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A thought I've had regularly is that any financial product so widely required ought to be provided at cost (base rate of interest) through central banks. Why bo

by hkt 2y ago

A thought I've had regularly is that any financial product so widely required ought to be provided at cost (base rate of interest) through central banks. Why bother with middlemen? As the author says, it is because the mortgage is hardly for my benefit. Its purpose is to grant some privileges to those who remain on the treadmill of work for a long time without falling off, and to act as something like a tax, levied on behalf of the absurdly wealthy + institutional investors.

anamax 2y ago
> A thought I've had regularly is that any financial product so widely required ought to be provided at cost (base rate of interest) through central banks. Why bother with middlemen? In the US at least, govt has problems running "retail." (It also has problems running wholesale, as evidenced by the give-aways to BlackRock, but ...)
- deprecative 2y ago
  The US certainly has issues with even accepting the government being able to do good things. A small but highly vocal part of the populace has all but ensured the well is poisoned. I think we could, if we wanted, create an institution like the USPS for financial services. That would be able to issue a mortgage. It's not going to happen for the simple fact they're doing their best to privatize the USPS and beloved programs like Social Security.
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  - astrange 2y ago
    The US has a good deal more public services than other countries; privatized mail, utilities and mass transit are all pretty common. Mortgages themselves are unusually public in the US and probably staying that way. Other people don't get 30 year fixed loans, that's a huge benefit and inflation defense.
Panzer04 2y ago
The government is almost never the right provider of a commodity service. What possible benefit is derived from having the government manage the making of loans, already a competitive market? Mind that the US is somewhat unique in its subsidy of early-prepay 30y fixed mortgages - they exist nowhere else, because no sensible private lender would offer such a product otherwise (or a huge markup).
- formerly_proven 2y ago
  Maybe that’s because Americans move around more and can’t be nailed to a house for 15-30 years like every european homeowner is (where you can neither refinance nor pay back early without paying essentially all future interest payments at once - US mortgage conditions are insanely good).
  - rsynnott 2y ago
    In general, in Europe, either: - It is the norm to use either a variable rate or series of short fixed rates OR - Redemption fee is capped (for instance in France it’s capped at one quarter worth of interest). I’m not sure it’s normal anywhere to have a 30 year fix which you can’t get out of? Which country are you thinking of?
    - nasmorn 2y ago
      I got a 20 year fixed at 1.125% and I am really happy the bank can’t get out of it. I really did wonder why they even gave me that money but who am I to complain.
  - Panzer04 2y ago
    In AU the standard is a floating rate mortgage, with most fixed alternatives capping out at 5 years (which obviously has much more limited up and downside than a longer duration 30y equivalent). Those fixed loans can be more or less expensive than the variable rate, depending on market conditions.
- rsynnott 2y ago
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jjav 2y ago
> ought to be provided at cost (base rate of interest) through central banks In all financial instruments risk & return are intertwined and inversely correlated. If the mortgages could be provided at the base rate of interest that would imply they have zero risk. But mortgages do have some risk, although a very low one compared to e.g. buying stocks, so the rate is necessarily above the zero-risk rate.
lottin 2y ago
Banks are not a middleman between you and the central bank. A central bank isn't a bank in any way, shape or form, but a regulator and supervisor of the banking system.

by hkt 2y ago

anamax 2y ago

> A thought I've had regularly is that any financial product so widely required ought to be provided at cost (base rate of interest) through central banks. Why bother with middlemen? In the US at least, govt has problems running "retail." (It also has problems running wholesale, as evidenced by the give-aways to BlackRock, but ...)

deprecative 2y ago
The US certainly has issues with even accepting the government being able to do good things. A small but highly vocal part of the populace has all but ensured the well is poisoned. I think we could, if we wanted, create an institution like the USPS for financial services. That would be able to issue a mortgage. It's not going to happen for the simple fact they're doing their best to privatize the USPS and beloved programs like Social Security.
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- astrange 2y ago
  The US has a good deal more public services than other countries; privatized mail, utilities and mass transit are all pretty common. Mortgages themselves are unusually public in the US and probably staying that way. Other people don't get 30 year fixed loans, that's a huge benefit and inflation defense.

Panzer04 2y ago

The government is almost never the right provider of a commodity service. What possible benefit is derived from having the government manage the making of loans, already a competitive market? Mind that the US is somewhat unique in its subsidy of early-prepay 30y fixed mortgages - they exist nowhere else, because no sensible private lender would offer such a product otherwise (or a huge markup).

formerly_proven 2y ago
Maybe that’s because Americans move around more and can’t be nailed to a house for 15-30 years like every european homeowner is (where you can neither refinance nor pay back early without paying essentially all future interest payments at once - US mortgage conditions are insanely good).
- rsynnott 2y ago
  In general, in Europe, either: - It is the norm to use either a variable rate or series of short fixed rates OR - Redemption fee is capped (for instance in France it’s capped at one quarter worth of interest). I’m not sure it’s normal anywhere to have a 30 year fix which you can’t get out of? Which country are you thinking of?
  - nasmorn 2y ago
    I got a 20 year fixed at 1.125% and I am really happy the bank can’t get out of it. I really did wonder why they even gave me that money but who am I to complain.
- Panzer04 2y ago
  In AU the standard is a floating rate mortgage, with most fixed alternatives capping out at 5 years (which obviously has much more limited up and downside than a longer duration 30y equivalent). Those fixed loans can be more or less expensive than the variable rate, depending on market conditions.
rsynnott 2y ago

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jjav 2y ago

> ought to be provided at cost (base rate of interest) through central banks In all financial instruments risk & return are intertwined and inversely correlated. If the mortgages could be provided at the base rate of interest that would imply they have zero risk. But mortgages do have some risk, although a very low one compared to e.g. buying stocks, so the rate is necessarily above the zero-risk rate.

lottin 2y ago

Banks are not a middleman between you and the central bank. A central bank isn't a bank in any way, shape or form, but a regulator and supervisor of the banking system.