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> let people make loans the way they always have for millennia I.e, hardly make any loans at all! Most people agree that access to credit has greatly increased

> let people make loans the way they always have for millennia I.e, hardly make any loans at all! Most people agree that access to credit has greatly increased the wealth of our society. Not everyone agrees - but I believe this is the consensus. > They do not need to exist and their services are a net negative on society Perhaps, perhaps not. The more information that a lender has about a potential borrower the more specific they can make their loan assessment. Without a credit history, lenders will have to rely on averages. Some people will win from this (e.g. people who "look" like good borrowers on the surface) and some will lose (people who "look" bad on the surface, but have a good history). The likely outcome if we remove this background information from a lending check will be more misallocated credit. To be clear, I'm not really arguing that "credit agencies" in their current form should exist, but some sort of information about borrowers is useful to improve allocation of resources. Perhaps each person could manage their own signed Merckle tree of information...

anigbrowl 9y ago
Perhaps, perhaps not. The more information that a lender has about a potential borrower the more specific they can make their loan assessment. So what? The lender's interests are not he only ones at stake. I'm not convinced of the objectivity or desirability of perfect economic efficiency in credit allocation. There's plenty of evidence to suggest the information asymmetry will be abused by unscrupulous corporate actors.
- richdougherty 9y ago
  My point is that certain borrowers will lose out if the lender can't be specific in their assessment - see the paragraph following that quote about how some borrowers will win and some will lose. > I'm not convinced of the objectivity or desirability of perfect economic efficiency in credit allocation. There's plenty of evidence to suggest the information asymmetry will be abused by unscrupulous corporate actors. Interesting. There are certainly plenty of flaws with credit. A big one for me is that consumers often don't act in their own long term interests and get into too much debt. Another one is that credit is inflexible (compared to equity) when things go bad, and has a tendency to cause crashes. Both of these are a challenges to economic efficiency. On the other hand, I'm not sure about the benefit of reducing the information that lenders have. I'd be interested to hear your point of view.
  - wfo 9y ago
    >see the paragraph following that quote about how some borrowers will win and some will lose. So, no change? https://www.nytimes.com/2016/07/19/business/dealbook/race-strongly-influences-mortgage-lending-in-st-louis-study-finds.html https://www.nytimes.com/2016/07/19/business/dealbook/race-st... Centralized credit scores can be gamed, easily, helping those who are inclined to game them -- these are currently the "winners". Taking out a debt for no reason and then paying it back on time is a stupid economic decision, but it's great for your credit score. The minimal increase in efficiency that comes from lenders having all this often incorrect, unaccountable private information about borrowers must be balanced against the damage the big 3 do as well as the damage lenders can do by exploiting the aforementioned information asymmetry it gives them. It comes up pretty short in my view.
- emodendroket 9y ago
  But in their absence, what will creditors do? Outright discrimination?

anigbrowl 9y ago

Perhaps, perhaps not. The more information that a lender has about a potential borrower the more specific they can make their loan assessment. So what? The lender's interests are not he only ones at stake. I'm not convinced of the objectivity or desirability of perfect economic efficiency in credit allocation. There's plenty of evidence to suggest the information asymmetry will be abused by unscrupulous corporate actors.

richdougherty 9y ago
My point is that certain borrowers will lose out if the lender can't be specific in their assessment - see the paragraph following that quote about how some borrowers will win and some will lose. > I'm not convinced of the objectivity or desirability of perfect economic efficiency in credit allocation. There's plenty of evidence to suggest the information asymmetry will be abused by unscrupulous corporate actors. Interesting. There are certainly plenty of flaws with credit. A big one for me is that consumers often don't act in their own long term interests and get into too much debt. Another one is that credit is inflexible (compared to equity) when things go bad, and has a tendency to cause crashes. Both of these are a challenges to economic efficiency. On the other hand, I'm not sure about the benefit of reducing the information that lenders have. I'd be interested to hear your point of view.
- wfo 9y ago
  >see the paragraph following that quote about how some borrowers will win and some will lose. So, no change? https://www.nytimes.com/2016/07/19/business/dealbook/race-strongly-influences-mortgage-lending-in-st-louis-study-finds.html https://www.nytimes.com/2016/07/19/business/dealbook/race-st... Centralized credit scores can be gamed, easily, helping those who are inclined to game them -- these are currently the "winners". Taking out a debt for no reason and then paying it back on time is a stupid economic decision, but it's great for your credit score. The minimal increase in efficiency that comes from lenders having all this often incorrect, unaccountable private information about borrowers must be balanced against the damage the big 3 do as well as the damage lenders can do by exploiting the aforementioned information asymmetry it gives them. It comes up pretty short in my view.
emodendroket 9y ago
But in their absence, what will creditors do? Outright discrimination?