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Comment by bostonscott | Hacker News Reader

"Predatory" lending is only possible in the presence of coercion.

If Party A is such a bad credit risk that the only loan they can get is from Party B at a high interest rate, and that requires them to dramatically change the behavior that created the cash crisis in the first place, Party B is not a predator.

If Party B is charging too much for the loan, surely another "greedy" party will undercut them and offer better terms to Party A.

If Party A accepts the debt on the same conditions, but then fails to dramatically change their behavior such that they insist the terms of the original deal be modified or else they'll default, Party A is acting like the predator.

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> If Party B is charging too much for the loan, surely another "greedy" party will undercut them and offer better terms to Party A.

You are assuming perfect competition in the area of loans to nation-states: this is certainly not the case. There are only a handful of lenders playing at this level, and they are mostly driven by politics, not profit.

"Only a handful of lenders playing at this level"

There are many lenders playing at "this level," presuming that by "this level" you're referring to the market for sovereign debt.

The area where there are only a handful of "players" is lending to countries that are very high credit risks. And for good reason. What rational investor would lend money to a party clearly unable to pay it back? None. That's a death wish.

Except of course when governments guarantee that party's credit for political reasons. Usually the arguments for such "support" include precepts that the free market leaves some nations behind, and so intervention is justified.

But the intervention, as we have seen quite often with the IMF itself, can do more harm than good.

And by the way, many "undeveloped" countries have respectable credit ratings (http://www.oecd.org/trade/xcred/cre-crc-current-english.pdf).

The tone of your comment suggests disagreement, but the meat of it is in full agreement with my earlier comment, so much so that yours can be thought of as a more fleshed-out version of mine.

>> There are only a handful of lenders playing at this level...

> The area where there are only a handful of "players" is lending to countries that are very high credit risks. And for good reason. What rational investor would lend money to a party clearly unable to pay it back? None. That's a death wish...

>> ...and they are mostly driven by politics, not profit.

> Except of course when governments guarantee that party's credit for political reasons

Your reference to lenders began with: "You are assuming perfect competition in the area of loans to nation-states," and you said "there are only a handful of lenders playing at this level." I disagreed because this is untrue, and suggested your comment may only be accurate in reference to countries representing very high credit risks.

Regarding politics and profit, we disagree here as well. Yes, I referenced political reasons as motives for lending to these very high credit risk countries, but it's not mutually exclusive. I believe if you dig into that political motive you will find a strong profit motive. Maybe the "State" isn't motivated by profit, but often the people who exert power over the State are. What else would they be motivated by? Doing good for humanity? Please...

In the case of the World Bank this is not a compelling argument.

Both critics and advocates claim that WB does not exist in a vacuum -- it is part of the larger post-WW2 western world order. Critics claim the coercion happens decades before WB offers the loan.

> "Predatory" lending is only possible in the presence of coercion.

Most certainly not true. It can also be caused by lack options, or awareness of options.

e.g. The US overwhelmingly opposed the creation Asian Development Bank, funded by China, precisely because of the leverage that it would lose over the ability to make loans through a proxy (World Bank) and dictate strict conditions around those loans.

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