4 ms·

It was backstopping shitty loans with the full faith & credit of the gov't. Note that the person who received the shitty loan still got foreclosed on and lost

It was backstopping shitty loans with the full faith & credit of the gov't. Note that the person who received the shitty loan still got foreclosed on and lost their equity. The persons responsible, who made the loan, don't have to take a loss.

oldmanjay 11y ago
What sort of belief should I start from to be able to decide that people taking a loan they can't afford bear no responsibility? I imagine it's the same sort of thinking that leads to calling a property they never actually paid for theirs but I am not sure and when I am not sure, I ask.
- kaonashi 11y ago
  They both bear responsibility, but only one party got the bailout.
  - iambateman 11y ago
    I hear what you're saying, but bankruptcy is most certainly a bailout relative to debtors prison.
    - sk5t 11y ago
      That's an interesting perspective, but the U.S.A. does not have debtors' prison. Only bad loans that are not repaid.
      - nkurz 11y ago
        the U.S.A. does not have debtors' prison While true in theory, this may not be true in practice. There are several loopholes, one main one being that failure to pay fees and penalties assessed by the justice system itself can be a criminal offense. In some states a significant percentage (as high as 20%) of current prisoners are being held for failing to pay these LFO's (Legal Financial Obligations). Here are a couple ACLU reports about the practice: In for a Penny: The Rise of America’s New Debtors’ Prisons https://www.aclu.org/files/assets/InForAPenny_web.pdf https://www.aclu.org/files/assets/InForAPenny_web.pdf Modern Day Debtors Prisons: The Ways Court-Imposed Debts Punish People for Being Poor https://aclu-wa.org/sites/default/files/attachments/Modern%20Day%20Debtor's%20Prison%20Final%20(3).pdf https://aclu-wa.org/sites/default/files/attachments/Modern%2...
        pc86 11y ago
        > failure to pay fees and penalties assessed by the justice system itself can be a criminal offense Which doesn't have much of anything to do with the real estate market, right?
        nkurz 11y ago
        Correct. I hoped from context that it was clear that I was responding only to the line that I quoted (which said that the US "does not have debtors' prison") and not to the main thrust of the argument.
      - iambateman 11y ago
        Yeah. Historically society has sent people to prison for failing to pay. Today we allow for bankruptcy, which is relatively better.
- dimal 11y ago
  Conversely, why should a bank should be protected from their stupid decision to make that loan? That's supposed to be why loans charge interest. It's to cover the risk of default. But they didn't even consider what would happen.
dragontamer 11y ago
Without help from the government, those loans would have never happened at those rates. If you don't like FAFSA loans, you are perfectly willing to go to any bank (or maybe a rich uncle) and get another loan (or convince your rich uncle to bankroll you). But for the vast majority of people, FAFSA is the only way to pay for college. And taking out 8% or 9%+ loans from NON-FAFSA institutions is a lot worse than taking a 6% to 7% FAFSA loan. I think funding the loans and keeping interest rates lower is a good thing.
- mountaineer22 11y ago
  It is an artificial government subsidy, used to fund "non-profit" real estate development.
  - deleted 11y ago
    [deleted]
dv_dt 11y ago
I think the economic phrase that you are referring to is "moral hazard". https://en.wikipedia.org/wiki/Moral_hazard https://en.wikipedia.org/wiki/Moral_hazard It's one way that an economy can break down...

oldmanjay 11y ago

What sort of belief should I start from to be able to decide that people taking a loan they can't afford bear no responsibility? I imagine it's the same sort of thinking that leads to calling a property they never actually paid for theirs but I am not sure and when I am not sure, I ask.

kaonashi 11y ago
They both bear responsibility, but only one party got the bailout.
- iambateman 11y ago
  I hear what you're saying, but bankruptcy is most certainly a bailout relative to debtors prison.
  - sk5t 11y ago
    That's an interesting perspective, but the U.S.A. does not have debtors' prison. Only bad loans that are not repaid.
    - nkurz 11y ago
      the U.S.A. does not have debtors' prison While true in theory, this may not be true in practice. There are several loopholes, one main one being that failure to pay fees and penalties assessed by the justice system itself can be a criminal offense. In some states a significant percentage (as high as 20%) of current prisoners are being held for failing to pay these LFO's (Legal Financial Obligations). Here are a couple ACLU reports about the practice: In for a Penny: The Rise of America’s New Debtors’ Prisons https://www.aclu.org/files/assets/InForAPenny_web.pdf https://www.aclu.org/files/assets/InForAPenny_web.pdf Modern Day Debtors Prisons: The Ways Court-Imposed Debts Punish People for Being Poor https://aclu-wa.org/sites/default/files/attachments/Modern%20Day%20Debtor's%20Prison%20Final%20(3).pdf https://aclu-wa.org/sites/default/files/attachments/Modern%2...
      - pc86 11y ago
        > failure to pay fees and penalties assessed by the justice system itself can be a criminal offense Which doesn't have much of anything to do with the real estate market, right?
        nkurz 11y ago
        Correct. I hoped from context that it was clear that I was responding only to the line that I quoted (which said that the US "does not have debtors' prison") and not to the main thrust of the argument.
    - iambateman 11y ago
      Yeah. Historically society has sent people to prison for failing to pay. Today we allow for bankruptcy, which is relatively better.
dimal 11y ago
Conversely, why should a bank should be protected from their stupid decision to make that loan? That's supposed to be why loans charge interest. It's to cover the risk of default. But they didn't even consider what would happen.

dragontamer 11y ago

Without help from the government, those loans would have never happened at those rates. If you don't like FAFSA loans, you are perfectly willing to go to any bank (or maybe a rich uncle) and get another loan (or convince your rich uncle to bankroll you). But for the vast majority of people, FAFSA is the only way to pay for college. And taking out 8% or 9%+ loans from NON-FAFSA institutions is a lot worse than taking a 6% to 7% FAFSA loan. I think funding the loans and keeping interest rates lower is a good thing.

mountaineer22 11y ago
It is an artificial government subsidy, used to fund "non-profit" real estate development.
- deleted 11y ago
  [deleted]

dv_dt 11y ago

I think the economic phrase that you are referring to is "moral hazard". https://en.wikipedia.org/wiki/Moral_hazard https://en.wikipedia.org/wiki/Moral_hazard It's one way that an economy can break down...