What alternative would you propose for providing loans?
My controversial (for Lemmy) take is that loans are good for society. They provide an incentive to not hoard resources, but provide them to those who want to put them into action today for future benefit.
A good loan benefits both parties, ie. An auto loan that allows someone to buy a car to get to a job to earn an income that is above the cost of the loan. Without the loan that person couldn’t get to work and whatever service they were providing to society is lost.
All that said - that doesn’t mean the way loans work today is the best solution, but the same functionality of trading current and future resources needs to exist. You don’t have to call it a loan, and it doesn’t have to be performed by private for profit institutions, but if you want a thriving economy I believe you need this function carried out somehow.
The equivalent function in Communism is (or historically has been) a centrally planned resource allocation which very clearly is a horrible idea because of the incentives towards corruption.
If you take a literal interpretation of communism (instead of historical) where “the workers own the means of production” trade unions could fulfill this current to future resource allocation function. I do not know if this would create the same corruption as single central authority, but my gut feels is that it would (based on the US labor union and organized crime affiliation of the past.
In short, the current function for trading current and future resources (ir. loans) is far from ideal, but I have not found an alternate that provides more benefits than defects. I would love to learn about more alternatives, but just saying ‘loans R bad’ makes it sound like you’re advocating getting rid of them with nothing to handle their underlying function, which is a terrible idea.
I think a lot of folks have a fundamental misunderstanding of how loans work. The banks don’t get to just magically conjure up as much money as that want. It is backed by actual money/assets and federal regulations require a certain ratio between what the bank has loaned and the amount of money they have readily on hand.
I agree that it’s not a perfect system, and I definitely think “businesses” that offer those sketchy payday loan arrangements should be illegal, as they often price gouge the shit out of the interest rates (in fact, I believe many states have outlawed them). But I don’t know of a better solution that isn’t dependent on a utopian-esque idea.
Wow, I thought they’d raised it back up after COVID “ended.” How ridiculous, you’d think that would be one of the first tools they’d use to address inflation outside of just raising interest rates.
You are incorrect. Banks do create money from nothing. And I don’t know if it’s unlimited but I’m not sure why it needs to be unlimited to feel weird and/or unfair.
That is not true. This is typically how bank loans work: You make an account at a bank and deposit, say, $1000. Before 2020, the Fed would require the bank to retain something like 10% of that $1000 (just using 10% in this example, I haven’t looked up what the ratio was pre-2020). So they’d deposit $100 of your cash to keep on hand and could then loan out the other $900 to those seeking a loan.
However, the Fed set that reserve ratio to 0% in 2020, which is idiotic in the long-term and also likely a main contributor several banks collapsed in 2022/2023 as the Fed started raising interest rates (I’m no economic expert by any means, so I could be wrong on the main contributing factor).
I think you’re mixing up regular banks with the federal reserve, who definitely can just print money out of thin air.
What if the bank decides to keep all $1.000 and loan out $10.000? While money wasn’t printed, phantom money was most definitely conjured out of thin air. And with the magic I don’t see how a bank couldn’t have, say, bought Disney with the phantom dollars
Normal commercial banks cannot just print money, which is exactly what you’re implying with “phantom money.” The money has to come from somewhere and/or be backed by something. So no, a bank can’t just magically turn $1000 into $10,000 without something securing the additional money or the extra money coming from other funds. Only the Fed (or other countries’ central banks/governments) can print money on a whim.
I think the most generous interpretation of what they seem to be trying to explain is the “phantom plans” created from loaning loaned money.
A deposits 1k into bank
Bank loans B 1k
B loans C 500
There’s only 1k in circulation, 500 in B’s hands and 500 in C’s, but there is technically 1500 in total loans.
I could be off base that this is what they’re talking about, and I don’t necessarily think it’s all that relevant to the conversation, just spitballing.
You clearly didn’t read. After 20 seconds this page didn’t load, but doesn’t matter… It’s pretty obvious you don’t care about facts so I can’t imagine you understood or read it yourself
I don’t know that the loan concept is what’s broken as much as the idea of the bank itself. To me, the idea of credit unions makes a pretty good alternative to banks. At least every CU I’ve belonged to has been owned by the members, and the profits they made were used to subsidize interest rates for members needing a loan or, in some cases, a portion was paid out as a dividend at the end of the year to members.
Please read on the rent of the land by Smith, and anything by Henry George.
You appear to be advocating for anarchist concepts of free association and contract theory, but I’ve seen no specific citations. Are there any you’d reccomend?
What alternative would you propose for providing loans?
Making things affordable (or just priced within reason) if they are considered a necessity to live in society.
Yes, there are survival necessities ie. food, water, shelter. But in modern society, we can add Internet, phone, car (depending on where you live) or bus pass etc, and probably tuition for at least a bachelor’s degree.
If you want to buy a boat or some shit, then sure, you should have to take out a loan.
Love your optimism, but “making things affordable” is not a valid plan for managing resources. It provides a goal without a solution.
Are you suggesting price fixing? That has a lot of associated outcomes that typically cause worse situations than doing nothing.
You can introduce a guaranteed buyer at fixed price points which alleviate some of the negative consequences, but add others.
These are not simple problems. The reason these problems exist isn’t solely because “rich and powerful people are evil” as nice as that would be. These problems still exist because they’re complicated and ‘one size fits all’ solutions haven’t been found for them.
Again, love the lofty goal you’re setting, but you pretty blatantly don’t mention an alternative system. Easy to point out a problem, much harder to build a real solution.
The funny thing is, capitalism happened organically. It wasn’t a designed system. So dismantling capitalism without a solid replacement will likely just lead right back to capitalism.
The funny thing is, capitalism happened organically. It wasn’t a designed system. So dismantling capitalism without a solid replacement will likely just lead right back to capitalism.
March of history. When material conditions are right you transition from feudalism to capitalism. When material conditions build up further, you get the transition to socialism and then communism.
I think a better goal may be to make plans affordable. Loans are a valuable tool, if they’re at a decent rate, so restructure them. Interest never compounds. Rates have to be reasonable. Payments always come out of principle, with interest tacked on and paid at the end of the loan’s life. It’s also a reeeeeeally hard task to say just “make things affordable”
I think the answers to the question are generally isaying it isn’t as simple as ‘creatijg money out of nothing’. They may be creating money but that money is backed against assets which they do own.
because banks are government regulated and insured institutions, forced to back each loan with reserves, and regulated to have capital for each of those loans, they cannot really be said to make this private money out of nothing.
The context you left out there said right before that “in my opinion”. In any case though, before it was “backed” by a fraction of the loan. That doesn’t mean it wasn’t new money that did not yet exist. It just means if the bank folded there was something to go toward repaying those whom they owed. But in any case that fraction was reduced to zero in the US under trump. Something I learned in this thread. So really, now that backing doesn’t exist any longer.
How is money created? Some is created by the state, but usually in a financial emergency. For instance, the crash gave rise to quantitative easing – money pumped directly into the economy by the government. The vast majority of money (97%) comes into being when a commercial bank extends a loan.
How is money created? Some is created by the state, but usually in a financial emergency. For instance, the crash gave rise to quantitative easing – money pumped directly into the economy by the government. The vast majority of money (97%) comes into being when a commercial bank extends a loan.
I agree with you. And yeah it’s bizarre that loans are literally just a privilege that banks get…to create new money out of thin fucking air. I agree–Biggest scam in history.
Simply put, when enough people deposit money into their accounts, banks will simply take the money and lend it to someone else. It is not “their” money, but crunch enough numbers and do enough predictions and you might make it out.
That’s why “run on the bank” is such a feared things - if everyone starts withdrawing cash or sending it to a different bank, the bank can’t really do that because they don’t have the money.
The bank isnt even that rich… They are allowed to just dream up the money from nothing and lend it to you.
And if you miss a payment, they get to reposses a real asset.
This is the biggest scam in history. The bank lends you imaginary money, and then reposesses a real asset
Disclaimer: not advocating for current system.
What alternative would you propose for providing loans?
My controversial (for Lemmy) take is that loans are good for society. They provide an incentive to not hoard resources, but provide them to those who want to put them into action today for future benefit.
A good loan benefits both parties, ie. An auto loan that allows someone to buy a car to get to a job to earn an income that is above the cost of the loan. Without the loan that person couldn’t get to work and whatever service they were providing to society is lost.
All that said - that doesn’t mean the way loans work today is the best solution, but the same functionality of trading current and future resources needs to exist. You don’t have to call it a loan, and it doesn’t have to be performed by private for profit institutions, but if you want a thriving economy I believe you need this function carried out somehow.
The equivalent function in Communism is (or historically has been) a centrally planned resource allocation which very clearly is a horrible idea because of the incentives towards corruption. If you take a literal interpretation of communism (instead of historical) where “the workers own the means of production” trade unions could fulfill this current to future resource allocation function. I do not know if this would create the same corruption as single central authority, but my gut feels is that it would (based on the US labor union and organized crime affiliation of the past.
In short, the current function for trading current and future resources (ir. loans) is far from ideal, but I have not found an alternate that provides more benefits than defects. I would love to learn about more alternatives, but just saying ‘loans R bad’ makes it sound like you’re advocating getting rid of them with nothing to handle their underlying function, which is a terrible idea.
I think a lot of folks have a fundamental misunderstanding of how loans work. The banks don’t get to just magically conjure up as much money as that want. It is backed by actual money/assets and federal regulations require a certain ratio between what the bank has loaned and the amount of money they have readily on hand.
I agree that it’s not a perfect system, and I definitely think “businesses” that offer those sketchy payday loan arrangements should be illegal, as they often price gouge the shit out of the interest rates (in fact, I believe many states have outlawed them). But I don’t know of a better solution that isn’t dependent on a utopian-esque idea.
deleted by creator
Wow, I thought they’d raised it back up after COVID “ended.” How ridiculous, you’d think that would be one of the first tools they’d use to address inflation outside of just raising interest rates.
You are incorrect. Banks do create money from nothing. And I don’t know if it’s unlimited but I’m not sure why it needs to be unlimited to feel weird and/or unfair.
That is not true. This is typically how bank loans work: You make an account at a bank and deposit, say, $1000. Before 2020, the Fed would require the bank to retain something like 10% of that $1000 (just using 10% in this example, I haven’t looked up what the ratio was pre-2020). So they’d deposit $100 of your cash to keep on hand and could then loan out the other $900 to those seeking a loan.
However, the Fed set that reserve ratio to 0% in 2020, which is idiotic in the long-term and also likely a main contributor several banks collapsed in 2022/2023 as the Fed started raising interest rates (I’m no economic expert by any means, so I could be wrong on the main contributing factor).
I think you’re mixing up regular banks with the federal reserve, who definitely can just print money out of thin air.
What if the bank decides to keep all $1.000 and loan out $10.000? While money wasn’t printed, phantom money was most definitely conjured out of thin air. And with the magic I don’t see how a bank couldn’t have, say, bought Disney with the phantom dollars
You’re misunderstanding the basics of banking like the other fellow I responded to. I provided a link by the IMF that explains the fundamentals in another reply. I’ll provide another one: https://www.investopedia.com/terms/f/fractionalreservebanking.asp
Normal commercial banks cannot just print money, which is exactly what you’re implying with “phantom money.” The money has to come from somewhere and/or be backed by something. So no, a bank can’t just magically turn $1000 into $10,000 without something securing the additional money or the extra money coming from other funds. Only the Fed (or other countries’ central banks/governments) can print money on a whim.
I think the most generous interpretation of what they seem to be trying to explain is the “phantom plans” created from loaning loaned money.
A deposits 1k into bank Bank loans B 1k B loans C 500
There’s only 1k in circulation, 500 in B’s hands and 500 in C’s, but there is technically 1500 in total loans.
I could be off base that this is what they’re talking about, and I don’t necessarily think it’s all that relevant to the conversation, just spitballing.
Can you read what you just wrote?
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You clearly didn’t read. After 20 seconds this page didn’t load, but doesn’t matter… It’s pretty obvious you don’t care about facts so I can’t imagine you understood or read it yourself
I don’t know that the loan concept is what’s broken as much as the idea of the bank itself. To me, the idea of credit unions makes a pretty good alternative to banks. At least every CU I’ve belonged to has been owned by the members, and the profits they made were used to subsidize interest rates for members needing a loan or, in some cases, a portion was paid out as a dividend at the end of the year to members.
Please read on the rent of the land by Smith, and anything by Henry George.
You appear to be advocating for anarchist concepts of free association and contract theory, but I’ve seen no specific citations. Are there any you’d reccomend?
Making things affordable (or just priced within reason) if they are considered a necessity to live in society.
Yes, there are survival necessities ie. food, water, shelter. But in modern society, we can add Internet, phone, car (depending on where you live) or bus pass etc, and probably tuition for at least a bachelor’s degree.
If you want to buy a boat or some shit, then sure, you should have to take out a loan.
Love your optimism, but “making things affordable” is not a valid plan for managing resources. It provides a goal without a solution.
Are you suggesting price fixing? That has a lot of associated outcomes that typically cause worse situations than doing nothing.
You can introduce a guaranteed buyer at fixed price points which alleviate some of the negative consequences, but add others.
These are not simple problems. The reason these problems exist isn’t solely because “rich and powerful people are evil” as nice as that would be. These problems still exist because they’re complicated and ‘one size fits all’ solutions haven’t been found for them.
The obvious solution is to dismantle capitalism and destroy anyone that gets in the way.
Again, love the lofty goal you’re setting, but you pretty blatantly don’t mention an alternative system. Easy to point out a problem, much harder to build a real solution.
The funny thing is, capitalism happened organically. It wasn’t a designed system. So dismantling capitalism without a solid replacement will likely just lead right back to capitalism.
March of history. When material conditions are right you transition from feudalism to capitalism. When material conditions build up further, you get the transition to socialism and then communism.
I think a better goal may be to make plans affordable. Loans are a valuable tool, if they’re at a decent rate, so restructure them. Interest never compounds. Rates have to be reasonable. Payments always come out of principle, with interest tacked on and paid at the end of the loan’s life. It’s also a reeeeeeally hard task to say just “make things affordable”
And even if the bank owns 90% of the home you are still on the hook to pay the full property taxes.
Hahaha wow… I never even thought about this. I’m paying “rent” to a landlord who doesnt even cover the taxes lol
I’m pretty sure banks don’t just make up money but I’d be interested in finding out why you think they do.
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https://economics.stackexchange.com/questions/26991/is-money-mostly-created-out-of-nothing-by-banks-making-loans
I think the answers to the question are generally isaying it isn’t as simple as ‘creatijg money out of nothing’. They may be creating money but that money is backed against assets which they do own.
The context you left out there said right before that “in my opinion”. In any case though, before it was “backed” by a fraction of the loan. That doesn’t mean it wasn’t new money that did not yet exist. It just means if the bank folded there was something to go toward repaying those whom they owed. But in any case that fraction was reduced to zero in the US under trump. Something I learned in this thread. So really, now that backing doesn’t exist any longer.
https://www.forbes.com/sites/francescoppola/2017/10/31/how-bank-lending-really-creates-money-and-why-the-magic-money-tree-is-not-cost-free/?sh=18b9b3073073
I’m interested in how you’re so confidently incorrect about a very basic fact about how capitalism works.
Hey, I simply said what I thought and expressed interest in what you thought. Not everyone here is trying to attack you.
If I misread the tone of your message, my bad.
https://www.forbes.com/sites/francescoppola/2017/10/31/how-bank-lending-really-creates-money-and-why-the-magic-money-tree-is-not-cost-free/?sh=18b9b3073073
I agree with you. And yeah it’s bizarre that loans are literally just a privilege that banks get…to create new money out of thin fucking air. I agree–Biggest scam in history.
They dream up money? How does that work? I’d like to do that.
🌈Fractional reserve banking
You should read about how banks work. Most of their “assets” don’t actually exist, they’re counting borrowed money as still being theirs.
Source?
Any basic book on banking. When I say basic, I mean the sort you’d read to get an entry level job at one.
Here’s a push in the right direction for the cripplingly lazy.
Landlord stans havent read Smith after a 200 year head start, what makes you think they will read anything?
This is less for the benefit of the willfully stupid than it is for bystanders that would be taken in by the unchallenged ignorance.
Well put.
Simply put, when enough people deposit money into their accounts, banks will simply take the money and lend it to someone else. It is not “their” money, but crunch enough numbers and do enough predictions and you might make it out.
That’s why “run on the bank” is such a feared things - if everyone starts withdrawing cash or sending it to a different bank, the bank can’t really do that because they don’t have the money.
Yes, it’s the largest way money is created in modern democracies