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The article says the government "convinced" banks and other companies to cancel the debts, but the lenders will not be compensated. It's left as an exercise to

• raverbashing 12y ago
  " allowing the middle class to own property, start businesses, etc," Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive I wonder what would happen to property prices if lending was severely restricted, maybe then the value would actually be affordable and not a lifelong debt that becomes unserviceable in the first hiccup
  • jljljl 12y ago
    The benefits of saving vs. borrowing really depends on the situation, and it's possible that borrowing is actually more beneficial. Let's say I want to save money to buy a house, and I want to pay in cash (i.e., no mortgage). I estimate it will take me about 20 years to afford the house, so I start putting away money from my pay check. However, since I don't have a mortgage and thus no house to live in, I also have to pay rent somewhere. This means I am paying 1/20 the cost of a house + the cost of rent in my city. Additionally, since I won't be buying a house for 20 years, there's a risk that the value of housing could change drastically in that time period, meaning the amount I've saved might not amount to enough to cover the price of housing when I'm finally ready to buy. Obviously the risk of this happening varies by how I invest my savings, and the particularities of the housing market I live in. So the benefit to saving vs. borrowing comes down to something like: (Cost of Housing in 20Years) + (Cost of Rent for 20 Years) - (Gains from Investments) vs. (Cost of Housing Today) + (Interest on Mortgage for 20 years) Obviously there's a lot of other things to take into account, but it's not as simple as Savings Good Debt Bad.
    • anon4 12y ago
      Well to be fair, borrowing with interest works really well only in the presence of endless growth.
      • gizmo686 12y ago
        Not necessarily. Borrowing with interest also works in the presence of endless inflation; it does not necessarily need real growth.
        • toomuchtodo 12y ago
          But does it work with near-zero inflation or deflation?
    • raverbashing 12y ago
      I agree with your calculation, of course you don't need to save for 20yrs, just save for a good down payment Too bad a lot of people go buy a house on the wrong side of that equation However, owning vs. renting has an interesting hidden cost: you can move "anytime you want" with rent. Renting usually tracks the market affordability/cost more closely, while your mortgage doesn't change while the price go up or down, BUT if the price goes down this might be a problem.
  • Sandman 12y ago
    Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive Yeah. Unfortunately this only works if you have enough money after you pay the bills etc. to put aside.
    • falcolas 12y ago
      Plus, saving up the 10-50 thousand dollars (say, to start a restaurant in the US) required to start a business would take a significant chunk of someone's working lifetime. To use a more concrete example, you can't make money weaving cloth when you can't afford a loom.
      • wtbob 12y ago
        I think your numbers are off by an order of magnitude, which makes it even harder to do for someone with few resources.
        • rch 12y ago
          Not really - I know someone in the town where I went to school who opened a coffee shop using a combination of cash and credit cards at that level. She now owns the building the shop is in and a home in Hawaii. Not VC riches or anything, but not bad either.
          • rhino369 12y ago
            A coffee shop isn't a restaurant.
            • zo1 12y ago
              Well, a restaurant isn't the only business venture an individual can get into. Just the other day I saw meme-photo (can't vouch for the validity/truthfulness) about a woman that made money at the beach by attaching balloons filled with margharita mix over her breasts. And charging party-goers (probably mostly male) for the chance to drink out of them. Ridiculous and asinine example, but I bet she started off with no more than a hundred dollars in capital. Which means that entrepreneurship, and ingenuity are what's most important. Capital will follow.
  • kryptiskt 12y ago
    Doing five years of work to get the money you need to capitalize on an opportunity is often not an option.
  • paulojreis 12y ago
    > Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive I think the point here is opportunity. You might be able to afford it in X years and pay no interest, which of course is better, but you may also have to act "now". This is where credit is adequate and needed.
    • HarryHirsch 12y ago
      Also: time. Imagine a fellow (me, as a student) who hasn't got a washing machine and does his laundry every other week at the coin launderette, which takes several hours, including the time spent on public transport. They could save up the several hundred bucks for a washing machine and buy one in a year (student, limited budget, or just simply poor), or buy one on credit now. As soon as the thing is installed you have two more afternoons each month to get more productive work done. What would you choose?
  • skylan_q 12y ago
    saving money because we're all keynesians now, saving is now evil.
  • a3n 12y ago
    > Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive. Capital idea. I think we should outlaw all lending, to individuals and to corporations. If poor people are expected to save, then it should be even easier for those of much better circumstance and financial ability. Imagine. No more mortgages.
  • SixSigma 12y ago
    If you didn't borrow from a bank then banks would charge for you to store your money, making your purchases more expensive
  • jdmichal 12y ago
    > Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive That's great, except that everyone is born short housing. You're not trying to afford something expensive, you are trying to cover your short position. And you're either going to do it by buying or renting. And since renting is just throwing the money at someone else, it can make a lot of sense to get into a mortgage instead. (This is why rent vs buy calculators exist.) > I wonder what would happen to property prices if lending was severely restricted, maybe then the value would actually be affordable and not a lifelong debt that becomes unserviceable in the first hiccup Agree on this point. It's a lot like universities and student loans. They have the numbers; they know the average student can afford $x / semester. They also know the average student can take out $y / semester in loans. So what are they going to charge? $(x + y)! Increasing the accessibility of student loans just gives the universities a reason to increase the prices. They don't care how much debt students walk out with; they already got theirs.
• alextgordon 12y ago
  > But I wonder how this will affect the ability of non-elites to borrow in the future. Although we all like to hate our financial institutions, they really have been an incredible force against class structures over the last 100 years or so, allowing the middle class to own property, start businesses, etc, by gradually extending credit to more and more people. (I recognize it's not been perfect <coughsubprime>.) Reverting to a situation where only the rich and connected can get loans would be a negative consequence. I hope the government of Croatia can counter that. I have the opposite reading of history. Mortgages have been a force of social stagnation in the developed world[1]. What mortgages have done is create lots of middle class property owners. These people have a strong interest in keeping property prices high. Politicians are only too happy to oblige them. Thus society has bifurcated into the "have houses" and the "have nots". The middle classes throw their weight around to prevent new houses being built, as every new house decreases the price of the houses around it. Unlike the developing world, the developed world is perfectly capable of building a house for every man, woman and child. If it did, poverty would all but disappear; it's hard to be poor when you have your own house. But the financial institutions have tied enough of the population into mortgages and home ownership that developed world poverty cannot be eradicated without a serious amount of middle class hurt. [1] (I can only speak for the UK but I guess Croatia, like all countries, will end up in this situation eventually)
  • reinhardt 12y ago
    > Unlike the developing world, the developed world is perfectly capable of building a house for every man, woman and child. If it did, poverty would all but disappear; it's hard to be poor when you have your own house. If only that was true. The top countries by home ownership are Romania, Lithuania and Hungary, while UK and US are in the 33st/34th position and Germany/Switzerland 10 positions below: http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate http://en.wikipedia.org/wiki/List_of_countries_by_home_owner...
    • riffraff 12y ago
      notice that ex-warsaw-pact countries all have high home ownership due to having expropriated property and having had large "social building" projects (which also lead to some horrible places though).
• scotty79 12y ago
  Forget the 1% of most likely noncollectable debt and get 60 thousands customers instead? That seems like no-brainer. I don't think banks needed much convincing. Poor people will repay their debt in trick fees for the banks in no time or just become indebted again.
• vidarh 12y ago
  > the numbers suggest most of the people affected probably didn't have enough income to even service their debt. Consider the analogue of the UK, where the banks have a duty to consider the ability of a persons ability to service a debt before letting them take out the loan. Failure to do so will let the person who have taken out the loan get the debt stricken off, as the bank will have broken the law... In that light this doesn't seem terribly shocking to me.
  • TheOtherHobbes 12y ago
    I'm not aware of any situation where a debt has been struck out because of this law. Debts are usually struck out because of errors in contracts, statutory procedures, and other paperwork. But courts usually seem to assume that a simple credit check counts as due diligence, and it's the borrower's responsibility to repay debt even if it's offered on an unrealistic basis - e.g. a credit card with a limit equal to a year's income, and an exploding interest rate of 50% or more if a borrower misses a payment or two. Which is not unrealistic, btw. I know of one credit card company offering rates up to 99.9% compound to individuals with poor credit ratings. Obviously they know most borrowers will default - and that seems to be the basis of their business model.
    • vidarh 12y ago
      Here is an example where Lloyds TSB offered to strike off a 100k debt after it became clear they had likely broken the banking code (the banking code is voluntary, but it does not go much further than legal requirements), and it is by no means the only time UK banks have written off loans because they were wrongly given out to people who could not afford them: http://news.bbc.co.uk/1/hi/business/4528567.stm http://news.bbc.co.uk/1/hi/business/4528567.stm
• ctdonath 12y ago
  The article says the government "convinced" banks and other companies to cancel the debts, but the lenders will not be compensated. It's left as an exercise to imagine how the lenders were convinced. I have to wonder the same about the US banking system about 8 years ago: the aforementioned subprime problem apparently led to top bankers literally being brought into a room and told in no uncertain terms they would agree to the planned solution to the problem; what was actually said remains unknown and rather...intriguing.
  • dragonwriter 12y ago
    There's a thing here -- with widespread bad debts, its generally not in the interests of lenders to write them off individually (because it means that those likely to default are attracted to those lenders that seem most willing to do that), but when there is a major wave of them, its in the interest of the lenders for them to be addressed en masse so that the system as a whole is dragged down by the burden those debts put on the consumer market.