6 ms·

> If that's true, then it's fundamentally broken (assuming interest bearing loans of course). You will never have a sustainable economic system that is based on

by rank0 6y ago

> If that's true, then it's fundamentally broken (assuming interest bearing loans of course). You will never have a sustainable economic system that is based on interest bearing loans Yes we should all switch the current economic system which has been the root cause of societal development. And we should switch to a fairy-tail system which you describe but miraculously does not and has not ever existed. One where people will lend out money for free! Why don't you start us off? I'd like a free loan please. > Not true. There are moral alternatives. If you want to start a business, pitch your idea to investors who are willing to put in money in exchange for a portion of the company. This is hilarious because its just another form of lending which in fact does yield interest. How do you think the investors will track ownership of the company? Shares which appreciate aka big bad interest. > There are alternatives that don't involve interest. You see it all the time in the auto industry where they have 0% loans. There are strings attached to those loans and the average auto loan absolutely has a non-zero interest rate. We are currently experiencing a massive auto loan bubble. Handing out low interest loans indiscriminately is irresponsible and the cause of massive economic damage throughout history. https://www.thedrive.com/news/33065/zero-percent-financing-and-cheap-loans-dont-mean-you-can-afford-that-new-car https://www.thedrive.com/news/33065/zero-percent-financing-a... > Raise capital in an ethical way. I think you are confused. The government is "taking out the loan" by issuing bonds and paying an interest rate to the bond buyers. So which side is unethical? The lender or the borrower? > Great empires were built without interest. Like which? At the end of the day, nobody is going to lend money without financial incentive. Why accept the risk? If you disagree then ask yourself why aren't you loaning out YOUR money for free? I will happily accept a free loan.

KMag 6y ago
> > Great empires were built without interest. > Like which? I think part of the problem is that the GP is conflating debt leverage and interest. My understanding is that there have been societies essentially without debt leverage, and no societies without loan yield. As far as interest, all non-altruistic loans have strictly positive yield. You can use contracts to shift payments around and nominally get rid of interest, but you can always calculate an equivalent interest rate from the loan's yield. In the middle ages, they discovered that an investment, an insurance contract, and a contract-for-difference (sale of profit) together (contractum trinius) could perfectly replicate the cash flows of an interest-bearing-loan.[0] Presumably the contractum trinius is what eventually lead to the Catholic Church allowing interest-bearing loans. My understanding is that the joint ventures set up for Islamic finance end up having cash flows equivalent to interest-bearing loans, though perhaps with important differences regarding collateral and leverage. The yield on these loans is always strictly positive, and an interest rate equivalent to that yield is easily calculated. You can shift payments around and structure things so that there's nominally no interest, but there's still yield on the loan. Now, I think there is some healthy debate to be had over the role of leverage and collateral in the economy, and also non-dischargeable debt like student loans. [0] https://en.wikipedia.org/wiki/Contractum_trinius https://en.wikipedia.org/wiki/Contractum_trinius
- rank0 6y ago
  What do you mean by debt leverage? I don't really see how you can have interest without allowing for borrowers to profit from that debt. Businesses use debt to finance their operations. I can get a mortgage and profit off the appreciation of my property. I had never heard of that contractum trinius thing! But it really doesn't seem any different. The borrow has to pay insurance premiums to the lender instead of interest premiums. Its only different in name. Additionally, the borrow has to pay for a separate contract that will allow them to profit off the debt! That's debt leverage for you!
  - gher-shyu3i 6y ago
    You're correct, they're just thinking they found loopholes around the issue. Islamic texts explicitly call out this behavior and prohibits it. You can't stitch together individual legal contracts to reach the goal of lending money with interest. You can't "kid" God.
- gher-shyu3i 6y ago
  > that the GP is conflating debt leverage and interest I'm not :) > The yield on these loans is always strictly positive, and an interest rate equivalent to that yield is easily calculated. You can shift payments around and structure things so that there's nominally no interest, but there's still yield on the loan. In Islam, any loan that contractually requires benefit to the lender is prohibited, and that benefit does not have to be cash either, it could be a service or something intangible. Any attempt to dance around the issue (e.g. by stitching together intermediate contracts) does not change the fact that it is still interest under the covers, nominally or not. Islam cares about the actual substance, not what people call it on paper. This is already established in the texts which anyone can look at. As such, contractum trinius is prohibited in Islam. Proper Islamic finance shares risk between the investor and investee, loans are strictly an act of charity since they cannot take interest. By looking at history, we know that it is possible to have societies that do not rely on interest, but on proper risk sharing. They don't teach that in the popular economic books though.
  - 6y ago
gher-shyu3i 6y ago
> switch the current economic system which has been the root cause of societal development Strawman argument, and red herring. Just because we rely on something immoral that brought some value does not mean that there isn't a superior solution. > switch to a fairy-tail system which you describe but miraculously does not and has not ever existed Proper Islamic finance exists and has existed and has built empires. > One where people will lend out money for free! That's only in a capitalistic society where the only way to raise capital is lending. No they won't lend money for free (except if they want to be charitable). The solution is that money would be invested and risk shared equally among both parties, investor and investee, not lender and borrower, it's very different. > This is hilarious because its just another form of lending which in fact does yield interes It's very different. With an interest bearing loan, if the company doesn't work out, the lender will come after the borrower with the full support of the law, taking not only his principal, but the interest on top, destroying the latter. With an investment, if it doesn't work out, then the investor has lost his money and is not owed anything. It's risk sharing. > and the average auto loan absolutely has a non-zero interest rate I'm aware, but I wasn't talking about the average auto loan. You see it all the time when auto manufacturers offer 0% loans on certain models because they want to sell. > Handing out low interest loans indiscriminately is irresponsible and the cause of massive economic damage throughout history. Poison is still poison, regardless of the amount. The solution is not to give out more poison. > The government is "taking out the loan" by issuing bonds and paying an interest rate to the bond buyers. So which side is unethical? The lender or the borrower? Both are unethical. The Islamic perspective is that both the lender and borrower are equal in terms of sin (assuming the borrower is not doing it out of literally a life or death situation, which let's be frank, the vast majority of people are not in such a situation). > Like which? Islam prohibits interest, look up the Islamic empires all the way until the Ottoman empire. > nobody is going to lend money without financial incentive. Why accept the risk? That's the whole point. Without financial incentive, loans in Islam are purely an act of charity. If you want to invest your money, you invest it in ethical means that involve proper risk sharing. Interest bearing loans aren't that, there are countless other ways to make money. There were and are many rich Muslims that did not make their wealth using interest, but through investments.
- ric2b 6y ago

by rank0 6y ago

KMag 6y ago

> > Great empires were built without interest. > Like which? I think part of the problem is that the GP is conflating debt leverage and interest. My understanding is that there have been societies essentially without debt leverage, and no societies without loan yield. As far as interest, all non-altruistic loans have strictly positive yield. You can use contracts to shift payments around and nominally get rid of interest, but you can always calculate an equivalent interest rate from the loan's yield. In the middle ages, they discovered that an investment, an insurance contract, and a contract-for-difference (sale of profit) together (contractum trinius) could perfectly replicate the cash flows of an interest-bearing-loan.[0] Presumably the contractum trinius is what eventually lead to the Catholic Church allowing interest-bearing loans. My understanding is that the joint ventures set up for Islamic finance end up having cash flows equivalent to interest-bearing loans, though perhaps with important differences regarding collateral and leverage. The yield on these loans is always strictly positive, and an interest rate equivalent to that yield is easily calculated. You can shift payments around and structure things so that there's nominally no interest, but there's still yield on the loan. Now, I think there is some healthy debate to be had over the role of leverage and collateral in the economy, and also non-dischargeable debt like student loans. [0] https://en.wikipedia.org/wiki/Contractum_trinius https://en.wikipedia.org/wiki/Contractum_trinius

rank0 6y ago
What do you mean by debt leverage? I don't really see how you can have interest without allowing for borrowers to profit from that debt. Businesses use debt to finance their operations. I can get a mortgage and profit off the appreciation of my property. I had never heard of that contractum trinius thing! But it really doesn't seem any different. The borrow has to pay insurance premiums to the lender instead of interest premiums. Its only different in name. Additionally, the borrow has to pay for a separate contract that will allow them to profit off the debt! That's debt leverage for you!
- gher-shyu3i 6y ago
  You're correct, they're just thinking they found loopholes around the issue. Islamic texts explicitly call out this behavior and prohibits it. You can't stitch together individual legal contracts to reach the goal of lending money with interest. You can't "kid" God.
gher-shyu3i 6y ago
> that the GP is conflating debt leverage and interest I'm not :) > The yield on these loans is always strictly positive, and an interest rate equivalent to that yield is easily calculated. You can shift payments around and structure things so that there's nominally no interest, but there's still yield on the loan. In Islam, any loan that contractually requires benefit to the lender is prohibited, and that benefit does not have to be cash either, it could be a service or something intangible. Any attempt to dance around the issue (e.g. by stitching together intermediate contracts) does not change the fact that it is still interest under the covers, nominally or not. Islam cares about the actual substance, not what people call it on paper. This is already established in the texts which anyone can look at. As such, contractum trinius is prohibited in Islam. Proper Islamic finance shares risk between the investor and investee, loans are strictly an act of charity since they cannot take interest. By looking at history, we know that it is possible to have societies that do not rely on interest, but on proper risk sharing. They don't teach that in the popular economic books though.
- 6y ago

gher-shyu3i 6y ago

> switch the current economic system which has been the root cause of societal development Strawman argument, and red herring. Just because we rely on something immoral that brought some value does not mean that there isn't a superior solution. > switch to a fairy-tail system which you describe but miraculously does not and has not ever existed Proper Islamic finance exists and has existed and has built empires. > One where people will lend out money for free! That's only in a capitalistic society where the only way to raise capital is lending. No they won't lend money for free (except if they want to be charitable). The solution is that money would be invested and risk shared equally among both parties, investor and investee, not lender and borrower, it's very different. > This is hilarious because its just another form of lending which in fact does yield interes It's very different. With an interest bearing loan, if the company doesn't work out, the lender will come after the borrower with the full support of the law, taking not only his principal, but the interest on top, destroying the latter. With an investment, if it doesn't work out, then the investor has lost his money and is not owed anything. It's risk sharing. > and the average auto loan absolutely has a non-zero interest rate I'm aware, but I wasn't talking about the average auto loan. You see it all the time when auto manufacturers offer 0% loans on certain models because they want to sell. > Handing out low interest loans indiscriminately is irresponsible and the cause of massive economic damage throughout history. Poison is still poison, regardless of the amount. The solution is not to give out more poison. > The government is "taking out the loan" by issuing bonds and paying an interest rate to the bond buyers. So which side is unethical? The lender or the borrower? Both are unethical. The Islamic perspective is that both the lender and borrower are equal in terms of sin (assuming the borrower is not doing it out of literally a life or death situation, which let's be frank, the vast majority of people are not in such a situation). > Like which? Islam prohibits interest, look up the Islamic empires all the way until the Ottoman empire. > nobody is going to lend money without financial incentive. Why accept the risk? That's the whole point. Without financial incentive, loans in Islam are purely an act of charity. If you want to invest your money, you invest it in ethical means that involve proper risk sharing. Interest bearing loans aren't that, there are countless other ways to make money. There were and are many rich Muslims that did not make their wealth using interest, but through investments.

ric2b 6y ago