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Comment by ricardobeat | Hacker News Reader

These exact same words could come out of a Brazilian. Word by word. I don't know about Croatia, but in that case they are only half-truths. The idea that there are 'people who pay for everything' is usually misguided. There are the exploited, and the less exploited. Both pay in one way or another, and only a very small elite group is actually well off.

You say "the situation is complicated" and "this is not fair", but how exactly do you think this measure will fail? From a distance it sounds like it would boost the economy by allowing people to prosper, while debt is written off mostly by private entities, not the tax payers directly. Even if it was, it might still be a win.

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The obvious possible failure is that these people may find it hard to get credit in the future, as described in the last paragraph:

> Some economists, among them Baker, are skeptical whether the scheme will succeed: "I am not sure that this is the best way to help low-income people. If lenders think this can happen again they will charge very high interest rates to low-income borrowers," Baker said.

If you were a bank that had just been pressured into forgiving a bunch of loans, how likely would you be to make new loans to the same class of people?

> If you were a bank that had just been pressured into forgiving a bunch of loans, how likely would you be to make new loans to the same class of people?

Considering that many of those loans are predatory in nature, that may not be a bad thing.

Any proof of that? Or are you just assuming that it is similar to payday loans in the US?

agreed, these lowest (if any) income class should stay away from any kind of debts as far as possible. It's a spiral that they've already fallen through at least once

3 years ago, in Cyprus, the reverse happened (savings were cut off) but people still deposit money into their bank accounts without getting increased interest, despite this precedent. Why should a loan writing off cause loan interests to go up?

Exactly because the situation is reversed: the banks are much more likely to be strategic and self preserving than the general public, due to concentration of power and many other factors.

This. Good comment highlighting a super important insight: freshman Ec 10 thinking does not universally apply across all kinds of economic actors.

In trying to apprehend reality as closely as feasible, it will not do to make assumptions like "all actors have constant (or even he same lognormal function describing) marginal utility" or "ignoring transaction costs and taxes."

This is most crucial in understanding behavior in vastly asymmetric situations (e.g. A Croatian making $100 a month vs a bank). Of course, much of our consumer tech industry is founded on this sort of asymmetry, so the concept is not out of reach; yet, we of the technical mindset often are too quick to use the lens of a convenient simplifying abstraction when it comes to political questions of economic incentives...

I hear you, but isnt deposit interest an incentive for the depositor? Doesn't the interest partly reflect the risk the depositor takes? Theory aside, deciding between a bank with such precedent and one without and with equal interests, I don't think anyone would choose the 1st. This alone says something.

While I read tones of rayndianism in Baker's statement (we'd like to help poor people, but without giving them money or incurring in any actual cost ourselves) the statement is factually correct.

Even if we have not had any such bailouts for the underclasses in Mexico, delinquency rates for all sort of credit are so high that the banks have accepted this as the cost of doing business, and passed those costs to the subset of customers that actually care about paying off debt. This is how I still pay ~30% on my credit card after 20 years of solid credit history with the same bank - entry level ones charge ~50%!!! Or how a few years ago there was this brilliant advertising campaign for "the first single-digit mortgage in market" (9.97% or so).

One way it could fail is by having a substantial portion of the same people back in a similar situation within a few years. I don't know how likely that is to happen.

I don't know the exact scenario in Croatia or Brazil; In general, writing off loans sets a bad precedent. People would again take loans, and will want the Govt. to bail them out. I have seen these things happen in India. There were cases people took loans and were waiting for the next election, to get their loans waived off.

How is it that this logic is lost when it comes to cities and corporations that declare bankruptcy? While Detroit may spend a few years having trouble getting good loans I imagine GM (bailed out some years ago) is already able to claim low interest loans. And these are entities that were also bailed out.

I think you answered your own question didn't you? Those companies were 'bailed out'. The government didn't just wipe out their debts by fiat; it gave them money.

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