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

71–80 of 82 posts

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

#71

Post by SilasX »

anigbrowl wrote: post #63
SilasX wrote: post #54

Earlier quoted context omitted.

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

Yes they did. Default is a real thing and that's the risk you earn a premium for taking. On equity the price of the asset can change, on debt you either secure it or charge a rate of interest that reflects your assessment of the risk. Hence the shitty rate of interest on savings accounts - your principal is guaranteed up to a fairly large amount so you earn less.

There's a big difference between default (one party not paying because of difficulty or choice not to) and a deliberate mass social decision to say "oh, let's just forget the whole debt thing" across the entire economy.

Lumping the two cases together is an unjustified equivocation.

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

#72

Post by golergka »

sbierwagen wrote: post #33
golergka wrote: post #27

Earlier quoted context omitted.

What about the people who put their money in the bank, the money that was used to give those loans? People who are relying on their pension plans? Life savings? What you're saying is that we should _just take money from people_, without expectations to give them back anything directly.

Savings accounts are FDIC insured up to $250,000. Many retirees hold government bonds, which aren't going to default. A consumer-debt jubilee mostly affects investors, and maybe pension funds.

> Savings accounts are FDIC insured up to $250,000.

Where do you think this insurance comes from?

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

#73

Post by doyoulikeworms »

clock_tower wrote: post #58
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.

Arguing whether or not Krugman is right or wrong about an issue is one thing, but it's another to say that he doesn't know what he's talking about. He's a Nobel laureate!

Is he really that bad? Or do you just disagree with him?

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

#74

Post by zanny »

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 are already wondering if debt will be repaid. It is very likely many of the larger student loans in the US for financial aid packages in the humanities will never fully be paid back and the holders of the debt will go to their grave with it. Other debt can and is being defaulted in bankruptcy - consider that even for people 45-55 the median net worth is only around 90k, and you can easily find yourself in way more debt than that amount.

Additionally, anyone making loans is already considering the risk of a debt jubilee when making loans now. After a debt jubilee of course the risk of recurrence is higher, but the risk assessment for banks would not be magnitudes different in the medium term.

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

#75

Post by gozur88 »

throwaway2048 wrote: post #68
gozur88 wrote: post #67

Earlier quoted context omitted.

>You know what, fuck the creditors. Let them feel what it's like to have no money coming in for a while. I'll bet most of them already know. Start with nothing, work hard, save money for retirement, lend it to entitled students and have them not only stiff you, but also spit in your face. That seems fair.

most of the rentier class knows what its like to "start with nothing and work hard"?

We're not talking about "the rentier class", though. We're talking about people who worked in a cubicle for the last 30 years and would like to be able to spend the money they saved.

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

#76

Post by CyberDildonics »

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…

If you have a job and the company has agreed to pay you, why don't you work for free?

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

#77

Post by shostack »

markhall wrote: post #48

Knowing that some of this will result in a partial economic downturn, how can the 'average investor' hedge/profit from it? Not in a 'Big Short' sort of way, just using this as an investment strategy for the layman. Any ideas?

Isn't that trying to time the market?

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

#78

Post by mathgenius »

50CNT wrote: post #5
mathgenius wrote: post #2

So, if one views the global financial system as a big distributed belief propagation algorithm (eg. min-sum) how do loans fit into this? Perhaps it makes sense switching to a "quantum-like" dynamics where one may "borrow" energy for a short amount of time before having to repay it, as in Heisenberg delta E * delta t uncertainty. So decreasing interest rates amounts to messing with some kind of Planck's constant.

This isn't quite a relevant xkcd, but I do think it's relevant. Whilst it'd be cool to be able to apply models from physics to economics, there may be issues in applicability. http://www.smbc-comics.com/index.php?db=comics&id=2556

Very amusing.. Ouch.. But that tensor beef does look yummie!

I was just exploring an analogy, not particularly looking for any explanatory power.

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

#79

Post by hiram112 »

branchless wrote: post #57
anigbrowl wrote: post #52

Earlier quoted context omitted.

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.

I think a lot of the Boomers are going to get their comeuppance. At my age, my parents were on their third house. Most of my cohorts rent, and as I'm in a city where housing is now higher than before the crash, I wouldn't buy a home even if I could afford it. And I don't have school loans.

There are going to be some disappointed Boomers in the next decade, when looking to sell their main asset, upon discovering nobody can or will pay their inflated prices.

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

#80

Post by clock_tower »

doyoulikeworms wrote: post #73
clock_tower wrote: post #58

Earlier quoted context omitted.

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.

Arguing whether or not Krugman is right or wrong about an issue is one thing, but it's another to say that he doesn't know what he's talking about. He's a Nobel laureate! Is he really that bad? Or do you just disagree with him?

He's a Nobel laureate _who denies the Broken Window Fallacy_ (and who, to reiterate the original poster's point, thinks that living within a budget is a bad idea). If his ideas are that bad and he collects those kinds of honors anyways, something's wrong with the Nobel Economics committee.
Post reply on HN