While I agree with everything you said, I feel your argument should stand on its own merit. Just because a corporations screw people isn't a good enough reason for people to screw them back.
Your point that the risk premium you pay while taking a loan implies that the lender is willing to take some pain from your failure is sufficient in itself.
Not quite. You make the mistake of adding significance to individual each loan. The reality is a lender might loan to 100,000 people and they know some of those loans are going to fail. If they had a process to only lend to people who would never default, well, impossible.
The interest rates you're being charged aren't tailored specifically to you. But they look at everyone else with similar income and credit and look a the default rate and figure out what they need to charge to make a profit.
It's the sum of the whole lending business, not individual loans, that matter. They'll do as much as they can to mitigate the loss on loans that do default. It's just throwing money away not to. But they've got it all figured out to loan money, have some of it default, and still make plenty of profit. The idea that the minority of people who do default and declare bankruptcy causes them any pain is really quaint and naive.
But boy is that an image their PR would love to get everyone to buy into. If you can convince people to feel bad. If you can convince society as a whole to shame and pressure people into doing something that's the most advantageous for lenders, that is just a lending vision of utopia.
(Disclaimer: I've never been in serious debt or declared bankruptcy. There's no morality that should be implied or assumed by that.)
> But they look at everyone else with similar income and credit and look a the default rate and figure out what they need to charge to make a profit.
But don't these number take into account the fact that the average person is scared/ashamed of defaulting? If personally declaring bankruptcy were much more common, would interest rates be where they are right now?
I think there a "tragedy of the commons" sort of moral responsibility here to only take out loans you have a good chance of paying off as you theoretically raise interest rates for everyone else.
But everyone is definitely not lumped together into a commons. If their is information to delineate people, it will be used. That is what credit scores are used for. Also, of some interest, it was when banks sullied the information, that the housing market really went off the rails.
BTW: We've got to watch out for these financial guys, they'll try it again if they have the chance.
It's not the "financial guys" forcing everyone to sign up for the huge amounts of per-capita debt we're now up to. People are doing that themselves out of their utter lack of self-discipline to save money instead of buying a stupidly overpriced SUV or pickup truck.
And the housing market really went off the rails because people were making stupid bets. Does the casino enable stupid bets? Damn right. But we don't blame them when a gambler loses all their money on a stupid bet.
I'm as pissed as anyone that bankers didn't go to prison en masse, but what they did was package mortgage debt up as more safe than it was. It was home buyers eating up easy money with no restraint that caused the pricing to hit bubble territory.
> Does the casino enable stupid bets? Damn right. But we don't blame them when a gambler loses all their money on a stupid bet.
I think the only reason for that is follow the money. Casinos pay taxes. I'm trying to follow a machine learning mooc and I'm just realizing how much humans (specifically me) suck at classification and at pattern matching.
Planet money I think asked the question: if sugar is addictive, why isn't it regulated?
My questions are Why is alcohol regulated? Why is tobacco regulated? Why is cocaine banned? Why can't we have kinder surprise in the us?
Why is gambling a state monopoly? Why does a casino need a license?
We all don't agree on everything but there's plenty of blame to go around if you think of gambling as an addiction (and addiction as a disease to be treated rather than an excuse to kill people). I think of gambling is a disease, casinos are a "guilty until proven innocent". Sort of like Google's famous " don't be evil" motto which recognizes that an organization in this position is likely to steer towards being evil by default and only by constant vigilance can we prevent ourselves from being evil. In the case of many casinos, I think it is just a matter of cover my ass when they have programs against gambling addiction.
tl;dr I love the idea of personal responsibility but we can't throw people in prison for victimless crimes.
Yep, like casinos, we should regulate banks to avoid allowing them to provoke the worst impulses in people. But at the end of the day, in the current environment, people need to be able to take care of themselves. Regulation should not be treated as a substitute for discipline.
And I agree that sugar should be regulated and taxed, or that we should at least do more to educate them on how destructive it can be to health.
> It's not the "financial guys" forcing everyone to sign up for the huge amounts of per-capita debt we're now up to.
Except that the price of houses rise when everyone else can take out loans beyond their ability to pay. You can't opt out of this game.
Not to mention that most of the people defaulting on their mortgages had the ability to pay - until they lost their jobs. Which they lost because of other people defaulting on their mortgages. The economy was a tinderbox.
When I got my mortgage (c. 2006) I had an idea of what I could afford. I went to the bank hoping they would approve me for that much. Not even taking into account my wife's salary, they approved me for at least $100k more than that. There is no way we would still have our home if we took the bank's advice.
Sure, people make bad decisions. But how can they be expected to make better ones when the people that are supposed to be relied on for good advice give such bad advice.
I blame the "sharing is caring" and "safe space" culture. If people were exposed to reality at a younger age they'd know that any advice given is for the advice givers benefit.
Your point that the risk premium you pay while taking a loan implies that the lender is willing to take some pain from your failure is sufficient in itself.