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If you think about it from the bank's perspective though, why would they lend you any money if you were likely to default and they would have to sue you to get
by ryeguy_24 9y ago
If you think about it from the bank's perspective though, why would they lend you any money if you were likely to default and they would have to sue you to get money back. That would mean that the cost of your loan would go up for them and therefore, your borrowing rate goes up tremendously.
Humans don't have an innate right to borrow money. It's a service provided by financial institutions for a fee. I don't think credit reports are the best solution (far from it) but they definitely improve your ability to borrow money, at least if you have a good one. :)
- alasdair_ 9y ago>Humans don't have an innate right to borrow money. It's a service provided by financial institutions for a fee. This would be fine, except those financial institutions get THEIR money from the fed discount window. If their service was entirely private, that would be one thing but having the government involved changes the concept of "rights", especially when the fed loans out money with the express reason that the banks will loan it out in turn.
- aianus 9y agoTheir usage of the discount window has to be miniscule compared to customer deposits, no?
- jessaustin 9y agoOver the last decade it's basically their only source of profit.
- ryeguy_24 9y agoMaybe a bit, but banks get a majority of their money from deposits. That's their business. Take deposits (pay low interest) and loan it out (higher interest) with some credit risk. The Fed window is a last reserve to protect them from a run on the bank. They could do their business without the Fed window but with a conservative loan-to-deposit ratio. The government doesn't want that because when a bank goes under, banks stop lending which shuts down the economy.