lot to do of the complexity of the system.
Why is finance so complex? (2011)
41–50 of 148 posts
Re: Why is finance so complex? (2011)
#42The world of finance makes these aspects of your life function: * Allows you to get a mortgage * Allows you to protect yourself with health/car/life/home/title/etc insurance * Pays for your highways/stadiums/schools and other public works * Protects your deposits * Pays for your retirement * Funds the college fund that paid for your school * ... Or the student loans that allowed you to attend school * Supports the gl…
>* Allows you to get a mortgage Simply the base artifact of modern finance. Why do I need a mortgage? (hint: to supply interest payments to banks AKA the institutors of the world of modern finance) >* Allows you to protect yourself with health/car/life/home/title/etc insurance See above. >* Pays for your highways/stadiums/schools and other public works "Pays". A meaningless word. >* Protects your deposits Only throug…
You need a mortgage because you don't have $400,000 in cash sitting around.
You need insurance because you don't have the personal finances to adequately cover the risk of "life"
Re: Why is finance so complex? (2011)
#43Earlier quoted context omitted.
So tax land rents, not labor.
I agree. Land value tax. It would cut the banks down to size in no time as it would cut down land speculation which makes up the bulk of bank lending.
I'd simply be interested in seeing more of working people's spending money available to increase the economy. I am not sure that this must be at the expense of banks.
One natural experiment in the effects of speculation is home prices in Texas ( which taxes land rents more than most states ) vs. Florida ( which taxes them less ).
It would also help address some examples of misallocation of land. Since the tax base is now largely market driven, it's all but impossible to game.
Re: Why is finance so complex? (2011)
#44Earlier quoted context omitted.
>* Allows you to get a mortgage Simply the base artifact of modern finance. Why do I need a mortgage? (hint: to supply interest payments to banks AKA the institutors of the world of modern finance) >* Allows you to protect yourself with health/car/life/home/title/etc insurance See above. >* Pays for your highways/stadiums/schools and other public works "Pays". A meaningless word. >* Protects your deposits Only throug…
You need a mortgage because you don't have $400,000 in cash sitting around. You need insurance because you don't have the personal finances to adequately cover the risk of "life"
If we live in a democracy, and money is backed by the state, why do we have to pay interest to profit-making banks and insurance companies?
Giving out mortgages is not difficult. You just have to be a bank. Not only that but 2007 showed that profit-making banks are even worse than a reasonable person, or precocious five year old, would be at deciding who should be given a mortgage.
Mortgages are a necessary part of society. Profit-making banks are not.
The only reason you spend your life slaving away paying extra interest to the shareholders of banks, is because banks have manoeuvred themselves into a privileged position. Inequality is not an accident of the system, it is the point of the system.
Re: Why is finance so complex? (2011)
#45Earlier quoted context omitted.
>* Allows you to get a mortgage Simply the base artifact of modern finance. Why do I need a mortgage? (hint: to supply interest payments to banks AKA the institutors of the world of modern finance) >* Allows you to protect yourself with health/car/life/home/title/etc insurance See above. >* Pays for your highways/stadiums/schools and other public works "Pays". A meaningless word. >* Protects your deposits Only throug…
You need a mortgage because you don't have $400,000 in cash sitting around. You need insurance because you don't have the personal finances to adequately cover the risk of "life"
> You need a mortgage because you don't have $400,000 in cash sitting around.
And a large part of why housing costs $400,000 in the first place is due to the availability of mortgages. Mortgages gave themselves a reason to exist.
Re: Why is finance so complex? (2011)
#46Finance is just a set of tools. Just like anything else it really comes down to the moral fiber of the individual wielding that tool.
Fischer Black and Myron Scholes weren't sitting in front of their white board thinking about all the people they could rip off. They were genuinely trying to find a way to price options as a tool to mitigate risk.
I can use a hammer to build a house or sink the hammer into my enemies head. Either way, it's still a hammer.
Re: Why is finance so complex? (2011)
#47Earlier quoted context omitted.
All of these were done 25, 50, or 100 years ago. The basis for the mortgage industry as we know it was developed during the new deal. I need some serious convincing that the effects securitization of everything has been a net win. The markets for most of this stuff are made or directly supported by the Federal government.
I think it's fine: http://www.tradingeconomics.com/embed/?s=unitedstamonsupm0&d... Look at that innovation! How is your life doing recently? I feel like mine is four times better. Oh no wait land is way more expensive and I'm working to pay my landlord every month. Should I go to my bank and make a huge bet on record low rates or wait for them to print some more whilst wages are static?
Careful, money supply is not at all the same thing as inflation, see:
http://inflationdata.com/Inflation/Inflation/Money_Supply_an...
Because we are in a big "liquidity trap": http://krugman.blogs.nytimes.com/2013/04/11/monetary-policy-...
The fed printed money can only be loaned, not just given away. This limits its direct impact on inflation. On the other hand, it certainly would cause inflation if it made it out of the banks. But banks will only loan if they think they can make money: only if there is economic growth to take advantage of, otherwise it just sits.
At this point we should not limit growth based on lack of liquidity, so it's probably not a bad thing that the fed is pumping money into the banks.
I read that some in the fed suggest that interest rates should be raised. The expectation of future higher rates might encourage people to borrow and spend now: https://www.stlouisfed.org/publications/regional-economist/a...
Re: Why is finance so complex? (2011)
#48Earlier quoted context omitted.
Exactly. I think he's assuming he'll never have to pay back the principle.
(In response to above as well as parent) > What's the magic that happens at zero that causes otherwise nonsensical projects to make economic sense? The bulldozing-mountains example is purposefully over-the-top (I believe I first heard it in an article by Bernanke[0]). The point that I am trying to illustrate is that at a 0% interest rate, the traditional marginal cost/marginal utility analysis breaks down, since as l…
Time gives the money a chance to grow if there is anywhere that offers a safe return. Lending at a negative interest rate is paying someone to keep your money safe. Borrowing at a real negative interest rate may not make sense if you aren't sure you can do that.
Re: Why is finance so complex? (2011)
#49Earlier quoted context omitted.
(In response to above as well as parent) > What's the magic that happens at zero that causes otherwise nonsensical projects to make economic sense? The bulldozing-mountains example is purposefully over-the-top (I believe I first heard it in an article by Bernanke[0]). The point that I am trying to illustrate is that at a 0% interest rate, the traditional marginal cost/marginal utility analysis breaks down, since as l…
Time gives the money a chance to grow if there is anywhere that offers a safe return . Lending at a negative interest rate is paying someone to keep your money safe. Borrowing at a real negative interest rate may not make sense if you aren't sure you can do that.
Actually, it was a bad example.
Suppose you spend $1M to produce something worth $100k. You lost $900k.
But suppose you borrowed at 0% while inflation was (to use round numbers) 10%. After about 50 years of borrowing at 0%, your $100k is now worth more than $1M. (I'm too lazy to use logs to figure out the exact breakeven point right now.) You made a profit.
With 0% interest rates, your investment that destroyed $900k of value was (eventually) profitable. If you can avoid mark-to-market accounting, you can just borrow, wait for inflation, and eventually sell for a profit.
When interest rates are less than inflation, a capital-destroying investment can seem profitable.
Re: Why is finance so complex? (2011)
#50Earlier quoted context omitted.
You need a mortgage because you don't have $400,000 in cash sitting around. You need insurance because you don't have the personal finances to adequately cover the risk of "life"
> You need a mortgage because you don't have $400,000 in cash sitting around. And a large part of why housing costs $400,000 in the first place is due to the availability of mortgages. Mortgages gave themselves a reason to exist.
No, it's because a house is 400,000 times more valuable than a can of coke.