4 ms·

> the banks are actually pretty good at deciding who is too risky to lend money to This seems like a pretty shitty premise given the US mortgage meltdown of 20

by drb91 8y ago

> the banks are actually pretty good at deciding who is too risky to lend money to This seems like a pretty shitty premise given the US mortgage meltdown of 2007. In any case, peer-to-peer lending also has viability in microloans. The traditional alternatives for that have been credit cards (specifically the cash withdrawal), payday loans, and pawn shops, all of which have distinct downsides.

pathseeker 8y ago
>This seems like a pretty shitty premise given the US mortgage meltdown of 2007. Only if you have a very superficial understanding of the mortgage meltdown. The underwriters of many of the bad mortgages were able to quickly sell the mortgages off to other banks. So there was almost no incentive to actually restrict who they were lending to. Also, you imply a contrapositive that isn't the case. Just because there were banks that were excessively lending in the early 2000s doesn't mean that there are banks that are being excessively conservative and leaving behind good returns.
zhonwang 8y ago
Well Subprime loans were knowingly targeted at people who had poor prospects of repayment in the first place (People with subprime credit).
sp527 8y ago
I feel like you just reinforced the parent's point? In a distorted macroeconomic environment (as has been the case for a decade plus in the US), banks are generally loathe to have false negatives, which makes a loan denial a fairly strong indicator of untrustworthiness.
- deleted 8y ago
  [deleted]
- deleted 8y ago
  [deleted]
bunderbunder 8y ago
> This seems like a pretty shitty premise given the US mortgage meltdown of 2007. Not exactly. The US mortgage meltdown of 2007 happened because, in effect, banks realized that the aftermarket for debt had grown so unskeptical that they could basically resell any loan immediately after they made it. So, from their narrow perspective, virtually no loan was too risky.
- jmulho 8y ago
  How'd that work out for them? If you act rationally at all times and then loose your shirt in the end, are you "pretty good" at judging risk? I believe banks failed miserably at the the one thing they were supposed to be good at and it cost us a trillion dollars.
  - icelancer 8y ago
    >> How'd that work out for them? Just fine. Bailouts.
    - maxerickson 8y ago
      And the largest bank failure in US history: https://en.wikipedia.org/wiki/Washington_Mutual#Subprime_losses https://en.wikipedia.org/wiki/Washington_Mutual#Subprime_los... Okay for JP Morgan though.
  - pas 8y ago
    Banks did what they were supposed to do. In that sector, in those circumstances, if you don't ride the wave with the others, you get left behind. Banks did have "counterparty risk insurance" on their assets - those CDS (credit default swap) things. (Like the other banks. And thus the CDS provier AIG "failed", because - of course - all their insurance contracts were correlated / not independent enough.) I'm not saying they are/were angels. There were seriously in the stupid zone just from a technical point of view. ( See that table: https://www.econlib.org/archives/2013/05/conditional_ins.html?highlight=%5B%22subprime%22%5D https://www.econlib.org/archives/2013/05/conditional_ins.htm... ) I think the important distinction between all the banks are stupid and a stupid systemic failure of banks is important. After all, a lot of banks were not stupid, and stayed afloat well, without any sort of bailout.

by drb91 8y ago

pathseeker 8y ago

>This seems like a pretty shitty premise given the US mortgage meltdown of 2007. Only if you have a very superficial understanding of the mortgage meltdown. The underwriters of many of the bad mortgages were able to quickly sell the mortgages off to other banks. So there was almost no incentive to actually restrict who they were lending to. Also, you imply a contrapositive that isn't the case. Just because there were banks that were excessively lending in the early 2000s doesn't mean that there are banks that are being excessively conservative and leaving behind good returns.

zhonwang 8y ago

Well Subprime loans were knowingly targeted at people who had poor prospects of repayment in the first place (People with subprime credit).

sp527 8y ago

I feel like you just reinforced the parent's point? In a distorted macroeconomic environment (as has been the case for a decade plus in the US), banks are generally loathe to have false negatives, which makes a loan denial a fairly strong indicator of untrustworthiness.

deleted 8y ago
[deleted]
deleted 8y ago
[deleted]

bunderbunder 8y ago

> This seems like a pretty shitty premise given the US mortgage meltdown of 2007. Not exactly. The US mortgage meltdown of 2007 happened because, in effect, banks realized that the aftermarket for debt had grown so unskeptical that they could basically resell any loan immediately after they made it. So, from their narrow perspective, virtually no loan was too risky.

jmulho 8y ago
How'd that work out for them? If you act rationally at all times and then loose your shirt in the end, are you "pretty good" at judging risk? I believe banks failed miserably at the the one thing they were supposed to be good at and it cost us a trillion dollars.
- icelancer 8y ago
  >> How'd that work out for them? Just fine. Bailouts.
  - maxerickson 8y ago
    And the largest bank failure in US history: https://en.wikipedia.org/wiki/Washington_Mutual#Subprime_losses https://en.wikipedia.org/wiki/Washington_Mutual#Subprime_los... Okay for JP Morgan though.
- pas 8y ago
  Banks did what they were supposed to do. In that sector, in those circumstances, if you don't ride the wave with the others, you get left behind. Banks did have "counterparty risk insurance" on their assets - those CDS (credit default swap) things. (Like the other banks. And thus the CDS provier AIG "failed", because - of course - all their insurance contracts were correlated / not independent enough.) I'm not saying they are/were angels. There were seriously in the stupid zone just from a technical point of view. ( See that table: https://www.econlib.org/archives/2013/05/conditional_ins.html?highlight=%5B%22subprime%22%5D https://www.econlib.org/archives/2013/05/conditional_ins.htm... ) I think the important distinction between all the banks are stupid and a stupid systemic failure of banks is important. After all, a lot of banks were not stupid, and stayed afloat well, without any sort of bailout.