Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Trillions in Bad Loans May Sap World Economy for a Long Time

nytimes.com

Post reply on HN
Print view View original

11–20 of 82 posts

Re: Trillions in Bad Loans May Sap World Economy for a Long Time

#11

Post by simonh »

johnm1019 wrote: post #9

Wouldn't this only sap the global economy if all those bad loans were backed by average Joes, who were then hurt by the loss of return? If instead they were backed by governments and multi-national conglomerates who already had hoardes of (free?) cash, then the effect on the economy would be limited.

Loans are 'non performing' precisely because whoever borrowed the money cannot pay it all back, or even keep up with scheduled repayments. Generally that's businesses, though they may be government owned. The article does discuss this issue and the problems with the different methods of dealing with it.

Re: Trillions in Bad Loans May Sap World Economy for a Long Time

#12

Post by ihsw »

Why not forgive the loans? The negative affect of debt on people's capacity to contribute to the world economy is high, and I think it stands to reason that people would contribute more for the duration of paying off their loan if the loan wasn't hanging over their head.

The banks would scream bloody murder, obviously, but their slack policies got us into this mess in the first place.

The intention is to throw people a rope to save them from drowning, but the rope is ending up as a noose around their neck more than anything else. The government's may have had good intentions in their support for the proliferation of subprime lending, but I think it would've been more effective to just give people money without the expectation that they pay it back directly. It will find its way back into the economy as, so to speak, trickle up economics.

Re: Trillions in Bad Loans May Sap World Economy for a Long Time

#13

Post by twoodfin »

ihsw wrote: post #12

Why not forgive the loans? The negative affect of debt on people's capacity to contribute to the world economy is high, and I think it stands to reason that people would contribute more for the duration of paying off their loan if the loan wasn't hanging over their head. The banks would scream bloody murder, obviously, but their slack policies got us into this mess in the first place. The intention is to throw people…

Imagine you're a bank calculating the interest rate to offer on a loan. Do you think that rate will be lower or higher if you believe there are circumstances wherein the government would unilaterally allow your borrower to cease payment?

Obviously, if the government could be metaphysically certain of the loans that would never return another penny and only cancel those, there's no net loss to the bank. But there's no net gain to the borrower other than a potential psychological effect.

Risk of government-sanctioned default is the same as any other default risk, and will be priced into interest rates, hurting especially those with marginal credit whom the banks judge most likely to be the "beneficiaries" of some future forgiveness.

Re: Trillions in Bad Loans May Sap World Economy for a Long Time

#15

Post by kolbe »

redthrowaway wrote: post #3

Almost like the better part of a decade of free money tends to create bad debt.

On top of that, instead of getting rid of the people who issued bad debt ten and twenty years ago, and let new people into the banking system, we instead kept the same inept cleptocratic money managers in charge, but gave them more firepower.

Re: Trillions in Bad Loans May Sap World Economy for a Long Time

#16

Post by sageikosa »

twoodfin wrote: post #13
ihsw wrote: post #12

Why not forgive the loans? The negative affect of debt on people's capacity to contribute to the world economy is high, and I think it stands to reason that people would contribute more for the duration of paying off their loan if the loan wasn't hanging over their head. The banks would scream bloody murder, obviously, but their slack policies got us into this mess in the first place. The intention is to throw people…

Imagine you're a bank calculating the interest rate to offer on a loan. Do you think that rate will be lower or higher if you believe there are circumstances wherein the government would unilaterally allow your borrower to cease payment? Obviously, if the government could be metaphysically certain of the loans that would never return another penny and only cancel those, there's no net loss to the bank. But there's no…

Not to mention the precedent it sets with the corresponding expectations of future similar actions should they be needed, and the erosion of confidence in your money's ability to maintain inflationary value.

Re: Trillions in Bad Loans May Sap World Economy for a Long Time

#18

Post by amalag »

twoodfin wrote: post #13
ihsw wrote: post #12

Why not forgive the loans? The negative affect of debt on people's capacity to contribute to the world economy is high, and I think it stands to reason that people would contribute more for the duration of paying off their loan if the loan wasn't hanging over their head. The banks would scream bloody murder, obviously, but their slack policies got us into this mess in the first place. The intention is to throw people…

Imagine you're a bank calculating the interest rate to offer on a loan. Do you think that rate will be lower or higher if you believe there are circumstances wherein the government would unilaterally allow your borrower to cease payment? Obviously, if the government could be metaphysically certain of the loans that would never return another penny and only cancel those, there's no net loss to the bank. But there's no…

This is why in days of yore there was something called collateral. Loan goes bad, you take the collateral, maybe take a loss and move on.

Now banks think they can get rid of that concept too. They want loans to be insured by governments so there will never be defaults and they can simply mint money?

Re: Trillions in Bad Loans May Sap World Economy for a Long Time

#19

Post by MCRed »

redthrowaway wrote: post #3

Almost like the better part of a decade of free money tends to create bad debt.

So, imagine what negative interest rates will do. Seriously, I can't imagine it, I sense it will be bad, but I'm not sure how it will play out.

On the other hand, if the fed will pay me to borrow money, I'd love to borrow as much as I can and loan it out on Prosper or Kiva etc.

Alas, the banks get these primo rates, not average joes... who are still paying %15 on credit cards. (money the bank borrows at near zero) Risk compensation and profit do not account for probably even half of that spread.

Re: Trillions in Bad Loans May Sap World Economy for a Long Time

#20

Post by aback »

twoodfin wrote: post #13
ihsw wrote: post #12

Why not forgive the loans? The negative affect of debt on people's capacity to contribute to the world economy is high, and I think it stands to reason that people would contribute more for the duration of paying off their loan if the loan wasn't hanging over their head. The banks would scream bloody murder, obviously, but their slack policies got us into this mess in the first place. The intention is to throw people…

Imagine you're a bank calculating the interest rate to offer on a loan. Do you think that rate will be lower or higher if you believe there are circumstances wherein the government would unilaterally allow your borrower to cease payment? Obviously, if the government could be metaphysically certain of the loans that would never return another penny and only cancel those, there's no net loss to the bank. But there's no…

Also:

Imagine you're a bank calculating the interest rate to offer on a loan. Do you think that rate will be lower or higher if you believe there are circumstances wherein the government would unilaterally forgive your bad debts if your customer defaults?

Post reply on HN