Predatory lending in the vast majority of developed economies other than the US:
Adjustable rate home mortgages being issued to financially illeterate people without extremely clear and emphasized risks and disclosures.
Same thing with HELOCs.
Vehicles loans with rates over 15%.
… subprime lending basically just is predatory lending that we don’t legally call predatory lending.
Oh and then of course there is the entire system of Private Credit Shadow Banks who issue trillions in loans to all kinds of business entities, who basically aren’t required to do anywhere near the level of accounting rigor or transparency that actual banks do.
Care to explain? I got raised differently and avoid financing like the plague, but I’m coming to the realization that I won’t be able to do that forever.
How do you think it can be a net positive? Your insight might help me cope.
This is a financially naive and reductionist take, approaching financial illiteracy. Applied correctly, financing allows you to preserve liquidity while still leaving funds in accounts with higher returns. Financing also provides a hedge against inflation, e.g. real estate.
Financing also literally causes or just is monetary inflation, in a debt-based fiat currency system.
Those with access to credit leverage it and prosper roughly proportional to their level of credit access, those without access to it pay the inflation tax and suffer.
This is why capitalism has bubble/pop cycles, inherently, systemically, unavoidably.
When your home is functionally your own personal bank, you want home values to keep going up… which necessarily causes less people to be able to afford homes, and in a society based on access to credit being necessary to ‘buy’ a home, this creates and exacerbates a class divide.
(You really haven’t ‘bought’ your home untill you’ve fully paid off the mortgage, untill then you’re more or less doing a complex rent-to-own from the bank.)
Its also why you get ‘too big to fail’ banks and other entities… they have a bunch of bad debt, and if they are forced to actually account for it, well that would mean so many write offs that it would massively decrease the money supply, which is a recession/depression.
The same dynamic is at play with college costs.
More financialized, more loans? Prices go up. Less people can afford college, or in our lovely system where student loans are not dischargeable in bankruptcy, more people become literal debt slaves.
Same dynamic is also at play with vehicles, cars.
… real estate is only a hedge against inflation in a society that is stratifying, becoming more inequitable.
If that’s your inflation hedge strategy, you must understand that mass broad usage of this strategy actively causes the impoverishment of those who can’t afford super-inflating home prices.
Super-inflating home values is the Boomers climbing a ladder, and then once they’re on top of it, constantly pulling that ladder higher, further and further away from the ground, from all their kids.
I literally took out a mortgage to buy my house. That’s financing.
If I lose my job and I’m not able to find another one then the bank will repossess my house, but that doesn’t make my purchase of my house a financially irresponsible decision. The repayments on my mortgage are considerably less than the rent that I used to pay, so I am much better off now than I was previously. Anyway I would have lost my rental had I stopped paying as well, so nothing’s really changed.
Financing is bad at the best of times.
No, it’s not. Financing is a great tool, and used wisely and with knowledge of interest rates and total cost, can elevate you quite a bit in life.
This however is predatory lending, and it should not be used ever.
Predatory lending in the vast majority of developed economies other than the US:
Adjustable rate home mortgages being issued to financially illeterate people without extremely clear and emphasized risks and disclosures.
Same thing with HELOCs.
Vehicles loans with rates over 15%.
… subprime lending basically just is predatory lending that we don’t legally call predatory lending.
Oh and then of course there is the entire system of Private Credit Shadow Banks who issue trillions in loans to all kinds of business entities, who basically aren’t required to do anywhere near the level of accounting rigor or transparency that actual banks do.
We just basically don’t regulate them.
Care to explain? I got raised differently and avoid financing like the plague, but I’m coming to the realization that I won’t be able to do that forever.
How do you think it can be a net positive? Your insight might help me cope.
This is a financially naive and reductionist take, approaching financial illiteracy. Applied correctly, financing allows you to preserve liquidity while still leaving funds in accounts with higher returns. Financing also provides a hedge against inflation, e.g. real estate.
Financing also literally causes or just is monetary inflation, in a debt-based fiat currency system.
Those with access to credit leverage it and prosper roughly proportional to their level of credit access, those without access to it pay the inflation tax and suffer.
This is why capitalism has bubble/pop cycles, inherently, systemically, unavoidably.
When your home is functionally your own personal bank, you want home values to keep going up… which necessarily causes less people to be able to afford homes, and in a society based on access to credit being necessary to ‘buy’ a home, this creates and exacerbates a class divide.
(You really haven’t ‘bought’ your home untill you’ve fully paid off the mortgage, untill then you’re more or less doing a complex rent-to-own from the bank.)
Its also why you get ‘too big to fail’ banks and other entities… they have a bunch of bad debt, and if they are forced to actually account for it, well that would mean so many write offs that it would massively decrease the money supply, which is a recession/depression.
The same dynamic is at play with college costs.
More financialized, more loans? Prices go up. Less people can afford college, or in our lovely system where student loans are not dischargeable in bankruptcy, more people become literal debt slaves.
Same dynamic is also at play with vehicles, cars.
… real estate is only a hedge against inflation in a society that is stratifying, becoming more inequitable.
If that’s your inflation hedge strategy, you must understand that mass broad usage of this strategy actively causes the impoverishment of those who can’t afford super-inflating home prices.
Super-inflating home values is the Boomers climbing a ladder, and then once they’re on top of it, constantly pulling that ladder higher, further and further away from the ground, from all their kids.
I literally took out a mortgage to buy my house. That’s financing.
If I lose my job and I’m not able to find another one then the bank will repossess my house, but that doesn’t make my purchase of my house a financially irresponsible decision. The repayments on my mortgage are considerably less than the rent that I used to pay, so I am much better off now than I was previously. Anyway I would have lost my rental had I stopped paying as well, so nothing’s really changed.