4 ms·
> consider air travel With air travel the people bearing the risk are the direct customers. If I'm uncomfortable with the safety record of airlines I can simpl
by vec 9y ago
> consider air travel
With air travel the people bearing the risk are the direct customers. If I'm uncomfortable with the safety record of airlines I can simply not fly. How do I opt out of the risks imposed by a credit rating agency?
The closer analogy, I think, would be if cargo planes were routinely crashing in populated areas. The air freight company and its clients may well be completely comfortable with their loss rate, but the unaffiliated third parties living underneath would have a pretty justifiable reason to complain.
> Truth is, nothing can be done safely. Not travel, not business. There is always a tradeoff between risk and benefit.
This is absolutely true, but as currently constructed credit agencies get to reap the benefits while pushing the risk off onto the general public. If we regulate to internalize that risk and the agencies still think it's a good risk/reward tradeoff then that's fine. If they no longer think it's a good tradeoff that's fine too.
> So you don't like the bureaux; well, nobody does really. But what is an alternative which allows lenders to compare applicants on a like-for-like basis with some degree of confidence?
There's several suggestions elsewhere in the thread, but I'm going to go out on a limb and suggest: nothing.
On a macroeconomic level, easy availability of credit increases average growth but also increases total risk, and therefore volatility. It's not apparent to me that that's a good trade.
On a microeconomic level, the benefits I receive from being able to get credit easily have to be weighed against both the suboptimal personal accounting I have to engage in to keep my credit score up and against the long tail risk that a third party can open a line of credit in my name. It's not apparent to me that that's a good trade either.
Maybe lenders should be much more conservative with who they loan to. Maybe they should price in a much higher default rate. Maybe individuals should seek a single line of credit from their bank of choice instead of expecting expenses to be financed individually. I don't know, I'm just some guy with 2 semesters of college-level economics. What I do know is that the status quo isn't sacred and the arguments explicitly in support of it seem to boil down to "growth is good and change is scary", which seems like really weak rationale for giving someone most of us don't even have a business relationship with essentially unilateral control of millions of people's financial fates.
- scrumper 9y agoI thought this was an excellent comment with some very strong arguments, good food for thought. So yes, the problem is one here the credit bureaux get to externalize their risk. I was arguing with your rejection of the 'insurance model' for bringing some of those externalities back in house. Your proposal of strict liability is really just a banning of the industry in disguise: without the possibility of insuring away those risks it's not viable to stay in business - an agency is going to get breached even if they are as careful as possible. I don't think the lobby (and it'd be bureaux and lenders lobbying on the same side) would permit that outcome, no matter how strong the political will. It's too far reaching. My response is, insurance doesn't preclude elimination. Those bureaux aren't going anywhere tomorrow. Incremental reform along the lines proposed by whatever grandparent we are both under provides a path to improvement, better risk management for individuals, and it could perhaps ultimately lead to your desired end state of a completely restructured consumer credit market.
- vec 9y agoFor the record, I'm not opposed to credit agencies buying data breach insurance on whatever terms they can negotiate. I'm just opposed to the idea that any amount of caution on their part should dissipate their (or their insurer's) legal liability in the event of a breach. I do agree that would probably be a de facto ban on the industry, or at least a radical restructuring thereof. My suspicion is that the industry is actually not a profitable enterprise once all the externalities are properly accounted for. But I'd be happy to be proved wrong, and I'm more than willing to give the industry a chance to figure out a model that works. Edit: Completely off topic, but this is the nicest internet argument I've had in a long time. Thanks, scrumper, for being an excellent debating partner!
- scrumper 9y ago> I'm just opposed to the idea that any amount of caution on their part should dissipate their (or their insurer's) legal liability in the event of a breach. Oh then yes we totally agree. If they're prudent, their insurer pays. Otherwise they do. You might be right about the credit reference industry being ultimately unprofitable as a standalone business, but I think there's a lot of arguing to be had about the magnitude of those externalities. That's why we need a law to provide some automatic, per-individual-leaked fine - the insurable risk from way up-thread.
- scrumper 9y agoJust saw your edit. Kind of you to say. Right back at ya vec :)