4 ms·

Yeah, crazy. If this was a law, everyone would run up a bunch of debt and settle it for pennies on the dollar (nearly free money). How could a credit system su

Yeah, crazy. If this was a law, everyone would run up a bunch of debt and settle it for pennies on the dollar (nearly free money). How could a credit system survive if there is little consequence for being a dead beat? Why don't I just borrow a million dollars, buy gold with it and bury most of it in a field. When they come for it, I'll just give them $1000 and then go dig up the gold and retire.

rtpg 13y ago
Except that the following things exist: -Your credit rating could make it impossible for you to get a loan - The bank isn't obligated to give you a million dollar loan - If you buy a house with it, they could repossess the house I don't see why we should consider banks with bad decision making in this.
rrrhys 13y ago
I believe this is how bankruptcy works in Australia, and to take your last sentence as a metaphor, is exactly what happens (assuming the stigma of bankrupty isn't a big enough deterrent for you).
unclebucknasty 13y ago
What's the consequence now for being a deadbeat, and how would this consequence materially change if this were law?
- goggles99 13y ago
  Debt collection agencies hounding you for years. Re-possessing assets if possible, garnishing wages, placing levy's on your property ETC. Of course if you file bankruptcy, this all changes. IMO people should have to pay back money they have borrowed no matter how long it takes. I have known too many people who rack up a bunch of debt with the "I want it now and I will pay for it later" attitude. It is easy to have this attitude when these people can just declare bankruptcy if they get in too deep (as many people I have known have done). With no strong deterrent, of course people are going to be lackadaisical about this.
  - chii 13y ago
    what actually happens when you declare bankruptcy?
  - flumbaps 13y ago
    I think you're both over-estimating AND under-estimating the rationality of people's behaviour. It is important that going bankrupt is somewhat unpleasant. If it wasn't, then normal people, who are somewhat rational, would have no incentive to pay back debt, and defaulting on loans would become normal. However, some people are always going to fail to think ahead and try to borrow irresponsibly. Even if bankrupt people were put in the workhouse and given punishing physical labour, those kinds of people would still be financially irresponsible. That's why the poorhouses were never empty, despite them being horrible places by design. Saddling people with debt forever won't stop irresponsible borrowing. Being broke is already horrible and punishing people harder is unlikely to make them think more rationally. I'm guessing you're probably a smart person who thinks ahead and makes smart choices - you have to understand that not everyone in the world is like that. Punishing people who are not like that is unlikely to change them. You can't punch someone in the face to make them smart. You can punch someone in the face to make them obey you, but in this context that would mean singling out all irresponsible people and then punishing them before they take out a loan, not after. If you were able to identify irresponsible people then you might as well just not lend them any money. Which brings me to the real benefit of bankruptcy. That is, if you really want to stop irresponsible borrowing, then it makes a lot of sense to also discourage irresponsible lending. Banks and credit unions are far more rational than the general population. If individuals are allowed to go bankrupt, there is a clear incentive not to lend money to people who don't have the means to pay off the debt. By providing that incentive, it then becomes the problem of the lender to identify whether or not an individual is likely to be able to pay of a loan. The lender is has a lot of information and resources through which they can make such a determination. Now, different people have different ideas about the morality of this situation. Some would say that it's wrong for banks to take advantage of the irrational people, so it makes sense to provide incentives for responsible lending. Others would say that if individuals are irrational, then they get what they deserve, and banks should only be required to behave rationally. Personally, I don't think stupidity is morally wrong (otherwise dogs would be pure evil), and it's often quite self serving to argue otherwise.
e12e 13y ago
What's crazy is that if you form a company and borrow a million USD, no one is surprised if you go bankrupt and not pay anything back -- and you get to keep your personal assets (excepting what was invested in the company) -- while if you borrow 10.000, with interest, you might lose your home.
- chii 13y ago
  i dont believe a bank will just willy nilly lend any company 1 million USD without first checking the books.

rtpg 13y ago

Except that the following things exist: -Your credit rating could make it impossible for you to get a loan - The bank isn't obligated to give you a million dollar loan - If you buy a house with it, they could repossess the house I don't see why we should consider banks with bad decision making in this.

rrrhys 13y ago

I believe this is how bankruptcy works in Australia, and to take your last sentence as a metaphor, is exactly what happens (assuming the stigma of bankrupty isn't a big enough deterrent for you).

unclebucknasty 13y ago

What's the consequence now for being a deadbeat, and how would this consequence materially change if this were law?

goggles99 13y ago
Debt collection agencies hounding you for years. Re-possessing assets if possible, garnishing wages, placing levy's on your property ETC. Of course if you file bankruptcy, this all changes. IMO people should have to pay back money they have borrowed no matter how long it takes. I have known too many people who rack up a bunch of debt with the "I want it now and I will pay for it later" attitude. It is easy to have this attitude when these people can just declare bankruptcy if they get in too deep (as many people I have known have done). With no strong deterrent, of course people are going to be lackadaisical about this.
- chii 13y ago
  what actually happens when you declare bankruptcy?
- flumbaps 13y ago
  I think you're both over-estimating AND under-estimating the rationality of people's behaviour. It is important that going bankrupt is somewhat unpleasant. If it wasn't, then normal people, who are somewhat rational, would have no incentive to pay back debt, and defaulting on loans would become normal. However, some people are always going to fail to think ahead and try to borrow irresponsibly. Even if bankrupt people were put in the workhouse and given punishing physical labour, those kinds of people would still be financially irresponsible. That's why the poorhouses were never empty, despite them being horrible places by design. Saddling people with debt forever won't stop irresponsible borrowing. Being broke is already horrible and punishing people harder is unlikely to make them think more rationally. I'm guessing you're probably a smart person who thinks ahead and makes smart choices - you have to understand that not everyone in the world is like that. Punishing people who are not like that is unlikely to change them. You can't punch someone in the face to make them smart. You can punch someone in the face to make them obey you, but in this context that would mean singling out all irresponsible people and then punishing them before they take out a loan, not after. If you were able to identify irresponsible people then you might as well just not lend them any money. Which brings me to the real benefit of bankruptcy. That is, if you really want to stop irresponsible borrowing, then it makes a lot of sense to also discourage irresponsible lending. Banks and credit unions are far more rational than the general population. If individuals are allowed to go bankrupt, there is a clear incentive not to lend money to people who don't have the means to pay off the debt. By providing that incentive, it then becomes the problem of the lender to identify whether or not an individual is likely to be able to pay of a loan. The lender is has a lot of information and resources through which they can make such a determination. Now, different people have different ideas about the morality of this situation. Some would say that it's wrong for banks to take advantage of the irrational people, so it makes sense to provide incentives for responsible lending. Others would say that if individuals are irrational, then they get what they deserve, and banks should only be required to behave rationally. Personally, I don't think stupidity is morally wrong (otherwise dogs would be pure evil), and it's often quite self serving to argue otherwise.

e12e 13y ago

What's crazy is that if you form a company and borrow a million USD, no one is surprised if you go bankrupt and not pay anything back -- and you get to keep your personal assets (excepting what was invested in the company) -- while if you borrow 10.000, with interest, you might lose your home.

chii 13y ago
i dont believe a bank will just willy nilly lend any company 1 million USD without first checking the books.