[anamax]

> The risk was already taken by the original lender, it was risk of default and was the reason for charging interest. ... So The risk assumed by debt collectors is less legitimate, and a collector's claim is on shakier legal basis

Not so fast.

The price that I'm willing to pay for something, the risk that I'm willing to take, depends on whether I'm able to sell my interest to someone else.

Curiously enough, other people aren't very willing to buy worthless things.

If debt collectors have "less legitimate" claims than the original lenders, they're not going to pay as much as they will if their claims have the same legitimacy. As a result, original lenders are going to demand more interest and protection for their interests.

If you want people to make risky loans, you must protect the rights of folks who buy loans that have fallen on hard times.

[kylebrown]

> If you want people to make risky loans, you must protect the rights of folks who buy loans that have fallen on hard times.

Maybe lenders shouldn't be making such risky loans. Perhaps that could have averted the housing bubble. Maybe college tuition in the US wouldn't be rocketing sky-high past inflation. Its hard to know who is real benefactor of such willingness to lend. Far from clear that its the borrower..

[anamax]

You want lenders making risky loans - that's where the growth and innovation comes from. Plus, risky loans are how poor people, companies, and countries make it.

Safety leads to narrow margins, and they're a serious problem. If you're running on a 10% margin, a 1% hickup is no big deal. If you're on a 1% margin, 1% wipes you out.

The housing bubble was a combination of regulation (insisting on subprime loans plus subsidies of fannie/freddie) and govt agencies screwing up everyone's risk assessment (fannie and freddie lied about their portfolio, so everyone's risk assessment models were broken).

College tuition lending is the same sort of disaster. Govt guarantees and (now) govt loans - what could possibly go wrong....

[Dylan16807]

On the other hand any loan to a small business is automatically risky, looking at the failure rate. I would hate for small businesses to be unable to get money.