Trillions in Bad Loans May Sap World Economy for a Long Time • Hacker News Board

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

#51

Post by anigbrowl » Thu, Feb 04, 2016, 6:43 PM UTC

jasode wrote: post #21

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…

>Why not forgive the loans? The idea of a "debt jubilee" is definitely something that's been discussed before by economists and philosophers. One big issue is that there are other people on the other side of those debt cancellations that would get hurt. For example, it's terrible that young adults have massive college loans to pay back. Some are kicking around the idea to forgive those loans. But there are also credi…

One big issue is that there are other people on the other side of those debt cancellations that would get hurt.

A risk they assumed when they decided to put their capital to work. I don't actually have any debt myself so I don't have a dog in this fight, but if you have the money to purchase risky assets in expectations of earning a coupon then your necessities are already covered. Between people who don't have enough to live with dignity and people whose investments don't pan out, most of my sympathy goes to the first group.

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

#52

Post by anigbrowl » Thu, Feb 04, 2016, 6:49 PM UTC

forgetsusername wrote: post #39

TheOtherHobbes wrote: post #34

Earlier quoted context omitted.

No, this is incorrect. Firstly, the debt burden is only diffused because those "mustache twirling CEOs' decided it should be. Pensions used to work just fine before they were financialised by sharks. So did insurance. No one sane should be trying to increase the returns on a pension fund by gambling on student debt, on real estate loans, or on consumer credit. That was exactly the approach that caused the implosion o…

> A debt jubilee would do a lot to restore confidence, because everyone will be able to stop looking nervously at everyone else's obligations and wondering if they're going to be able to meet them. Oh yeah, I'm sure the creditors will be highly confident about future lending after a jubilee, because they went from wondering if debt will be repaid...to knowing it won't . Where do people come up with this stuff?

You know what, fuck the creditors. Let them feel what it's like to have no money coming in for a while. If they don't want to lend any more they can spend down their capital or go and get jobs. The society we've built around the premise of mortgaging the future is not so fabulous that it can't be improved upon.

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

#53

Post by anigbrowl » Thu, Feb 04, 2016, 6:53 PM UTC

wernercd wrote: post #36

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…

> The banks would scream bloody murder, obviously, but their slack policies got us into this mess in the first place. So, your solution to "the banks" slack policies - which were actually caused by government meddling: Affordable Housing Act, guaranteed student loans, etc... Your solution is more government meddling? Forcing the banks that didn't want to give out loans... to lose money on those loans? How about stay-…

Nobody forced the banks to participate in those markets. The government interference has been limited to demanding that banks treat the public equally instead of reinforcing structural discrimination.

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

#54

Post by SilasX » Thu, Feb 04, 2016, 7:02 PM UTC

anigbrowl wrote: post #51

jasode wrote: post #21

Earlier quoted context omitted.

>Why not forgive the loans? The idea of a "debt jubilee" is definitely something that's been discussed before by economists and philosophers. One big issue is that there are other people on the other side of those debt cancellations that would get hurt. For example, it's terrible that young adults have massive college loans to pay back. Some are kicking around the idea to forgive those loans. But there are also credi…

One big issue is that there are other people on the other side of those debt cancellations that would get hurt. A risk they assumed when they decided to put their capital to work. I don't actually have any debt myself so I don't have a dog in this fight, but if you have the money to purchase risky assets in expectations of earning a coupon then your necessities are already covered. Between people who don't have enoug…

No, they didn't assume a risk of "oh, let's just forget the whole debt thing, who cares about that stuff anyway".

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

#55

Post by roymurdock » Thu, Feb 04, 2016, 7:09 PM UTC

anigbrowl wrote: post #51

jasode wrote: post #21

Earlier quoted context omitted.

>Why not forgive the loans? The idea of a "debt jubilee" is definitely something that's been discussed before by economists and philosophers. One big issue is that there are other people on the other side of those debt cancellations that would get hurt. For example, it's terrible that young adults have massive college loans to pay back. Some are kicking around the idea to forgive those loans. But there are also credi…

One big issue is that there are other people on the other side of those debt cancellations that would get hurt. A risk they assumed when they decided to put their capital to work. I don't actually have any debt myself so I don't have a dog in this fight, but if you have the money to purchase risky assets in expectations of earning a coupon then your necessities are already covered. Between people who don't have enoug…

I don't think you understand...normal people are both the creditors and the debtors. Banks are just the intermediaries that take a cut from the normal people on both ends for "efficiently allocating assets that would otherwise accrue suboptimal rates of interest."

The real problem is that the banks are allowed to take risks without paying the price for these risks when they do not pan out. We have set a precedent that the large financial institutions are too big and too important to fail, and thus they may operate with quasi-impunity knowing that they might have to cut some junior employees/restructure/spin off some divisions in the event of a downturn, but that the revolving door between the public and private realms will always be open, through which both taxpayer money/credibility and new jobs will always flow to those at the top. Nobody will go to jail for being a self-interest optimizing sociopath because our legal and economic system is set up to favor corporations and those with the money to thoroughly defend themselves rather than society as a whole.

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

#56

Post by branchless » Thu, Feb 04, 2016, 7:26 PM UTC

jasode wrote: post #21

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…

>Why not forgive the loans? The idea of a "debt jubilee" is definitely something that's been discussed before by economists and philosophers. One big issue is that there are other people on the other side of those debt cancellations that would get hurt. For example, it's terrible that young adults have massive college loans to pay back. Some are kicking around the idea to forgive those loans. But there are also credi…

Bonfire of the boomers+. It's time.

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

#57

Post by branchless » Thu, Feb 04, 2016, 7:27 PM UTC

anigbrowl wrote: post #52

forgetsusername wrote: post #39

Earlier quoted context omitted.

> A debt jubilee would do a lot to restore confidence, because everyone will be able to stop looking nervously at everyone else's obligations and wondering if they're going to be able to meet them. Oh yeah, I'm sure the creditors will be highly confident about future lending after a jubilee, because they went from wondering if debt will be repaid...to knowing it won't . Where do people come up with this stuff?

You know what, fuck the creditors. Let them feel what it's like to have no money coming in for a while. If they don't want to lend any more they can spend down their capital or go and get jobs. The society we've built around the premise of mortgaging the future is not so fabulous that it can't be improved upon.

This is what we need. Creditor haircut, then rates go up because there is real risk.

Let's hold the boomers+ to the fire. And the banks.

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

#58

Post by clock_tower » Thu, Feb 04, 2016, 7:32 PM UTC

masterleep wrote: post #17

This is flat out impossible. Krugman assured us that debts do not matter and that trying to live within a budget is a wicked plot to impoverish us all.

Krugman also denies that the broken window fallacy is a fallacy -- he actively thinks it's a good idea to destroy things (or produce shoddy goods) so that you can get the economic stimulus of building them again. He may be famous, but that doesn't mean he knows what he's talking about.

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

#59

Post by roymurdock » Thu, Feb 04, 2016, 7:37 PM UTC

wernercd wrote: post #36

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…

> The banks would scream bloody murder, obviously, but their slack policies got us into this mess in the first place. So, your solution to "the banks" slack policies - which were actually caused by government meddling: Affordable Housing Act, guaranteed student loans, etc... Your solution is more government meddling? Forcing the banks that didn't want to give out loans... to lose money on those loans? How about stay-…

The government plays a regulatory, distributive role in society, allowing profits to accrue to capitalists but setting taxes and running social programs at the proper level to ensure that society as a whole functions smoothly, and that there are opportunities for everyone to improve their situation.

Most of the economic world is in agreement that financial deregulation was a huge contributing factor in the crash of 2007-08. The repeal of Glass-Steagall allowed banks to take on too much risk with too little supervision.

This would have been fine if the banks had been the only ones punished when their bets went bad - but they had also been allowed to accrue so much power (through consolidation/M&A) that it was impossible to let them face the consequences of their own bad decisions and fail. So they had to be underwriten with public money in the form of QE.

A functional society requires healthy levels of both capitalism and socialism to survive. But the most important thing in my opinion, is that those who intentionally commit fraud or do not act in the fiduciary interest of their stakeholders are adequately punished. This last part is of course the rub - how can you tell if the leaders of business and finance were intentionally setting up their dependents for a crash? What is the adequate punishment?

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

#60

Post by ThrustVectoring » Thu, Feb 04, 2016, 7:39 PM UTC

Frondo wrote: post #25

jasode wrote: post #21

Earlier quoted context omitted.

>Why not forgive the loans? The idea of a "debt jubilee" is definitely something that's been discussed before by economists and philosophers. One big issue is that there are other people on the other side of those debt cancellations that would get hurt. For example, it's terrible that young adults have massive college loans to pay back. Some are kicking around the idea to forgive those loans. But there are also credi…

This is a really good point. My gut tells me that if the old people were relying on the massive indebtedness of today's college attendees, then that has been a cruel error on their part, an injustice that should be righted. Also, the artificiality of the debt--and the idea that a jubilee won't really hurt the creditors--is put into striking relief by the Rolling Jubilee. Right now, people are already buying that bad…

Imagine you're a healthy man of age 45. What can you do today that means you get taken care of when you're old? You can try to convince your children to do it, but that's fairly risky - and it doesn't scale well on a national level. Anything you build today is going to break down and undergo capital depreciation by the time you're unable to take care of yourself. If you help build a road, it needs maintenance.

There's few good options at societal scale. One of them is to get the right to extract valuable resources and sit on them until later - this is what Norway's doing with their North Sea oil. The other is to make things, and trade them for promises to make things later. This is one of the huge fundamental forces acting to make debt for the young generation easier and cheaper - the previous generation needs to do things now to convince them that they need to part with their work later.

It's not an error, it's there by design. The only way to get retirement savings on that massive of a level is to make things for people who can't afford them (yet).