Jason Bourne wrote:Jason,
It does not follow that
you “must be poor.” It does follow that if you pay interest on borrowed money, someone
else (a group) makes money. The
full post from which you quoted only the first paragraph addressed problems faced by those who lack access not only to wealth but access to reliable information.
Yes JAK
I read your post.
So do you think it is wrong for those who loan money to those who cannot pay cash for a car to charge interest? It seems to me your comments about the wealthy benefiting from interest and it being a form of transferring wealth from the poor to those already wealthy imply that something is sinister about this.
Institutions that loan money offer a valuable service to consumers and business people alike. Without this service people who don't have cash would not be able to buy some things, or would have to wait a long time to buy some things. Businesses would not be able to start, grow and invest. Banks also create jobs by providing this valuable service. The economy would grind to a halt with out a credit system. Interest is the cost of this service.
Jason,
The comments on who profits from interest charges was a statement of fact. It was a support for what td and Jersey Girl had said regarding
the social network which operates (at least in the USA).
That
wealth is transferred up inherently makes for a shrinking middle. Or,
The poor get poorer while the rich get richer. The more wealthy have
access to superior education, greater opportunity, and better health care. Conversely, those who cannot afford to pay a doctor often go to emergency rooms as their
first place to access medical care. As a result of the latter, many hospitals are closing their emergency rooms.
This describes the status quo.
At least one issue in this
system is that of fairness. That is, what is a
fair interest charge? The fact is that interest is charged on virtually all borrowed assets
varies with specific situations in which there is a loan.
In any case (except for zero interest), generally those who can least afford to pay are required to pay the most. The economy is
grinding “to a halt” for many as we speak. Today, it was announced that for the month of March, 750,000 jobs were lost in the USA. It was about 650,000 in the month of February. Many who are now jobless also have home-mortgages and autos on which they owe money. They will be unable to pay. Particularly for those who lost jobs which they believed to be secure, the fault of their plight is not of their own making. (For example the idea that General Motors and the other American car companies might go bankrupt would have been laughable ten or 20 years ago.)
Those who unwisely signed on to debt they
knew they could not pay
may be at fault. They
may not in that the lenders, in their greed, made loans to people who were naïve. In still other cases, people trying to “flip” Real Estate to make a quick profit are at fault themselves. Their perspicacity (crystal ball) was wrong. Their own personal greed led them to bankruptcy through risky behavior.
No single scenario applies to everyone. Banks which gave loans to people whom the bankers themselves knew could not pay are at fault. But with no oversight, no legal requirements, no law governing their lending practices, the bankers at the top made enormous profit even as they knew their banks would go bankrupt.
Take a look at this basic chart of AIG The people at the top, the people who were making salaries in the millions
knew what was going to happen before it happened. For example, top executives at AIG sold millions of shares of stock when AIG was at more than $60 a share. Today, AIG closed at $1.07 a share (April 1, 2009). Now if you look at this chart tomorrow, the share value is almost certain to be different. The above chart is for this date.
This example is typical of other banks and those with insider information. AIG got a bailout. Lehman Brothers Bank went bankrupt and its shareholders hold shares worth $0.00. There is no longer a ticker symbol for that bank.
Banks currently with money are reluctant to loan it. Any loan is likely to be risky at the moment.
However, those who sold shares in major banks prior to November or December 2007 or even as late as January 2008, either made money or saved themselves from catastrophic losses.
The “valuable service” to which you refer has not been very valuable in the past year. Only for those who have solvent or even thriving interests are loans “valuable service.” If they are unfortunate in that their interests are failing, they owe money on loans which they cannot pay. For them, there was no “valuable service.”
That said, you’re right in that often people could borrow from the bank, plow the money into their business, and recoup far more than the interest they had to pay. For them, business was/is good.
With banks going under, most are unwilling presently to take the risk to loan unless they have very good reason to believe the loan can and will be repaid. Zero down on homes (which was the practice of some banks followed by a higher interest rate) is not an option today. Banks still standing and which have not made risky loans are not going to make risky loans now.
The present disaster has come about because there was a
Let business do business with no government regulation attitude. That policy was wrong. It got us into the disaster we face presently and on a global scale. This is not to suggest that appropriate loans to those who could demonstrate potential productivity should not have been made. As you point out, loans can and have helped people acquire businesses, homes, and other tangible assets.
Even so, credit card interest rates and other mechanisms which transfer wealth from the less wealthy to the more wealthy is inherently going to appropriate for the rich from those who are poorer. And for the more wealthy, that means access to reliable information (university degrees) and access to employment which will produce higher levels of income.
JAK
Last night I heard a bleep on the news about the laws in some Countries that still allow men to rape their wives. :-( It has only been in the last thirty years that this has changed in our Country. Amazing!