Hi, croat here. Just one detail, this year there will be elections in Croatia and current gov didn't do anything useful for our economy, so this is kind of popular measure. Don't get me wrong, it's always nice to help, but situation is little bit complicated, taxes are very high and in some way this is not fair to people that are paying everything. Also, there are huge number of people living and exploiting social measures, so ... In this context it's impossible to help those who really need help.
You know what is the saddest part? Opposition party (conservatives that ruled from 2007-2011) is convicted for criminality and they are atm most popular, so for common and independent people there is no light at the end of the tunnel. If someone can solve this chaos he/she will be candidate for Nobel's price.
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.
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.
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
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).
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.
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.
I think most people use the concept of being for or against "Freedom" to refer to the opposite sides of the bottom-up versus top-down modes of economic development and governance.
Certainly, it's an over-generalization, and the word freedom is used specifically to evoke an emotional response, but I don't think it's devoid of meaning.
An unfortunate side-effect of having a democracy with 300 million plus people in it, is that to a certain extent these sort of over-generalizations are a necessary part of coalition building.
Not sure what you mean by a bottom up government but the buzzwords are flowing I'm assuming it involves something along the lines of privatizating everything.
Your comment made me realize a more appropriate title would be :
"Current croatian government cancels poor citizen's debts one year before election".
But that would probably cast a VERY different light on the event. The original intent was probably to give the (positive i guess) impression that the greek trend of not paying debts is spreading.
And applied to regular people, it's already been quite legally enshrined in the U.S. for a long time. The U.S. has forgiving bankruptcy laws (which are incidentally often partially credited for its entrepreneurial culture). Croatia doesn't, so debts are hard to discharge. In a system with a forgiving bankruptcy system, this kind of one-time amnesty wouldn't be necessary, because someone who has no assets, very low income, and high debt would simply declare bankruptcy and have the debt discharged.
Which ones? I know you're not talking about TARP because that was paid back, and the government even made a profit. So what is it you are referring to?
Debt cancellation indeed has always existed, greeks just bringed it to another level, with their magic combo : fraud the state's accountings, get as much as you can from the eurozone before the crisis, get as much as you can from other european countries after the crisis, and then 2 years later when things start to stabilize, declare unilaterally that you're not going to reemburse people, and party in the streets over that decision.
At least US banks had the decency to not laugh about it publicly.
Geesh. I'm no Greek and not fond of Syriza, but god damn, the brainwashing is strong here.
a) fraud the state's accountings: True, but the difference was minimal (2.7% or so to 3.07%, and by fraud you mean they accounted for the expenses on arrival and not when ordering, not cook your books). Also, this was well known by all the other countries and none of them made a peep at the time
b) get as many as you can before the crisis from banks that (correctly) assumed they would get their money anyway.
c) get as much as you can from european countries after the crisis to pay the mostly German and French banks what they have loaned before, moving private debt to the hand of the tax payer (of the 250b, only about 27 billion were for greek gov. usage and all the rest was for debt payment/interest/etc [1])
d) they never said they won't pay, they just want to change terms and not just keep getting more and more indebted to foreign institutions that through their mandate are actually 'ruling' the countries.
Again, no fan of Syriza, but enough is enough. Folks in Greece (and Portugal and Spain) are in a very bad shape, poverty is up and the only thing the troika cares is about the deficit reduction and nothing else.
This post has no connection with reality, I have no clue why it's upvoted.
a) Regarding the state accounting fraud: first of all, using the past tense ("was") is misleading. As of last year, Greece was still cooking its books[0]. It remains to be seen if they have actually stopped.
You say the difference was minimal. When? When they brought in Georgiou to fix the Greek statistics service, the 2009 deficit was revised from 3.7% to 15.8%. The reaction of the government? Prosecute the guy because he refused to continue lying.[1]
b) You say banks correctly assumed they would get their money. This is nonsense. The banks lost nearly 80% of the value of their loans in the "PSI".[2] The word you're looking for is "incorrectly". They screwed up and paid dearly for it.
c) Pure nonsense. I have no clue where you're getting that from but it doesn't even deserve a response.
d) The troika has zero power when it comes to "ruling" Greece. How do you think Greece has been able to completely avoid structural reforms and pro-growth measures for 5 years now, if the troika is ruling the country? Almost none of the reforms the troika asked for in exchange for the loans have been implemented.
Your response is hyperbolic. I also think you seem to have misunderstood (c), which is simply stating what has happened: 1) most debt are owed to French and German banks, and in order to pay them 2) the country prioritized these repayments over all else which 3) tanked the Greek economy and made all this private debt the taxpayer's problem; 4) 250b is the amount Greece received and its government financed are about 20b.
d) the troika seems to have the power to destroy the Greek economy by demanding repayments, which until now has worked because the Greek government itself did as the troika demanded. If that's not power I don't know what is. It's certainly not "zero" power.
a) you are right. I was only referring to the pre-euro accounting. Sorry if I didn't make myself clear.
b+c) I don't know the exact figure, but if I remember correctly, private loses were about 20% only.
"One estimate is that Greece actually subscribed to €156bn worth of new debt in order to get €206bn worth of old debt to be written off, meaning the trumpeted write-down of €110bn by the banks and others is more than double the true figure of €50bn that was truly written off. Taxpayers are now liable for more than 80% of Greece's debt.[219] James Mackintosh, Investment Editor at the Financial Times, noted a JPMorgan Chase estimate that "only €15bn of €410bn total 'aid' to Greece" actually went into the country's economy, the rest having been handed over to its creditors. " [1]
d) Yes, they can't 'force' any government to do as they say, but if they don't, they don't give them the money they need. They aren't open to negotiating at all. They want the gov. to sell profitable businesses and to reduce social spending. That is their 'sensible' way to deal with the issue. I don't have first hand experience of what they did in Greece, but if what they tried to do in Portugal is any indication, it was a loser's game from the start. They didn't care about economic recovery or sustainable growth. No, they were repo men trying to get as much of the money back as possible. Which is fine, it's their job and the countries accepted the money, but then, not for one second please tell me how these countries are lazy and spenders, and the damn hard worker Northern brethren has to act like a parent. Let's not forget Germany were one of the first countries to go over the 3% deficit target and got scot free through political pressure [2] [3]
Would you be happy if the your country lend them your taxes money, knowing that they decide the loan terms, not knowing when and if they will pay you back?
The foreign taxpayer is paying loans to the greek taxpayer, who is paying taxes to the greek government, who is repaying debt of private greek companies(mostly banks), who are repaiing debt to foreign private companies(mostly banks), who ignored or sidetracked the Basel treaty that clearly stated who can get loans or not. Deutsche Bank was one of the most hard hit from bad loans.[1]
The german media is misrepresenting their request for debt cancellation of private losses, by saying that german taxpayers would have to pay them instead, which ofcourse nobody said that but certain german politicians. (and I would not use spiegel as a credible source).
[1] http://www.forbes.com/sites/kylesmith/2011/09/28/book-review...
"When Goldman Sachs helped the New York hedge fund manager John Paulson design a bond to bet against — a bond that Paulson hoped would fail — the buyer on the other side was a German bank. Iceland, Ireland, Greece — all of their profligacy came from Germany."
But it did didn't it? It's close to 1am here so too tired for sources, but if I'm not mistaken, every country in the Eurozone contributed to the bailout in a certain proportion. Not sure how the IMF works, but I would assume something like that?
Again, no sources, but if I'm not mistaken, Germany is making a profit on these loans, as they can borrow at a very reduced (even negative) rate and lend that money to Greece.
Thanks for bringing a bit of reality check to the previous poster.
Now i would disagree a bit with you on d) : The only power the troika had was that the greek government needed to get regular loans to repay part of the interests of their huge debt and the salaries of the greek state workers. That did give the troika the power to keep a bit of pressure on the greek government and ensure it will keep reforming the country a bit.
And the reforms started to work, because now the greek budget is balanced enough for the state to be able to pay their workers without the need for additional loans from the EU.
Unfortunately, it means now that the greeks can effectively say FU to the european troika if they plan on stopping to repay their debt, without risking an internal chaos.
The only persons that will effectively have a hole in their budget as a result are the other EU states (states and not banks, meaning citizens), mostly french and germans.
> a) fraud the state's accountings: True, but the difference was minimal (2.7% or so to 3.07% ...
Interested to know where those figures are from and how reliable they are. 2.7 % to 3.07 % is not exactly minimal (one seventh higher than target) but I agree that is not yet huge.
However, reports have indicated far higher actual deficits [0]:
"Greece estimated its 2009 deficit would be 12.5 per cent of gross domestic product, far above 3.7 per cent predicted in April. It revised its 2008 deficit up to 7.7 per cent from 5 per cent."
I don't agree that the troika would only care "about the deficit reduction and nothing else." I think a lot of people are trying to think how to do things without hurting the Greek people, but on the other hand, when money runs out, the money runs out. People who do pay their taxes - that are far higher than in Greece - are fed up, and that is going to show up in the upcoming elections, too.
There are various reasons, and I never said that it wasn't their fault they got into this mess. But lets not pretend it was ALL their fault.
But independently of whose fault it is, there are two options:
a) try to get to an agreement that can get Greece back into shape, even if it means postpone debt payments, restructuring, haircut, etc where it is beneficial for all parties
b) continue to blame them for this situation and use every opportunity to punish them with more and more austerity measures while 'feeling good' about dishing out the punishment and calling them 'lazy greeks'
Also, pre-crisis, the greek debt wasn't that bad (high, but stable) [1] compared to other countries. Spain and Portugal also had levels similar to Germany until 2008, which is interesting since it was at this time that the EU stimulus plan came to effect [2] and if you see the measures, some could say it benefitted German and French industries (cars and green tech)
> a) try to get to an agreement that can get Greece back into shape, even if it means postpone debt payments, restructuring, haircut, etc where it is beneficial for all parties
And that is what has been tried. Debt payment has been postponed a lot, there' been plenty of debt restructuring. Still, that is what Syriza now does not want to do.
Greeks are still paying less taxes (in proportion to their national income) than anyone else in the eurozone (except Lithuania, who adopted euro one month ago).
I honestly don't know about Greece, but I can tell you that graph is very wrong in so many levels. For example, Sweden is at 44.5%, but they count all money paid as taxes (according to a Deloitte report I was given when I had a job offer there, I can try to dig it up if needed) including what will go to social security/retirement/etc. In Portugal, you pay income tax (let's say around 20% give or take), but then, you as an employee pay 11.5% to social security and your employer pays 22.5%. So roughly, 34.5% to social security alone, but this doesn't go to the 'tax revenue' bracket. So, if we take in account corporation tax at 23% (lower in 2015), VAT at 23% for most stuff (including electricity!!), and income tax (variable between 14 and almost 50%), + social security, that 33.1% is way off. In 2012, a person in Portugal would have to work until August to have his 'taxes paid'. This means, more than 60% of his work output is taxes one way or the other.
No, I did not look at that picture; data is much more easy to handle in text format. I looked two days ago at Wikipedia [0], but primary source should actually be Eurostat [1].
And you are of course right in that different countries have different systems, and numbers are not always directly comparable. A small difference is not necessarily significant, or there may be quite some difference in practice even if numbers are the same.
But if we look at those Eurostat numbers, what the paper says is Total revenue from taxes and compulsory social contributions - % of GDP so also for Portugal and Greece, those mandatory social security contributions of employer and employee are included as tax revenues in this comparison, like they are for Sweden.
What is significant is that the employment rate of people varies a lot in different countries; it is 73-74 % in Sweden, Netherlands and Germany, while it is below 50 % in Croatia and Greece.
It should also be noted that tax revenue to GDP is just a ratio, a number. It does not mean that taxes are a certain proportion of GDP, because a sum of all tax revenues is not a component of GDP.
Interestingly, in Portugal this ratio actually dropped from 33.2 % to 32.4 % between 2011-2012. Most countries were tightening taxes at that time. But since this number is ratio to GDP, if GDP increases and tax revenue stays the same, the ratio drops.
Hi! This is late but I seem to have missed your reply but didn't want not to reply to it :)
In any case, you are probably right and it includes all taxes, including Social Security and the likes. I just find it odd, that at least on normal people's taxes (income tax + social security + VAT) the numbers don't add up. Maybe GDP in Portugal is generated a lot by non individuals (corporate, where tax is around a fixed 23%) and the income gap is quite large giving out those percentages?
I know I'm on the top percentile tax wise, but my tax percentage, if we include VAT is close to 60% (I bill through my own company, so I'm responsible for all tax). When I was working for a third party circa 2010, it was around 45% or so. Not doubting your figures at all, they may even bring to light the actual problem which is, normal folks actually pay a lot of the countries taxes (so, not exactly lazy, which was my main point a few posts ago) but a lot of the elite is syphoning the money somehow. There is a reason our former prime minister is in jail (preventive, sorta like pre-bail) for corruption charges, like most of our politicians, they seem to be able to get very rich in short amount of time while having very small tax declarations.
you can negotiate the option to pay the debt in 30 years and avoid shutting down public healthcare, or you can fire a million people and try to pay it in 3 years.
The common feeling is that the "shock cure" has not been effective in any way, cause it in turn has caused a spiraling recession.
I'm not defending either position, but it's something that has been debated ad nauseam.
Also consider that a lot of the policies post 2008 have been influenced by the "expansionary austerity" thing that has been proven to be effectively bonkers.
> you can negotiate the option to pay the debt in 30 years
The Greek repayment schedule has already been negotiated to extend to 2054. That is in 40 years.
I would say that if Greece can't handle a debt in 40 years, we can forget about it.
(With the Greek history, that is. Elsewhere there are longer debts; in Sweden, a mortgage for a house may be amortized in 100 years - but it can be handled because people pay what's due).
yes, but that doesn't change the fact that the croatian government would have persuaded/forced the banks to cancel the debt, it's not the people with a loan who decided not to pay.
Well, then you must agree it's neither the side in debt neither the side who's supposed to get the money that decided to cancel the debt. Which leaves that situation in a very very weird place.
I would say, the government probably expect citizen that got their debt cancelled to vote for them in return (and they'll probably do, because those tricks unfortunately always work). Which makes them both a bit on the same "side" of the transaction.
Actually, this law was proposed way before the elections in Greece were held, so it wasn't related in any way.. except that Croatia and Greece are in a similar positions debt wise, so similar political moves can be expected
To be fair a portion of the Greek government has been arguing - quite publicly - for debt forgiveness for a long time. That didn't begin with the Greek elections.
Doesn't seem so: Croatia's tax to GDP ratio is 26.6 %. Compare that to 46.8 % in Belgium, 43.4 % in Austria, 40.6 % in Germany, 45.8 % in Sweden. 26.9 % in U.S. which is internationally known as a low-tax regime.
Surely some taxes are high, and taxation is not necessarily fair, but I'd say that Croatia's taxes overall are not high. I would also expect that the "black market" GDP is higher there than in "old" EU countries, say Germany or even France, or the U.S. Though I admit this is mostly based on just prejudice.
The US is not regarded internationally as a low tax economy, it's regarded as a medium tax economy. There are about 110 countries with lower tax takes per GDP than the US.
Singapore (14% of GDP) and Hong Kong (13% of GDP) are low tax economies.
Japan and Australia are similar to the US, and are not considered low tax countries. The US and Japan also share the distinction of having among the highest corporate tax rates on earth.
You are right, but in comparison to European countries, U.S. taxes are low. There's only one European country (Lithuania) where tax per GDP is clearly lower than U.S.
E.g. in Scandinavia, the horrors of U.S. are attributed to its "extremy low" tax status. Horrors like that rich people only live in compounds surrounded by walls and armed guards, and the poor are dying because of no health care and no food, and the middle class does not exist. Yes, I know it sounds rather extreme but this is common rhetoric in countries where the tax rates are >40%.
"Horrors like that rich people only live in compounds surrounded by walls and armed guards, and the poor are dying because of no health care and no food, and the middle class does not exist."
The poor have essentially universal free healthcare in the US and have for a long time. I should know, I've used it before, and it's very easy to use. The poor also have the benefit of the one of the largest welfare states on earth, including the largest food and subsidized housing programs.
The US has the world's largest true middle class, with a median income among the highest of any country. A mere 1% of US labor earns the minimum wage, and the majority of those people are below the age of 25. The US also has a higher labor force participation rate than nearly all of Europe - while simultaneously having a high median income.
The US has a lower unemployment rate than: Sweden, Finland, Denmark, the Netherlands, Belgium, France, United Kingdom, Spain, Portugal, Greece.
And while Europe rolls around in a near depression, with Europe's GDP still at 2007 levels (since 2007 the US has added $3.5 trillion to its GDP) and high unemployment, US wages are expanding at the fastest pace in a decade, while unemployment keeps falling, which will drive even faster wage growth in the next few years.
I'm talking about rhetoric that's used, particularly in the countries you mentioned in the unemployment list. I didn't say I believe the rhetoric. I just say that elections are never far away, and that kind of talk - how bad the U.S. is - gets votes.
>A mere 1% of US labor earns the minimum wage
Would you mind citing your source for this? It seems to me you could claim anyone making ≥$7.26 per hour - even part time workers - as "not earning minimum wage," a metric that is not particularly encouraging given the cost of living exceeds even the earnings of a person making that for 40 hours a week in most places - nevermind that people making around this wage are often kept below the number of hours that triggers mandated benefits.
My b.s. meter is tingling at a lot of what you said (enough that on reddit I'd accuse you of being a shill), but you're being blatantly disingenuous about healthcare. It's true that emergency rooms won't turn anyone away (and maybe you bailed on the resultant bill as a "poor" college student), but Medicaid does nothing for most and even for those who qualify it gives nothing in the way of preventative care.
Medicaid does nothing for most and even for those who qualify it gives nothing in the way of preventative care
What? That's patently false. Medicaid provides access to a wide range of providers and requires almost no financial contribution (you get a prescription filled and it's $3-5; if you can't pay it's free).
As for preventative care, it's actually a focus of Medicaid! There are numerous programs offered that provide preventative care for pregnant women and children. [1]
The ACA just increased Medicaid eligibility to 133% of the Federal Poverty Level (~$40K for a family of 4). I would argue that's a pretty reasonable cutoff for those in need.
I don't think you know what the word "political" means. You can't just use it as a term for people who uncritically spew whatever bullshit they were fed out their mouth hole.
>The US and Japan also share the distinction of having among the highest corporate tax rates on earth.
This is an often-repeated myth that doesn't hold up when you consider the tax breaks afforded to corporations in the U.S.
The corporate tax rate is high in number, but when you factor in exemptions, the U.S. is quite competitive in this regard. Reuters reported in 2013 that corporations utilized $180B in tax breaks. [0]
The U.S. is known as a low tax regime? They have among the highest corporate taxes in the world. Taxation as a percentage of GDP is not a good measure because that doesn't address the tax burden as a percentage of income, but as a percentage of GDP. That also doesn't measure the value received for the tax burden endured. As an extreme example, if you are receiving value from those taxes (perhaps education or public transport,) then you would pay less out of pocket for those services. However if you had a low tax rate but we're required to pay for everything directly (such as paying for education,) then the real value of those taxes to the citizen is much less. So at the end of the day, you may pay lower tax, but you spend more because those taxes aren't delivering value. The raw ratio is meaningless; the value derived per dollar is much more meaningful.
And yes, the Baltics do have a bad ratio of taxes collected, versus value received.
Yes, value derived per dollar is meaningful, but it is rather difficult to measure reliably. A lot depends on how much corruption there is.
However, I'd claim taxes in proportion to GDP are a fairly good indicator of taxes in proportion to income, because income and GDP are strongly related. In fact, one way to define GDP is "the sum of primary incomes distributed by resident producer units" and the same number may be called GDI, "gross domestic income".
> The U.S. is known as a low tax regime? They have among the highest corporate taxes in the world.
Nominally, yes, but the effective corporate tax rate is much lower [1]. US income tax is at the low end for the developed world, too (both nominal and effective).
VAT hurts, but not as much as taxing income. People do not like consumption taxes, but even with high VAT, they still consume, while taxing employment or corporate incomes hurts economies more because they have a stronger impact on economic activity.
Land value tax would be even better, because the land does not run away or stop working. How's that in Greece?
VAT is easier to "cheat" than income tax. Just don't buy stuff in your own country.
Land Value tax makes the rich pay a lot but hits the poorest really hard since the threshold to owning land (and creating wealth) is substantially raised.
> Land Value tax makes the rich pay a lot but hits the poorest really hard since the threshold to owning land (and creating wealth) is substantially raised.
That seems a bizarre statement. Firstly I don't see any connection between owning land and creating wealth. Secondly taxing land value is a deterrent to land ownership and should reduce the desirability of owning land and reduce the price of land. This will make it more cheaply available to productive use and reduce the incentive to hoard land unproductively. Finally the poorest cannot afford to own land anyway so are not affected by the land taxes.
Have I missed something?
BTW I largely agree about cheating VAT especially in a small country with neighbouring countries that can be cheaply visited.
What I'm trying to say is that social mobility will be severely stunted.
We can agree that the reason for owning land is to make money, yes? Planting crops would take a couple of months to return the initial investment. If I planted a forest it could take years.
If this investment possibility is removed from everyone without (massive amounts of, if the tax is high enough) capital it's going to create a further wealth gap for no apparent reason.
> Finally the poorest cannot afford to own land anyway so are not affected by the land taxes.
Yes, this is true for the poorest, bad phrasing on my part, but it is going to make the barrier of entry higher.
Also: land produces goods that everyone need the same amount of (food, wood, wool), this would increase prices in a way that wouldn't really bother the capital heavy but would seriously hurt the already poor.
Land can make money purely by rising value over time so people can speculate by owning land. There may be little incentive to actually use the land.
The ROI on a forest takes years whether or not the land value is taxed. You also said earlier that it was a tax on land value so presumably much lower for forestry land than urban land.
The primary impact of a land value tax is likely to be on the price of land itself because land will be less profitable. Introduction or increase will hurt those who own land (and its abolition would benefit land owners).
If we assume that the cost of access to land (rent) is set by the free market then we can assume that demand is essentially unchanged and the supply of land would if anything be increased (if some speculators sell or start to rent out their land) so access to land for the less wealthy should be cheaper.
I think your assumption that ownership is the way that less wealthy access land is fundamentally wrong. I think that this will also apply to the effect on prices of things made on the land on which I expect little impact (although there may be side effects on the rental market that make this more complicated).
Taxes really are quite high - not sure how good of an indicator for this is tax to GDP ratio though.
A lot of the people frequenting HN are (usually) well off IT workers - so I find the following list quite telling - it shows an effective income tax and social security rates on USD $100,000 of gross income (based on KPMG 2012 global tax rate survey): http://imgur.com/MUZlz
This is informative, even though we should remember that comparisons can be very difficult across different systems (for instance, does our IT worker have a spouse and children, and is there a child deduction in taxation, and what else there is in childrens' services and benefits).
Usually different comparisons concentrate on "average" workers, i.e. lower income.
Don't apologize. Your English far outclasses my Croatian. Interesting, from what you write it seems as though Croatia is dominated by a two-party system, like here in the U.S. Is that true?
We have a multiparty system, but highly polarised society (reminiscent of your cultural war in the US) which results in two dominant parties, although we have all the infrastructure needed for pluralist democracy.
What you are describing is happening and has happened for decades in many countries and at different levels: Governments with failed philosophies buy votes en-masse from various numerically large groups of people by (a) pretending to be aligned with their interests and, (b), gift-giving to that group.
I think it is fair to say this is now happening along the entire American continent, from Argentina to the USA. I know nothing about Canadian politics so I can't comment.
The framework is the same everywhere: Socialist or socialist-leaning ideology coupled with failing policies. If you truly study history from, say, Evita Peron in Argentina to Obama in the USA the parallels are scary. It's almost like they study each other's techniques and replicate them across time and space.
Of course, this makes sense. Politics responds to evolutionary forces. It is easy to see that "survival of the fittest" converged on a solution that swaps favors to the masses for votes. The only thing that matters is the survival of the organism, in this case a politician and the party they are associated with.
Of course, what happens to the masses and the ecosytem within which they live (the country) is of no importance to the organism aiming to survive (politician and party). Again, Argentina is a perfect example of killing the host or the environment in exchange for the survival of the political species. The country goes to hell but the politicians live it up. Same in the US where not one of our populist politicians has to live by the very rules they push on us. For example, Obama and his daughters will never have to worry about healthcare because they exist on a plane far above ours.
Humanity has to come up with a way to prevent political actors from manipulating the masses for their own gains. Easier said than done.
Hmm. Perhaps the line can be drawn a little closer to the truth, but i'm happy with the bias toward false negatives over false positives.
In death penalty cases, when you'd expect the justice system to work its absolute best, 5% were overturned when DNA evidence became reliable. 1 in 20 on they way to die because of false positives.
Cynic in me would say that if we jailed all top-tier politicians, we'd have less than 5% false positives. I honestly don't believe that in an established democracy (as opposed to freshly formed) you can get to the level of a minister or above without doing something illegal or immoral. The dynamics of the system clearly shows that.
Yeah... the thing is, some of us have had a higher standard than that for generations and are now being sucked into the abyss of corruption under the flag of the EU.
The article says the government "convinced" banks and other companies to cancel the debts, but the lenders will not be compensated. It's left as an exercise to imagine how the lenders were convinced.
I can see the benefits of getting a large number of people out of what must be a terrible situation - the numbers suggest most of the people affected probably didn't have enough income to even service their debt.
But I wonder how this will affect the ability of non-elites to borrow in the future. Although we all like to hate our financial institutions, they really have been an incredible force against class structures over the last 100 years or so, allowing the middle class to own property, start businesses, etc, by gradually extending credit to more and more people. (I recognize it's not been perfect <coughsubprime>.) Reverting to a situation where only the rich and connected can get loans would be a negative consequence. I hope the government of Croatia can counter that.
> But I wonder how this will affect the ability of non-elites to borrow in the future. Although we all like to hate our financial institutions, they really have been an incredible force against class structures over the last 100 years or so, allowing the middle class to own property, start businesses, etc, by gradually extending credit to more and more people. (I recognize it's not been perfect <coughsubprime>.) Reverting to a situation where only the rich and connected can get loans would be a negative consequence. I hope the government of Croatia can counter that.
I have the opposite reading of history. Mortgages have been a force of social stagnation in the developed world[1].
What mortgages have done is create lots of middle class property owners. These people have a strong interest in keeping property prices high. Politicians are only too happy to oblige them.
Thus society has bifurcated into the "have houses" and the "have nots". The middle classes throw their weight around to prevent new houses being built, as every new house decreases the price of the houses around it.
Unlike the developing world, the developed world is perfectly capable of building a house for every man, woman and child. If it did, poverty would all but disappear; it's hard to be poor when you have your own house.
But the financial institutions have tied enough of the population into mortgages and home ownership that developed world poverty cannot be eradicated without a serious amount of middle class hurt.
[1] (I can only speak for the UK but I guess Croatia, like all countries, will end up in this situation eventually)
> Unlike the developing world, the developed world is perfectly capable of building a house for every man, woman and child. If it did, poverty would all but disappear; it's hard to be poor when you have your own house.
> The top countries by home ownership are Romania, Lithuania and Hungary, while UK and US are in the 33st/34th position and Germany/Switzerland 10 positions
That has very little to do with the question. Housing costs the same amount to construct whether it's rented as apartments or sold as condominiums and the amount people are paying in rent is generally sufficient for the owner of the apartment to turn a profit.
The problem is they can't afford to buy the housing they're living in and the mortgage interest tax deduction only makes it worse. The reason renters can't buy is that they have bad credit and no down payment. The tax deduction doesn't change that, but what it does is cause the people who can get a mortgage to bid up housing prices. Higher prices requires people at the margin to have a higher down payment, which pushes them back into renting. Meanwhile higher home prices put upward pressure on rents because renters have to pay enough to overcome the landlord's opportunity cost of converting many small apartments into fewer large condos. The higher rents make it again harder for people at the margin to save a down payment, pushing them further away from home ownership.
Then the people who have paid $250K for a house that should be worth $150K realize that the price of that asset has an unduly large consequence for their net worth, so they push to eliminate high density housing and do everything possible to increase housing prices. After that the house that should have cost $150K costs $450K and the idea of doing anything to reduce housing prices is very politically unpopular indeed.
Making housing affordable is easy: Subsidize the construction of high density housing and penalize destroying existing high density housing without replacing it. "Make housing more affordable" is literally the same thing as "lower housing prices." Increase the supply, price goes down, more people can afford it. Meanwhile middle class people invest more of their money in economically productive activities rather than housing speculation.
> The reason renters can't buy is that they have bad credit and no down payment.
At least over here, the reason is not bad credit nor need for down payment. The reason is that they do not have enough regular, stable income.
Their rents are subsidized, but the same subsidy is not available for buying property. Which does make some sense, of course.
> Making housing affordable is easy: Subsidize the construction of high density housing
No. Generally, in European countries and areas with high demand for housing, subsidizing construction is not necessary, and could be counter-productive. Making land available for construction is enough.
In areas of high demand, housing is much more expensive than construction cost, and that is because there is more demand than there is supply. And in areas where there is shortage of housing, supply is limited not by inability to construct, but by unavailability of plots to build.
Give me some land, and I can build a house myself.
> Their rents are subsidized, but the same subsidy is not available for buying property.
That's just a whole different brand of stupidity. If you're going to subsidize people, just give them the money and let people decide whether it's more important that they pay rent or buy a house or live with parents and go to college etc. Central planning bureaucrats are going to get it wrong nine times out of ten.
> Generally, in European countries and areas with high demand for housing, subsidizing construction is not necessary, and could be counter-productive. Making land available for construction is enough.
What land? You can't make land. There is plenty of land in the middle of the desert or the tundra but nobody wants to live there. What you need is to find some old two story apartments in places where people actually want to live and put twelve story condos there instead. Or in bigger cities, replace the twelve story buildings with fifty story ones.
You don't even need subsidies. That is what the market would do naturally when housing is expensive, the problem is local governments actively interfere with it. Existing residents don't want the homes they already own to go down in value when the housing supply increases, so they throw up a bunch of zoning regulations that de facto prohibit the construction of high density housing.
As to making bigger houses, you're quite right, but that's another aspect of "making land available". The land is there, zoning or lack of building permit does not allow developing it.
notice that ex-warsaw-pact countries all have high home ownership due to having expropriated property and having had large "social building" projects (which also lead to some horrible places though).
> Unlike the developing world, the developed world is perfectly capable of building a house for every man, woman and child.
The trick isn't building n houses. It's building n houses where people actually want to live. Oh, and also the bit where the houses should be of the kind people actually want to live in. The UK, as you are no doubt aware, but for quite understandable reasons you neglected to mention, ran with pretty much exactly that idea in the decades following WWII. To the extent that solved anything, it was in a strictly numerical sense.
> If it did, poverty would all but disappear; it's hard to be poor when you have your own house.
I disagree. It's not so much a case of having, as a case of owing, a lot of money. Direct experience from my own family, it's really really easy to make yourself poor when you have a mortgage - because you can remortgage. And way too many predatory lenders are more than happy to let you do that until you owe more than the value of your house. Having a house makes it easy to borrow too much because you have an asset you can leverage and that way too many predators will let you leverage terribly.
I agree with your comment in general, it seems reasonable - and I'm sure things would be better if everyone had their own house. But that wouldn't stop people being poor, not if their house came with tens of thousands of debt and they could leverage it to borrow more.
>Thus society has bifurcated into the "have houses" and the "have nots".
I don't think this applies as much in the US.
A house that would cost $20,000,000 in Manhattan might cost $20,000 in Tennessee. Owning a house isn't a very good measure of wealth in the US, because almost anyone can do it.
In the United States, there is a huge difference between owning your house outright and through a mortgage. As a leveraged investment, homeowners are more home speculators, requiring ever increasing values to be profitable.
Up until the last decade, this had been a great engine of wealth creation for the middle class.
> The middle classes throw their weight around to prevent new houses being built
Most middle- class folk I know are too busy cutting expenses to clear their mortgage sooner than to care about the ability of other people to buy houses.
Why would they care? You pay off your mortgage and you're done.
Paying off your mortgage is a significant drain on resources when house prices have been driven through the roof by speculation and inflation. (See also the Bay Area.)
Disposable income drives the economy. If people are cutting instead of spending everyone loses - except property loan lenders.
Affordable housing frees up money for new businesses. Second to education, it's one of the strongest prosperity generators.
1) A lot of middle class folk who buy houses see it as an investment, and they hope to seem some return on that investment driven by rising prices.
2) A lot of middle-class folk tap into their home equity to pay for major expenses (see HELOCs and 2nd Mortgages). Rising home values give homeowners more equity to tap into.
" allowing the middle class to own property, start businesses, etc,"
Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive
I wonder what would happen to property prices if lending was severely restricted, maybe then the value would actually be affordable and not a lifelong debt that becomes unserviceable in the first hiccup
The benefits of saving vs. borrowing really depends on the situation, and it's possible that borrowing is actually more beneficial.
Let's say I want to save money to buy a house, and I want to pay in cash (i.e., no mortgage). I estimate it will take me about 20 years to afford the house, so I start putting away money from my pay check.
However, since I don't have a mortgage and thus no house to live in, I also have to pay rent somewhere. This means I am paying 1/20 the cost of a house + the cost of rent in my city.
Additionally, since I won't be buying a house for 20 years, there's a risk that the value of housing could change drastically in that time period, meaning the amount I've saved might not amount to enough to cover the price of housing when I'm finally ready to buy. Obviously the risk of this happening varies by how I invest my savings, and the particularities of the housing market I live in.
So the benefit to saving vs. borrowing comes down to something like:
(Cost of Housing in 20Years) + (Cost of Rent for 20 Years) - (Gains from Investments)
vs.
(Cost of Housing Today) + (Interest on Mortgage for 20 years)
Obviously there's a lot of other things to take into account, but it's not as simple as Savings Good Debt Bad.
I agree with your calculation, of course you don't need to save for 20yrs, just save for a good down payment
Too bad a lot of people go buy a house on the wrong side of that equation
However, owning vs. renting has an interesting hidden cost: you can move "anytime you want" with rent. Renting usually tracks the market affordability/cost more closely, while your mortgage doesn't change while the price go up or down, BUT if the price goes down this might be a problem.
Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive
Yeah. Unfortunately this only works if you have enough money after you pay the bills etc. to put aside.
> The trick is you need to live somewhere. If you can't have a loan, the money goes to rent.
The difference is that a landlord wants a tenant who can actually pay the rent, but banks often hand out loans that are far more than the new homeowner can afford.
If a tenant can't pay their rent, the landlord will have to go through a long and painful process to remove them and find another tenant, and they'll likely be out many months of rent in the process, with nothing to show for it. If the bank doesn't get their money, they own the house, they get paid whatever costs they can't recover by PMI (which the former owner had to pay for), and they can potentially offer a loan to the next sucker to buy that same house.
> The difference is that a landlord wants a tenant who can actually pay the rent, but banks often hand out loans that are far more than the new homeowner can afford.
That's actually pretty rare – and the problem wasn't the load but the fact that the banks which engaged in those practices for a historically brief period of time were allowed to shift the cost to other people.
I've applied for mortgages three times – 1998, 2008 and 2011. In 1998 and 2011, everyone did their due diligence correct. In 2008, the credit union and the New England regional bank both behaved responsibly while Bank of America simply confirmed my employer and pre-approved me for loan over 3 times higher than I was asking for.
Guess the only one of those three which had any problems whatsoever with loans? The other two had default rates which didn't significantly change throughout the crisis.
The difference is that a landlord wants a tenant who can actually pay the rent...
The thread has drifted in a non-sequitur way (or maybe I misinterpreted your comment).
They were talking about saving money vs getting a loan. My comment was from the buyer's POV: you can't save for a house because you need the money to pay rent.
The greatest boon of credit is the generation of new businesses. IE, you fund a venture through a loan, which upon its success becomes a thriving business.
Beforehand, you could not save or afford the cost of the loan. Afterwards, you will make more than enough to pay it back.
Which is also the implicit risk credit is meant to impose on financers, which is why most countries have regulatory bodies that try to incentivize these kinds of loans. You put what you have up as collateral to try to make significantly more, but if you fail you lose a lot of ground and have to start over.
Plus, saving up the 10-50 thousand dollars (say, to start a restaurant in the US) required to start a business would take a significant chunk of someone's working lifetime.
To use a more concrete example, you can't make money weaving cloth when you can't afford a loom.
Just to support what other people are saying about you being correct but insufficiently pessimistic, this has been discussed a lot here in Washington DC in connection with licensing for food trucks. There's a huge amount of interest in the trucks because they're what you can get if you can save/borrow $50K. Here's an article from a few years ago which leads with an example of an experienced chef trying to get a venture off the ground and looking at well over $750K just to open the budget version of his restaurant:
“If anyone can understand the tension between brick-and-mortar restaurants and the mobile army of food trucks that has stormed D.C. in the past year, it’s Stephan Boillon. After he lost his job at Dino in Cleveland Park in 2008, the veteran chef sought to launch an upscale sandwich shop on Connecticut Avenue NW. His plan was to offer only cold sandwiches, which would enable him to build a restaurant with no burners, no oven, and no deep fryers.
But even Boillon’s stripped-down concept was going to cost $750,000 before the doors opened—a figure that didn’t include rent, utilities, insurance, advertising, taxes, labor, association fees, or any of the other overhead it takes to operate a business in a neighborhood that expects a lot from its entrepreneurs.
So with credit tight and investment money scarce, Boillon found a cheaper way into the gourmet sandwich business: a food truck. For $50,000, one-fifteenth of the price to build his brick-and-mortar concept, Boillon started El Floridano, his rolling unit dedicated to home-made roast-pork Cubans and other bread-driven bites. Boillon had traded a restaurant’s higher profit margin for a truck’s lower start-up costs.“
You're right, but undershooting it by a lot. $50k couldn't even open a Subway franchise in a really cheap location. And Subway has really cheap franchises. Most fast food restaurant franchises will have startup costs in the $250,000 to $3m range. (I use franchises because the numbers are easily available. Independent restaurants vary, and if you're doing an indie-feel coffee shop or hole-in-the-wall you might be able to swing $10k, but $100-200k is what you'll start at for the type of restaurant that might actually make money. Heck, your signage might cost $5k.)
The sort of capital needed for most businesses is beyond the ability of most people to save. For some businesses (like software or various types of personal services) you can pay a lot of sweat equity, but there's lots of other types that just plain need money capital. If you're just saving, most of these would be out of range for even the upper middle class.
Financing is even more important for business expansion. I can get a loan or raise money to buy equipment/rent space/hire people that'll let me expand my business to meet demand now. It'd take ten years to save that much from current profits.
"How were you able to start this with only $20,000?"
The restaurant business is particularly hard to break into: you need to rent the space, purchase all of the equipment (each piece of industrial kitchen equipment can run from the single to double digit thousands), furnish the interior, get certified, hire employees and stock perishables (including dishes), all before you can even serve one customer.
Not really - I know someone in the town where I went to school who opened a coffee shop using a combination of cash and credit cards at that level. She now owns the building the shop is in and a home in Hawaii. Not VC riches or anything, but not bad either.
Well, a restaurant isn't the only business venture an individual can get into. Just the other day I saw meme-photo (can't vouch for the validity/truthfulness) about a woman that made money at the beach by attaching balloons filled with margharita mix over her breasts. And charging party-goers (probably mostly male) for the chance to drink out of them.
Ridiculous and asinine example, but I bet she started off with no more than a hundred dollars in capital. Which means that entrepreneurship, and ingenuity are what's most important. Capital will follow.
Do you libertarians even listen to yourselves? The amount of disease that would spread... "hustling sketchy shit" is not a sustainable model of entrepreneurship.
Do you communists even listen to yourselves? He never said he was a libertarian. And where the hell do you get this "hustling sketchy shit" from? Do us a favor and reply to the comment, not whatever your mind twisted it into.
> Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive
That's great, except that everyone is born short housing. You're not trying to afford something expensive, you are trying to cover your short position. And you're either going to do it by buying or renting. And since renting is just throwing the money at someone else, it can make a lot of sense to get into a mortgage instead. (This is why rent vs buy calculators exist.)
> I wonder what would happen to property prices if lending was severely restricted, maybe then the value would actually be affordable and not a lifelong debt that becomes unserviceable in the first hiccup
Agree on this point. It's a lot like universities and student loans. They have the numbers; they know the average student can afford $x / semester. They also know the average student can take out $y / semester in loans. So what are they going to charge? $(x + y)! Increasing the accessibility of student loans just gives the universities a reason to increase the prices. They don't care how much debt students walk out with; they already got theirs.
> Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive
I think the point here is opportunity. You might be able to afford it in X years and pay no interest, which of course is better, but you may also have to act "now". This is where credit is adequate and needed.
Also: time. Imagine a fellow (me, as a student) who hasn't got a washing machine and does his laundry every other week at the coin launderette, which takes several hours, including the time spent on public transport. They could save up the several hundred bucks for a washing machine and buy one in a year (student, limited budget, or just simply poor), or buy one on credit now. As soon as the thing is installed you have two more afternoons each month to get more productive work done. What would you choose?
> Well, there's this crazy concept called "saving money" where you don't borrow from a bank but rather put some money aside every month to be able to afford something expensive.
Capital idea. I think we should outlaw all lending, to individuals and to corporations. If poor people are expected to save, then it should be even easier for those of much better circumstance and financial ability.
> the numbers suggest most of the people affected probably didn't have enough income to even service their debt.
Consider the analogue of the UK, where the banks have a duty to consider the ability of a persons ability to service a debt before letting them take out the loan.
Failure to do so will let the person who have taken out the loan get the debt stricken off, as the bank will have broken the law...
In that light this doesn't seem terribly shocking to me.
I'm not aware of any situation where a debt has been struck out because of this law.
Debts are usually struck out because of errors in contracts, statutory procedures, and other paperwork.
But courts usually seem to assume that a simple credit check counts as due diligence, and it's the borrower's responsibility to repay debt even if it's offered on an unrealistic basis - e.g. a credit card with a limit equal to a year's income, and an exploding interest rate of 50% or more if a borrower misses a payment or two.
Which is not unrealistic, btw. I know of one credit card company offering rates up to 99.9% compound to individuals with poor credit ratings.
Obviously they know most borrowers will default - and that seems to be the basis of their business model.
Here is an example where Lloyds TSB offered to strike off a 100k debt after it became clear they had likely broken the banking code (the banking code is voluntary, but it does not go much further than legal requirements), and it is by no means the only time UK banks have written off loans because they were wrongly given out to people who could not afford them:
Forget the 1% of most likely noncollectable debt and get 60 thousands customers instead? That seems like no-brainer. I don't think banks needed much convincing.
Poor people will repay their debt in trick fees for the banks in no time or just become indebted again.
The article says the government "convinced" banks and other companies to cancel the debts, but the lenders will not be compensated. It's left as an exercise to imagine how the lenders were convinced.
I have to wonder the same about the US banking system about 8 years ago: the aforementioned subprime problem apparently led to top bankers literally being brought into a room and told in no uncertain terms they would agree to the planned solution to the problem; what was actually said remains unknown and rather...intriguing.
There's a thing here -- with widespread bad debts, its generally not in the interests of lenders to write them off individually (because it means that those likely to default are attracted to those lenders that seem most willing to do that), but when there is a major wave of them, its in the interest of the lenders for them to be addressed en masse so that the system as a whole is dragged down by the burden those debts put on the consumer market.
Let's just look at the predictable consequences of this move:
1) Banks and other corporations will never lend money to poor people again. Full stop. If there is a chance that the government will write off that debt (effectively stealing future earnings from banks) for these loans, banks just won't issue them. Say goodbye to educational loans, healthcare loans, car loans. Say goodbye to home loans and mortgages. If you're poor, you just became a ward of the state. And you thought being in debt was bad...
2) If a legitimate institution do want to lend money to poor people, interest rates will skyrocket to compensate for this additional government-cancellation risk. If they skyrocket above usury laws, then legitimate institutions will no longer be in the market and the job of lending at-risk capital will turn to the black market. Look out for loan sharks and indentured servitude, including sex slavery, on the rise in Croatia in the future.
3) The money has to come from somewhere--it isn't free. By canceling $31M in debt, the government is causing $31M in losses to corporations and institutions that were owed that money. That means $31M less in spending, economic growth, job creation, not to mention taxes, which will have to go up to compensate for the loss. These taxes (or inflation) will hit the poorest people while the rich horde more money or offshore it to prevent it being taken away.
4) Lending is the foundation of economic growth, especially for the poor, by allowing borrowers to leverage their limited assets in exchange for future earnings. All things being equal, people will borrow money smartly or stupidly, but the consequences, good or bad, are faced by the people who borrow. If the government cancels debt, it is incentivizing bad borrowing and making it harder for good borrowers to get the capital they need.
It's the worst kind of pandering to the voters with long-term destructive consequences to the people of Croatia.
In other words, exactly what you'd expect from politicians. Keep up the good work!
3) The money has to come from somewhere--it isn't free. By canceling $31M in debt, the government is causing $31M in losses to corporations and institutions that were owed that money. That means $31M less in spending, economic growth, job creation, not to mention taxes, which will have to go up to compensate for the loss. These taxes (or inflation) will hit the poorest people while the rich horde more money or offshore it to prevent it being taken away.
Apparently you're not looking at both side of the ledger. The 31 million didn't disappear, it just stayed with the poor. So the poor have (had) 31m more to spend. And poor people do spend all their money, most likely on products that corporations sell. So this was effectively a stimulus measure supported by a tax on lenders.
I also don't see why you can think of raising taxes on the poor, but not on corporations. In fact, the government could easily raise taxes only on corporations. They may even have considered this, but the whole debt forgiveness thing is actually preferable to corporations since it's a one time thing.
Banks and other corporations will never lend money to poor people again.
Keep in mind that many countries have laws that allow private individuals to declare bankruptcy and default on their debt. Yet, banks still lend money to poor people in those countries.
Banks will factor the possibility into their costs (and hence interest rates), and it might reduce their willingness to lend slightly, but this is far from the picture you're painting.
All things being equal, people will borrow money smartly or stupidly, but the consequences, good or bad, are faced by the people who borrow.
There is a saying that goes something like this: If somebody owes you 100€, it's their problem. If somebody owes you 100 million €, it's your problem.
A loan is a two-way street, and it makes good (social, moral, economic, game-theoretic) sense that the lenders also face part of the consequence.
Most of this is fairly incorrect. The risks involved lending money to poor people are largely unchanged by this and the bottom lines of all of the businesses involved are essentially unchanged. All of these outstanding amounts are delinquent as the people being relieved of these debts have to have been in financial trouble for at least 12 months by the conditions set out in the program.
This means that all of these debts were long-since written off, the risks of these losses already worked into the lending rates and credit qualification cutoffs. It is actually, by most accounting standards, kinda "free".
In the UK, most of these people - if they were unable to have the debt outright written off because they were missold (if the banks lent them money without a reasonable belief they were affordable for the recipient at the time they were issued) - would almost certainly have been able to get an IVA (Individual Voluntary Arrangement) which would in effect see massive writeoffs as well (you have to set out a strict budget, and then apportion the remainder of your income to service a portion of the debt for 12 months, after which the rest is wiped out - this is basically mostly a hurdle to avoid having people speculate in it). As a result most banks here will fall over themselves to be flexible about repayment arrangements if people just call them to discuss matters. Getting interest rates frozen and payment amounts reduced is fairly normal, as it's way preferable to them to an IVA.
Yes, as you say: it's worked into the rates and credit qualification cutoffs, and the UK isn't exactly a hard place to get credit despite these very flexible mechanisms for people to get out of debt.
Here's the other thing: These mechanisms are as flexible as they are because the banks have a duty to not give credit to people who can't afford it. If a large number of people go for IVAs, then the banks are probably failing their in their duty even if it is hard to prove individual cases. So it serves as a safety valve to ensure the banks have an ever stronger reason to not make it easier for people to get themselves into trouble in the first place.
The economic gain of writing off this kind of debt has to be balanced against the moral hazard effect on future borrowers.
Also, it's not clear that you are correct that this debt was largely written off. Certainly the banks didn't expect 100% recovery, but perhaps they expected a nontrivial amount.
I'm not an expert in these tradeoffs, but the one economist interviewed in the article said:
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
The debts have to be over a year old, by any reasonable banking standards (even unreasonable ones) those are NPAs, by any accounting standard they are deemed receivables that will not be recovered. They've been written off. This is why I contend that Mr. Baker's statements are likely incorrect. The fact that these receivables/debt would be written off is essentially written into the law.
Most here also do not note that the balances here are also, by design, small as well.
One can argue that there might be some fear that next time the income requirements will be higher, the debt threshold increased, to make a future forgiveness a problem for companies that carry these assets. I accept that this has some merit but I think most overstate it. (Offsetting this risk in large part is the fact that Croatia has joined the EU recently, foreign banks and companies will have recourse should such a thing happen in future and if such a measure were to hurt them no doubt they would use it.)
Where are you getting your claims about the recovery rate on these debts?
>Most here also do not note that the balances here are also, by design, small as well.
Can you explain how you think that relates to this discussion? If the debt is small, wouldn't that imply that the person was more likely to pay it off, at least in part?
My claims on recovery rates of debt are based on my experience in the banking industry. There are many public sources of information on this topic that you can refer to with respect to expected recovery rates of debts based on age. Provisions for these loses are written into regulations (national and international ones like Basel II/III).
Small overdue amounts are very expensive to recover, if a letter costs you $1 and a phone call $1.50 you don't need very many contact attempts to make an overdue loan of $80 worth less than the cost to recover it, you certainly can not afford to send a lawyer after someone. (Again, this is from my experience related to debt collection work.)
Ok you're probably right on the cost of the writeoff, and now I see your point on the size of the debts I agree with that too. Given this, the program isn't really that unique. For example, the US has a program to help out people with high mortgage debt or underwater mortgages.
Say goodbye to educational loans, healthcare loans, car loans
You make a good point and I do not want to undermine it. However, it is worth pointing out that people don't have to take out educational and healthcare loans in most of the civilised world (Croatia included).
And very, very few people in the civilized world outside the US and Canada need cars or car loans because most first world countries have efficient transit systems that work well and go everywhere.
Not sure why you're downvoted. Its true. And as ride shares like Uber take off, car ownership will continue to decline. Self-driving cars? Even more so.
Others have pointed out some of the flaws in this reasoning, but I want go over some of the obvious critiques again:
1 & 2) There will be no "full stop" on lending money to poor people. If you're a bank and you're managing say $1B, some percentage of that is allocated to high risk loans. Your job is to make money from lending money, and there are only so many borrowers. Banks don't lend money to poor people out of altruism, but because they have to make enough money from interest to at least beat inflation. They'll continue to make high risk loans until they have some new pool of borrowers to replace them, albeit at higher interest rates now.
Most of the people relieved by this cancellation didn't have a very good chance of being approved for a loan anyway. Now their chances will be somewhat reduced, but not completely eliminated.
3) The $31MM didn't disappear, it was effectively removed from the balance sheets of the debtors. If some of them eventually get jobs and build assets, that money will reappear in the economy but be distributed to different businesses. Instead of the banks receiving that $31MM from their paychecks, they'll spend it on food or gas or whatever. Probably still a net loss, but not of the whole $31MM and instead some fraction of it.
4) The concept of moral hazard is a real thing, but it's effects on any given economy vary wildly. In general, most people don't think "Well the government bailed us out once, so I'll borrow way more than I can afford and just hope that they do it again.". It's possible and I can understand why someone would believe it to be a problem, but it's far from being a law of physics or even economics.
In short, the Croatian government and their finance ministers/advisers probably aren't stupid. They have actual data and a knowledge of their own people and situation to go on. They aren't just playing armchair economist. And though I couldn't name one of them, I'm willing to bet that they thought this move through. Doesn't mean that there won't be any of the dire consequences that you've predicted here, but they've probably weighed the odds more carefully than you think.
> In short, the Croatian government and their finance ministers/advisers probably aren't stupid. They have actual data and a knowledge of their own people and situation to go on. They aren't just playing armchair economist. And though I couldn't name one of them, I'm willing to bet that they thought this move through. Doesn't mean that there won't be any of the dire consequences that you've predicted here, but they've probably weighed the odds more carefully than you think.
Or they're a bunch of politicians trying to score a win in the next election, by any means necessary.
Four years ago, Croatian government subsidised loans for buying properties. They used public money to help people without any savings to go in debt, so they can buy houses. Why? Because during the construction bubble, banks invested a lot in buildings that can't be sold (world crisis hit). Under disguise of helping young people getting their first property, they helped banks get rid of the dead capital and earn more money on loans. Subsidies went for interests for the first four years of payment.
What about rational hard working people who saved and didn't need a loan? They got nothing.
Why this wasn't in Washington Post? Government paying you to go in debt in a country high in debt isn't controversial, but banks cancelling it for people who can't pay it off is?
You think this move is bad for the banks and telco's? I bet it was their idea in the first place, government is too impotent and incompetent for anything. Throwing whole families out on the street is bad PR, for them and the government, and this way they can pay it off with some change money they were never going to see anyway.
$31M is such a drop in the ocean of debt, that overall the effect should be near nil.
But individually, if the interest payments make up a significant part of your budget, this is a very helpful.
In theory banks price risk using interest rates. That is to say that high risk individuals have to pay a higher interest rate on their debt than lower risk individuals. This reflects the banks concern that they won't get paid back.
If they (the banks) are doing their jobs right then having their highest risk people default is already covered by the interest rates other less risky clients are paying.
The trick though is actually making the bank take the loss which is something they have worked around with the help of the various governments. And that is where we get a conflict of interest where the bank is pricing the loans with the expected risk but actually taking much less risk due to government back stops. That difference is, as you would expect, profit for the bank.
Banks do take the loss via bankruptcy, or people just not repaying. If the banks had lobbied the government to repay these debts with taxpayer money, I would agree that this was trying to eat their cake and have it. But the government's actions go too far in the other direction. They impose a loss on the banks that the banks would never have expected or priced in.
If it just causes banks to not extend consumer debt to poor people then at the risk of sounding like Daddy Knows Best it might not be such a bad thing. Keep in mind these are small debts. Not like a home loan (ignoring the edge case of the person who paid off 95% of their home loan but can't pay off the last couple of thousand dollars). If it's just credit card debt left over from a plasma TV purchase then once-bitten-twice-shy banks not extending these kind of loans to the poor any more could force the poor to save money required before making a purchase in future.
Having said that, I'm thinking out loud here and not convinced of it myself. Mainly because whenever the government steps in like this it means that someone somewhere is getting screwed.
Agree that the free (black) market will move to fill the gap.
> Prime Minister Zoran Milanovic has convinced multiple cities, public and private companies, the country's major telecommunications providers, as well as nine banks to clear some of their citizens of their debt.
This means that the losses happen with consent of the corporations involved.
There's consent and there's consent. Like as a shop owner I consent to give some money to a don, because it would be such a shame if my business burned down.
Not saying that the convincing is necessarily done via threats, or is a bad thing at all, but "convincing" has many meanings.
Well, it's vague at best. If, indeed, the case is that these institutions voluntarily did cancel some debt, first, they have abysmal PR teams, letting the PM run with the credit for it. Second, the headline is just wrong. "Croatia" didn't do anything, a number of creditors did. Third, it's unlikely that all poor debtors had all their debt to these creditors, and any debt to creditors not participating in the scheme would not have been cancelled.
Either that, or the somewhat more plausible explanation, that the word "convinced" just doesn't quite describe the process that is taking place.
1 The bussiness of the banks is to lend money to poor people, Rich people don't need to pay interests, they have lots of money yet. The bank can choose to lend to poor and maybe to earn money or to not risk a single dollar, not earn money, and probably dissapear. You can skyrocket the interest rates all that you want and feel like the big bad bank, but if you put the level too high the people simply will stop entering your bank. You are useless now. People will find another way, and now you are just a dead shark.
2 The money was stolen by rich people, not by the poors, and the bankers know this perfectly.
> Let's just look at the predictable consequences...Banks and other corporations will never lend money to poor people again. Full stop.
I'd like to bet against that prediction. I suggest $100 to the winner's favorite charity at even odds? I predict that one year from now, I'll be able to find an example of a Croatian corporation having loaned money to a Croat with income below 1,250 kuna. My contact details are in my profile.
I'm not an economic expert but all these points seem plausible except I was wondering about this one:
> $31M less in spending, economic growth, job creation...
Wouldn't there also be a corresponding $31M increase in spending from the people who got their debts canceled, making it a wash? They'll spend it quickly I'd imagine, on food or other necessities. Just the money would flow into the economy via a different route.
You're wrong on almost all points because you're not seeing the primary reason this measure went through - the banks, telecoms and utility companies would never see the money anyway. This covers only people in crushing poverty and then just a fraction of them.
Most importantly, the companies agreed to this, it wasn't forced by the government.
It appears banks and corporations were part of this decision. They decided to wipe the debt on their own, urged by the government.
We're talking about poor people who are very likely unable to pay off their debt. Why? It only applies to people whose monthly income is $138, try paying your rent, food etc on that, and then pay off a debt whose interest alone would already be a significant chunk of your monthly income.
Interest rates already account for these risks and banks have largely already written off these loans as money that won't be paid back. The notion that these were awesome loans that would get paid back and suddenly get cancelled just isn't true. Which is why interest rates aren't likely to skyrocket and why they don't constitute losses, they have already materialized even if the debt isn't cancelled.
Talks of the poor being burdened by taxes the hardest, come on. First, it's just 0.75% of debt. Second, the revenue on this is minimal. If you borrow $100 at a 10% interest rate that's $10 of interest revenue (the rest is principal paid back), and that $10 interest revenue is then taxed at say 20% capital gains tax. So if 0.75% of the debt is cancelled, that's only 0.015% lost tax revenue from debt, it's not going to cause any national tax disasters for the poor. Especially because, again, these loans weren't going to get paid off anyway, it doesn't change much in extra losses.
On the contrary, cancelling 0.75% of the debt makes 20% of the indebted debt-free. They become economic actors again, who previously had no access to their bank account and no room to make personal investments into education or small enterprise. Things you mentioned like sex slavery are more likely to drop because of this than anything else.
Lastly, your point on smart/stupid borrowing, we're talking about a country which was extremely hard-hit by the crisis, one which the PhDs and CEOs at the top financial institutions didn't see coming any better than the world's dumbest person. We mustn't assume 20% of the indebted people who will become economic actors again were borrowing for gambling, it seems like a lot of these people have been put into economic paralysis due to a crisis just like the large financial institutions, yet the large corporations and banks got bailed out and they weren't. And they're in no position to pull themselves out of this with a blocked off bank account and less than $138 in monthly income.
So what's the solution? Ask corporations to do the right and smart thing: write-off 1% of your debts that you had already written off anyway, turn 20% of your debtors into economic actors again who regain buying power, start businesses and participate in the economy, get good will from the public and government and get your country on the road again.
I fully appreciate that this isn't black and white and there are definite cons, but it seems to me to be a positive decision on aggregate.
I think it helps to see it as an investment. Imagine you take 0.75% of your debt, the bottom 0.75% that was extremely likely to ever get paid off, the part that was already part of your cashflow and solvency modelling and whose likely potential losses have already been accounted for.
Then take that amount, and go to the board and say, we can invest this amount, buy legal good-will from the government, buy good-will/marketing from our national customer base, and we get access to a new market increasing our long-term customers by a substantial percentage (20% of its debtors). The cost? Just forgo 0.75% of the debt that wasn't actually going to make us much money anyway.
That's why corporations chose this themselves, it's not a bad idea for them.
Or, keep bank accounts frozen for 20% of the indebted people who got hit by the financial crisis and make $138 a month, bail out financial institutions, and try to run a country where a significant portion of your population are so paralyzed by debts that they turn to sources of income which won't be taxed or absorbed immediately by debt-payback, the type of jobs paid in cash, the criminal kind, the exploitative kind, the kind that's not taxed, that doesn't create jobs or small to medium sized enterprises, the kind that increases costs of policing and regulations, the kind that increases the class divide and pits people against each other. And do exactly to the poorest (leave them to figure it out by themselves) what we weren't willing to do to our largest companies (who we bailed out because it made more sense than to let things crash and burn out of a fetish for non-interventionism market principles right after an economic crisis.
It could be that the loans were unlikely to be repaid anyway, like "sub prime" mortgages in the US. The banks could benefit in the long run by being allowed to write down these loans rather than holding fake assets on their books.
Public transportation is quite good in Europe compared to say, the USA, where car companies purchased intranational train tracks, dismantled them for highways
National population density is irrelevant. US population is just as urban as Europe. The lower USA average mostly reflects the southwest deserts and Alaska where very little rural population exists.
The low density of car-oriented US suburbs was mandated by socialist central land use planning from Washington and the motorcar industry that wanted to require Americans to each own a car. Standards were written centrally and local governments were required to make them law with grants, national bank regulations that required them for lending, and professional standards organizations that made civil engineers agree to them for licensure.
The more market driven land use in European cities promotes walking and transit more than personal motoring.
Cities old enough they were designed for foot-traffic, not car-traffic; modern-ish train systems and other public transit; the high price of fuel... My guess is less need.
It's complicated though. In the UK, for me, it's cheaper to buy and run a car than it is to use public transport.
We used to use hire cars for special trips and use public transport for other things (for a time having no vehicle by choice); then we got a scooter (as a couple) to help with going out and doing shopping trips and such (definitely cheaper than getting taxis).
Then work necessitated having a van, once you have a vehicle then it's only ever cheaper [where I am] to use public transport for long trips for an individual - once a couple or more travel together it's cheaper in a car (including a proportion allowed for road tax, ongoing license costs, depreciation, repairs and petrol [using Gov mileage allowances; not including learning to drive!]).
Problem is, as with many things when you're poorer, the upfront costs for a car mean that those less well off can be barred from ownership and so barred from the per-mile savings and convenience.
Having a car for our family now means I can't afford to take the bus and watching near empty buses go past as you walk home in the dark, cold and wet, isn't much fun ...
Scrap values being high has pushed the price of the lowest costs second-hand cars up a bit. Not so long ago I had to pay to have a still usable car scrapped to avoid paying the license fee. Bangers then were essentially free.
I can appreciate what you're saying, as the truth is that the cost of public transport varies wildly. I remember being surprised at how much better (cheaper, more frequent, higher quality buses) the bus service in Cardiff was compared to my home city (Bath). It's a bit of a lottery, not much you can do as (in my experience) it tends to be a single company that dominates the bus transport in an area.
shows the US at 809 cars per 1000, vs Italy at 682, Germany 588, and so on. Which I would interpret as "Europe has slightly fewer cars per person", not "Europe has NO NEED for cars". It's hard with a straight face for anyone who's visited Paris or Rome to observe there's not serious traffic. (And, in fact, woe to any pedestrians who get in their way.)
In most European cities you really do not need a car. That does not stop a lot of people from owning cars anyway out of convenience, and because they can afford it.
The numbers do not show a full picture. A lot of people in Europe own a car but use it only occasionally -- going on holiday, weekend trip etc., and still use a public transport - which is well developed in most (even smaller) cities - for everyday commuting.
Interestingly, Saudi Arabia also did something similar (alongside many other measures) to boost public support for the new king:
http://www.arabnews.com/news/696661
I'm reading Graeber's Debt, the first 5000 years which explains how this practice is as old as debt itself. It already existed in ancient Mesopotamia. I highly recommend this book to anyone interested in the topic. It also shows how debt is deeply linked to slavery, women slavery in particular, through the phenomenon of debt peonage.
Greaber's book on debt was really interesting. The cancellation of debts is from Leviticus 25:
"And ye shall hallow the fiftieth year, and proclaim liberty throughout all the land unto all the inhabitants thereof: it shall be a jubile unto you; and ye shall return every man unto his possession, and ye shall return every man unto his family. "
Fascinating issue. Graeber explains that poor farmers would borrow from the landlord, be unable to pay, and would end up sold into slavery. Eventually not enough farmers were available to work the land. An economic crisis would ensue. Hence the bit about returning men to their families (to restore the labour force).
That's part of the symbolism of Jesus. He is the Redeemer because he is freeing people from the debt of sin. The Gospels are using language that would have been very familiar to Jews who followed the law in Leviticus.
Graeber's big point, which he articulates at the books's outset, is that we have been brainwashed into thinking that paying off a debt is a moral obligation. If you step back a bit from that idea, it suddenly seems strange and artificial to mix the concept of a financial obligation with that of a moral obligation. But that's what a lot of people do: they mix those two things together.
A lender always takes a risk that the borrower won't repay the loan. That's why, for example, credit card debt, which is not backed by collateral, has high interest rates: the lender is covering his risk. Lender and borrower are always conscious of the odds that the loan will go bad.
But when morality gets added to the equation, it distorts reality in favour of the lender, who can now appeal to a sense of duty or sin to confuse the debtor, and make him forget that the two parties in the loan are making a coldblooded calculation of the odds that the loan will be repaid.
Graeber's other big point is that debt has, throughout history, been a means of creating slaves. But that's kind of another issue.
Totally random aside: does it talk about the evolution of debtor's prisons after slavery was no longer an option? I always wondered why people thought it made sense to lock someone up with no economic recourse to pay down a debt. There were probably much better options to deal with the potential moral hazard.
Why are you removing responsibility from the debtor? It's just as much the fault of the creditor to give the (maybe unpayable?) loan, as it is for the debtor to take/agree to it.
On the one hand, the debtor pretty much ends up stealing. And on the other hand, the creditor took a too-risky loan without considering the repayment ability of the person he was giving it to. We're conditioned to think this as some sort of cruel injustice (and it is indeed a sad situation), while completely ignoring the actions of the debtor.
You could go one step further and say that perhaps the debtor was committing fraud by tricking the creditor into giving out the loan when he knew the chance of repayment was low. (Assuming debt-slavery wasn't the goal of the creditor in the first place). Also exclude accidents and life-altering events (corner case). I'd imagine that after a few of these horrible incidents came to light in a connected world (i.e. modern times, not centuries past) creditors would start adding clauses into their contracts about possible re-payment plans/options, etc. Hell, they might not even offer to give the loans out if they were too risky.
If there is one thing I'd like individuals to take from this comment, it's that laws and regulations aren't the only solution to society's problems. I'd argue that they merely "mask" away the problems, without ever giving individuals a chance to resolve it amongst themselves in peaceful and non-barbaric ways. This is true now more than it has ever been in the history of our world, with the advent of modern communications and the internet. At least, give it a brainstorm/thought next time you jump to government intervention for any perceived injustice in this world.
I'm only half way through the book, no mention of debtor's prisons so far.
In many cases the person retained as peon is not the debtor but a relative, typically the daughter. The creditor may also let the peon believe that she will be able to pay her debt with the pay he gives her, like pimps do to prostitutes they've "helped" crossing a border.
By the way, I don't think we need to use past tense when discussing this topic.
From wikipedia: Destitute persons unable to pay a court-ordered judgment would be sentenced to these prisons until they had worked off their debt via labor or secured outside funds to pay the balance; the product of their labor went towards both the costs of their incarceration and their accrued debt.
Labor was one form. I imagine being sent to prison moved families to action to bail out the debtor when possible.
Finally, consider all the debts paid to avoid going to debtors prison.
I don't know anything about the evolution of the system. Just pointing out that it wasn't an insane way to acheive the goal of debt payment. (Though a totally inhumane way)
While i applaud the motivation behind cancelling the debts of Croatia's poorest citizens, the way it was done is likely to hurt them more in the long run.
Forcing banks to absorb the losses of this write-off will likely make it harder for the poorest to access credit in the future. Banks are not social institutions - they're pathological profit making entities. They will have no qualms with raising interest rates or denying credit altogether to compensate for the increased risk of doing business with their poorest customers.
The poorest section of the population do not borrow money for no reason. Borrowing is often required for emergencies (i.e. medical) or short term liquidity (paying bills on time). Just as importantly, it's vital for people who want to improve their economic situation by starting new businesses.
My primary concern is that banks starting to shut/price them out. The least well off will end up resorting to informal lenders (i.e. loan sharks).
"Forcing banks to absorb the losses of this write-off will likely make it harder for the poorest to access credit in the future. Banks are not social institutions - they're pathological profit making entities. They will have no qualms with raising interest rates or denying credit altogether to compensate for the increased risk of doing business with their poorest customers."
In historical terms, this readjustment of lenders to be more afraid that debts will just be forgiven, thus raising the cost of lending, is a deliberate and desired benefit of the debt holiday. Lending to those who can not pay it back is a millenia-old scheme for enslaving (to various degrees in various cultures) those poor people.
"Credit" is not a monolithic good that is either "good" or "bad"; it must be considered in context. "Credit" for an entity that can easily pay it back can be fairly good, and can grease the wheels of the economy, but "credit" to an entity that has no realistic hope of paying it back is not a virtue and not a help. It may feel good in the short term but it helps nobody in the end.
Historically speaking many cultures have acquired a fear of debt, in a long-running cycle (I italicize the word because it is important, it is not an attitude that just pops out of the normal ebb and flow of culture, it is a thing that was learned), as many other commenters are observing. If the modern world starts to reconsider its love affair with debt, it will merely be the most recent turn of the wheel, and we will hardly be the first culture to discover that easy credit can be far more destructive to everybody, from the bottom to the top, than people initially understand.
With a bit of luck the least well off will end up seeing the truth in the money game - they can't win, no matter what they do. This actually goes for many (maybe even most?) people, except for the small_number%. The best way to play the game is not to play it at all - avoid loans, avoid debt, avoid a dependency on money whenever possible. Use the money you make to reduce your dependence on future money by acquiring means to increase your independence. For some this will be hard - if you live in a city there is only so much you can do - while for others it is easier.
Barring a revolt of some kind (war, revolution, catastrophe, take your pick) or a radical change in the concept of money, more and more wealth will be concentrated in fewer and fewer hands. Increased automation will reduce the number of ways a large part of the population will be able to make even a semblance of a living wage. If there is no system in place to take care of these people - most likely in the form of a base living wage provided by some authority - they'll revolt before they starve. And who are they? Are you one of them? If not now, maybe soon?
So... like Tic-Tac-Toe, the outcome of the money game is known before the game starts. They who make the first move, win. You probably did not make the first move, so you won't. Best not to play, then? This does not mean you should avoid money at all cost, it just means you should not follow it. Don't count on making more tomorrow than you do today. Don't base your plans around the money you'll make or that which you accrued. If you have money, use it to reduce your dependency on future money. Buy land if possible. Use money to become energy-independent. Try to become less dependent on automotive transport. Don't get insurances for anything which you can do without. Learn to produce, not consume. Be creative. Entertain yourself instead of being entertained.
> If you have money, use it to reduce your dependency on future money.
Spot on.
People talk about the rat race. Just like any race, the idea is to finish first, but that doesn't mean working your arse off until you pop your clogs, it means stopping running first, or at least that's how I see it.
The financial game is rigged. Consider, a bank wants to lend money to help you start a business, because it thinks you'll be successful. The benefits to itself if you're successful are twofold, you pay back the loan with interest, and the money you've used to pay off the interest has come out of the pocket of savers, so less interest to pay out to them too. A term you'll hear in the banking world is 'liquidity', which describes how easily money flows through the system. The goal isn't to make other people rich through savings, the goal is to get everyone spending, and make sure they get their cut. If their plan backfires and people stop spending and start saving, we have a deflationary recession, governments start implementing austerity measures, and all that's really happened is people being more careful with their money.
Then there's the whole game of infinite growth on a finite planet, but I imagine that's backwards enough for everyone to see.
There will be another economic revolution, within this century I'd imagine, Jah knows what it'll look like but we won't keep our current system forever.
If debts are under 35 000 kunas, monthly income is under half of minimum salary ( you know what sucks? Many workers are on minumum salary, yet don't receive salaries for months, whilst company owners drive luxury cars for a salary 3-4x the average one, so those workers are not eligible) and the citizen doesn't own any land or savings.
One of the main problems is that about 10% of our citizens have their accounts frozen. They could change laws to help it, but that would hit their budget. It's absurd that you can get sued by the government for tons of money just for not paying a monthly TV subscription payment, that you are subscribed to by having more than 1 radio frequency receiver, no matter be it a radio, phone or a TV. Or even having an screen in your home.
This is like focusing on fighting acne, when your patient is dying of cancer.
Yes, it will help a lot of families, and that's great, but elections are coming up and this is mostly a political points move, since the "right wing" won the presidential elections, the political "left" is now worried.
In part, I love this idea. However, as someone who struggles with debt, I've worked to the point of causing serious health issues just to keep my head above water, so if Canada were to do this, I'd be more than ticked. The slacker next to me gets a clean slate, and I get an early grave.
I totally understand your sentiment, but to me this reflects one of the biggest scams that has ever been pulled on the "average guy" - the notion that debt has moral weight.
I was taught by my parents, and by the books I read and TV shows I watched, that "paying your debts" made you a good person. If you don't pay your debts you're slacking. We've all heard the parables of the great person who went broke, but managed to pay his debtors later even though he legally didn't have to.
What hogwash. Lenders get paid interest in compensation for the risk that the loan might go bad. They deny credit to people if the risk is too high. That's their business. If you borrow to start a business and the business goes south, that's not a moral issue - it's built into the bank's models. Turning it into a moral issue, rather than "just bizness", is just a way for the lenders to shift the risk - that you're paying for - back to you. It's like buying insurance and then not collecting for your burnt house, because you didn't work hard enough to put out the fire.
OK, sucky analogy, but you can bet that people like Donald Trump don't worry about the morality of debt when one of their companies go broke. It's in the contract.
This is a very interesting comment and I used to think similarly, but Matt Levine over at Bloomberg convinced me over several articles (couldn't find exactly which ones on a casual searching) that it's a little more subtle than that. In contracts between big companies, this is absolutely true. Financial institutions expect that companies will act as rational economic actors and discharge their debt when it's beneficial for them to do so. But in contracts with very small business or with individuals (say mortgages), people act economically irrationally, constrained by social norms, and not dumping their debts as quickly as the laws allow. This results in lower delinquency rates than would otherwise be the case, so the actuarial models allow for the pricing of lower interest rates, more lenient credit policies, etc. If individual people starting acting like big corporations, then default rates would go up and correspondingly interest rates on things like mortgages would go up to.
This isn't to say that that state of the world is worse. It might be better! Certainly we shouldn't discount the burden it places on people to feel guilty over their debts. That's real cost to them and to society generally. But if the social norms around debt changed, they wouldn't change in a vacuum. Probably rates would go up and that's a real cost as well.
You make a common economy error. You are assuming the price of a good or service is defined by its cost. This is only true in very liquid (competitive) markets. Banking is no such market.
You make a perfect case of justifying that the cost of providing the lending service would be higher. However, prices are not defined by cost. They are defined, loosely, by what the market can bear. The cost is a lower limit, but nothing more. Namely, it does not define the price.
For the price of a good or service to approach cost of goods, you need very strong and constant competitive pressure. The banking market, in most countries, is not nearly competitive enough.
It is certainly not the case that cost == price, I agree. Price is determined by supply and demand. But if you change the cost of mortgages, you probably change their supply curve and hence the market clearing price. To argue that raising the cost of mortgages doesn't change the market clearing price is make a pretty strong claim about the shape of supply and demand curves.
I agree that paying debts is deeply engrained as a moral issue. Although I think this is more cultural and is persistent across many cultures, not necessarily something conjured up by lenders. There is a distinction between personal debt and debt tied to a business venture.
How would you feel if your parents passed away with unpaid debt? Although not legally obliged to pay it, many people do [0]. I, personally, would feel a little sadness to know that my parents had unpaid bills. Nor would I abuse the system by taking out large debts on my death bed.
> How would you feel if your parents passed away with unpaid debt?
It depends. If they owed a real human being, I would probably pay it. If it was a faceless corporate conglomerate, or a bank that reported millions in profits on the last quarter, I wouldn't bother.
That's true. Sure, pay the debt if you can, otherwise just trigger the warranties (read: repo)
Of course you want to pick priorities in what to pay and what to not pay when in difficulty.
And negotiation/consolidation is an alternative
Just keep in mind your credit score will go down the drain, and yeah, maybe you can't get another credit card to hang yourself with, which might be a good thing
I think this is true about loans from banks and credit cards. One place I don't believe this is true is for personal loans, often they have no interest and while you can be declined (they can so no), it is often socially awkward to do so.
Do lender's get paid interest in compensation for risk? If I'm not mistaken, lenders get paid interest because a dollar today is worth more than a dollar tomorrow.
Think of the slacker next to you as having an independent relationship with the state and so do you.
I never understood why some people would happily drag down someone else, that's jealousy in disguise. Simply see this as a plus for society because that debt drags everybody down, including you.
I wouldn't sleep any worse if all the debt for people earning minimum wage or nothing at all were forgiven, that's a much better way to spend money than to enrich a small number of already insanely rich people.
Give it another 3 or 4 decades and a few more rounds of automation and who knows, you just might find yourself in the league of the 'slackers', quite a few of them are not slackers by nature but simply grew up in a time when their skills became surplus and their age forced them out of the productive cycle. Very few people consciously choose to be un-employed and this could happen to all of us.
There's a fantastic scene in the Count of Monte Christo where the Count and his guests witness a double-execution. In fact, thanks to the wonders of the Internet, here it is, from http://www.cleavebooks.co.uk/grol/dumas/count035.htm . Franz, Albert an the Count are witnessing the execution:
Behind the executioner came, in the order in which they were to die, first Peppino and then Andrea. Each was accompanied by two priests. Neither had his eyes bandaged. Peppino walked with a firm step, doubtless aware of what awaited him. Andrea was supported by two priests. Each of them, from time to time, kissed the crucifix a confessor held out to them. At this sight alone Franz felt his legs tremble under him. He looked at Albert — he was as white as his shirt, and mechanically cast away his cigar, although he had not half smoked it.
[...]
"I thought," said Franz to the count, "that you told me there would be but one execution."
"I told you true," replied he coldly.
"And yet here are two culprits."
"Yes; but only one of these two is about to die; the other has many years to live."
"If the pardon is to come, there is no time to lose."
"And see, here it is," said the count. At the moment when Peppino reached the foot of the mandaïa, a priest arrived in some haste, forced his way through the soldiers, and, advancing to the chief of the brotherhood, gave him a folded paper. The piercing eye of Peppino had noticed all. The chief took the paper, unfolded it, and, raising his hand, "Heaven be praised, and his holiness also," said he in a loud voice; "here is a pardon for one of the prisoners!"
"A pardon!" cried the people with one voice — "a pardon!" At this cry Andrea raised his head. "Pardon for whom?" cried he.
Peppino remained breathless. "A pardon for Peppino, called Rocca Priori," said the principal friar. And he passed the paper to the officer commanding the carbineers, who read and returned it to him.
"For Peppino!" cried Andrea, who seemed roused from the torpor in which he had been plunged. "Why for him and not for me? We ought to die together. I was promised he should die with me. You have no right to put me to death alone. I will not die alone — I will not!" And he broke from the priests struggling and raving like a wild beast, and striving desperately to break the cords that bound his hands. The executioner made a sign, and his two assistants leaped from the scaffold and seized him.
"What is going on?" asked Franz of the count; for, as all the talk was in the Roman dialect, he had not perfectly understood it. "Do you not see?" returned the count, "that this human creature who is about to die is furious that his fellow-sufferer does not perish with him? and, were he able, he would rather tear him to pieces with his teeth and nails than let him enjoy the life he himself is about to be deprived of. Oh, man, man — race of crocodiles," cried the count, extending his clinched hands towards the crowd, "how well do I recognize you there, and that at all times you are worthy of yourselves!" Meanwhile Andrea and the two executioners were struggling on the ground, and he kept exclaiming, "He ought to die! — he shall die! — I will not die alone!"
"Look, look," cried the count, seizing the young men's hands — "look, for on my soul it is curious. Here is a man who had resigned himself to his fate, who was going to the scaffold to die — like a coward, it is true, but he was about to die without resistance. Do you know what gave him strength? — do you know what consoled him? It was, that another partook of his punishment — that another partook of his anguish — that another was to die before him. Lead two sheep to the butcher's, two oxen to the slaughterhouse, and make one of them understand that his companion will not die; the sheep will bleat for pleasure, the ox will bellow with joy. But man — man, whom God created in his own image — man, upon whom God has laid his first, his sole commandment, to love his neighbor — man, to whom God has given a voice to express his thoughts — what is his first cry when he hears his fellow-man is saved? A blasphemy. Honor to man, this masterpiece of nature, this king of the creation!" And the count burst into a laugh; a terrible laugh, that showed he must have suffered horribly to be able thus to laugh.
However, the struggle still continued, and it was dreadful to witness. The people all took part against Andrea, and twenty thousand voices cried, "Put him to death! put him to death!" Franz sprang back, but the count seized his arm, and held him before the window. "What are you doing?" said he. "Do you pity him? If you heard the cry of 'Mad dog!' you would take your gun — you would unhesitatingly shoot the poor beast, who, after all, was only guilty of having been bitten by another dog. And yet you pity a man who, without being bitten by one of his race, has yet murdered his benefactor; and who, now unable to kill any one, because his hands are bound, wishes to see his companion in captivity perish. No, no — look, look!"
I think the scene speaks for itself and reuires no further comment.
One thing is a rule where you know what happens, and there's a social safety net in place, and everyone knows how it works, and has voted on it, and so on.
One-off actions are kind of another thing, in my book.
Anyway: politics. Article flagged. I'll happy talk politics here in Padova with anyone who wants to stop by and have a drink.
Anyone's whose been involved in a corporate bankruptcy would quickly disabuse themselves of the idea that there is or should be any moral qualms about filming for bankruptcy when you're legally entitled to do so.
Just to respond to all at once, I'm looking for fairness here, not to punish those that couldn't pay debts. There isn't anything 'bad' about not being able to manage debt in and of itself. However, if you took 3 jobs to make ends meet and the neighbour simply took a third mortgage and smoked pot all day on pogey, it isn't fair. And this action doesn't install any sense of responsibility. All this does is encourage those who don't pay their debt to continue to not pay. And in no way does that improve society except for a very small few.
The money should be spent on debt relief, and work with those who have large unmanageable debt to begin sustainable debt management through education. Yes, lower it, but still ensure that people understand what debt responsibility is. Something that was entirely absent in my upbringing.
Simply paying someones debt clears a slate for more debt. It doesn't fix a problem. Give a man a fish and you feed him for a day, teach a man to fish and you feed him for a lifetime.
You somehow seem to equate debt with guilt. That is not what debt is, although lenders love it when you believe that. You also seem to think that the main reason people cannot pay of their debt is that they "smoked pot all day" - the notion of debt as guilt shines through here again. Debt is debt. Nothing else. It is not some moral failing if you cannot pay it back, it can have many reasons. And the idea that just because you thought it would be the right thing to do to put yourself in for an early grave by working so hard that your body breaks down everyone who didn't do that is a slacker, not "committed" enough or whatever is very sad.
So here is another example. If I start a Kickstarter campaign and raise $100,000 from multiple backers and never deliver on the product but keep the money. Should I feel guilty? After all, it's just debt..right? Or does this only apply to "evil" bankers?
If everyone had this thinking, nobody except the rich would get loans. As a bank, why would I ever loan someone money if they felt like they were entitled to it and never had any intention of paying me back?
Wiping away debt is just a bad idea. My cousin declared bankruptcy around 10 years ago. She had accumulated $100,000 in credit card debt with nothing to really show for it. This wasn't even school loans, just big name electronics and a multitude of other things she really didn't need.
After her debt was wiped clean, she promptly got right back into debt again and had to declare bankruptcy a second time this past August. The over-spending continued (and still continues to this day).
If someone knows they can spend all they want with no consequences, they will treat it like free money. The only people that will hurt are the rest of us that will suffer with an increased difficulty in getting a loan and increased interest rates and fees.
I share your instincts, but need to defend the policies. It's important to have a bankruptcy mechanism. Otherwise it's a back-door mechanism to create slavery. By having a predictable bankruptcy regime, lenders can price in the probability of bankruptcy.
Limited liability is a similar issue. It would be convenient if we didn't have corporations and everybody conducted business as themselves. But the experience has been that the trade-off of limited-liability is worth it. You get more growth in a country with it than one without it.
I have the feeling that your cousins experience clouds your judgement here. From all that I've read the count of people who file bankruptcy multiple times is very low as is the count of people who file because of irresponsibility. There are usually very valid reasons (loose your job, get sick, good luck!)
For your example: That is exactly the reason that Kickstarter is not a preorder service, but project funding. There is always a risk that you won't get anything for the money you've invested and you are expected to consider these risks. That's also part of the reasons that professional lenders expect a certain rate of interest (another part of the interest rate is obviously for the fact that the lender could do something else with his money if he didn't lend it). If you have a higher risk, you pay more. So, if you fault multiple times you won't find anyone who will give you money anymore in the future or they will want more interest or they will want some securities .. and so on. I don't see how that somehow makes debt guilt. It is debt. Are you expected to pay it back? Yes. What if you cannot pay it back and you would be crushed under the weight of it? Don't pay it, go bankrupt and your lenders will have to pay the price of their risk-taking.
My point stands that there's a reason we've abolished debtors' prisons: Debt is not guilt.
There are much bigger things that aren't "fair" to be judgmental about than your neighbour on pogey.
If you want to worry about other people ripping off society in some way, it might be a good idea to worry about the people who are pulling the big cons, not the hypothetical lazy neighbour.
I worry about that too, but that isn't the topic being discussed. Life isn't fair, but I believe we should as humans strive to make it as fair as possible.
"I believe we should as humans strive to make it as fair as possible."
Agreed. That's why, when the big guy's hoarding 98 of the 100 cookies, I'm not going to fight over it if my neighbor didn't work as hard (in my judgment) for his 1/4th cookie as I feel like I did for mine.
And it is making it more fair, by bringing some people out of a crushing situation. Did you know some places give food to the poor, too? How unfair is that to the parent that worked hard to put food on the table? Or all sorts of other relief that aren't available to people whose work paid off.
It would be good to keep talking about it, I think, and work to reduce some of the social/moral pressure around debt-paying--no one should injure (e.g. through overwork) or kill themselves over money.
I agree. We should do away with the idea of a limited companies entirely.
On a slightly more serious note, I do think that too many people forget how much society invests by allowing limited companies, and (in my opinion) how much those companies "owe" society as a whole.
Related sidebar: one of the observations Jefferson made while in France at the beginning of the French Revolution was that institutional debt prevented needed changes from ever taking place. That is, the country was so intertwined in various entities owing various other entities that there was no solution that was acceptable to a plurality.
One of the ideas I've toyed with over the past few years is a "debt sunset clause" for all debts, both public, private, institutional, and governmental. Whenever you lend money, you have, say, 30 years to get it all back. Or it's gone. The clock starts when you write the check.
From a market standpoint, the additional risk would just be written into the interest rate. But from a systemic standpoint, major gains could be achieved. That way you wouldn't have to have "debt holidays", "debt forgiveness" and so on. It would just take care of itself. (And if you wanted, you could have different time frames for different types of debt, but then you're heading down the over-complicating route again)
You know there's at least one poor Croatian that paid off his debts and feels like a real sucker now. Kind of like how the last Americans to pay for their own community college tuition will feel.
So if we ask a so-called expert on the subject, what will he say?
Among economists, the scheme is regarded as unprecedented and exceptional. "I can't think of anything comparable," Dean Baker, co-director of the Washington-based Center for Economic and Policy Research, told The Washington Post.
This is great news, and I hope the world follows suit. Debt amnesty is indeed a time honored solution to the current crisis. When a person goes into debt they sell their future wages. When a government goes into debt they sell future tax revenue. Now all the future wages and tax revenue that can be sold are in the hands of the banks. (Sure, governments could keeps selling future tax revenue from future citizens who haven't been born yet, but let's pretend they don't.) So the banks are in a bad spot; no more debt to buy. If they stop lending, the money system dries up and everyone loses their jobs (happening now). If they try to raise the interest rates (effectively zero now) nobody will be able to afford the payments on their debt and everyone goes broke. So, the whole system needs a big reset. Hence the need for debt amnesty.
What we do after debt amnesty is critical. Do we just start the same old cycle over again? Or do we take this opportunity to make a fundamental change. The government is the only body that can legally create money, but they don't. They create the money in the banks and then borrow it back at interest essentially giving the banks control of the currency. We need to take back control of our currencies and declare general debt amnesty for all governments and citizens at all levels. Business can carry on as usual; they get to keep their debt. Governments should never be in debt again.
With governments out of debt the economy starts moving again. In Canada, the largest employer in the country is the Government of Canada, and in each province the largest employer is the respective provincial government. Not hard to see the benefits of a government able to spend enough money to fix the roads, schools, parks, and all the other shared services we use.
Of course the banks won't like this idea. However, if the government creates enough money ONE TIME to cover the debts that are being erased then the banks are made whole. Basically, the banks get one chance, just like everyone else, to sort themselves out and figure out how they plan to operate post-amnesty. But they won't rule the world anymore.
Croat here: This is BS. They canceled peoples phone & other commodity debt. This is basically rewarding people for being financially irresponsible. I could have easily taken 5 phones on 2 year contracts, decided not to pay and gotten that written off with this law.
> I could have easily taken 5 phones on 2 year contracts, decided not to pay and gotten that written off with this law.
Not really, since the law only covers people who have no savings, no propery and earn a third of the minimum wage. You have to be seriously poor to get your 5 phones for free.
The government program involves major local banks,
leading telecom operators, the four biggest Croatian
cities and several public utility companies. The
government will not pay the debts; the creditors
will simply absorb them.
Frankly in the absence of consumer bankruptcy laws it is clear why these particular creditors are willing to go along with this scheme, even though it will cost them some revenue, without much of a fight. These were likely amounts small enough, given the parameters of the debt-cancellation rules, that recovery was never a particularly practical option anyway. If the debt on the books of utilities or a bank is not good enough to sell to a third party and is not considered recovery internally then the accountants would be quite happy to simply have these amounts off the books and the corporations and governments probably reap more rewards in positive PR than the debts were worth.
The perhaps larger problem that I think is being solved here, besides the debt itself, is the bank account "blocking"[1] that appears to be a provision in current law that the government is not interested in changing. Once someone's bank accounts are blocked I presume that they are forced into the cash economy and that is bad for the government in lost taxes as well as citizens with respect to many things, including good old fashioned "getting ripped off".
Note that the amounts in the article are not factually correct. Its really not $138. Its actually:
A.) max. 2500kn (croatian kuna) or $367 USD for singles
B.) max. 1250kn or $183 per household member (so for families of 4 it would be $183 x 4)
This is obviously for the poorest of the society that have had their accounts blocked for debt longer than 360 days. Most working people in Croatia would not be able to meet that criteria - minimal state-imposed gross salary for 2015 is 3030kn ($445 USD). People also tend to mix net and gross amounts (everything salary-related in Croatia is usually presented as a gros amount - while in the US/EU its usually net). Not an insignificant difference because Croatia has some of the highest taxes in the world.
A similar method of helping the impoverished, one which has strong support among at least some economists (and maybe more widely), is cash transfers directly to the people who need it. That is, don't fund a service for those in need, fund the people directly and they can buy what they need. GiveDirectly is a leading implementation of this idea:
I argue, albeit inexpertly, that TARP money given directly to homeowners to make payments on their toxic mortgages would have been of infinitely better societal good than handing b(tr?)illions to banks without any oversight at all.
But you are morally bankrupt for taking out a mortgage difficult for you to pay. The bank, however, doesn't have such moral failings for they are not people.
The best way to look at TARP is as a preservation of the status quo. Whether that was the right thing or not, given how many people have investment assets that are exposed to banking and insurance, the benefits were a lot wider than just to the banking system.
Also there were mortgage relief programs that come out of the bailout:
Could you explain more about what you mean? I don't understand what I am supposed to get out of your link (I see where it says banks profited from a program designed to help them profit, but I don't see anything about money they didn't pay back).
Well, I'm just going to rehash what's in the link, but the banks had already been "rescued" to the tune of $1.2 trillion, with a Fed guarantee of $7.77 trillion BEFORE Congress was lobbied for TARP.
The government made back a small portion of the total output to banks throughout the financial crisis, not close to 100%, and then proceeded to further deregulate since the bailout.
At least some of those big numbers are overnight loans that were granted in exchange for collateral (i.e., they were secured by some asset or another) and paid back the next day.
That doesn't meet 'not paid back'. You can probably call it unfair.
I don't know the timeline of it, but the fed published a bunch of the data on one of the facilities here:
Note that on that page, it says All loans extended under this facility were repaid in full, with interest, in accordance with the terms of the facility.
The Bloomberg articles don't really talk about where the numbers come from, but I expect most of the other loans were similar, short term and secured by assets.
I just want to add that Indian governments have always canceled debts of farmers (who make up the majority population) in election year. So this kind of measure is neither novel nor unprecedented, as the article in WaPo suggests.
This is a beautiful idea. Straight from the Bible, too [1].
But I wonder how many citizens are right on the edge of these limits? That would really suck if you had a monthly income only slightly higher than 1,250 kuna. Also, if you have 40,000 kuna in debt, is the first 35,000 wiped out? Or none at all, because you're over the limit?
> They cannot have any other property or savings.
What if you have 2,000 kuna in savings, but you're still 37,000 kuna in debt?
I think a function might be fairer than hard thresholds. Maybe take monthly income as a parameter, and then wipe out lots of debt for the extremely poor, a bit less for people who are closer to the poverty threshold, and none for anyone who has a reasonable monthly income. Round the output to the nearest 1,000 kuna. Sure, it's more complex, but we have computers now.
Also, "The government will not pay the debts; the creditors will simply absorb them." That really sucks for the creditors, even though those debts probably had a low chance of being repaid. But it just feels wrong to force a company to forgive debts. Surely the right way is to use taxpayer money, or take a hit on inflation.
I really want to read the actual bill. Does anyone have an English translation?
I assume those economists never read any history at all, or they would have known debt forgiveness has been used since ancient Sumeria to help rebalance messed up economies.
The idea that lenders will stop lending to poorer people seems very popular, but can someone explain why this situation will remain immune from market effects?
Markets are not an exercise in rationality, they are an exercise in making a return on investment, and, investment will occur where people think they can make a return, almost irrespective of the existence of crashes (in this case, government cancelling debts). I really don't see why people won't invest under the belief that they will be smart enough to pull out in time, just as they do in lots of other markets such as housing and shares.
It seems to me that this "no lending to the poor" argument is popular more because it fits with a particular set of politics, and is justified only by an appeal to its rationality as an idea, rather than to whether or not it might actually obtain.
If I was a Croatian lender, I would immediately stop lending to the poor. Alternatively I would find a way to charge them very high interest rates to compensate for the risk of the government doing this again.
Something to consider; high-interest consumer debt is a public health problem. It travels with and exacerbates substance abuse, compulsive gambling and other social pathologies.
If we view it this way our current permissive attitude towards payday lenders and such is quite literally insane. The equivalent of allowing gonorrhea infested prostitutes to operate a brothel on Main st. that offers bareback specials.
> the program is expected to cost up to 210 million Croatian kuna ($31 million),
> "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.
Will the money be paid for debtors or not at all? (in case of those lenders that did not agree to forget the debt)
This sounds too ridiculous to manage... The cost simply of controlling who is eligible for debt cancellation adds more burden on taxpayers. I think they'd be better off to calculate a debt cancellation eligible for everyone. Tax rebates for those who wish to donate their debt cancellation to others. In large: let the community decide what to do with their own tax money.
I wonder if this has anything to do with attempts to tamp down Russia's influence in the region. Poor people without a lot to loose are destabilizing force in a society. 31 Million is peanuts to help insure order. Maybe banks and corporations were convinced this way?
Responsible countries handle this through a simple legislated idea - personal bankruptcy; this is a political populist move not inspired by any actual reasoning into effects of this on economy. Not that I think effect is of any serious impact, for anyone.
This move is exactly of the category that is crippling Croatia. We (yes, a Croat here) are in a bit of a pickle, and let me explain the core of the it...
Even excluding astonishing amount of pensioners (many from previous regime) and war-inflicted disabled persons (whose actual condition is matter to be looked upon suspiciously) and other non-working class of people, work-force segments into two distinct categories - directly or indirectly dependant on the goverment as source of income, and the good "old" private sector. The trouble here is that former is riddled with catastrophic inefficiency, corruption and evades competitive market, and the latter carries the burden of former. The issue is - in democratic elections, majority wins, and the former here is the majority.
So we keep up with this cancerous tumor of goverment-dependants who won't ever vote for someone who'll put a stop to it (hey, they're not crazy, why would they vote against their immediate interests), and violently cut it out of the system.
Maybe, and just maybe (haven't crunched the numbers), within a generation, when few factors align (war-disabled die off, unemployed numbers increase even more), the actual critical mass of value-adding work-force outweighs the tumor, brighter days await us. And even that is under assumption there will be an election choice that'll be catalyst for those changes at that point.
I personally don't hold an optimist view. Hell, even our geographical geometric shape looks unstable and unnatural. War ended by higher powers putting a stop to it, not resolution. And as far as EU membership goes - meh, we're again at the age-old role of a border country as a proxy for keeping the region stable and keeping the muslims out. Important role, but hardly grateful.
Not to end on a completely sour note - I did notice a sentiment of unity last few years. Particulary noted during holiday sales (or the lack of excessive spending), people seem to coalesce in misery, slowly perceiving that we're in this shit together, unlike during last two decades, where they would aspire beyond means, due to many factors including prominence of war-profiteers. Like my grandma said: "It was never worse here during my lifetime. After WWII at least everyone was poor."
There are in fact several European countries where personal bankruptcy is not possible, or where only a "Chapter 11" (re-arrangement of debt, not cleaning table altogether) is possible.
Does anyone know if bad debts are tax deductible in Croatia?
If so, the government would have just needed to convince the banks that the chance of getting the money back was lower than the tax they'd be repaid by forgiving the debt.
my understanding is that Croatia doesn't have bankruptcy laws similar to some Western countries so once you cannot pay simple debts, like bills for utilities, your bank accounts can get frozen by the state?
As for it being unprecedented, nah, many near failed states will do about anything to prop up the popularity of the ruling class.
> Among economists, the scheme is regarded as unprecedented and exceptional.
Couldn't be further from the truth. In times past it was commonplace to cancel debts periodically. Moses and Hammurabi are just two examples off the top of my head.
Yes. I am not an economist but it troubles me that economists would be unawares (or claim to be unawares) about this aspect of the history of debt. As usual Wikipedia (the wise, the all-knowing) has a page[1] about it. Mass debt relief and forgiveness is unexceptional in history and certainly has precedent.
Even as recently as the turn of the century (only a decade-and-a-half ago!) there was an international movement[2] calling for the cancellation of a great deal of so-called third world debt as many countries spend more on debt reparations (just paying off the interest) than on building up the infrastructure of their countries or spending on health or education.
Coincidentally 2001, 2008 and 2015 are Debt relief "Shmita" years according to Abrahamic tradition. The Bible instruction is to provide debt relief to creditors every seven years. Putting my non-religious hat on, I wonder if this crept into the bible from ancient society's observations that human credit cycles last seven years.
I thought it mentioned every 50 ((7*7)+1) years in the bible?
Very interesting about this coinciding with a notion of a short human credit cycle in actuality. Wasn't there an economics article on here recently that claimed that there are natural short and long human credit cycles?
It kind of reminds me of how in some MMO games, they periodically reset the world to keep the game balanced. It usually means there's a defect in the world design, but it's a valid strategy for keeping the game going.
You know what is the saddest part? Opposition party (conservatives that ruled from 2007-2011) is convicted for criminality and they are atm most popular, so for common and independent people there is no light at the end of the tunnel. If someone can solve this chaos he/she will be candidate for Nobel's price.
P.S. Sorry on bad english