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Comment by alextgordon | Hacker News Reader

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.

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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.

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).

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.

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?

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.

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.

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.

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