Comment by pjc50 | Hacker News Reader

Comment by pjc50 | Hacker News Reader

Parent Full thread

> loans represent a redistribution of real-world resources away from people who have worked for them and towards people who the banks like.

This is simple, appealing, and extremely misleading; loans are more a temporal redistribution of resources. You get something that you will have worked for before you do the work, but that doesn't really absolve you from getting the income to pay the loan back.

> They should not be the ones choosing who gets a home or who gets to succeed in business

Who should?

> There is an ongoing trend where people in credit exposed markets (housing, other assets) are raking in unreasonable returns at a lower-than-advertised risk as more and more easy credit is created.

It's not that the risk is lower, but it has become horribly correlated. All the homeowners win or lose together. Globalisation of the housing market as a "safe asset" makes the problem worse. Perhaps we need a crackdown on owner-non-occupiers like the Vancouver foreign purchasor tax.

To add on "who should decide who gets money" ... Let's not forget the equity capital markets and private lending institutions.

Banks don't have a strangle hold on providing capital.

Actually they do; banks can create new money. It is practically impossible to compete with an institution that can create new money when providing capital. It is called Fractional Reserve Banking and only licensed institutions can do it as far as I recall.

I'm not intimately familiar with US markets, being Australian, but the M2 suggests that half the money currently in existence was created since 2007. If whoever is creating that money doesn't have a stranglehold on providing capital they are going to, at a minimum, have massive influence. It is worth focusing in on, it may only be half the money in the system but that is actually a big deal.

To the extent this is true, anyone can create new money by extending credit - such as when issuing an invoice with delayed payment terms. There's a not-inconsiderable amount of money floating about in trade credit.

I think you're talking about the ability of the federal reserve to print money and buy US treasures, thus increasing the money supply.

The thing is, US currency is global commodity and as such is subject to supply and demand forces. The Fed targets a 2% inflation rate, which strikes a nice balance.

If the currency appreciates, people will hord it and a currency bubble will cause major economic problems.

Just look at bit coin. It currently worth $20,000, no wait $10,000, no wait $17,000, no wait...

Now try to base a functioning economy on a commodity that has wild swings. It can't be done well.

> Who should?

I dunno. Not politicians, not the people who were in the system around the last financial crisis and not their proteges. A local Plumber's Union for all I care, although I'm sure a market could find better alternatives if it were left alone to function. I suppose my assumption is that we should try a new community of people every time the current community causes a trillion dollars in damage. If my plumber caused a trillion dollars in damages I would consider going with a different plumber next time. The current crop of managers who get to decide what the financial system does are the only community of people (apart from politicians, maybe) where there is noncontroversial proof that they are likely to cause a trillion dollars of losses through poor decision making and bad models. When companies muck up that badly people should lose money, not get to drink from a money hose as in '08.

From Wikipedia [0]: September 29, 2008: The House of Representatives rejected the Emergency Economic Stabilization Act of 2008 instituting the $700 billion Troubled Asset Relief Program. In response the Dow Jones dropped 777.68 points, its largest single-day decline.

^ That sort of thing is beyond stupid. That inhibits the capitalist system from properly bankrupting owners and purging incompetent managers. A 700 point market rises for the owners because taxpayers will fix things and all the managers will eventually get a bonus from having a positive impact on stock prices. This is the opposite of free market capitalism, and the fact that it happened over a short timeframe doesn't change its importance to the long term incentive structure of the system.

[0] https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...

Reply on news.ycombinator.com