Comment by mannyv | Hacker News Reader

Comment by mannyv | Hacker News Reader

We need private businesses (including banks) because it's the most efficient way to reach consumers.

Any large bureaucracy has standards for loan/lending evaluation. Inevitably those standards become more and more restrictive and conservative, because of risk management.

Private businesses are willing to take on more risk to reach different segments of a market.

As an example, take SVB. One of SVB's markets are startups: companies with no track record, spotty revenues, large and non-repeating transactions, and fluid ownership. A normal bank would consider a startup a money-laundering operation: no visible sources of income, with really large incoming and outgoing transactions that happen intermittently. Many startups also do business internationally, which is another huge red flag for normal banks.

This makes a regular bank much, much slower. Normal banks will put holds on financial transfers because of...risk management. SVB didn't, because that's their "normal."

It's the same for underserved/unbanked (ie: poor) communities. Lending standards have to be different because the community is different. In fact, the new wave of FinTech places are experimenting with other ways of judging creditworthiness, which would be very difficult or impossible to do in a large institution because of...you guessed it, risk management().

It's the same with private businesses vs public businesses. Why not just have a Wal-Mart run by the state? Oh, because every new vendor somehow will need to scale out massively to sell a product...which is probably impossible, both financially and logistically.

Is it possible to design a bureaucratic structure that is both all-encompassing and flexible? Probably...but in the (albeit short) history of bureaucracy it hasn't been done successfully.

() these small fintechs eventually get bought by the big players if the tech proves out

I'm a sheltered young guy but I always thought a bank shouldn't be a business (in the sense as Walmart is a grocery store or Taco Bell is a fast food restaurant). And if they are, the government should be staring over the banks shoulder all the time. I also feel like credit is doing less good than bad and should be done away with. I can see myself changing my mind but this is how I feel right now.

Most people would never be able to buy a house without credit. Along with many other reasons why credit is necessary.

I'm not saying there is anything wrong with credit but the ol latin american method of buying a house one brick at a time does work. You may have to buy the land all at once, but even where I live (top 10 city) that's doable for roughly what a down payment costs.

The concept of 'buy a house' is predicated on many other systems that make credit 'necessary'. Why do you think a person needs to 'buy a house' at all?

> Why do you think a person needs to 'buy a house' at all?

Because people need a place to live, it would be helpful if you stated which alternatives you have in mind?

Renting for the rest of your life? Building a house, paycheck to paycheck? Something more radical, like abolishing private housing and give every citizen a place to live, for free?

Governments are staring over the banks shoulders all the time! See banking regulators, FDIC, OCC, etc.

In some countries, all or most banks are state owned. It can work.

A useful thought experiment is to consider why things might exist in the first place.

Credit serves lots of useful functions in the economy, and has done since ancient times[1]. Consider someone (say a farmer) who needs to make investments (seed, fertilizer, equipment etc) that will pay off in the future (when the crop is harvested and sold). It would be very much harder for them to run their business if they could not borrow, or forward sell their produce (which is an agreement that requires credit as a basis).

Or consider a merchant who needs to import or export goods. While the ship is at sea, either the buyer or seller almost certainly requires credit.

Think about very large assets (eg houses). Most people who buy property require a loan. To buy a house for cash where I live would require a literal lifetime of saving - where would you live in the meantime? You would need to rent. How would your landlord be able to buy a property if they could not borrow? If you did eliminate borrowing to purchase property literally only the ultra-rich would own property and they would own all the property. This would enforce an extreme unfairness that would be self-perpetuating as it would be practically impossible to transition from the renting to the owning class. This is similar to Europe in the early medieval period when hereditary landed gentry owned all the property and as a result the vast majority of people lived lives of abject poverty.

In general if credit did not exist, economic activity as a whole would be severely curtailed.

Do people use or extend credit unwisely? of course they do. Should it be done away with? Probably not, or not without understanding the profound implications this would have across the economy.

[1] https://erenow.net/ancient/money-in-classical-antiquity/6.ph...

I've always thought the US Post Office model was one worth exploring for more industries (retail banking, stuff like epipens and insulin, etc).

If your lean and nimble business can outcompete the sclerotic and wasteful government, go ahead. No one will be happier than the public and the tax man. If not, then people will get their services from the public option.

In the USPS (also true of the US Post Office, but that hasn’t existed for quite some time) model, the government enterprise has an enforced legal monopoly, it is not in free and open competition wih private actors.

Im not american, so might be missing some context, but what is the monopoly?

You can use Fedex, UPS etc to ship anything from anywhere to anywhere. Nothing is stopping you from using fedex to ship your christmas cards as well. I assume people stick with USPS for simple letters because its cheaper and easier, not because of any enforced monopoly.

This is the sense that I meant it in, obviously they are peculiarities in the 18th century institution of the postal service that may or may not be worth copying over.

> obviously they are peculiarities in the 18th century institution of the postal service

The USPS was created in 1971, which is not the 18th Century.

(Heck, even the monopoly rules that originally applied to the Post Office that now apply to the Postal Service were first established in the 19th, not 18th, century.)

> Im not American, so might be missing some context, but what is the monopoly?

There’s a monopoly on residential letters, and a monopoly on mailbox access:

https://en.wikipedia.org/wiki/United_States_Postal_Service#U...

> You can use Fedex, UPS etc to ship anything from anywhere to anywhere.

You actually can’t, there are very specific rules for what you can use a non-postal carrier to send to which addresses and at which prices. Which is why you don’t see general, non-express, or cheap letter delivery from third-party services.

Except it's not impossible or even unusual: look into post office savings and checking accounts. We used to have this in the UK until relatively recently. It's entirely possible and not inherently doomed to corruption.

I find this a lot in comments from Americans on topics like this, this ignorance of other ways things have been done. You get comments like the parent talking about alternative ways of doing banking, or medical care, or a host of other areas as if they're impossible abstract thought experiments instead of things that have been actually done in other places in the real world.

That's not to say these other ways of doing things are without flaw or above criticism, just that they do in fact exist.

Relevant: https://www.youtube.com/watch?v=bOF_3IkjpZU

don't private businesses have bureaucracy?

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