| I'm very familiar with fractional reserve banking, thanks. >the justification for this is something about investment and risk taking. Which are supposed to involve your own funds, not money you printed out of thin air. Money is socially constructed. If we agree, societally and legally, that banks can lend out most of the money that their depositors place with them (fractional reserve), then the money the bank lends out is no less real, no more "printed out of thin air," than any other money. And we do agree to that statement, legally and (for the vast majority) societally. > risks are supposed to be (and are) handled by insurances. Which is exactly how banks handle interest rates on loans. This is why we have credit scores: so that the underwriter at the bank can assess how risky your proposed loan is, and how much interest (i.e. premium) to charge you. Exactly like an insurance underwriter assesses how risky your proposed insurance policy is and how much premium to charge you. Both insurance and banking largely automate these decisions these days, but there are still human underwriters who can override the automated decisions. A few years ago I briefly worked in the credit risk department of a bank, and as part of my orientation I spent an afternoon sitting with one of these underwriters watching and listening as they dealt with clients who wanted to appeal the automated credit decisions. > And then there's the paperwork and checking and all that that most likely should involve a flat rate This also already exists, it's called an origination fee. > This should be much more ethical than charging interest over money that didn't even exist to begin with. In summary, this is completely wrong. The money does exist, just as much as any other money exists, and if it's not repaid the lender is on the hook for it[1], just like any other money. And the way you think lending should work is indistinguishable from the way it already works. [1] Or, in many cases, the person who bought the loans from the originating bank. |
With one crucial difference: right now the main criterion is whether the bank will get reimbursed or not. Whether it will make money off of the credit. And credits are so important to our lives right now that I don’t believe such an important decision should be left to that kind of invisible hand.
I mean, it’s as important, perhaps more important, than the state’s budget. This suggests, if not a democratic oversight, at the very least a clear set of democratically chosen rules over what kind of loans should be given.