Subject:
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Re: A hypothetical economics question... (long)
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Newsgroups:
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lugnet.off-topic.debate
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Date:
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Wed, 6 Mar 2002 16:59:51 GMT
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Viewed:
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320 times
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In lugnet.off-topic.debate, Christopher L. Weeks writes:
> In lugnet.off-topic.debate, Lester Witter writes:
>
> > ...Lending is a form of investment where the payoff is predetermined,
> > stock purchase is a form of joint ownership...
>
> > Suppose Joe is a very good chief and would be very sucessful at running a
> > resturant. He needs $100,000 to start the resturant but works at a low paying
> > job. If there was no way to borrow money there is no way Joe could start his
> > resturant
>
> Unless he shared ownership with 99 other folks each of whom could come up with
> $1K. Joint ownership instead of borrowing, right?
>
> > (this is the captialist idea of raising capital from private sources)
>
> Actually, that's just getting a loan. Finding partners who want their share
> value to increase seems more typical of the "capital from private sources"
> model.
>
> > In order for people to be willing to lend (invest) money there has to
> > be an expectation of repayment. If there was ever a debt cancelation
> > like you propose no one would ever lend money again.
>
> I think that's patently untrue. Look at it on a smaller scale. When someone
> declares bankruptcy they have some difficulty for a couple years getting
loans.
If the individual defaulting has trouble with credit, what happens when the
entire system (everybody) defaults. Think of the people that were reluctant to
put money in the bank after the Great Depression and all the bank defaults. The
only way to restore confidence in the system was to create the FDIC (bank
default insurnce). This is a USA reference so I don't know if you are familiar
with what happened if your are not from the USA
> If they've been good with those that they do get (at exorbitant rates) then
> they get to jump right back into the rat race.
>
> Now if you _know_ that you aren't going to be repaid, you won't lend (but
> actually, that's not true either when you value the collatoral more than the
> capital).
Repossesing collateral is a form of repayment, not getting repaid means getting
nothing
But if the risk is greater -- as would be the case in an economy
> where periodically at random (say once in every 30-100 years) all debt was
> forgiven, then there would still be plenty of lending going on. It would just
> be at higher rates and secured by more real goods. Actually, describing it
> that way, it sounds like it might make for a stronger economy.
>
> Of course, people with MBAs might make (or keep) less...
Actually in the post cancelation riots, MBA's would be some of the first to go
up against the wall :-0
>
> Chris
If you are talking about canceling debts, the collateral is irrelevant (if you
can reposses after cancelation then there was no cancelation)
How would bank accounts work. If debts were canceled then your bank account
would be canceled (its is a debt obligation owed by the bank to you)
Lester
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Message has 1 Reply:
 | | Re: A hypothetical economics question... (long)
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| (...) Then lenders will be reluctant to loan. But that doesn't mean that they won't do it ever again under any circumstances. They'll just make the loan's terms more favorable to account for the risk. (...) I understand that this is what the FDIC (...) (23 years ago, 7-Mar-02, to lugnet.off-topic.debate)
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Message is in Reply To:
| | Re: A hypothetical economics question... (long)
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| (...) Unless he shared ownership with 99 other folks each of whom could come up with $1K. Joint ownership instead of borrowing, right? (...) Actually, that's just getting a loan. Finding partners who want their share value to increase seems more (...) (23 years ago, 6-Mar-02, to lugnet.off-topic.debate)
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