Certainly debt is good.
By Daniel at 11 December, 2009, 10:19 am
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In business debt is great as long as you are meeting your targeted IRR and keep your risk within tolerance (oops the banks kind of forgot the second part). And of course, in a fiat system there would be no money without debt. So aren’t we asking if money is good?
Debt is useful as long as both parties can realistically expect that the loan will be repaid.
Many credit cards, home equity lines of credit, 2nd mortgages that were issued leading up to the credit crisis didn’t meet this test. Where real estate was used as collateral, the parties agreed that as long as there was 110 cents in the dollar they would split the extra dime, if that didn’t work out, see you in court and here are the keys.
For credit cards the sad fact is that many issuers don’t care if they get principal back - the interest when combined with late fees and penalties gives them a semi-permanent claim on every paycheck the borrower receives. It’s usury, immoral, unethical, and at one time illegal.
As a practical matter the consumer debtor who is sufficiently enmeshed in this scheme is no longer a consumer - his creditors have a claim on every cent he makes. So excess granting of credit stifles consumption.
Those of us who have the good fortune or good judgment to avoid personal entanglement in the debt morass are still victimized by the usurious practices of financiers because they create the boom/bust cycle that destroys value for everyone.
We had laws against usury, and regulatory procedures to enforce prudent lending. These laws and procedures can be reinstated so we don’t have to go through any more of this bullshit. The problem is these people who figured out a way that there was 110 cents in the dollar have managed to get the extra dime out of the taxpayer’s pocket.
- Tom Armistead
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