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A radical but possibly effective solution to recession.

dstebbins

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This may seem a little radical/stupid/extreme/etc., but it just might work, so I hope you will overlook the radical change that this will bring about and think about the good it could bring.

Look back to the history of the United States economy. Almost all of our recessions, and all of our depressions, had a role played in them by the naive people borrowing too much money in the days of easy loans, going bankrupt when the banks demand their money back.

So I have an idea: Limit, by law, the amount of money a person with x credit rating can borrow. Congress can be sure to provide for a person getting a morgage soley for the purpose of buying a needed -- I repeat, needed -- house, buying a car whenever they absolutely need it (and a cheap car at that), and other necessities. A person with bad credit could not get a million dollar loan, no matter what interest they agreed to pay (I always objected to the tradition that people with bad credit get treated to higher interest rates. After all, it's those people who can't afford these rates). We'll also limit the interest rates that a bank can charge a borrower, referring again to the parenthesis.

Think about the good that this radical change could bring: With less debt, we could at least delay recessions and prolong boom periods, if nothing else. Let the debate BEGIN!
 

Kandahar

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Not a good idea. Banks are in business to loan out money, and they know the risks when they do so. Why should the government care if the bank is willing to take the risk with an individual investor? The bank (or other lender) feels that the debtor is a good investment. If you don't have good credit, you aren't going to get a million dollar loan for any amount of interest anyway.
 

dstebbins

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Kandahar said:
Not a good idea. Banks are in business to loan out money, and they know the risks when they do so. Why should the government care if the bank is willing to take the risk with an individual investor? The bank (or other lender) feels that the debtor is a good investment. If you don't have good credit, you aren't going to get a million dollar loan for any amount of interest anyway.
first off, you KNOW what I meant when I said "million dollar loan." Second, the government might care because debt hurts the economy. Maybe it sounds like a bad idea, but that's probably because you see it as too radical. It just might work, even though it will be interfering with the bank's right to business, it might work. After all, if the shoe fits, wear it.
 

Simon W. Moon

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More govt intervention's not the answer.
 

dstebbins

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Simon W. Moon said:
More govt intervention's not the answer.
Did you ever think about why the Senate was created the way it was, with six-year terms and originally chosen by the state legislatures? People are stupid. They don't know what's best for them. That's why the Founding Fathers put the Senate in the Constitution, so the people couldn't force the passage of anarchy through the government.

I've heard the phrase "Violence isn't the answer," before, and I personally find that to be BS. Back in my childhood, in a time when there were child abuse laws, but they were very difficult to enforce because children could not report anything to the law, I was abused by my father. Shortly into my life, I realized "Hey, if I don't obey Daddy, he'll beat me until I'm bloody." and I obeyed him. I never rebelled against my parents in my teenage years like most teens do, because I was afraid of getting whacked over the head with a welding rod. Violence works. When you say violence isn't the answer, that's a bald-faced lie.
 

128shot

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dstebbins said:
Did you ever think about why the Senate was created the way it was, with six-year terms and originally chosen by the state legislatures? People are stupid. They don't know what's best for them. That's why the Founding Fathers put the Senate in the Constitution, so the people couldn't force the passage of anarchy through the government.

I've heard the phrase "Violence isn't the answer," before, and I personally find that to be BS. Back in my childhood, in a time when there were child abuse laws, but they were very difficult to enforce because children could not report anything to the law, I was abused by my father. Shortly into my life, I realized "Hey, if I don't obey Daddy, he'll beat me until I'm bloody." and I obeyed him. I never rebelled against my parents in my teenage years like most teens do, because I was afraid of getting whacked over the head with a welding rod. Violence works. When you say violence isn't the answer, that's a bald-faced lie.

thats sad


violence wouldn't do anything in my childhood-no matter how it was.


what you are basically purposing is that dictatorship is good because people are dumb, and I would agree if history did.
 

dstebbins

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128shot said:
thats sad
:mrgreen:


violence wouldn't do anything in my childhood-no matter how it was.
That's what they all say. I'm not saying that the violence itself was good. I'm saying that the respect he got out of the intimidation was good.


what you are basically purposing is that dictatorship is good because people are dumb, and I would agree if history did.
yeah. Pretty much.
 

Kandahar

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dstebbins said:
first off, you KNOW what I meant when I said "million dollar loan." Second, the government might care because debt hurts the economy. Maybe it sounds like a bad idea, but that's probably because you see it as too radical. It just might work, even though it will be interfering with the bank's right to business, it might work. After all, if the shoe fits, wear it.
If individuals or businesses can't figure out how to make good debt investments, what makes you think the government can? At least the businesses and individuals are held accountable; if they mess up, they'll lose money and will be less likely to make the same mistake again. Government has no such reason for efficiency.

You say that individuals are too dumb to make decisions for themselves, and that may be true to a certain degree. However, you make an erroneous logical leap when you say that the government (a collection of individuals) can make their decisions more intelligently for them. A person might not always be rational, but a large bureaucracy is irrational even more often.
 

Simon W. Moon

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dstebbins said:
People are stupid. They don't know what's best for them.
And the government's composed of what - extraterrestrials?
As much as I loath to admit it, last I checked politicians are people too.

dstebbins said:
I've heard the ... bald-faced lie.
Well, you have my pity. Let's stick to the debate and save the personal anecdotes for some other thread.
 
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Government intervention is not what is needed. What is needed is for bank managers to start to look at the loans that they are giving out......

I'm talking about this from an Australian prersepctive, but maybe this is happening in the U.S.A too...

Anyway, my boss at work is a former merchant banker, and is very money savy, and seems to be generally in the know with what is happening in financial world. At the moment he does a lot of online share trading.

A few months ago he told me that he had sold all of his shares in Banks, and finacial institutions. Many of the clientel at the the restaurant that I work at, are actually Melbourne's movers and shakers in the banking industry. Anway my bosse's analysis of the current banking situation, and from talking to customers in the know, was that Banks in Australia were taking very large risks.

Apparently in the interests if generating greater profits, bank managers were approving loans, and finance deals to people that clearly won't have the ability to pay off the loans if interest rates rises. My boss and others had come to the conclusion that the Aussie banks could get into to deep trouble if interest rates rise a few notches, because they had lent so much money to customers that were high risk.

Now if interest rates rise in Australia, there could be a large correction in the Banking sector, and the banks that were more vigilent with their lending policies will most likely survive any big shake up in the banking sector.

So it seems that even though customers in Australia and the U.S are addicted to debt, bank managers seem more than happy to lend money to people, especially to high risk customers that may not be able to service the loans in the case of several interest rate rises.

Moral of the story. If interest rates rise the banks that were not vigilent with their money will go to the wall, whilst the banks that maintained the borrowing criteria for customers will survive. Therefore the banks that do the right thing, by limiting unnecessisary lending will survive. So there is no need for government intervention.
 
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