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Small business rescue earned banks $10B in fees

npr.org

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Re: Small business rescue earned banks $10B in fees

#311

Post by bdhess »

rckoepke wrote: post #302
LatteLazy wrote: post #289

Earlier quoted context omitted.

Finance is a very important industry that adds a lot of value. If you get a student loan, you can go to university tomorrow and earn more in a few years, that's much more valuable than spending 20yrs at McDonald's earning nothing and saving very slowly to pay for your degree upfront as you would have to otherwise. Ditto mortgages. Ditto getting a car or starting a business or basically anything finance permits. The g…

> Finance is a very important industry that adds a lot of value. If you get a student loan, you can go to university tomorrow The vast majority of student loans are guaranteed by the federal government. The banks take zero risk on these loans and still charge higher rates than home mortgages. Something seems broken there.

> The vast majority of student loans are guaranteed by the federal government. The banks take zero risk on these loans

Do you have a source for this? I can't confirm it. As an example, this description implies that the guarantee is for 97% of outstanding principal: https://www.nolo.com/legal-encyclopedia/what-is-federally-gu...

Assuming something close to that, the bank is out 3% of the principal, plus any accumulated interest-- which I would guess is usually substantial, because payments are typically deferred while the student is in school, but the bank's been paying the fed interest during that time period.

So I don't have all the numbers, but on the face of it, it doesn't seem totally ridiculous that a secured loan like a mortgage would fetch a better rate than student loans that aren't fully guaranteed.

Re: Small business rescue earned banks $10B in fees

#312

Post by exabrial »

Spellman wrote: post #153
exabrial wrote: post #111

Side Note: NPR's journalism of late has been refreshingly non-political. Every article on CNN right now for me is a click bait headline with some weird mention of Trump like it's some sort of requirement to get it to go to press.

I thought that's the norm for NPR?

I guess I haven't spend a lot of time with them. But they earned a reader today by stating their findings and labeling their opinions correctly.

Re: Small business rescue earned banks $10B in fees

#313

Post by agilebyte »

Klinky wrote: post #303
agilebyte wrote: post #288

Earlier quoted context omitted.

Banks paid sanctions for failing to do due diligence on loan applications, that's what the banks want to avoid this time round.

Wouldn't their value add here be that they can quickly do due diligence and expedite these loans given their expertise in the field? Seems you're extolling their ability to perform quickly, while also excusing away their inability to perform quickly.

They perform faster than the government and have the expertise to deal with businesses. Compared to 2008, I see their role as "good guys" this time round.

Re: Small business rescue earned banks $10B in fees

#314

Post by JSavageOne »

LatteLazy wrote: post #289
JSavageOne wrote: post #220

Earlier quoted context omitted.

You outline the problem very well. The banking sector has an ENORMOUS amount of power over the economy/society in a way that no other industry does because it literally has the ability to create money out of thin air (by loaning it into existence). The banking industry is the arbiter and credit in our society and decides where money get allocated. This would be fine if it were their own money, but it's not - it's our…

Finance is a very important industry that adds a lot of value. If you get a student loan, you can go to university tomorrow and earn more in a few years, that's much more valuable than spending 20yrs at McDonald's earning nothing and saving very slowly to pay for your degree upfront as you would have to otherwise. Ditto mortgages. Ditto getting a car or starting a business or basically anything finance permits. The g…

As the other commenter mentioned, most student loans are guaranteed by the federal government, meaning that the bank is compensated without taking any risk. Student loans in particular are insidious because non-payment can result in one's wages and social security being garned, and it's one of the few loans that doesn't go away in bankruptcy.

Regarding mortgages, auto loans, business loans, the key point is that the money is created out of thin air. 80% of bank credit goes to mortgages, which ultimately drives up prices and fuels housing bubbles.

The Great Recession and Great Depression were caused by the finance sector. The Great Recession was the result of banks fueling a housing bubble by loosening lending standards, driven by the peddling of risky financial securities like CDOs, and leveraged to the tilt by derivatives like credit default swaps. When it all collapsed, they had to be bailed out (while Main St never got one). The Great Depression was preceded by a stock market bubble fueled by speculators trading on margin.

The banking industry does not create wealth. It is a middleman with the monopoly privilege of creating money out of thin air in exchange for dishing out collateral-backed loans of this funny money, and has 1. too much power, and is 2. overcompensated for it's "work" 3. in the long-term will reduce our competitiveness and lead to our relative demise (eg. look at General Electric).

You're failing to envision an alternative where credit is more democratically allocated, where finance isn't so overcompensated and such a brain drain attracting our brightest minds, and where the government can offer $350b in small business loans during a crisis without some middlemen taking a ludicrous 3% fee for shuffling some papers.

Re: Small business rescue earned banks $10B in fees

#315

Post by JSavageOne »

chris_va wrote: post #199

Maybe this is an unpopular opinion amidst the pitchforks, but do we not have better things to worry about at the moment? The system is inefficient and unfair, great lets put it on the list of things to fix, but a ~3% fee is not world ending (unlike some other things) and seems like a low priority.

How is a 3% fee not outrageous when there is no work being done? If 3% of the $1,200 stimulus checks owed to individual citizens went to private banks, would you say it's not a big deal? (if so I hope you're not running for Congress)

Re: Small business rescue earned banks $10B in fees

#316

Post by PeterStuer »

LatteLazy wrote: post #289
JSavageOne wrote: post #220

Earlier quoted context omitted.

You outline the problem very well. The banking sector has an ENORMOUS amount of power over the economy/society in a way that no other industry does because it literally has the ability to create money out of thin air (by loaning it into existence). The banking industry is the arbiter and credit in our society and decides where money get allocated. This would be fine if it were their own money, but it's not - it's our…

Finance is a very important industry that adds a lot of value. If you get a student loan, you can go to university tomorrow and earn more in a few years, that's much more valuable than spending 20yrs at McDonald's earning nothing and saving very slowly to pay for your degree upfront as you would have to otherwise. Ditto mortgages. Ditto getting a car or starting a business or basically anything finance permits. The g…

You are basically arguing that the burglar that holds a gun to your head and threatens to pull the trigger if you stop giving him food is 'essential' in your survival so you can not do without him.

Re: Small business rescue earned banks $10B in fees

#317

Post by listenallyall »

PeterStuer wrote: post #316
LatteLazy wrote: post #289

Earlier quoted context omitted.

Finance is a very important industry that adds a lot of value. If you get a student loan, you can go to university tomorrow and earn more in a few years, that's much more valuable than spending 20yrs at McDonald's earning nothing and saving very slowly to pay for your degree upfront as you would have to otherwise. Ditto mortgages. Ditto getting a car or starting a business or basically anything finance permits. The g…

You are basically arguing that the burglar that holds a gun to your head and threatens to pull the trigger if you stop giving him food is 'essential' in your survival so you can not do without him.

What kind of burglar or gunman writes you a check for $300,000, maybe more?

Re: Small business rescue earned banks $10B in fees

#318

Post by listenallyall »

rckoepke wrote: post #302
LatteLazy wrote: post #289

Earlier quoted context omitted.

Finance is a very important industry that adds a lot of value. If you get a student loan, you can go to university tomorrow and earn more in a few years, that's much more valuable than spending 20yrs at McDonald's earning nothing and saving very slowly to pay for your degree upfront as you would have to otherwise. Ditto mortgages. Ditto getting a car or starting a business or basically anything finance permits. The g…

> Finance is a very important industry that adds a lot of value. If you get a student loan, you can go to university tomorrow The vast majority of student loans are guaranteed by the federal government. The banks take zero risk on these loans and still charge higher rates than home mortgages. Something seems broken there.

Not for the past 10 years, when govt-guaranteed loans were discontinued. As far as student loans in general, let's see -- no collateral, no down payment, no proof of income. A bit riskier than a mortgage, I'd say.

Re: Small business rescue earned banks $10B in fees

#319

Post by PeterStuer »

listenallyall wrote: post #317
PeterStuer wrote: post #316

Earlier quoted context omitted.

You are basically arguing that the burglar that holds a gun to your head and threatens to pull the trigger if you stop giving him food is 'essential' in your survival so you can not do without him.

What kind of burglar or gunman writes you a check for $300,000, maybe more?

The one that holds many guns to many heads, and has obtained the monopoly on writing pieces of paper.

Re: Small business rescue earned banks $10B in fees

#320

Post by listenallyall »

bo1024 wrote: post #240
JSavageOne wrote: post #220

Earlier quoted context omitted.

You outline the problem very well. The banking sector has an ENORMOUS amount of power over the economy/society in a way that no other industry does because it literally has the ability to create money out of thin air (by loaning it into existence). The banking industry is the arbiter and credit in our society and decides where money get allocated. This would be fine if it were their own money, but it's not - it's our…

This and the parent comment seem like pretty strong arguments. If the main differentiator is supposed to be whom banks decide to lend to, this doesn't seem to be working. They are extremely risk-averse about innovating lending or using criteria beyond credit score (to preempt accusations of discrimination, I was told, which is ironic since credit score is a hugely discriminatory system). Anyway, I think I like the id…

What is actually ironic here is commenters on a technology-driven site dismissing the OG of algorithms used to optimize a real-world, complex business problem -- the FICO credit score. Long before PageRank or Netflix's $1 million prize or any HFT firms, Fair, Isaac & Co. designed a revolutionary, data-driven product that massively reduced banks' lending risk while saving them enormous amounts of time. It also removed bankers' personal biases out of the equation. While it may not be perfect, nobody has come up with a better system and adoption is near-universal, with many more applications than it was originally designed for.
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