4 ms·

We need private businesses (including banks) because it's the most efficient way to reach consumers. Any large bureaucracy has standards for loan/lending evalu

by mannyv 4y ago

We need private businesses (including banks) because it's the most efficient way to reach consumers. Any large bureaucracy has standards for loan/lending evaluation. Inevitably those standards become more and more restrictive and conservative, because of risk management. Private businesses are willing to take on more risk to reach different segments of a market. As an example, take SVB. One of SVB's markets are startups: companies with no track record, spotty revenues, large and non-repeating transactions, and fluid ownership. A normal bank would consider a startup a money-laundering operation: no visible sources of income, with really large incoming and outgoing transactions that happen intermittently. Many startups also do business internationally, which is another huge red flag for normal banks. This makes a regular bank much, much slower. Normal banks will put holds on financial transfers because of...risk management. SVB didn't, because that's their "normal." It's the same for underserved/unbanked (ie: poor) communities. Lending standards have to be different because the community is different. In fact, the new wave of FinTech places are experimenting with other ways of judging creditworthiness, which would be very difficult or impossible to do in a large institution because of...you guessed it, risk management(). It's the same with private businesses vs public businesses. Why not just have a Wal-Mart run by the state? Oh, because every new vendor somehow will need to scale out massively to sell a product...which is probably impossible, both financially and logistically. Is it possible to design a bureaucratic structure that is both all-encompassing and flexible? Probably...but in the (albeit short) history of bureaucracy it hasn't been done successfully. () these small fintechs eventually get bought by the big players if the tech proves out

morjom 4y ago
I'm a sheltered young guy but I always thought a bank shouldn't be a business (in the sense as Walmart is a grocery store or Taco Bell is a fast food restaurant). And if they are, the government should be staring over the banks shoulder all the time. I also feel like credit is doing less good than bad and should be done away with. I can see myself changing my mind but this is how I feel right now.
- cdot2 4y ago
  Most people would never be able to buy a house without credit. Along with many other reasons why credit is necessary.
  - notch898b 4y ago
    I'm not saying there is anything wrong with credit but the ol latin american method of buying a house one brick at a time does work. You may have to buy the land all at once, but even where I live (top 10 city) that's doable for roughly what a down payment costs.
  - wildrhythms 4y ago
    The concept of 'buy a house' is predicated on many other systems that make credit 'necessary'. Why do you think a person needs to 'buy a house' at all?
    - dns_snek 4y ago
      > Why do you think a person needs to 'buy a house' at all? Because people need a place to live, it would be helpful if you stated which alternatives you have in mind? Renting for the rest of your life? Building a house, paycheck to paycheck? Something more radical, like abolishing private housing and give every citizen a place to live, for free?
- pythonhacker69 4y ago
  Governments are staring over the banks shoulders all the time! See banking regulators, FDIC, OCC, etc.
- dontlaugh 4y ago
  In some countries, all or most banks are state owned. It can work.
- seanhunter 4y ago
  A useful thought experiment is to consider why things might exist in the first place. Credit serves lots of useful functions in the economy, and has done since ancient times[1]. Consider someone (say a farmer) who needs to make investments (seed, fertilizer, equipment etc) that will pay off in the future (when the crop is harvested and sold). It would be very much harder for them to run their business if they could not borrow, or forward sell their produce (which is an agreement that requires credit as a basis). Or consider a merchant who needs to import or export goods. While the ship is at sea, either the buyer or seller almost certainly requires credit. Think about very large assets (eg houses). Most people who buy property require a loan. To buy a house for cash where I live would require a literal lifetime of saving - where would you live in the meantime? You would need to rent. How would your landlord be able to buy a property if they could not borrow? If you did eliminate borrowing to purchase property literally only the ultra-rich would own property and they would own all the property. This would enforce an extreme unfairness that would be self-perpetuating as it would be practically impossible to transition from the renting to the owning class. This is similar to Europe in the early medieval period when hereditary landed gentry owned all the property and as a result the vast majority of people lived lives of abject poverty. In general if credit did not exist, economic activity as a whole would be severely curtailed. Do people use or extend credit unwisely? of course they do. Should it be done away with? Probably not, or not without understanding the profound implications this would have across the economy. [1] https://erenow.net/ancient/money-in-classical-antiquity/6.php https://erenow.net/ancient/money-in-classical-antiquity/6.ph...
Defletter 4y ago
Except it's not impossible or even unusual: look into post office savings and checking accounts. We used to have this in the UK until relatively recently. It's entirely possible and not inherently doomed to corruption.
- LiquidSky 4y ago
  I find this a lot in comments from Americans on topics like this, this ignorance of other ways things have been done. You get comments like the parent talking about alternative ways of doing banking, or medical care, or a host of other areas as if they're impossible abstract thought experiments instead of things that have been actually done in other places in the real world. That's not to say these other ways of doing things are without flaw or above criticism, just that they do in fact exist.
  - Defletter 4y ago
    Relevant: https://www.youtube.com/watch?v=bOF_3IkjpZU https://www.youtube.com/watch?v=bOF_3IkjpZU
greenie_beans 4y ago
don't private businesses have bureaucracy?

by mannyv 4y ago

morjom 4y ago

I'm a sheltered young guy but I always thought a bank shouldn't be a business (in the sense as Walmart is a grocery store or Taco Bell is a fast food restaurant). And if they are, the government should be staring over the banks shoulder all the time. I also feel like credit is doing less good than bad and should be done away with. I can see myself changing my mind but this is how I feel right now.

cdot2 4y ago
Most people would never be able to buy a house without credit. Along with many other reasons why credit is necessary.
- notch898b 4y ago
  I'm not saying there is anything wrong with credit but the ol latin american method of buying a house one brick at a time does work. You may have to buy the land all at once, but even where I live (top 10 city) that's doable for roughly what a down payment costs.
- wildrhythms 4y ago
  The concept of 'buy a house' is predicated on many other systems that make credit 'necessary'. Why do you think a person needs to 'buy a house' at all?
  - dns_snek 4y ago
    > Why do you think a person needs to 'buy a house' at all? Because people need a place to live, it would be helpful if you stated which alternatives you have in mind? Renting for the rest of your life? Building a house, paycheck to paycheck? Something more radical, like abolishing private housing and give every citizen a place to live, for free?
pythonhacker69 4y ago
Governments are staring over the banks shoulders all the time! See banking regulators, FDIC, OCC, etc.
dontlaugh 4y ago
In some countries, all or most banks are state owned. It can work.
seanhunter 4y ago
A useful thought experiment is to consider why things might exist in the first place. Credit serves lots of useful functions in the economy, and has done since ancient times[1]. Consider someone (say a farmer) who needs to make investments (seed, fertilizer, equipment etc) that will pay off in the future (when the crop is harvested and sold). It would be very much harder for them to run their business if they could not borrow, or forward sell their produce (which is an agreement that requires credit as a basis). Or consider a merchant who needs to import or export goods. While the ship is at sea, either the buyer or seller almost certainly requires credit. Think about very large assets (eg houses). Most people who buy property require a loan. To buy a house for cash where I live would require a literal lifetime of saving - where would you live in the meantime? You would need to rent. How would your landlord be able to buy a property if they could not borrow? If you did eliminate borrowing to purchase property literally only the ultra-rich would own property and they would own all the property. This would enforce an extreme unfairness that would be self-perpetuating as it would be practically impossible to transition from the renting to the owning class. This is similar to Europe in the early medieval period when hereditary landed gentry owned all the property and as a result the vast majority of people lived lives of abject poverty. In general if credit did not exist, economic activity as a whole would be severely curtailed. Do people use or extend credit unwisely? of course they do. Should it be done away with? Probably not, or not without understanding the profound implications this would have across the economy. [1] https://erenow.net/ancient/money-in-classical-antiquity/6.php https://erenow.net/ancient/money-in-classical-antiquity/6.ph...

Defletter 4y ago

Except it's not impossible or even unusual: look into post office savings and checking accounts. We used to have this in the UK until relatively recently. It's entirely possible and not inherently doomed to corruption.

LiquidSky 4y ago
I find this a lot in comments from Americans on topics like this, this ignorance of other ways things have been done. You get comments like the parent talking about alternative ways of doing banking, or medical care, or a host of other areas as if they're impossible abstract thought experiments instead of things that have been actually done in other places in the real world. That's not to say these other ways of doing things are without flaw or above criticism, just that they do in fact exist.
- Defletter 4y ago
  Relevant: https://www.youtube.com/watch?v=bOF_3IkjpZU https://www.youtube.com/watch?v=bOF_3IkjpZU

greenie_beans 4y ago

don't private businesses have bureaucracy?