Comment by jsprogrammer | Hacker News Reader

Comment by jsprogrammer | Hacker News Reader

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>* Allows you to get a mortgage

Simply the base artifact of modern finance. Why do I need a mortgage? (hint: to supply interest payments to banks AKA the institutors of the world of modern finance)

>* Allows you to protect yourself with health/car/life/home/title/etc insurance

See above.

>* Pays for your highways/stadiums/schools and other public works

"Pays". A meaningless word.

>* Protects your deposits

Only through magic. If deposits are lost, they are merely re-created as modern finance is an arbitrary mathematical construct.

>* Pays for your retirement

"Pays for your retirement"

>* Funds the college fund that paid for your school

"Funds the fund" that "paid". Again, meaningless except insofar as your school depends on magic numbers being circulated.

>* ... Or the student loans that allowed you to attend school

Ah, yes, the loans; again, the foundational unit of modern finance, without which the "world of finance" would be radically different.

>* Supports the global supply chain that brings you your iPhone, stocks the grocery store/your favorite restaurants with food, and puts the clothes on your back.

Supports in name, but is curiously not actually involved in any physical aspect of realizing any of those things.

>* Funds the growth of corporations large and small, giving you the job that allows you to buy an iPhone

"Funds" ... "giving [me] the job"

>* Funds the massive philanthropy expenditures that help those in need everyday

"Funds", because the actual work is done by real people.

>* Pays the pensions of the elderly

I guess the system isn't complete evil.

You need a mortgage because you don't have $400,000 in cash sitting around.

You need insurance because you don't have the personal finances to adequately cover the risk of "life"

If we live in a democracy, and money is backed by the state, why do we have to pay interest to profit-making banks and insurance companies?

Giving out mortgages is not difficult. You just have to be a bank. Not only that but 2007 showed that profit-making banks are even worse than a reasonable person, or precocious five year old, would be at deciding who should be given a mortgage.

Mortgages are a necessary part of society. Profit-making banks are not.

The only reason you spend your life slaving away paying extra interest to the shareholders of banks, is because banks have manoeuvred themselves into a privileged position. Inequality is not an accident of the system, it is the point of the system.

Even if the banks weren't trying to make a profit, you'd still have to pay interest as loan-making is inherently risky enough that at some point, somebody has to cover the costs of those who default.

I prefer the suggestion of Positive Money ( http://positivemoney.org ), which is that bank accounts are split by savings and investments. Savings would just keep your money safe (no interest), investments would have a potential return but also carry the risk of a loss. It'd be up to you how you wanted to split your money between savings and investments.

The bank that is the closest to this model (that I know of) is Mondo (due to be launching soon). Along with it's other innovations, it plans to allow you to invest money via Funding Circle for a potential return:

http://www.thememo.com/2015/06/25/meet-mondo-the-app-thats-g...

This is a smart idea on a couple of levels, it mitigates against the risk of bank runs and it provides a better return than many high street banks offer (the current average return rate from Funding Circle is 6.6%):

https://www.fundingcircle.com/statistics

Absolutely. But if retail banking were run predominantly by non-profits, we'd pay a lot less of it.

Mortgages are secured loans, so an individual default is no problem. The primary risk is of mass default (a housing crash).

If you agree with the pseudo-MMT view of the world, then the mortgage is created out of thin air in the first place, so if everybody defaults all that happens is that the money supply increases permanently instead of temporarily.

Defaults exist because it is a loan-backed currency.

Defaults have nothing to do with "loan-backed currency", as if that statement means anything.

You could have a default on a loan if you were paying for your house with NukaCola bottle-caps, or engraved-crab-shells.

If your legal tender currency is created primarily through loans, then it is loan-backed.

As you noted, the concept of a "loan" entails the possibility of default.

If most currency is created through loans and loans must be repaid in that currency, the system-wide probability of defaults is significant. The likelihood of defaults increases as loans require payors to also include tribute payments (interest), for which no currency was ever created (necessitating that the payor obtain the requisite currency from someone else before the default day occurs).

So you want to collect enough taxes to have the government provide zero interest mortgages. Does that mean everyone gets a mortgage, regardless of creditworthiness? You want me to pay for other people's mortgages, when they won't even give me one?

That's essentially how buy to let works. As a renter I am paying for someone else's mortgage. If I could get a zero interest (or even normal interest) mortgage guaranteed by the government I wouldn't have to rent and I could retain that value that I have generated for myself. As it stands I work my ass off and make someone else rich in exchange for keeping my chin just above the water line. Housing is a necessity and its profitization is unethical. It amplifies wealth disparities and destroys value in society.

How would banks collect profit then?

I didn't rule out being charged a nominal fee for the service. They could also focus on non-essentials? Banks have many products other than mortgages.

The parent never mentioned zero interest, why not have a interest just because the loan is granted by the government? Just call it a tax instead of interest.

Except Fannie May and Freddie Mac were a significant part of the reason that bad mortgage lending was made - because politicians wanted more people to be home owners. Profit making banks should be the reason that lending decisions are strict.

It wasn't just banks making poor decisions in 2007 about who should have a mortgage.

"Giving out mortgages is not difficult."

That is true only if you are not concerned about being repaid at a reasonable rate of interest. Lenders need to assess credit and interest rate risk.

Bingo. Cut out the middle man, or at least make the middle man not-for-profit. Prices would drop and nothing of value would be lost.

> You need a mortgage because you don't have $400,000 in cash sitting around.

And a large part of why housing costs $400,000 in the first place is due to the availability of mortgages. Mortgages gave themselves a reason to exist.

Not really. Land, Materials, and a team of carpenters/electricians/roofers/hvac/painters for 3-6 months ends up at around 400k. It's not really that crazy. If you paid them all programmer salaries, you'd never get a house for under 1mm.

The problem is that you have to take into account that those values are biased because mortgages exist. The value of a home is exactly what a person is willing and able to pay for it.

If mortgages never existed then people would value housing much less because it's no longer $x monthly, it's the whole thing up front.

You're right that a portion comes from material cost but the cost inflates to fit the budget of the expected buyer. Without mortgages the typical suburban house would be built so that a middle-class person could afford it.

From this you can argue that mortgages are a good thing because they allow a person with less wealth to get more/better houses by leveraging future income, but the trade-off is that buyer takes on more risk, there are no low cost homes in good neighborhoods which could be reasonably bought outright, and people are more dependent on their credit rating.

Exactly. That is why the UK has had to keep "emergency" low interest rates for the last 7 years or so. If they were to rise, people wouldn't be able to afford their houses and the prices would drop. The banks assets would loose value and we would have another crisis.

You can definitely build a whole house from scratch for less than 400k. You can build it for less than $100k - http://www.zillow.com/oh/home-values/

No, most of the value in a home comes from the land underneath it. The point being made above is that the availability of credit leads to asset inflation, as more people are able to compete for the same scarce things (desirable living locations).

Mind you, credit does have a purpose - if your income and your house's value appreciate faster than the interest rate being charged to you, then you were able to gather the resources for it.

Haha. You should become a developer. You would be rich in weeks.

I have a house in the UK which has a rebuild cost of £27k. The house is valued at approx £120k, but it's the cost of the land that makes up the rest.

That's ridiculous. Here in Poland, ever since our beloved government started funding a percentage of new developer-sold apartment mortgages to young couples, the prices magically rose about 15-20%. Are you saying that the roofers and painters suddenly started demanding more money?

But debt (and banking in general) just increases your available funds from x to, say, ax+b. How the funds are then spent - wastefully or wisely - and how the markets are regulated and react, are another questions. I mean, at least in theory, mortgages could be seen as equivalent to consumers simply having a little more money.

A monolithic concrete dome that is energy-efficient, fire-proof, tornado-proof and earthquake-proof costs around $30k. But it's not your money so you don't care that the banks are subsidizing incredibly complex, unreliable, weak, stucco-wall houses that due to their unnecessary complexity, naturally end up costing several times more than a better, simpler house.

> A monolithic concrete dome that is energy-efficient, fire-proof, tornado-proof and earthquake-proof costs around $30k.

For a space smaller than a typical studio apartment. The Monolithic Dome Institute[1] quotes domes at $125/sf (including walls) for a "regular" finish. Your $30,000 dome would have a footprint of 250 sf. My house would cost at least $287,500 to replace with a dome; in contrast, it would cost about $150,000 to replace it with another wood-framed house. Concrete block costs would depend heavily on how complex the floor plan is, but would still be cheaper than a monolithic dome.

[1] http://www.monolithic.org/forms/the-residential-evaluator

No, it's because a house is 400,000 times more valuable than a can of coke.

That's only true for a marginal can of coke. If you have nothing else to drink and are about to die a lone can of coke becomes much more valuable than the house.

Diamond/water paradox

Until you drink the coke and a blizzard comes.

Also, there's no paradox.

Also, high diamond costs are due to marketing.

The banks really succeeded in convincing you that that's the price of a house, but that only says something about you, not about the real price of a house.

A 500 sq ft monolithic dome house costs around $30k. It fulfills all the roles of a normal house, but better, safer, and cheaper.

Now tell me how I'm wrong because "furniture doesn't fit in curved walls" and how that justifies the $370k discretionary increase in how much you want to help banks prey on homeowners and earn more interest.

> Now tell me how I'm wrong because "furniture doesn't fit in curved walls"

Well, yeah, if you are going to have a house that small -- 500 sq. ft. -- optimal shape is a pretty big concern.

> and how that justifies the $370k discretionary increase

Well, much of the increase is going to be land price. Even a 500 sq. ft. dome home anywhere more typical home prices for reasonably moderately sized homes are around $400,000 is going to be a lot more than $30k just of the land it sits on.

Eh, I lived in a 400sq foot dome for four years. Always with a room-mate, sometimes with two. It was great. The bit of space between the couch and the wall just becomes some oddly-shaped storage space. Sometimes people would carve their own dome-fitting bookshelves in the wood shop.

There were fourteen of these domes, run as a cooperative, on three acres of land. The loans on building them were paid off in full by the early eighties, and I believe there was about a decade where no one paid rent. But eventually it was decided that a nest egg should be built up for upkeep and so on; by the time I was there, it was running about a third of market rent, and these days (due to some additional pressure to modernize) the rents are up to about 2/3 market.

Cooperative ownership is fantastic, and a great cure for the ails of capitalism. But they tend to not get a lot of investment for exactly the same reason: capital isn't interested in investing in non-capitalist spaces.

But it's certainly possible to band together with some friends to get an initial down-payment+loan. Then you incorporate the cooperative, and essentially 'sell' the house to the new cooperative, so that the 'rent' you pay to your new co-op pays off the bank loans. Once the loans are paid off, the cooperative becomes an autonomous creature, self-sustaining as long as there are people happy to live with other people and decide how the place will be run, rather than dealing with a landlord...

   > Cooperative ownership is fantastic, and a great cure 
   > for the ails of capitalism.

+$0.02. I served several years on a housing co-op board for a 156 unit urban high-rise (including as treasurer) and cooperative ownership is itself not a cure all, only the composition of the "ownership" is different. The shareholders (tenants) pool their investment, true, and then go on to create a corporate structure, elect a board, draw up rules and enforce them, assign duties, levy fees and payments, hire staff, contract, etc. It's a fairly ordinary corporation in most respects. The co-op is the landlord and it's quite a business to run even when things are going well and everyone pulls in the same direction and individuals don't cause each other trouble. When things go wrong (as they always do) or shareholders disagree (as they always do) or people behave badly (as they always do), it's exceedingly challenging and because it's a mix of personal and business there are some tough decisions and terrible hard feelings.

I agree capital tends to avoid housing co-ops because they smell funny and act differently and the laws around them are a mess. As a result, it's harder to assess the risk for a co-op than other businesses and more complicated to borrow, contract, etc.

It's totally possible to do at smaller scale; I've known of some micro co-ops of just one or two houses that have been quite successful. The smaller scale minimizes certain kinds of headaches..

People who can afford 400k mortgages expect to earn, over their lifetime, more than 400k. They just haven't earned it /yet/. The willingness of people to pay them over 400k for a lifetime of labor is what makes houses worth that much, not the willingness of banks to lend them that money today.

Actually, when I hire people I don't recommend them mortgaging their life, regardless of what I might think about affording or not to pay for their services either now or in an immediate future. In a surrounding changing world, instead of gaining leverage to better cope with its changing nature, people instead take mortgages! And guess what - they don't do it in their most clear minds. They always do this life-changing decision dreaming. That is what makes things overpriced and unaffordable without a mortgage.

> Why do I need a mortgage?

If you want to see what life is like without access to modern financial tools, got visit an Indian Reserve in Canada. Housing is cheap there.

Lack of access to modern financial instruments--municipal bonds in particular--is a major block in the way of First Nation's prosperity. Last year a new kind of "aboriginal bond" was floated for the first time to get around this, and hopefully more will come.

So you have an example of what life looks like in your dream world. It isn't pretty. And like everyone else who is pro-finance here, I'm not saying there aren't issues with what we've got. We can fix them. What we can't fix is the massive poverty that comes without access to financial tools, however morally repugnant those tools seem to naive outsiders.

> If you want to see what life is like without access to modern financial tools, got visit an Indian Reserve in Canada. Housing is cheap there.

So the wealth which flows in resource-abundant places is due to banking, and subsequently the lack of wealth in some desolated lands is due to the lack of credit availability, and both have nothing to do with the natural conditions of those regions?

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