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Comment by T2_t2 | Hacker News Reader

How did smaller banks fare during the crisis? I think that's the issue at the heart of whether encouraging them or not.

I think the problem with using money lending as a tool for social justice and equality was laid bare during the crisis. The downsides - lack of mobility for workers, pushing the risk from wealthy people (investors) to poorer people and the fact to function the system needs loans to be paid back at some percentage approaching 100 - all conspire to make this a really poor tool for change.

I think that something like the Australian approach - with enforced retirement savings set at 9% of income (where you earn $50K, and your employer pays $4.5K into super) - is a saner approach to wealth creation for the poorer groups than lumbering them with mortgages.

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I think the problem with using money lending as a tool for social justice And equality was paid bair during the crisis

That’s not what happened. It wasn’t poor people who caused most of the defaults - it was investors working with mortgage brokers, real estate agents, and appraisers who were all part of the take. Poor people weren’t doing most of the no doc/negative interest or other types of “non conforming mortgages”. The investors walked away, did strategic defaults, and were free and clear within 3 years - ask me how I know....

I think the problem with using money lending as a tool for social justice and equality was laid bare during the crisis.

There's a big difference between a community bank using community ties as a source of superior intelligence, and a big company acting as a mortgage mill trying to maximize throughput "countrywide" until the bubble bursts. Before the community banks existed, Asian community groups would arrange private lending within the community.

It sounds good on the surface. I'd let people opt-in on that, though.

I can think of at least one instance from an earlier crisis (the 1980s S&L crisis) in which a community bank - in this case, Harlem Bank - had large government deposits suddenly withdrawn in order to shore up a "Too big to fail" bank, causing the collapse of the small, community-oriented bank. This matters. Government is a major cash depositor in many banks, and so government policy of cash placement affects the health of banks and the kinds of banks they support with their business.

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