4 ms·

That's called refinancing and it is already a thing that exists

x5n1 11y ago
Yes I know it exists, I am talking about me personally having the ability to borrow billions of dollars for next to nothing. Credit cards are a sort of tax on people. The rates are excessively high for money that costs next to nothing. And they charge both the lender and the merchant. They are like a 5% tax paid to private banking interests on most people's income.
- nerfhammer 11y ago
  You still have to manage default risk. You seem like you're almost assuming that none or at least less than 5% will default on you if you refinance them. This is why loans aren't just slightly above the discount window. Moreover, discount window loans are not unsecured - the bank must put up collateral for them, isn't automatic, limitless or guaranteed, terms are very short, and in practice only ever used in times of crisis. Besides that most people could probably get a refinancing loan from a normal bank for 5% or less already.
  - x5n1 11y ago
    > manage default risk That's the justification for interest in the first place 20-30% covers risk to absurdity.
    - lucozade 11y ago
      > 20-30% covers risk to absurdity No, it pretty much covers uncollateralised default risk and pre-payment risk. If it were otherwise, for example, if were a cartel keeping the prices up artificially, then you would expect the same thing from the collateralised market, no? YMMV but my credit card rate is ~25% and my house secured rate is ~3%. The only difference is the house; lender and borrower are the same. The other argument against undercutting the market and making billions is a variant of the Fermi paradox: why isn't everyone doing it? Maybe not you or me but an institution that can borrow a lot at bugger all, or is cash rich, would hoover up. Or at least drive the rate down substantially. If there were only one or 2 players then, fine, you could have a big illiquidity premium but there aren't. There are loads of players. In the UK, cash rich companies like the supermarket chains have got involved and have had some impact but it's small, primarily squeezing operational costs and profit margin. But the cards are still running at rates substantially over base.
    - nerfhammer 11y ago
      That's the difference between a short-term collateralized loan and an open-ended unsecured loan.

x5n1 11y ago

Yes I know it exists, I am talking about me personally having the ability to borrow billions of dollars for next to nothing. Credit cards are a sort of tax on people. The rates are excessively high for money that costs next to nothing. And they charge both the lender and the merchant. They are like a 5% tax paid to private banking interests on most people's income.

nerfhammer 11y ago
You still have to manage default risk. You seem like you're almost assuming that none or at least less than 5% will default on you if you refinance them. This is why loans aren't just slightly above the discount window. Moreover, discount window loans are not unsecured - the bank must put up collateral for them, isn't automatic, limitless or guaranteed, terms are very short, and in practice only ever used in times of crisis. Besides that most people could probably get a refinancing loan from a normal bank for 5% or less already.
- x5n1 11y ago
  > manage default risk That's the justification for interest in the first place 20-30% covers risk to absurdity.
  - lucozade 11y ago
    > 20-30% covers risk to absurdity No, it pretty much covers uncollateralised default risk and pre-payment risk. If it were otherwise, for example, if were a cartel keeping the prices up artificially, then you would expect the same thing from the collateralised market, no? YMMV but my credit card rate is ~25% and my house secured rate is ~3%. The only difference is the house; lender and borrower are the same. The other argument against undercutting the market and making billions is a variant of the Fermi paradox: why isn't everyone doing it? Maybe not you or me but an institution that can borrow a lot at bugger all, or is cash rich, would hoover up. Or at least drive the rate down substantially. If there were only one or 2 players then, fine, you could have a big illiquidity premium but there aren't. There are loads of players. In the UK, cash rich companies like the supermarket chains have got involved and have had some impact but it's small, primarily squeezing operational costs and profit margin. But the cards are still running at rates substantially over base.
  - nerfhammer 11y ago
    That's the difference between a short-term collateralized loan and an open-ended unsecured loan.