5 ms·

Has anyone ever criticised a bank for lending to someone who needs it most at a rate they are likely to afford to minimise chance of default? I mean banks aren'

Has anyone ever criticised a bank for lending to someone who needs it most at a rate they are likely to afford to minimise chance of default? I mean banks aren't charities and maybe they're not/shouldn't be obliged to do this, but it's not like everyone is being hypocritical - we're allowed to expect institutions to do things that are in the public interest rather than their own private interest (freedom of opinion and all that).

aguyfromnb 6y ago
>Has anyone ever criticised a bank for lending to someone who needs it most at a rate they are likely to afford to minimise chance of default? Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). >we're allowed to expect institutions to do things that are in the public interest This article is about wealthy mortgage borrowers. The first guy is 60 years old with a $700k mortgage who wants a lower rate. How is it in the public's interest to grant him that? Perhaps it's in the public's interest for this man to continue to pay his modestly higher rate in order to cover expected losses from those who truly need it?
- TeMPOraL 6y ago
  > Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). No. But then again, being a businessman isn't seen as unqualified virtue in many places in the world. You'll also note that "selling things to the people who need it most for the lowest price" is literally the justification given for why free and competitive markets are good. It's the goal societies want to achieve. In this, competitive pressure is a hack to force the businesses to reduce prices.
  - aguyfromnb 6y ago
    >is literally the justification given for why free and competitive markets are good. If you think "price that minimizes default" and "lowest economic price" are equivalent, you need to brush up on your Econ 101.
- bryanrasmussen 6y ago
  >Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). I think a business that sells something for a small markup but makes it up in volume does something like this. So I guess the answer would be - yes - probably most businesses actually do this.
  - aguyfromnb 6y ago
    >I think a business that sells something for a small markup but makes it up in volume does something like this. Define a "small markup".
- gindely 6y ago
  > Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). Yes > This article is about wealthy mortgage borrowers. The first guy is 60 years old with a $700k mortgage who wants a lower rate. How is it in the public's interest to grant him that? Perhaps it's in the public's interest for this man to continue to pay his modestly higher rate in order to cover expected losses from those who truly need it? I wasn't responding to the article.
- andrepd 6y ago
  >Does any business operate this way, including the one you work at? Maybe it means that some institutions, especially ones with such a critical role as controlling the money supply, perhaps should not be run with a for-profit model, but some other model that better ensures the institution will serve the public interest, rather than the interest of an exceedingly small handful of elites. Typing this out it seems even more obvious. It may come as a shock to some people, but capitalism isn't an immutable law of nature. There are such things as alternatives.
  - aguyfromnb 6y ago
    >but some other model that better ensures the institution will serve the public interest Your social concerns are completely detached from reality if you're shedding tears over people with jumbo loans that are unable to refinance their million dollar mortgages from 4% to 2%. It's theatre. I appreciate your white-collar, anti-capitalist rant, though. Unfortunately, when SHTF, the truly down trodden might even consider people like this part of the problem. I don't think they'll buy the idea that "we're all on the same team!". >It may come as a shock to some people, but capitalism isn't an immutable law of nature. There are such things as alternatives. You're right, we should put our non-elite, galaxy brain politicians, the Trumps and Pelosis and Bidens and Bush's of the world, in charge of controlling the money supply.
imtringued 6y ago
There are risk pools for lending because every business has a different cut off point below which a borrower is considered too risky and therefore gets rejected. Imagine you are a bank employee at Bank A with very low default rates and consequently low interest rates (say 2.5%) and a homeless man has an appointment with you because he wants a small loan of $5000 to find an apartment and a job. He has no assets or income and is only able to pay after getting his job so he will miss his first few payments. Therefore you decide to simply not give him a loan because it is incredibly obvious that he is going to default. What are his options now? He can go to a Bank B that accepts more risky borrowers with a still acceptable but slightly higher interest rate of 5%. What happens is that all the reliable lenders go to Bank A because they get a great deal there and have no trouble getting a loan. They don't even bother with Bank B. Since Bank B fails to attract reliable lenders the only borrowers at Bank B are those who couldn't get a loan at Bank A. Bank B now has two choices. Either keep the risk profile or tighten it and only allow reliable lenders. If they keep it then they will notice a much higher than usual default rate. Bank B is losing money from all the defaulting loans and that money has to come from the borrowers of Bank B that didn't default. Now imagine that there is a Bank C. What if it's risk profile is so lenient that it accepts anyone with no questions asked. Literally everyone who comes to you is defaulting. You're throwing money into a black hole with no chance of getting it back. You have to crank up the interest rate to absurd levels to cover the defaults. You know what the problem is? It's not that Bank C is evil and exploiting the poor. Those people should have never gotten a loan at all. The act of giving them a loan is exploitation itself, not the interest rate or whatever conditions that Bank C needs to stay in business. It's as simple as that. Those individuals do not need a loan, they need support from the government in a way that doesn't require the money to be paid back. e.g. free housing, unemployment benefits or even straight up UBI. Don't criticize Banks for not lending to those who need it most. For some reason people don't understand that Banks are businesses that have to at least cover their costs. They think a Bank is a charity that should take on responsibilities that really only belong to the government.
- gindely 6y ago
  But now you have just portrayed situations in which banks provide affordable loans to people who don't need them, and unaffordable loans to people who need them. But this is what was criticised in the first place so we know it happens. So I'm not sure what the point of your first four paragraphs were. Your final paragraph is exactly what my earlier comment rejects. The general public has every right to criticise banks for acting in the banks' private interest. Banks are not charities, it is true. But they are groups of moral agents acting in a community, and the community has every right to hold the moral agents to whatever standards the community wishes to. The bank has the legal right to pursue its own private interests, so long as it acts legally, and has the legal right to not act as a charity. But that is not an argument against the view that the bank should act in conformance with community expectations, and if necessary the law should be changed to ensure that they do. The fact that banks make ridiculous profits - they're not just covering costs - is also relevant. If your business is making billion dollar profits, you're vulnerable to the claim that you should give greater weight to public opinion, and the notion that you're only acting to cover costs is a red herring.

aguyfromnb 6y ago

>Has anyone ever criticised a bank for lending to someone who needs it most at a rate they are likely to afford to minimise chance of default? Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). >we're allowed to expect institutions to do things that are in the public interest This article is about wealthy mortgage borrowers. The first guy is 60 years old with a $700k mortgage who wants a lower rate. How is it in the public's interest to grant him that? Perhaps it's in the public's interest for this man to continue to pay his modestly higher rate in order to cover expected losses from those who truly need it?

TeMPOraL 6y ago
> Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). No. But then again, being a businessman isn't seen as unqualified virtue in many places in the world. You'll also note that "selling things to the people who need it most for the lowest price" is literally the justification given for why free and competitive markets are good. It's the goal societies want to achieve. In this, competitive pressure is a hack to force the businesses to reduce prices.
- aguyfromnb 6y ago
  >is literally the justification given for why free and competitive markets are good. If you think "price that minimizes default" and "lowest economic price" are equivalent, you need to brush up on your Econ 101.
bryanrasmussen 6y ago
>Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). I think a business that sells something for a small markup but makes it up in volume does something like this. So I guess the answer would be - yes - probably most businesses actually do this.
- aguyfromnb 6y ago
  >I think a business that sells something for a small markup but makes it up in volume does something like this. Define a "small markup".
gindely 6y ago
> Does any business operate this way, including the one you work at? That is, selling things to the people who need it most for the amount that "minimizes default" (ie lowest price). Yes > This article is about wealthy mortgage borrowers. The first guy is 60 years old with a $700k mortgage who wants a lower rate. How is it in the public's interest to grant him that? Perhaps it's in the public's interest for this man to continue to pay his modestly higher rate in order to cover expected losses from those who truly need it? I wasn't responding to the article.
andrepd 6y ago
>Does any business operate this way, including the one you work at? Maybe it means that some institutions, especially ones with such a critical role as controlling the money supply, perhaps should not be run with a for-profit model, but some other model that better ensures the institution will serve the public interest, rather than the interest of an exceedingly small handful of elites. Typing this out it seems even more obvious. It may come as a shock to some people, but capitalism isn't an immutable law of nature. There are such things as alternatives.
- aguyfromnb 6y ago
  >but some other model that better ensures the institution will serve the public interest Your social concerns are completely detached from reality if you're shedding tears over people with jumbo loans that are unable to refinance their million dollar mortgages from 4% to 2%. It's theatre. I appreciate your white-collar, anti-capitalist rant, though. Unfortunately, when SHTF, the truly down trodden might even consider people like this part of the problem. I don't think they'll buy the idea that "we're all on the same team!". >It may come as a shock to some people, but capitalism isn't an immutable law of nature. There are such things as alternatives. You're right, we should put our non-elite, galaxy brain politicians, the Trumps and Pelosis and Bidens and Bush's of the world, in charge of controlling the money supply.

imtringued 6y ago

There are risk pools for lending because every business has a different cut off point below which a borrower is considered too risky and therefore gets rejected. Imagine you are a bank employee at Bank A with very low default rates and consequently low interest rates (say 2.5%) and a homeless man has an appointment with you because he wants a small loan of $5000 to find an apartment and a job. He has no assets or income and is only able to pay after getting his job so he will miss his first few payments. Therefore you decide to simply not give him a loan because it is incredibly obvious that he is going to default. What are his options now? He can go to a Bank B that accepts more risky borrowers with a still acceptable but slightly higher interest rate of 5%. What happens is that all the reliable lenders go to Bank A because they get a great deal there and have no trouble getting a loan. They don't even bother with Bank B. Since Bank B fails to attract reliable lenders the only borrowers at Bank B are those who couldn't get a loan at Bank A. Bank B now has two choices. Either keep the risk profile or tighten it and only allow reliable lenders. If they keep it then they will notice a much higher than usual default rate. Bank B is losing money from all the defaulting loans and that money has to come from the borrowers of Bank B that didn't default. Now imagine that there is a Bank C. What if it's risk profile is so lenient that it accepts anyone with no questions asked. Literally everyone who comes to you is defaulting. You're throwing money into a black hole with no chance of getting it back. You have to crank up the interest rate to absurd levels to cover the defaults. You know what the problem is? It's not that Bank C is evil and exploiting the poor. Those people should have never gotten a loan at all. The act of giving them a loan is exploitation itself, not the interest rate or whatever conditions that Bank C needs to stay in business. It's as simple as that. Those individuals do not need a loan, they need support from the government in a way that doesn't require the money to be paid back. e.g. free housing, unemployment benefits or even straight up UBI. Don't criticize Banks for not lending to those who need it most. For some reason people don't understand that Banks are businesses that have to at least cover their costs. They think a Bank is a charity that should take on responsibilities that really only belong to the government.

gindely 6y ago
But now you have just portrayed situations in which banks provide affordable loans to people who don't need them, and unaffordable loans to people who need them. But this is what was criticised in the first place so we know it happens. So I'm not sure what the point of your first four paragraphs were. Your final paragraph is exactly what my earlier comment rejects. The general public has every right to criticise banks for acting in the banks' private interest. Banks are not charities, it is true. But they are groups of moral agents acting in a community, and the community has every right to hold the moral agents to whatever standards the community wishes to. The bank has the legal right to pursue its own private interests, so long as it acts legally, and has the legal right to not act as a charity. But that is not an argument against the view that the bank should act in conformance with community expectations, and if necessary the law should be changed to ensure that they do. The fact that banks make ridiculous profits - they're not just covering costs - is also relevant. If your business is making billion dollar profits, you're vulnerable to the claim that you should give greater weight to public opinion, and the notion that you're only acting to cover costs is a red herring.