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I think a key point here is "productive lending". You still need banks to have vested interest in loaning out money that they think will be paid back. Thus bank

I think a key point here is "productive lending". You still need banks to have vested interest in loaning out money that they think will be paid back. Thus banks need to verify the credit-worthiness of the borrower, the collateral and consider the economic outlook. If you remove the banks and the government lends indiscriminately or with an agenda with no market interest, that's instantly a broken system for malinvestment and corruption.

mrmikardo 6y ago
I agree. And the more centralised the banking system is, the weirder the incentives become / banks are somewhat decoupled from the incentive to lend to credit-worthy / promising businesses (like here in the UK).
- mr_toad 6y ago
  I’m not sure what you mean by that. It seems obvious that’s banks have become increasingly risk adverse in the last 12 years or so, but I’m not sure what that has to do with centralisation.
2Gkashmiri 6y ago
funny you said "the government lends indiscriminately or with an agenda with no market interest" https://indianexpress.com/article/cities/delhi/centre-launches-micro-credit-scheme-to-provide-loans-to-street-vendors-6437617/ https://indianexpress.com/article/cities/delhi/centre-launch... this one is only "micro credit" but its pretty "indiscriminate" in a sense that the poorest of roadside street vendors/hawkers who "do not" have a credit score even are getting a loan. https://www.financialexpress.com/industry/banking-finance/psu-banks-come-to-rescue-before-govts-economic-package-sbi-indian-bank-others-offer-quick-credit/1909852/ https://www.financialexpress.com/industry/banking-finance/ps... this one, everyone, like every business owner using a credit line or similar products from banks were given additional 20%, no checks, no nothing. take it. while the second one is in somewhat organized sector because those are already bank customers, the first article, these people will have a lot of default because people see this as free money, not a "loan" and guess who will bear the expense. taxpayers.
- vladimirralev 6y ago
  Small and short term programs are still prudent because the value of the loan is a tiny fraction of the expected wages for the demographic. Every bank will lend to anybody some amount just because it's a virtual certainty that over their lifetime they will find some job and claim the earnings statistically speaking. The problems start when the loans approach a lifetime of after-tax inflation-adjusted earnings. Then, there is no margin for error and the margin is padded with asset inflation/bubbles.
  - 2Gkashmiri 6y ago
    where i live specificaly, indian occupied kashmir, we have been in homes since 5 august 2019, no internet, no movement, no phones, no business, no schools till march, then corona happened and lockdown. the thing is, i deal with asmall businesses all day, its my job but i have seen something like 90% drop in sales, many businesses folded and bank loans continued because credit sales arent getting paid and expectation is if i continue selling, some revenue will pass. 8 million people. i personally dont own a credit card, dont have any loans and as a result, my income is spent on food, electricity and office staff salary, rent. i cannot imagine taking on a loan and repaying it back in these uncertain times but my clients are and its very difficult for the whole system. i have a teacher relative who in his 50s has taken huge loans because he had no house for his family. today his salary is going to 60% bank, 30% school fees of children and rest is used at home. i can only imagine if he is let go or something happened to him. sad state of affairs
    - riskneutral 6y ago
      > i have seen something like 90% drop in sales A good story would be "I have seen a 90% increase in sales," then it would make sense for you to borrow money from a bank to expand your business because something seems to be working well. A bad story is "I have seen something like 90% drop in sales" and now you need a loan in order to delay bankruptcy in the hopes that sales will pick up before you can't afford your next bill or loan payment and default on a financial obligation. It is difficult to work out what the best solution is in this situation, often the answer is just to fold the business instead of taking on a personal liability as the owner of the business that could wipe out your personal savings along with a potentially already doomed business. You see, the bank most strongly wants to lend money to people or businesses who are in the least need a loan. Put another way, the more desperate you are for money, the more reluctant anyone is to lending you that money. This is a fact of nature, no "app" can solve this problem. I am sorry that you and 8 million other Kashmiris are struggling so badly. It is a humanitarian tragedy that doesn't get any attention due to the geopolitics of the situation, COVID, and the right wing nationalist tendencies of the current Indian administration.
eru 6y ago
And that's one of the reasons government deposit insurance is a bad idea.

mrmikardo 6y ago

I agree. And the more centralised the banking system is, the weirder the incentives become / banks are somewhat decoupled from the incentive to lend to credit-worthy / promising businesses (like here in the UK).

mr_toad 6y ago
I’m not sure what you mean by that. It seems obvious that’s banks have become increasingly risk adverse in the last 12 years or so, but I’m not sure what that has to do with centralisation.

2Gkashmiri 6y ago

funny you said "the government lends indiscriminately or with an agenda with no market interest" https://indianexpress.com/article/cities/delhi/centre-launches-micro-credit-scheme-to-provide-loans-to-street-vendors-6437617/ https://indianexpress.com/article/cities/delhi/centre-launch... this one is only "micro credit" but its pretty "indiscriminate" in a sense that the poorest of roadside street vendors/hawkers who "do not" have a credit score even are getting a loan. https://www.financialexpress.com/industry/banking-finance/psu-banks-come-to-rescue-before-govts-economic-package-sbi-indian-bank-others-offer-quick-credit/1909852/ https://www.financialexpress.com/industry/banking-finance/ps... this one, everyone, like every business owner using a credit line or similar products from banks were given additional 20%, no checks, no nothing. take it. while the second one is in somewhat organized sector because those are already bank customers, the first article, these people will have a lot of default because people see this as free money, not a "loan" and guess who will bear the expense. taxpayers.

vladimirralev 6y ago
Small and short term programs are still prudent because the value of the loan is a tiny fraction of the expected wages for the demographic. Every bank will lend to anybody some amount just because it's a virtual certainty that over their lifetime they will find some job and claim the earnings statistically speaking. The problems start when the loans approach a lifetime of after-tax inflation-adjusted earnings. Then, there is no margin for error and the margin is padded with asset inflation/bubbles.
- 2Gkashmiri 6y ago
  where i live specificaly, indian occupied kashmir, we have been in homes since 5 august 2019, no internet, no movement, no phones, no business, no schools till march, then corona happened and lockdown. the thing is, i deal with asmall businesses all day, its my job but i have seen something like 90% drop in sales, many businesses folded and bank loans continued because credit sales arent getting paid and expectation is if i continue selling, some revenue will pass. 8 million people. i personally dont own a credit card, dont have any loans and as a result, my income is spent on food, electricity and office staff salary, rent. i cannot imagine taking on a loan and repaying it back in these uncertain times but my clients are and its very difficult for the whole system. i have a teacher relative who in his 50s has taken huge loans because he had no house for his family. today his salary is going to 60% bank, 30% school fees of children and rest is used at home. i can only imagine if he is let go or something happened to him. sad state of affairs
  - riskneutral 6y ago
    > i have seen something like 90% drop in sales A good story would be "I have seen a 90% increase in sales," then it would make sense for you to borrow money from a bank to expand your business because something seems to be working well. A bad story is "I have seen something like 90% drop in sales" and now you need a loan in order to delay bankruptcy in the hopes that sales will pick up before you can't afford your next bill or loan payment and default on a financial obligation. It is difficult to work out what the best solution is in this situation, often the answer is just to fold the business instead of taking on a personal liability as the owner of the business that could wipe out your personal savings along with a potentially already doomed business. You see, the bank most strongly wants to lend money to people or businesses who are in the least need a loan. Put another way, the more desperate you are for money, the more reluctant anyone is to lending you that money. This is a fact of nature, no "app" can solve this problem. I am sorry that you and 8 million other Kashmiris are struggling so badly. It is a humanitarian tragedy that doesn't get any attention due to the geopolitics of the situation, COVID, and the right wing nationalist tendencies of the current Indian administration.

eru 6y ago

And that's one of the reasons government deposit insurance is a bad idea.