Topic: Insight: I used to think lending at interest was evil... - page 2. (Read 5172 times)

Meni, thanks for your answer, got some comments...


It doesn't have to be the rich that do the lending, but in the naive view I held back then (forgetting the lender was also spending), the lenders would perpetually grow richer and if they had been poor to begin with, they would become rich over time. With lending continuing the money would keep flowing towards the "already richer" nodes, because they can/will do more lending and therefore receive more interest, until in the end, all currency is concentrated at a single node. This might also answer your later question why I considered lending at interest to be evil: all money in the hands of one (even as a tendency) just had to be unethical in some way.


Yes, I ignored any other money flows in my naive view, which I retired.

It relates to banks, because it talks about fractional reserve lending, but its primary focus is not banks.

Bailouts or regulatory problems have little to do with lending itself.

Why must it be the rich that lend to the poor? Rich people borrow funds all the time for their ventures, which ultimately come from the public.

Also, even if the rich do lend to the poor, the net effect needn't be that money flows from the poor to the rich. Rich person lends to poor(er) person; poor person starts a business; business makes product; rich person buys product, moving funds from the rich to the poor, possibly more than the interest paid.

What do you mean by this? All the big lenders in this forum are fractional reserve, they take deposits, keep a small fraction in reserve, and lend out the rest to create a return on investment.

Fractional reserve banking, where people deposit funds for reasons other than receiving interest, and the bank does not keep it in full reserve, is obviously also possible with Bitcoin. It's just less likely to be common, because with Bitcoin there's not much need for a bank anyway.

And that's why I point to what I think is the highest evil in the modern monetary system: unnatural collapse prevention financed on everyone else's backs.

The OP was about banks.  Maybe you should read it?

The OP was about banks.  Maybe you should read it?

Hardly.  That pretends the banks are operating a fair game.

It would be like saying a casino which accepts wagers and keeps the losing bets but fails to payout winning bets it ethical.  Worse in this case the casino is required and only members of the banking cartel can operate one and even if you minimize your involvement in the casino, the actions of the casino continually devalue your chips through no fault of your own and those chips are the only form of legal tender in the country.

Saying /thread is just stupid. 

Of course it is when you steal from the taxpayers.

The banks are certainly free to charge what they want and when they made bad bets they should have gone out of business.  If that had happened this thread wouldn't exist.  Did you even read the OP.

To charge interest to consumers and then to take bailout money from the same consumers is unethical. 

If their bets win, they win.  If their bets lose, they still win.  In the former wealth flows to the top via interest, in the wallet wealth flows to the top via govt bailouts (which is a nice way of saying $10T in free cash paid for by every single taxpayer for decades).  

You can't do that, I can't do that.  

Only banks with the monopoly on the issuance of legal tender can pull off that heist.  They are exploiting their monopoly given to them by the people for the public good to confiscate wealth that was neither theirs nor earned.  To call it ethical is insane.

/thread

Lending is like any other product or service, and the interest is the payment for it. It's not unethical to charge what the market will pay.

Lending is like any other product or service, and the interest is the payment for it. It's not unethical to charge what the market will pay.

Banks which suffer no risk of default (though ability to regain solvency through borrowing at the FED discount window, taxpayer subsidized bailouts, etc) but charging rates at higher than 0-risk are immoral and unethical.

Taking a systemic view (nodes of a graph containing money with edges representing debt), lending at interest must over time concentrate the currency in the hands of a few (essentially one node in the end). I deducted: The rich will get richer, the poor will get poorer

and concluded: lending at interest is evil.

I deemed this view of mine validated by observing the rich actually becoming richer and the poor becoming ever poorer.

Since fractional reserve lending is not possible with bitcoin

Would tend to agree with your analysis with one exception:
you overlooked wealth creation. Another way to think about
this is that your graph grows over time, and therefore you
can't easily reason about its systemic properties.

It's even more interesting with a bitcoin-style currency:
if there is wealth creation and a finite amount of currency,
the risk the lender takes grows larger over time.

How I used to think about lending at interest:

Taking a systemic view (nodes of a graph containing money with edges representing debt), lending at interest must over time concentrate the currency in the hands of a few (essentially one node in the end). I deducted: The rich will get richer, the poor will get poorer and concluded: lending at interest is evil.

I deemed this view of mine validated by observing the rich actually becoming richer and the poor becoming ever poorer.

What I overlooked:

There's risk involved in lending, namely the risk of the borrower defaulting. Therefore above does not necessarily hold true, but why does it still seem to be true?

Why is it still true (that the rich get richer)?

Well, for other reasons: Mainly because these "rich" are able to lend out money they don't even have in the first place, and maybe more importantly because they are being bailed out every time a borrower has problems.

Also because at least some of them are in the business of just simply ripping people off and are able to get away with it somehow.

What I think now:

Fractional reserve lending with a lender of last resort that will bail lenders out at the expense of all other parties using the currency in question is evil.

And: stealing peoples money/assets is evil.

What I'm getting at:

Since fractional reserve lending is not possible with bitcoin and there is certainly no lender of last resort who can just print up more money, bitcoin-based lending/borrowing is not evil.

The lender is exposed to the risk: in case of default he is parted of his money, he can't be a cry-baby but has to take it like a man and just suck it up.

In a "good money"-based economy, the market will adjust the price of money (interest rate) such that lending is barely profitable and will reflect market participants needs.

any comments/corrections?

Would tend to agree with your analysis with one exception:
you overlooked wealth creation. Another way to think about
this is that your graph grows over time, and therefore you
can't easily reason about its systemic properties.

It's even more interesting with a bitcoin-style currency:
if there is wealth creation and a finite amount of currency,
the risk the lender takes grows larger over time.

People won't lend USD if they expect the value of USD will shrink?  It's all about price.

Although not evil to lend BTC, people will not borrow BTC if they expect the value of BTC will rise, they tends to borrow the thing that is dropping in value