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What if the person in receipt of the loan was selected with perfect accuracy but then his/her circumstances changed due to no fault of their own? No loan is a

What if the person in receipt of the loan was selected with perfect accuracy but then his/her circumstances changed due to no fault of their own? No loan is a "good" loan. Loans facilitate the reallocation of money. No net value is created and for the majority "value" decreases in fact. I'd challenge the "leads to growth" assumption too but I'm on iPhone and I don't wish to hijack the thread. Essentially, it does not lead to sustainable growth for the majority (or the economy for that matter)

dantheman 15y ago
There are lots of loans that shouldn't be issued due to no fault on the person being invested in. For instance, I've been working on opening an icecream shop for weeks and need a loan to finish the preparations and a bigger better icecream shop opens next door. Through no fault of my own, I am no longer a good investment.
- finnw 15y ago
  It is your fault if the bigger better icecream shop opens next door and you still persevere with your original plan. That suggests that you personally are a bad investment (not just your original business plan.) I would be more likely to give you the money if you needed five times as much, because you had decided to sell pies or pizzas instead.
bdonlan 15y ago
A loan is a transfer of risk, and a way to engage in growth faster than otherwise possible. Without loans (or investments, which are similar but involve a greater transfer of risk), any new venture would need to first save enough money to a) carry out the venture and b) survive if the venture fails. With a loan, the bank gives the capital right away, and assumes some of the risk - but takes a percentage if the venture succeeds. Now, this does create value if done properly. Because the new venture (whether it be a new business, expansion of an existing one, or whatever) happens _right now_ instead of 10 years later, there's significant savings in opportunity cost. The bank simply pockets part of this savings in exchange for its assuming the risk of losing some or all of the money it lent. It's only when the process screws up, and the bank misjudges the risk - or when the borrower misjudges how much they can repay without undue hardship, that problems occur. These are not failings in the idealized form of the moneylending system, but rather imperfect information (the former) or human shortsightedness (the latter).
ori_b 15y ago
Producing value is an activated process[1]. Without money, the investment needed to produce value can't be made, and the value that would have been produced over the lifetime of the product or service is lost to society. The entire point of a loan is to reallocate money to people who need it temporarily. Without loans, only the rich could start businesses. This is especially relevant outside of the software sector, where the costs of things like factory tooling cost significant amounts of money. [1] http://en.wikipedia.org/wiki/Activation_energy http://en.wikipedia.org/wiki/Activation_energy

dantheman 15y ago

There are lots of loans that shouldn't be issued due to no fault on the person being invested in. For instance, I've been working on opening an icecream shop for weeks and need a loan to finish the preparations and a bigger better icecream shop opens next door. Through no fault of my own, I am no longer a good investment.

finnw 15y ago
It is your fault if the bigger better icecream shop opens next door and you still persevere with your original plan. That suggests that you personally are a bad investment (not just your original business plan.) I would be more likely to give you the money if you needed five times as much, because you had decided to sell pies or pizzas instead.

bdonlan 15y ago

A loan is a transfer of risk, and a way to engage in growth faster than otherwise possible. Without loans (or investments, which are similar but involve a greater transfer of risk), any new venture would need to first save enough money to a) carry out the venture and b) survive if the venture fails. With a loan, the bank gives the capital right away, and assumes some of the risk - but takes a percentage if the venture succeeds. Now, this does create value if done properly. Because the new venture (whether it be a new business, expansion of an existing one, or whatever) happens _right now_ instead of 10 years later, there's significant savings in opportunity cost. The bank simply pockets part of this savings in exchange for its assuming the risk of losing some or all of the money it lent. It's only when the process screws up, and the bank misjudges the risk - or when the borrower misjudges how much they can repay without undue hardship, that problems occur. These are not failings in the idealized form of the moneylending system, but rather imperfect information (the former) or human shortsightedness (the latter).

ori_b 15y ago

Producing value is an activated process[1]. Without money, the investment needed to produce value can't be made, and the value that would have been produced over the lifetime of the product or service is lost to society. The entire point of a loan is to reallocate money to people who need it temporarily. Without loans, only the rich could start businesses. This is especially relevant outside of the software sector, where the costs of things like factory tooling cost significant amounts of money. [1] http://en.wikipedia.org/wiki/Activation_energy http://en.wikipedia.org/wiki/Activation_energy