[discreteevent]

In "The Economics of Belonging" Martin Sandbu makes the argument that it should be more like venture capitalism. You provide a loan and get some of the upside if it works out but if it doesn't then you share the loss. It would at least keep people more honest.

[vlovich123]

I don’t think one approach or the other works. Interest-based loans are the equivalent of hedging your risk in a financial investment. That’s like saying you should remove financial instruments that allow for that when you make stock investments. That is a position one could take, but I feel like allowing for hedging is smart (& besides there’s all sorts of ways people can create contracts to hedge risks that are impossible to regulate anyway).

For many investments, interest-based investments seem to make more sense to me. For example, investing in a restaurant is not an investment that works out in favor of the VC model unless you want to be inundated with low-cost generic options that can scale to every market even more than we are today. That’s also why you have collateral in such investments so that the lender has ways to recoup their investment even with uncooperative lendees. I think the world is complex & we have different investment models to account for that complexity. I’m skeptical that any one hammer will somehow solve all problems. It’s all trade offs in the end, no?