As an immigrant I can tell you that the USA is basically Jurassic Park. The monsters are mostly predatory companies. It can be a lot of fun but it’s very easy to do worse than die - to end up a slave for the rest of your life to one of the predators. Along with bullshit like making options trading available to kids, debt is probably one of the velociraptors.
It is a trap sprung at the very start of your adult life when you’re most vulnerable, as a student loan.
It’s sprung when you’ve lost your job, are vulnerable and are about to become homeless.
It’s sprung when you’re already in debt and vulnerable, by other lenders.
Anyone see a pattern here? Debt preys on the vulnerable, turns them into something that delivers returns for decades to the holders, and wraps all that up into tidy looking financial products.
The business of debt is the financial equivalent of the US pork industry: Everyone treats it as part of American life, but the details would make most people throw up.
Anyone remember microfinance? That was the same play: usury with a fresh coat of paint.
I’m seeing posts here making it sound like 36% APR is acceptable. Look up usury folks. This is it. Debt that is intentionally structured so that it can never be repaid and keeps the borrower harnessed to the cart.
It’s incredible how folks, particularly in the US, have become this morally uncalibrated.
When I got married, I brought in a lot of personal credit card debt, and we ended up using our wedding gift money to pay it off. It was extremely humiliating.
Since then, I have lived quite frugally, and avoided all personal debt; paying off credit cards in total, each month. By the time we were ready to purchase a house, our credit was sky-high, and getting a decent mortgage rate wasn’t difficult. Our house is tiny. We live in a middle-class neighborhood. No Teslas on our block.
I also saved between 25-40% of my income in as many ways as possible, including some fairly decent funds.
I have habitually avoided debt, and lived quite humbly, my entire adult life. I have never wanted for anything, and have always been able to afford top-shelf equipment for my software development work, but I suspect that a lot of folks here, would sneer at my life.
Good thing, too. When I left my job of almost 27 years, and started looking for work, I learned that no one wants to work with “olds.” That too, was humiliating, and infuriating. In fairly short order, I just threw in the towel. I won’t go where I’m not wanted.
My savings allowed me to set up a small corporation to buy equipment and software, while I pursued my “dream job,” of working for free. I am working with a 501(c)(3), giving them software that would make a lot of “big league” corporations green with envy. I have the skills and experience to make others a lot of money, but my grey hair is so terrifying, that no one pays attention to my qualifications. I quickly learned to just avoid the agita. NPOs are grateful for whatever they can get, and I am appreciated.
This sounds a lot like me. In the 90s, in a brief foray to college, I racked up about $12,000 in debt. (Could have been worse). I was ashamed by it. I tore up my credit cards and repaid it over a few years. Around Y2K my brother and I each inherited about $40k from our grandfather. He spent his. I invested mine. Fifteen years later I used it to buy a modest house, for cash. I work every day and, without a mortgage or rent, I save almost all of what I make. I don't take extravagant vacations or buy myself fancy cars (although I don't have to skimp when buying people nice gifts for Christmas). On around $100k/yr I'm worth over $1M. I don't live like a monk, but I'm sure a lot of people would laugh at my simple lifestyle. I like cooking rice and beans, slow roasting cheap and delicious meats, and getting volume discounts on interesting wines. If my gf wants something I'll never say no, but I never dated women who were after me for money, because it's obvious to anyone that I'm not into spending for status. I recently bought my first new pair of shoes in 3 years. But there's nothing I want that I don't have.
Working as you do for a nonprofit sounds fantastic. My setup is a bit similar - after years of devotion, a good small company basically bought my freelance time in bulk and gave me 5% ownership, and I get to build beautiful software and set my own life.
Just an outside perspective. Your talking about how it's easy to be frugal when you inherited $40k, earn >$100k and never have to be actually frugal, you choose to be.
That's a fair point, but the broader message of avoiding lifestyle inflation is valid. I used to make a lot less money and have very little in the bank and now that I have a much better paying job (and had a lucky break with an acquisition) it's remarkably easy to justify things to yourself. "Sure you can make more money, not more time" - "this new thing is more efficient" - "if I have X then my life will be better" (that last one is sometimes, but rarely, true - we had a ~500 square foot house and 2 kids and a bigger home did dramatically aid our mental health.
I hate buying gas and feel guilty about it, but also would like to be able to seat 6 people, so suddenly a Model Y seems "reasonable". But sitting down and doing the math shows that even if my goals are environmental, keeping the 12 year old Honda and getting a rental car now and then is much better than a brand new EV (and vastly cheaper) - but before thinking about it carefully, I was tempted.
I really relate to this.
Aside from having watched "lifestyle inflation" put people I know who make 7 figures a year into debt to their poorly chosen young ex-wives...
I had a brief burst during the pandemic where I bought some wish list crazy stuff. A new guitar ($1300). A Roomba. A drawing tablet. A set of good wine glasses. A second car, one that was made after 1980 and doesn't fly off the road in the rain. And these things make you go, like - wow. This is a really well designed thing. It smells nice and feels solid in your hands. Shit, my life could be so much more enjoyable if my days and nights were spent touching these wonderfully designed objects, which I can afford to feel the pleasure of. Why do I deny myself the pleasure of having them?
So I think the basic answer is that I don't want too much comfort in my life. Regardless of money. I think money corrupts by making you too comfortable, yeah, but my objection is more to the comfort than with the means to purchase it. Life should be a bit uncomfortable. Or very uncomfortable, when your 1980 Datsun is leaking freezing water and sliding across the freeway.
A lot of people seem to have the idea that being a full-grown human is being rich. To me, it's being able to plug all the holes in your own roof and always bearing in mind that we're just here for a limited period of time, to gain knowledge and experience, not things to make us lazy and comfortable. But maybe that's just like some weird post-religious self denial predilection I hold onto.
I would urge you to reconsider the car thing. There's a difference between being able to fix your own car/house (which I also derive a great sense of satisfaction from) and routinely taking the risk of debilitating lifelong health problems because of an accident that a newer car with better tires could have easily prevented. (I once spun out in the rain and totaled my car because my rear tires were bald, narrowly avoiding serious injury. Never again.)
Also crash safety is 10x better on current cars than even 10 years ago. You’re not going to appreciate the simplicity of the old car when you’re debilitated for life in a crash you would have walked away from without a scratch in a 2020 base model Civic.
That’s not to mention auto emergency braking, traction and stability control, lane keep assist and blind spot monitoring that would have prevented the crash in the first place
I appreciate the attraction of the simplicity of older cars, but you are accepting that a crash could turn you into pink mist if you are lucky, lifetime of pain and disability if you are unlucky.
It is a world-historical moral affirmation to deny sensual pleasures, likely because this recursiveness causes us to live closer to animals seeking utility from their bodies than immortals.
"But we must not follow those who advise us, being men, to think of human things, and, being mortal, of mortal things, but must, so far as we can, make ourselves immortal, and strain every nerve to live in accordance with the best thing in us; for even if it be small in bulk, much more does it in power and worth surpass everything."-Aristotle, Nichomachaen Ethics, Book X, 6
Living on $100k means being frugal by the standards of the rich, anyway. I think it would be an error not to be frugal even if I considered myself rich, which I don't think I am. I'm happy that my tastes and preferences were set when I was in debt and waiting tables / driving taxi / doing three jobs. Up until I was in my mid-20s, making $100k/yr seemed totally unimaginable, so I appreciate what I have now in a way that I think a lot of people I'm exposed to take for granted. I still pretty much shop the same way, cook the same way, live the same way as when I was a cab driver, with a few additional perks I allow myself. Like a new laptop or new shoes every few years. I'm not just frugal; I literally don't know how to spend money, and the thought of spending it scares the shit out of me. I haven't let a higher income change my basic outlook. Because of where I am in my career, I'm surrounded by a lot of people who make 10x what I do and are worth 30x what I am. And I'm constantly appalled at their decisions and the stupid things they waste their money on. If I had that kind of money, I wouldn't be going to Burning Man or partying in Tulum or buying Lambos or adding a waterfall pool or hiring fire dancers for backyard parties. I'm not sure what I'd do, but it wouldn't be those things. I'd probably plow it into whatever new startup idea got me obsessed with code all night.
On the spectrum of all humanity, inheriting $40k in your twenties is on the lucky side, but it's also pretty basic. I wasn't born a Brahmin and I didn't exactly inherit Dubai. I also know a lot of people who were trust funders from birth and threw it all away, or blew their money on bad ideas. Or blew it up their noses and committed suicide - I knew several of those. Just from my own observation, most people who get money and don't know how to manage it are parted from it pretty quickly. This isn't to say I deserved to inherit something, just that, life finds a way to equalize out stupid behavior pretty quickly.
Reminding myself that that's the case is probably the only way for me not to go broke.
Yes. This advice is decent if you're upper-middle class or above, socio-economically speaking, but to the majority of people, it's just not applicable.
Not to mention that we're in a society that incentivizes people to be irresponsible. I'm not allowed to earn six-figures or I'll lose healthcare. Same with inheriting/having more than a certain amount saved. My meds cost 300k/yr, so I hit OOP max the first month of ANY health insurance plan I have EVERY year. The wrong plan can cost me over 20k/yr.
I don't know you, and I probably shouldn't comment, but this way of life stops people getting rich. For you I'm sure that's OK. Like you say, you have everything you need. Anyway...
There are two things that practically every rich person I've met have in common (where rich is assets over about $100m that aren't inherited). The first is focus. They have the ability to see an idea through to the end. They believe in themselves, they believe in an idea, and they execute. By the sounds of it noduerme might have that sort of focus. To live frugally when you don't need to sounds like someone who has an idea and is sticking with it. That's awesome.
The second thing is need. Actually needing money, either just to start out, or to fund a lavish lifestyle, or to keep up status, is a powerful driving force. Setting up your life up in a way that removes the force stops most people executing on their ideas.
This is advice for anyone who wants to get rich - if you slowly grow your assets to a point where you're very comfortable, you probably won't ever level up to the point where you can buy a Lamborghini because you just won't need to. If your goal is to become rich most people don't seem to be able do it by slowly growing their wealth and then working on an idea. You have to use the need to be "%^&* you money" rich to drive your idea.
(This isn't universal of course. Some people come up with an idea later in life after they've got a house and assets and still execute brilliantly. But it's much more common to see younger founders who need success pushing an idea to a big exit.)
It appears that you got downvoted a bit, and I’m sorry. I think that your point was well-made.
In my case, I have written infrastructure software that has, and will, change the world. It has already become a worldwide standard, and is used daily, by thousands of people around the world. It is not hyperbole to say that the software saves lives. That’s exactly why I wrote it.
I never made a dime on it. In fact, I spent thousands of dollars of my own money, and ten years of my life, shepherding it to the point where it could be taken over by a new team, and become ubiquitous. It was a difficult journey. The demographics of the users of my software are … challenging. I often weathered torrents of abuse, sabotage, and opposition, during the project. The new team will never have to suffer those particular slings and arrows. I’m an ornery, stubborn old coot, and could take it. I knew what I was signing up for, and many folks would consider me insane for doing it (they may have a point).
I’ll never get an award, and I have almost no recognition at all. Every day, I interact with people that use my software, and have no idea that I was the original author. I also deal with folks that know what I did, but don’t really understand what it took to get where we are. They seem to think that I sat down, and churned it out in a couple of months.
Not every achievement should be measured in money, and that’s great.
I upvoted because it's spot on. Those are exactly the drivers to get seriously rich. And you spotted me. I don't need to be rich or drive a lambo. Need for fuck-you money comes from a couple places, that I've seen:
* Dad was abusive, always put you down. You never felt good enough, you need to prove you're better than him. I had this. My brothers had it. One of them makes $3M a year and desperately tries to use it to impress our father. I guess watching that act made me realize that's a fuckin futile way to spend your time.
* You had some other form of humiliation, maybe you're short or ugly, girls don't give you the time of day. (I'm short and not terribly attractive - girls like me well enough if we get talking, and I always play poor on dates, although I pay for things. I never, ever want someone to like me more because.. [edit] double edit here. At my ultra-rich brother's wedding, his wife stood up to give a speech and she said:
" I always thought [brother] was short, but I realized he was a lot taller when he was standing on his wallet! "
Needless to say, they got divorced and he's still paying for it ).
Just since we're speaking very bluntly. I found that when I'm single, I can usually meet a girl if I stick around somewhere until the end of the night. But I usually don't do that unless I'm starving. So you're exactly right, having the focus and having the need are two different things.
The only place where I personally think you're wrong is your overall pitch - "don't be this guy [noduerme]" - to young fellas that think getting rich is the end-all. Like said, if I needed it enough, I'd spend my time trying to get fuck-you money and be rich by those standards. But proving the size of my dick just isn't something I need to do, know what I'm sayin? And funny enough, that blase attitude I've developed about it really fucking pisses off the ultra-rich people in my life.
I've always found the real thing that people don't like, and I don't like, is the desire for approval. That childlike "look at me" thing that is endearing in a child but off-putting in an adult. I've seen it a few times among quite wealthy people, eg they try to impress you with how much wine they drink or how many cars they have, and it only works superficially. It's like a child somehow, and you often see them spouting their mundane thoughts in the media as if people want to hear what they think, or they start writing advice for other people to get rich.
The thing about socializing is you discover that if someone has one of these hangups (women, money, intelligence) everyone around them will let them demonstrate it. It's painful to watch sometimes. "Sure I'll try your car one more time". "Wow you're really smart".
By contrast I know genuinely megarich people who can't be identified as such, because they just don't have that need for approval.
There is no one I feel sadder for than the ultra-rich people I know who desperately want to just be liked. They're stuck in that phase of pre-school where it's like, "Look at how many legos I have! Do you want to play with my toys?" This is so superficially obvious, when you see it, I mean... you have to feel pity, because they're so desperate for love. For any real connection. And they can't trust anyone, either, because they'll never believe someone actually likes them for who they are. Having more money than you need to live comfortably is a fucking curse.
You’re incredibly wrong. Rich people just make friends with other rich people.
Speaking from experience, I don’t care if girls want me for my $. But I’m not looking for a wife right now. If I was, I would probably date women that I meet at higher social events instead of lingerie models.
I have a couple friends from before I got rich, but most of my friends now have similar status.
> Rich people just make friends with other rich people.
Those aren't friends. They're friendly competition. At best they're good to commiserate with. They're out to prove the same thing; they wouldn't be friends with you if you weren't rich. For proof, they think they have a lot of friends, but those people work for them.
> I don’t care if girls want me for my $
Recipe for disaster. I've seen so many people use their wealth as a tool of attracting women. You just magnetize the worst possible people to you. Tempting as it is - I'd rather front as a poor hippie and meet girls who like my personality. If they find out I have money, that's a bonus later, once I know they're solid & trustworthy people.
> The second thing is need. Actually needing money, either just to start out, or to fund a lavish lifestyle, or to keep up status, is a powerful driving force. Setting up your life up in a way that removes the force stops most people executing on their ideas.
I think I see the reasoning for this, but empirically, I don't agree. The need may be necessary, but it's clearly not sufficient for many people.
I would even say that it's just one of the possible means to get the focus going, but not the only one.
No one needs more rooms or roombas. I think he's referring to the need for 'respect' and ego gratification from other people. But rich people always find out this is bullshit - sometimes at the cost of years of being fake-handled by the people they trusted. Being rich can't buy you trust in your relationships. It's the opposite. You can never trust anyone who didn't love you when you were poor as hell.
I have no idea how you can spend a few hundred thousand dollars a month while still working hard enough to maintain a high growth rate, which I assume is at least full time. I also cannot fathom making that much (or really any solid amount of money) and spending it all. Why no t put a solid chunk away in case your business goes belly up and you want to retire to a beach?
> a good small company basically bought my freelance time in bulk and gave me 5% ownership, and I get to build beautiful software and set my own life.
It was pleasant to wake up, and see where this thread went.
I think that happiness is alignment of wants and needs, coupled with the means to satisfy them.
Some people need to be rich, as it satisfies an internal metric, of some kind, so the enormous work and sacrifice that are required to be rich are worth it. Unless you are born into wealth, getting there is a great deal of work (and some breaks, but it’s always work). I have known folks that got there, and were devastated to find that it did not make them happy.
I need to be a craftsman, to work “with my hands” (so to speak), on small-batch, artisanal creations, so my work has been focused on getting to the point where I can do that.
See the comment I responded to below. I have a hard time with that mentality, but I get it.
> I need to be craftsman
I relate to this so much. Most of my best friends are mechanics, cooks, butchers, musicians. I actually only have one friend who's a programmer, and he's a craftsman too... I know him because we drunk-coded at the same bar for a couple years. People look at programming and don't get it...(yet - they don't understand yet, in 2021, but they will in 2040) ...that it's a clock maker's job. One friend who's a mechanic builds his own engines - just glorious, gleaming machines, one piece at a time. One time I was in his shop taking a distributor apart and said my job is like this, and he looked at me like I'm nuts. No, it's like this. Taking things apart to see how they work, and figuring out how to put them together. Lines of code are just like screws and weights and this thing that flies around the middle, distributing spark, that's like a for/next loop.
My Dad was a lawyer and he said, when I was a kid, "poor people work with their hands, rich people work with their minds." Well, I told him when I was 13 I would rather make something with my hands because it's honest. Programming, done right, is honest work - no better or worse than a creative mechanic's job. And it can be very artisinal in a way that satisfies your aesthetic sense and your sense of a job done beautifully. I don't think lawyers get that type of satisfaction.
Imagine if we took "onboarding" as seriously as clock makers used to.
Working with a master for a few years to learn the craft, step by step, always under an experienced gaze.
Or conversely, imagine what a clock would look like if it was cobbled together by someone who has just gone through a few weeks of clock-making bootcamp. I feel this is what some of our software looks like.
My girlfriend is doing code bootcamp to try to have an option outside of her current job. I do know one girl who did it a couple years ago, who was a bartender and is now writing frontend React for Nike and making six figures. My GF's very smart, and I want to encourage her, but I don't think it's going to work. She's not a watch-maker. She's good at people. Here's my glossy view on this. Everyone wants this glamorous job now of being an engineer. But you have to be a fuckin obsessive OCD geek to look at a shitpile of cat output and be like what the fuck went wrong here, I can't stop, sleep or eat until I figure it out. It's okay. Not everyone can or should make watches. How do you train them..? Put them in the woods with StackOverflow and give them something impossible.
There are plenty of good jobs for people who are good with people and know there basics of how to code, though, so that may well work out well for her even if she doesn't end up enjoying full on development.
I believe that the problem is that the software development industry is completely built around engineers, staying at companies for two years or less. There’s lots of reasons for this. I think a lot of those reasons are cultural (SE culture, not nationality).
I stayed at my last company for almost 27 years. When I mention that in venues like HN, it’s usually mocked, and I’m basically called a “chump,” for doing it.
My only exposure to this weird, desperate, corporate ladder-climbing culture is via HN. It freaks me out to hear the lives coders are living inside these places, because it bears literally no resemblance to the way I articulate code or think about my job. I basically come here for the spectacle. I've been freelance since the first dot-com collapse in '98. I just come here to hear how $megacorp[$x] is abusing people. That being said, I always worry what if I had to go back to work for one...
I get a sense that you exist like myself, and other coders I've known, outside the furious competition for status in a FAANG, doing our own thing and crafting our own art. It's kinda calming and peaceful to watch from the grandstands while the central rat race shit show goes on.
[edit] I was also banned from here for 8 years for personally insulting the founder, who encourages and finances, uh, certain stereotypical corporate rat race bullshit.
A few years ago, I went to a dinner, hosted by Facebook. They were recruiting devs, and had a bit of an open house. I was curious about their operation.
The experience was fairly pleasant. I liked the people, but decided that the company wasn't really one that I wanted to join.
I was talking to one of the managers, there, and he boasted that he had been at Facebook longer than at any other company in his career. Since he was fairly young, I was curious.
The last part of your story really resonated with me. Zero worries, pleasant job, and dealing with just the parts of a company that you're interested in (e.g. not having to worry about sales, marketing, or payroll on your own).
I’m coming back from the first really expensive vacation that my family has ever taken (to Hawaii).
Was a lot of fun but if we hadn’t been able to do it with airline miles I don’t think I could have stomached the cost. We could afford it, it just doesn’t feel right to spend that type of money on a few days away.
IDK how it was in Hawaii, but don't feel bad. I'd much rather spend money on an experience (or friends and family) than on buying stuff. If it adds to the fabric and experience of your life, it's worth it. That's what money is for. The reason I think this is, it's the total opposite of sitting alone in your castle acquiring shit that you hope to one day show off to people.
> I'd much rather spend money on an experience (or friends and family) than on buying stuff. [snip]... it's the total opposite of sitting alone in your castle acquiring shit that you hope to one day show off to people.
What makes you think that everyone buying stuff is doing it to show off to people. I'd much rather spend money on stuff than experiences. Experiences are ephemeral and, once completed, exist only in your memory. The stuff I buy is generally something that going to make my life better in a continuous and ongoing way. A pond in the back yard, a nicer car (I buy used, but I buy a nice used car, with the bells and whistles that I think are important), a console system to play with my child, etc. I spend most of my life in or around my house... spending my money to make that time better seems fairly optimal behavior.
Another thing is you can sell your “stuff” on eBay to recoup the cost when you’re done with them or you can gift them to others. You can’t sell your vacation memory later in life. I went on vacations and did a lot of travel many decades ago. It was great in the moment but I can’t even remember most of them now. Those experiences are totally useless to me now.
That’s why I consider it financial insanity to spend your 20s traveling the world and “finding yourself” instead of working and saving. A year of 401k contributions when you are 20 probably results in subtracting 3 years from your retirement age. Make hay while the sun shines.
As a 30y/o who’s took a very stable primary job with great benefits and who works 3 other jobs +- 1 (engineer during the day… mechanic, photographer, general contracting moonlighting) I also obsessed over retirement and saving for my future. I only try to buy things that maintain value or will be extremely useful or life improving to me. However, I also think that the experience of traveling, depending on how you do it, provides immeasurable value to our lives, even if they do live in our memories and fade over time. Keeping a journal helps with calling back those memories, feelings, and things learned. I traveled a lot in my early 20s while still contributing to some sort of IRA. But I traveled very cheaply. Hostels and splitting bills and it has taught me so much about people, history, and the world that it has shaped how I interact with people daily. I can relate to people of other cultures more easily and have something to connect with which I believe is the ultimate experience, once we acquire the main things that we need to survive day to day. I don’t have many material goods, but the ones fondest to me I’ve taken to these trips or have inherited from others with stories behind their gifts. Having said all that, yes, I think taking vacations at all inclusive expensive resorts or just going somewhere to get drunk is waste, or at least not an ideal way to spend travel money.
I think it’s important to learn about the world and take in many experiences while we are young and capable because too many people don’t make it to retirement or can’t physically do the things they wanted to when they were 20-40
Traveling has been very valuable to me because I get to see that some of the unpleasant behaviors that are common in my area are not universal, but just peculiarities of the spot I happen to live in. It's somehow comforting to know that things are different in different places.
> I'd much rather spend money on an experience (or friends and family) than on buying stuff. If it adds to the fabric and experience of your life, it's worth it.
Yeah, that's what my stuff is: an addition to the fabric and experience of my life.
Spending money on pure "experiences" is, for me, wasted money. A memory of a vacation is worth less to me than some "stuff" I will use for the next 10 to 15 years[1].
For me, it depends on utility. I'm willing to spend on things I find useful, and I'm willing to spend on things I enjoy. Given the option between a vacation and replacing my 12 year old car, I'd replace the car.
I'm typing this on my main personal computer, which is a first generation i7, so at least ten years old at this point.
Heheh. I know exactly and that's okay dude. Live and learn. I spent a totally bunk couple weeks in Surfer's Paradise once for the cost of a whole summer in Uruguay. Can't always get it right. Beaches get boring on the higher end, or if you spend too long, too. Nothin like a couple weeks in a beach town to remind you never to retire to one :D
>I have the skills and experience to make others a lot of money, but my grey hair is so terrifying, that no one pays attention to my qualifications.
You need to position yourself as a consultant with a clearly defined area of expertise, your own site, blog, etc. A salaried employee these days is first and foremost a team monkey hired to please the boss, and only then a skilled professional. When you need someone with actual expertise, you hire them transactionally to solve the problem and keep them on a separate frequency from the usual chicken coup business.
> When you need someone with actual expertise, you hire them transactionally to solve the problem and keep them on a separate frequency from the usual chicken coup business.
I'm starting to see the pattern too. You hire for "team spirit", i.e., people that are happy to sacrifice their weekends and evenings for the mission of your company.
Old dogs, as I'm starting to become, will rather tell you that you need to work harder on your strategy, work harder on your product, avoid feature creep and sales outflanking. They might also tell you that you need management more than engineering. But enough of inconvenient truth, back to hiring juniors.
Just to make sure I don't offered anyone. A successful org needs both: fresh minds and experience.
because 50+ something CxOs with million dollar wages have a blog, a skill based resume and a github page, right?
you're proposing the same monkey dance that signal "skilled, but will ccept to be treated as a cog" which hr loves but is ultimately demeaning and dehumanizing - while the valuable jobs market moves on completely different gears
This will be controversial, but this is why the rest of the population sees us as lazy or childish. I try to put myself into the shoes of reading this comment as an amazon fulfillment worker. Comes off as spoon-fed that 'you're too good to even set up a CV'.
nothing wrong with being blu collar, but the amazon fulfillment worker didn't have to invest $$$ for five years of university and doesn't have, to land or keep his job, to keep training thorough his career and doesn't have his job landscape shift every six months as clients requirements and techincal fads change.
we're specialized knowledge worker, which just happen to have had our profession born after feudal ages, otherwise we'd be in the lawyer/architect/doctor brackets. we're slowly raising up there but just because of the labor market growth is getting stripped by the labor demand growth in our sector, but take not of this, unless something changes fast about how we see and market our profession, we're going to get pushed back into blu collars bracket as soon as the situation stabilizes.
The desire and pressure to consume conspicuously is something embedded in US culture, much like smoking was. Make it rain. Just don't tell me what my APR is in the morning.
The amount of discipline required to save and defer gratification is enormous, and it is a continuous effort, particularly in this country. You are one of the few. One of the brave. Congratulations!
The best coworkers I’ve learned the most from were more experienced older devs. Now I’m the most experienced dev typically, which is good for my wallet, sure, but means learning from others becomes more difficult
That was very inspiring. In my opinion, ageism is currently a passing fad. The tech world is currently going through a big churn in terms of what is 'new'. There will be a few frameworks / technologies which will stabilize which will rely on the "engineering" aspects of software which has been evolving over so many decades. Those people who've understood the fundamentals intimately are the ones who are valuable. Now and always.
> In my opinion, ageism is currently a passing fad.
ageism (in our field) is not about age, ageism is about having a family with all that entails - an higher asked wage, stable working conditions, stick to the contracted hours
no amount of engineering skill gap can cover for that
I don’t think today’s ageism is the same as previous generations. Young folks have been railing against their parents for all of human history, but we have, nevertheless, always been able to come together, and form an amalgam of experience and enthusiasm. I suspect that older people, having the money and power, while younger folks have had the drive and creativity, have forced the generations to cooperate.
These days, you have billionaires in their twenties. They don’t need anything from older folks, so there are no constraints on them.
Also, and I won’t go into the reasons, there’s now a lot of actual hatred between the generations. This time, it’s personal. I feel that.
In my job search, I was struck by the fact that the people interacting with me seemed to have a need to dominate and humiliate me. It wasn’t just a negotiation tactic. They hated me, and I had no idea why.
Me and a friend of mine keep being surprised how often people seem to miss fundamentals. Sure, they might know the latest incarnation of the parallel for loop in Rust. But ask them about communication overhead -- a basic concepts in parallel computing -- and they're blank.
Similarly, people are happy to see that networking in Kubernetes "just works". Once you ask them to run it on a provider without a Kubernetes-native load-balancer, say just use some BGP anycast magic, they are lost.
Age should be irrelevant, however it has some cultural aspect to it too.
At my previous work we wrote software for self-driving cars and worked with super young people who sometimes didn't even graduate college. We had serious issues selling to Asian customers who would not take us seriously just because of the average age of the devs being low. (P.s. we had multiple respectable big-name car companies as clients already, was not early stage startup or so)
I worked for a fairly “classic” Japanese corporation.
One of the things about their HR policy (I’m not sure if it was written, but it may have been), is that certain levels of seniority required that you be a certain age. No matter how much of a hot shot you were, you weren’t going to get your own team until your thirty-fifth birthday.
I hope it is a passing fad. I dabble in tech and accountancy, and accountancy is completely different. I can tell you that being older gets you better jobs with higher pay, where younger people have to work long hours to break out.
You know I discovered credit cards in my mid twenties when emigrating to HK from Europe where we had only debit.
I dont pay it in full each month dude, I pay it ... EACH TRANSACTION :D There s no reason to defer payment even by one week and each time you do delay your brain is telling a different story than if you just extracted money out of your account immediately.
Why do you think humans should permanently borrow to the next month to buy tomatoes at the super market ?
If you have discipline, it's very convenient. You can manage your cash flow and know when and how much exactly is coming in and out of your account, and if you have an unexpected $2000 expense (say, something went wrong with your car), you can pay it now and have a month to fetch the money for it from wherever you keep the money - since keeping all your money on the same checking account is both wasteful and risky.
Also, can get you a cool 2% back on every transaction (over the years, it comes to a non-trivial sum). Some can even do 5%.
All that requires discipline and planning of course. If you don't trust yourself with being able to keep it up for years - get a debit.
Because the US credit system requires you to do it this way, also since their card safety is dogshit you want credit in case someone skims your card, because it's not your money being stolen (it's easier not to pay the CC company than getting your money back from someone).
Another reason is that a CC usually allows higher offline transaction limits, which might be valuable for some.
Just because your direct debit scheme makes sense to you doesn't mean it makes sense for EVERYONE.
I have a VISA debit card and a Mastercard CC. I use debit the most (commonplace in Sweden) but keep the CC around as an extra if my bank has downtime or if I'm traveling the less connected parts of the world.
Widen your views, things are different all over the world. Imagine billions of people don't have access to the internet and you'll find that your way isn't the only way, in some places they pay with sex, food, cattle, cash, CC, direct debit, crypto, futures or whatever convoluted (in my opinion) system they can come up with.
If you're in an AMUSEMENT PARK or A BATHHOUSE you might transact with a tag and pay when you leave.
> Because the US credit system requires you to do it this way
That is the issue though. Why? It makes no sense. You gave this condescending lecture about understanding other cultures but didn't take a sentence to even try to explain.
I pay in full rather at the end of the billing cycle because I have it set to auto-pay and then I don't have to worry about it. But then I barely ever use my credit card other than for reoccurring payments or major purchase. I'll just use debit if I am buying tomatoes why barrow for small purchases in the first place.
I use credit cards for tomatoes. One reason is convenience. The other one is that I have a Apple Card, so I have a fairly decent Apple Cash “slush fund,” from the rebates they do.
With debit card you hand the merchant your whole bank account and trust them to deduct an agreed amount. With credit card it becomes the bank’s problem.
Anyway it doesn’t have to be like this. In China you scan a merchant code and enter the amount you want to pay on your phone, much like a bank transfer, but it happens instantly.
Good point on this - if some merchant cheats you, you have a decent chance with CC company to get the money back. With debit, your money is gone, good luck getting a refund.
I have been using credit cards in the US since I was a kid 15+ years ago, and my parents have been using them for 20+ years easy. I feel like they have had the ability to autopay for at least that long.
What's the purpose of an autopay-enabled credit card compared to a debit card? Is it just a convention?
To me a credit card always feels "dirtier" because of the connotation that it produces debt and that I have to rely on someone else extending me credit, even if momentarily. It seems much cleaner to just spend your own money directly with as little middlemen as possible.
> What's the purpose of an autopay-enabled credit card compared to a debit card? Is it just a convention?
As long as interest is avoided, rewards and protection. I end up with a 'free' plane ticket to Europe every year through my primary CC. The Apple Card gives 3% back on anything Apple (plus some others like TMO), and allows you buy almost any Apple item with 12 month, 0% payments. I could spend the 2k on that laptop or keep that money invested and just pay 166/month. The Amazon card is 5% back on anything Amazon (and Whole foods if that's your thing). I bought a 'free' TV with the rewards last year.
I've had my CCs stolen many times, and the buffer means I've never had that money leave my bank account.
I was taught early on in life that cash is king. The longer you can keep the cash in your control the better. Using CCs to provide a buffer does exactly that. And the rewards are a bonus for money I'm spending anyway.
Many credits card have points/airline miles/other stuff you can earn with your purchases. So as long as (1) the bill doesn't add fees for using a credit card, and (2) you are paying your credit card balance in full each month (and thus incurring no interest charges), it can be more advantageous to pay with a credit card.
Even if you are not earning extra points, using a credit card may be helpful for some who are trying to establish a credit history, which will be important if they wish to borrow larger sums (auto loans, home mortgages) in the future.
> Even if you are not earning extra points, using a credit card may be helpful for some who are trying to establish a credit history, which will be important if they wish to borrow larger sums (auto loans, home mortgages) in the future.
Ah, that explains part of it, I guess. This isn't a thing in my European country.
What I don't understand is why simply using a credit card would count more towards establishing you as a good creditor than not even having to use a credit card at all. I guess that's a weird bias in the system?
It is not a weird bias. Paying off a revolving credit card balance every month is not that big of a signal about your future likelihood of repaying loans in a timely manner, but it is a signal.
Not borrowing any money, and hence not having any history of repaying borrowed money is zero signal.
If it was true that people who never borrowed money were more likely than repaying borrowed money on time than people who regularly borrowed money, then a lender would have already noticed this in their data and would have offered a more competitive financing product in the marketplace.
Since that has not happened, it is reasonable to surmise that the tiny signal of maintaining a small revolving credit card loan with timely payments is better than the zero signal of not maintaining any loan balance.
Note that having many tiny credit card revolving loan amounts is viewed negatively.
> To me a credit card always feels "dirtier" because of the connotation that it produces debt and that I have to rely on someone else extending me credit, even if momentarily. It seems much cleaner to just spend your own money directly with as little middlemen as possible.
In the US, you lose out on 2%+ cash back rewards when you do not use credit card (because the price for purchasing with a credit card is the same as not using a credit card, and the minimum cash back rewards in free credit cards is 2%).
Why does cash back exist as a concept? How does it benefit companies to charge me less simply for the act of using a credit card, even if I'm not paying interest on it?
The entities giving cash back (banks issuing credit cards) profit more from the interest from people who do not pay their monthly balance more than the loss of giving everyone 2% cash back.
Merchants (generally large merchants) do not offer a discount for paying with debit cards because people spend more money when using credit cards.
There are some notable exceptions that offer cheaper prices for using debit card, such as Target that offers a 5% discount for using a debit card to pay. Hence I pay at Target with a debit card.
Basically, other people’s cash flow problems and/or inability to resist temptations to spend more than what they have results in profit for merchants, banks, and people that pay their credit card balance every month.
> Merchants (generally large merchants) do not offer a discount for paying with debit cards because people spend more money when using credit cards.
Also, I assume that most credit companies (VISA, MC, etc.), have rules, expressly forbidding charging different rates for the use of credit cards. It makes sense, because they don't want to be avoided as a payment option.
I learned this, when I did my first shopping cart, and read the whole freakin' VISA Merchant's Manual.
There was some kind of loophole that gas stations used.
Not as of 2010. Dodd-Frank legislation explicitly made it illegal for payment card networks to prevent merchants from offering discounts for different payment methods:
> A PCN cannot stop you from offering your customers a discount or another incentive for using a certain method of payment, as long as you offer it to all your customers and disclose the offer clearly and conspicuously. For example, you can offer your customers a discount or a coupon if they pay with cash or a debit card rather than a credit card.
In Mar 2017, Supreme Court went further and said state laws banning credit card surcharges were a violation of merchants’ first amendment rights:
What you may be thinking about is rules prohibiting charging different payment card network prices for various credit cards (i.e. different price for Visa vs Amex vs Mastercard vs Discover). This was deemed allowable by the Supreme Court in Jun 2018:
As an aside, this Ohio v AmEx ruling was of great benefit to tech companies that operated market places, because
> This decision was considered to have created a new type of rule that could make it difficult to seek antitrust litigation; with credit cards being a two-sided market serving two distinct sets of customers, a successful antitrust argument would have to show how both sides of the market were harmed.
> It can be a lot of fun but it’s very easy to do worse than die - to end up a slave for the rest of your life to one of the predators.
The US has relatively generous bankruptcy laws. Many people go through bankruptcy and rebuild their credit over several years.
It’s not true that you’re a “slave for the rest of your life”. Student loans (which are much lower interest rate and nothing like these loans) can’t be discharged in bankruptcy but even those are open to modification or discharge in the event of hardship.
> I’m seeing posts here making it sound like 36% APR is acceptable.
These are exactly the type of loans dischargeable in bankruptcy. The people requesting these loans had almost certainly been denied lower interest rate loans because they were likely to go bankrupt.
The alternative isn’t that these people get lower interest rates. The alternative is that they don’t get approved for any loans at all. Frankly I think that’s the best option for most of them, but that’s not really my choice to make. It’s theirs.
> It’s incredible how folks, particularly in the US, have become this morally uncalibrated.
The US gives people a lot of freedom to make their own choices. Still, we do have a lot of protections, but even those are delegated to individual states. In fact, many states do have laws that limit interest rates to as low as 4-5% (bank installment loans). That doesn't mean people in those states are all entitled to cheap loans, but it does mean that anyone with poor credit can't willingly enter into high-APR loans even if they need a short float until their next payday.
> Student loans (which are much lower interest rate and nothing like these loans) can’t be discharged in bankruptcy but even those are open to modification or discharge in the event of hardship.
Student loans are not so easily discharged. Yes, in theory they can be written off in cases of "undue hardship." But in practice, good luck finding an attorney willing to take your case.
> Federal Plus loans were 8.5% until that program was shut down in 2010.
Federal PLUS loans were never shut down, are still available [0]; what was shut down was non-Direct federal loans, including the non-Direct PLUS loans, which had a higher interest rate than Direct PLUS loans. [1]
Yeah, that's insane level of interest. My own student debt here in UK has the interest rate of 1.1%. I've just remortgaged our house at 1.29%, and our car is on 4% finance. All standard deals, nothing crazy. 7.9 or even 6.3% interest on the student loans that Americans get would be ruinous.
In the Netherlands, students loans are guven by the state. The interest rate is legally set to a mix of government bond interest (10 and 5 years). They included a clause that the interest never goes negative.
Student loans are going to be cancelled in 2022-2023 or significantly written down. Also the enterprising student is trying to pay off their loans now at 0%. It's too bad though that Navient restructured itself to mitigate these principal payments. I would say illegal too.
Student loans have been pushed back consistently and routinely during the pandemic. The aim of kicking the payment down the road is that the economy needs the monthly payment as stimulus — and to boot we’re already writing multi trillions in stimulus to get us conditioned for the big release.
The only thing that thwarts this is sky high inflation, which is not foreseeable… this is because they have the biggest inflation enhancement on full bore (these literal monthly rent payments or better in student loan deference) and it’s only caused 7% cpi or whatever… that’s anemic
This would increase the already high rate of inflation. So I don't think it's exactly likely. Plus there isn't the political will to give either party this win with voters.
So obviously bad advice, but the reason is that to declare bankruptcy you have to convince a judge to do it. You might have trouble with that using this terrible plan.
I was offering debt advice to a young person recently in the UK.
They had gone to a UK debt management company that seeks to compound your debt by asking your creditors to accept an Individual Voluntary Agreement where you agree to pay back a certain amount per month for a fixed period and then get it written off. In practice it affects your credit rating like bankruptcy. They were advised by that company to do exactly what the person above said, max their credit cards first. Cash advance if possible.
I work in the bankruptcy niche, and I wanted to tweak your statements...
Chapter 13 bankruptcy is deleted from your credit report seven years from the discharge date, which comes 3 to 5 years after you file (because there's a 3 to 5 year payment plan). So if you measure from the filing date, Chapter 13 takes 7 + 3-to-5 years to come off your credit report, which is 10 to 12 years from the filing date.
Similarly, Chapter 7 bankruptcy is deleted 10 years from the discharge date. In a typical Chapter 7 bankruptcy, the debtor receives a discharge 4 months after filing. So your statement is actually quite close, but to be pedantic, it's 10.33 years from the filing date.
In my experience, most Chapter 7 filers can fully recover after about 2 years, provided they are able to make their payments on-time after the bankruptcy.
This is a lie that needs to die. Bankruptcy might get removed from your credit report, but the public court records never do. Anyone who does a credit check can (and will) search those public records.
Some friends of mine declared bankruptcy a few years after the financial crisis due to their business failing. They eventually lost their home, but were able to save up some money by not paying their mortgage while their case was in processing). They rented a place for a few years, but after some time, like 2 or 3 years they were able to qualify for a new mortgage with apparently a decent enough rate and bought a house. They were also somehow able to decide which loans to declare bankruptcy on, so they kept their car loan for example.
I mean, I don't know that it is perfect, but I think the bankruptcy laws in the US are pretty decent at least.
I'm not saying bankruptcy is bad. It's a necessary escape hatch for the credit industry, and shouldn't have the stigma it does. maunder is absolutely right; the consumer credit industry in the US is nothing but predatory. Good for you if you haven't been bit yet, but their goal is to eat everyone. Whenever I see someone brag about their credit score all I see is a mouse begging for the cat's approval.
More and more you can't even opt out of consumer credit. I have attempted to opt out of it by not holding any credit, except I apparently need good credit to live somewhere, or a credit card to rent a car or do some kinds of money transfers.
Telling people they can file bankruptcy, "reset to 0", and have another chance to redeem themselves is bullshit. The only place it disappears from is your credit report, and implying that covers it is a brazen lie. It really doesn't. Fuck credit scores. What about the ability to get a job, or not live on the street? Having a bankruptcy from 30 years ago can negatively impact your ability to do either of those things.
The credit industry is so deluded that they think your credit report is all that matters, and that's how they want you to think. In reality, it's all that matters to them and they can't wait to get you back in the game.
If you go them and say "I want to make a very unfavorable to myself deal, that will make you lots of money" then they'll say "Yes."
Caveat emptor by default, with specific exclusions for some worse cases, generally governs financial contracts in the US.
In other words, you have the right to agree to whatever you want to agree to. If you choose to use that power to blow your foot off... well, that can happen.
The contrary view is that the state has at least two jobs: to create an environment where you're in a position to turn down bad deals, and to prevent the very worst deals from being offered in the first place.
Really it is about whether the government's job is to forcibly not govern, or to get involved.
The former I'd agree with, the latter I'd question.
Because "very worst" (or even just "bad") deals is a loaded term. Why? For whom? When?
As discussed in this topic, a high-interest rate loan is a bad deal, unless it's the best option you have. Would no loan be better than that loan? Maybe. Should we take away someone's ability to make that decision? I'm not convinced.
At some point, the cost of freedom is freedom to fail. So it's always a balancing act between not making that failure hurt too much or too easy to inadvertently stumble into... and giving people autonomy.
You'd think engineers would understand that you can't optimize for everything at once.
For loans over a certain size (definitely anything mortgage size) there is no limit on the length of the credit report given to them. They may not care when it's been so long, but they can see it all.
I'm going to say I don't believe this is true. However, I don't know for sure, and I also don't know the magic words to google to verify or disprove this. Can anybody point me to info on the web, or some of those magic words?
> This means no one can even tell you were bankrupt
Except the banks who loaned you money! There aren't that many banks, and credit reports aren't their only source of intelligence.
I'm always amazed at the number of people who recommend bankruptcy as, like, an investment or risk management tactic. It's a huge mess, and seven years is a long time.
It’s all relative. Seven years of not being able to utilize debt is better than 70 years payoff schedule where every cent of your disposable income is going to service a debt that you’re unable to really put a dent in and making real sacrifices along the way.
Creditors love people who have recently filled for bankruptcy. They're vulnerable, known to be bad with money, and can't file again for a number of years.
> Except the banks who loaned you money! There aren't that many banks, and credit reports aren't their only source of intelligence.
I don't think they have that info. It's not like you go take a walk down to your local bank and talk to a loan officer that grew up with you. It's a faceless nameless corporation that does very standard checks. They often don't even hold the debt. Trust me, they want to give you a loan and don't have their shit together enough to get unofficial credit history that they're not legally allowed to use.
American Express never forgets. 20+ years after declaring bankruptcy and I'm still not able to get an AmEx card, because they have their own records. (I have an 820+ FICO score.)
>American Express never forgets. 20+ years after declaring bankruptcy and I'm still not able to get an AmEx card, because they have their own records. (I have an 820+ FICO score.)
I can confirm this.
I'm 30+ years out from getting a couple thousand written off by Amex and 20+ years out from bankruptcy (a single "debtor" who was the plaintiff in a lawsuit against me, and during which no loans or credit cards were defaulted on) and American Express still won't do business with me, even after being their employee (and having to pay back every penny that was written off before they'd issue me a corporate card) for several years.
I'd also note that American Express does not report payment histories on their charge products to the credit bureaus. But they do have a very long memory.
Edit: I'd note that I still had a 700+ credit score within the 10 year window after bankruptcy, and my score is in the mid 800s.
I suspect Visa, MasterCard, and a number of other banks and credit unions would be keen to offer good loan conditions to a person with a demonstrated income and 800+ FICO score.
I'm not from the US so could you explain how credit unions deal with these things? Are they more sympathetic than banks or do they operate as banks-except-in-name?
For average needs a credit union is a bank with another name. They occasionally have better rates, because there isn't a profit motive for the credit union since it's member owned. If you have special needs beyond checking/savings and home/car loans a credit union may not be able to offer the same level of support as a bank. The quality of credit unions varies wildly, especially on the tech side.
One could argue that US' cultural focus on its flavor of freedom is partly at fault for why GP characterizes it as Jurassic Park. In the movie, the characters had ample freedom to go wherever they wanted (even jumping over electric fences), but at the same time, that same freedom made it easy for them to run into predators. The ease with which a loose predator could find a person in the movie can be likened to the ease of getting into financial trouble in the US. Student debt is notoriously unforgiving, both in terms of raw dollar amount and bankruptcy rules, and the way the US healthcare is structured means there's an unusually high rate of medical bankruptcies compared to other rich countries. The US also leads the charts in average credit card debt. The US also doesn't have as strong social nets for unemployment and parental leave among other things (and for better or worse, there's an undeniable strong relationship between the american notion of freedom and the comparative lack of government-run social net programs).
To continue with the dinosaur park analogy, you could then look at a country like Canada as an alternative zoological park, where you must sacrifice a bit of freedom by staying within designated lanes, but in return you don't run into situations where medical debt beasts can bite your head off in the first place.
The problem with this reasoning is that in so many ways, the USA is very non-free and just a cultural meme.
You can get thrown in jail for: holding the wrong kind of plant; associating/trading with/helping a persona-non-grata or a person from the “wrong” country; speaking up about military misconduct; sharing a copy of music you bought with friends...
And that’s just what’s imposed by by federal law. “The land of the free” is a mirage and hasn’t been reality for decades, maybe centuries.
Pointing out that you can get be thrown in jail for breaking the law isn't really a good argument. The alternative to rule of law is anarchy. Just because you don't agree with specific laws doesn't mean freedom is a lie.
Besides, the point wasn't about platonic freedom, but instead about a specific flavor of "freedom" that exists in US culture. In the dinosaur park analogy, the electric fences can be likened to government safety net programs. As you may be familiar with, there is a political faction in the US that dislikes the idea of being "forced" to pay taxes to fund programs to help the less fortunate, and a lot of the issues related to various forms of crushing debt stem from that ideology that a rich person should be "free" to be selfish.
I mean, if you change the meaning of "freedom" to only mean "having to pay taxes but not for funding wellfare (and being allowed to own and carry firearms, but not information or drugs the government disagrees with)" then the word loses its meaning.
With the same kind reasoning you could argue that the DPRK is the freeest country in the world, for "their flavor of freedom".
To clarify, I'm not disagreeing with you, nor am I the one changing the meaning of "freedom". I'm merely relaying the ideology that is commonly associated with the word nowadays in the US, in order to make an association between it and the topic of why debt is seemingly so prevalent in the US. If you have a better word than "freedom" in air quotes to describe the ideology I'm describing, by all means do share.
However, when the laws greatly restrict one’s ability to do things, are they really free? Whether or not you agree with a law, laws are nearly always aimed at restricting people.
Of course there are laws that exist to restrict people. The rationale is the protection of the commons. You wouldn't want to allow willy nilly murder and arson in the name of freedom, that'd obviously be ridiculous.
Let's avoid the faux intellectualism of "if [cherrypicked example], is the whole invalid?" Freedom isn't a black-or-white matter, you can simultaneously be prohibited from killing and free to speak your mind while jaywalking on a quiet street. But IMHO, one ought to consider topics like maslow's hierarchy of needs and human rights conventions before bringing things like music piracy into the topic of freedom.
Yes, and the impact on freedom is positive for those who need to take advantage of social safety nets, and essentially zero for those who are paying that top marginal rate.
For example, it might mean someone has to work a year longer before accumulating wealth and retiring. The benefit far outweighs the cost, but the cost is still there.
Taxes are inherently a restriction on what one can do with their money. That said, without them we wouldn’t have roads, police, healthcare, social security, etc…which does add freedom to many peoples lives. I think another comment said it best, laws can increase overall freedom in a society, but they do still restrict individuals.
Sorry, that was poorly explained. I’m agreeing that the overall benefit to society is positive. But, I disagree that the impact to the individual is essentially zero.
For anybody who's got enough income post-deductions to land in the 37% bracket, they're well into the 99th percentile in income. Even if someone at the very bottom of the 37% bracket actually had to pay 37% on all their income (yes, I know that's not how it works), they'd still be in at least the 98th percentile of income. So, yes, I call that essentially zero impact.
I'd agree with you on the marginal utility of that wealth, and (unrelatedly) on the moral righteousness of redistributing that excess wealth.
But that doesn't change the fact that we're talking about the government taking an asset (the 13%) from an individual.
It's hard to bill that as a zero-impact action with regards to freedom.
One might say "I think net freedom is increased by redistributing money from the extraordinarily wealthy to the broader population." But it seems illogical to say "We can create more freedom by taxing the wealthy, because that creates more freedom for everyone not wealthy, and has no impact on the wealthy."
It's a tautology that if someone makes more money, they will literally do something with it. The question is: who cares? In other words, would it be something meaningful, or no? Is anybody at that income level less "free" in any substantial sense because they have to pay a bit more in taxes? Again, I claim that for most people actually paying those tax rates, the answer is no, mostly because marginal propensity to consume decreases with increasing income. And, at that level of income, not having a few more bucks to invest just doesn't seem meaningful, either.
Let's hear some specifics. Name one specific thing someone at this level of income might do that extra income that meaningfully impacts their life. Your inability or refusal to do so so far seems to support my point here.
Here's my concrete example: if we added +13% to Jeff Bezos's accounts, do you really think that would change his life even a tiny bit? Would it change meaningfully even if we subtracted 13%? I'm just gonna say that's a no either way.
Presumably Bezos would spend more money on space travel. And Warren Buffett or Bill Gates would spend more on charity. And Larry Ellison would buy another and bigger yatch. Or Elon Musk would just keep it in a bank account.
Which one can feel on way or the other about, but it's disingenuous to claim that's nothing. It's not nothing.
So make the full claim you want ("I support laws that tax the rich and decrease their freedom, so that poorer people can have a stronger social safety net and more freedom."), being honest about all sides, instead of the edited version ("I support laws that increase freedom for everyone {because money doesn't have value to rich people}.").
And recognize that if it's moral umbrage you're taking, the same reasoning extends down the income scale. (Making the assumption that you're not making minimum wage, and I'm not) Presumably someone who is making minimum wage would believe many of the things we do with our additional income, but would not do without it, are "not meaningful."
Laws outlawing victimless crimes have a distinct and inherent flavour of anti-freedom associated with them, though. This is the way the US is lacking in freedom. It often feels as primarily freedom of the rich to oppress the poor.
The flavor of freedom the US embodies is the freedom to crash and burn. I'd prefer the freedom to flourish, even if that means limiting the freedom to prey upon the vulnerable and desperate.
It's a very classic "freedom to" versus "freedom from" dichotomy. You and I would rather have more "freedom from," even if it limits our "freedom to." The US system as a whole tends to tilt the other way, however.
The founding fathers gave a very fair warning: "The price of liberty is eternal vigilance". That is, a constant expectation of a threat from the environment, even if it's benign most of the time.
Like federal student loans, private student loans typically cannot be discharged in bankruptcy (although it is not impossible).
...
Many (although not all) private student loans have this tiny little clause, often hidden away in the obscure depths of the promissory note (the loan contract that you signed, but probably didn’t read, when you first got the loan). The clause basically says the following (and I’m paraphrasing here): If the co-signer or the borrower dies or declares bankruptcy, the entire balance of the loan will be come due immediately.
> Student loans (which are much lower interest rate and nothing like these loans) can’t be discharged in bankruptcy but even those are open to modification or discharge in the event of hardship.
This is a common misconception. Student loans are commonly discharged in bankruptcy. Enough people believe this that they don’t even try. The only additional rule for student loans is “undue hardship” which is not difficult to prove or argue for in bankruptcy.
Am I the only one that thinks it's backwards that student loans can't be discharged? It should be one of the only kinds of loans you can discharge. Why would you as a nation want to saddle your youngest most ambitious and most valuable people?
> Why would you as a nation want to saddle your youngest most ambitious and most valuable people?
That's why student loans shouldn't exist; if the federal government is going to subsidize higher education, it should be by grants, student out-of-pocket cost limits tied to accepting federal research and other funding, and other non-loan mechanisms, not forcing students into debt.
(Private student loans, OTOH, should be dischargeable the same as other unsecured debt, and if lenders don't like it they don't have to issue loans.)
If you look at the ramp in college costs, prices started climbing immediately after Clinton signed this into law. It was a gift to the bankers who get to make loans on a higher priced product and the loans are difficult to not repay because they typically get parents to co-sign.
It's because the debt is owed directly to the US Treasury, just like debts to the IRS. You can't discharge any debt you owe to the federal government, to my knowledge.
Same reason they can collect the debt using wage garnishments and property liens, methods that aren't available to most creditors.
This is only explained to some students (it was to me). But no one plans on not having money in the far future, regardless of what warnings they receive
> It's because the debt is owed directly to the US Treasury,
No, it's not; it predates direct loans existing, much less being the only form of federal student loan, and applies to private, non-government-guaranteed student loans, as well.
> Same reason they can collect the debt using wage garnishments and property liens, methods that aren't available to most creditors.
Property liens and garnishment are available to most creditors after securing a judgement against a debtor.
> This is only explained to some students (it was to me).
It’s good that only some students are subject to that complete fabrication, though it would be better if none were.
Such pedantry. The Treasury is still accountable for federally backed loans. And you still can't discharge them like you can other loans. Private loans were included in this later, for market purposes as I understand.
The government does not need a court judgement against a debtor before garnishing wages, withholding returns, etc. This is why the majority of these actions are for child support and student debt, not for consumer debt.
The rules for student debt repayment started with the premise that a different process was in use for money owed to (or backed by) the federal government
Because people in debt are easier to control. It's the same reason we are the only nation that does not provide healthcare as a right. Millions of people would quit tomorrow if they were sure their kids would have access to healthcare.
For reference, visit any nation with these rights. You will find more small businesses, fewer franchised chains, and happier people.
People might be happier but there are not more small businesses. But I do agree that health insurance is a big part of it. Less since the ACA passed though since you can get health insurance at any income level now.
Because then they simply wouldn’t exist. If they did, interest rates would be stratospheric, with most of the money coming from the successful borrowers subsidising everyone else.
What’s the difference between a student loan that can be discharged in bankruptcy and a personal loan?
Sure, the student loan can only go to a school but neither has any collateral which makes them the most similar loan products. So go get any 18 year old to try to get a $20,000 personal loan without any credit and see what the rates are and if lenders would even give it to them.
In the 1970's a couple of doctors declared bankruptcy while they were residents (and thus getting paid peanuts) because of how large their school debts were and how small their income were at that moment. Since the law didn't include "most likely in the future you will be making a lot of money" as one of the factors they then got very good cram-downs of their debts and voila, soon were very wealthy doctors. The handful of people who did this attracted media coverage, and the Government stepped in.
There was an immediate patch to this, and then longer term solutions as well. The basic, Econ101 level thought behind this is that if you go into debt to buy a car or a house or anything tangible and the debt proves too much the bank can take those assets back if you declare bankruptcy.[1] But how does that work for a degree or the knowledge in your head? What can they take from that?
Another issue is fairness. If student loans paid attention to how likely they were to be paid back then, as a first approximation, they would only be offered to people with above average income attending elite schools and poor people would be cut out of college more completely than they currently are- and they would pay much more attention to your degree, school etc. Everyone who goes to a Ivy would get loans, many people who go to regional schools wouldn't, because they aren't good bets to pay off the loans (people who graduate, as a first approximation, pay off loans; people who drop out don't, and community colleges and regional schools which focus on non-traditional students who have real lives already have much higher drop-out rates than Harvard- this is different in practice because of Pell Grants but that's a different issue). The reason that they are offered student loans is because the government guarantees them, so they have lower interest rates (yes its higher than a mortgage, but its much lower than a credit card or payday loan, which are the other unsecured loans the average person has access to), ignore your school, major, etc. and are available to every US citizen.
But if the government guarantees the loan, then isn't someone who defaults on this unsecured debt ripping off the American taxpayer? Easy to see how this can be gamed and the student portrayed as the bad guy, because of how the system works. Even those doctors at the beginning deserve a better system, but Americans first instinct wasn't 'let's fix this so that the doctors don't go into such debt' it was "lets make sure those cheaters don't profit off of ripping off the taxpayer." And that instinct is how we ended up here.
[1]: Obviously if you buy a new car the debt will be greater than the value of the car (because the car loses so much value when you drive it off the lot) but they have fancy economic models to account for that, and the house has an appraisal to prove that it can be sold for more than they are loaning out.
Why can't you just seize the degree? If I go to college and default on my loan, the elegant solution is to just strip me of my degree. If I want it back, I would have to go to college for another five years.
Because unless you are an academic what good would that do? Employers would still know you had obtained the degree and at worst there might he a small discount on your starting salary. You wouldn’t be fired for losing it.
Is the value of the degree the knowledge and experience (and connections) you made along the way, or is it just the signalling that this institution vouches for your ability to clear a bar? Interesting philosophical discussion point. If the value of the degree is the former, there is literally no way that a bankruptcy judge could force you to stop talking to friends or forget the things you learned. If the latter, well, could the court possibly enforce 'not talk about your experience at college' on your resume or in all your job interviews? Even if you had your degree taken away because of bankruptcy, it still would be something that you could mention in some way, right?
Student loans are a gold mine for banks. There is no other kind of loan that cannot be discharged on bankruptcy. Think about business loans: every business loan can be discharged on bankruptcy by definition.
The ACA (Obamcare) revamped student loans such that banks no longer got government guarantees for loans they originated. (The GOP unanimously opposed this "Government Takeover" of the student loan system.) This has created a system where the Department of Education makes the vast majority of loans, and offers other companies a small fee for servicing the loans, but they don't originate or profit from them directly- that's all the USG.
Private lenders do try and cherry-pick the very best borrowers out of the federal system; my wife graduated 5 years ago with a doctorate in Pharmacy and >100,000 in debt, and she got many advertisements to refinance her education loans because she was a pharmacist who was paying enough to finish off her loans in 5 years- she was a great bet to pay off her loans in total, so SoFi, Navient and a whole bunch of their competitors wanted her to refinance through them, but only the DoE was interested in paying for her at the beginning of grad school.
But even without this guarantee, this doesn't change the fact that the loan cannot be discharged during bankruptcy (at least not easily). This make such loans much more draconic than business loans.
They are ambitious and valuable as a class of people. Not every single person succeeds financially, and not everyone takes up work that makes a ton of money.
It sounds like you are saying that education should be funded by the state. Which is a fine idea, much better than playing crazy financing games that turn education into (US) healthcare /insurance.
But also, the ambitious and valuable people are the ones who can pay back their loans.
My friend has gone through bankruptcy twice. It was a breeze both times. Paid a court fee and had to go through a simple online course. I wish there weren't such a stigma because companies do this all the time.
Depends on if you can afford bankruptcy. I have a friend from high school who went through bankruptcy for medical debt. All it took was their landlord not renewing their lease for them to be homeless afterwards, because no one else would rent to them with a recent bankruptcy on their credit report. They don't make enough money for that bankruptcy to not have ruined their life.
Personal. What's extreme? My friend (or me if you think I'm doing that joke) is rebuilding their credit now. They discharged a bunch of medical and credit card debt.
Absolutely. You’ll be issued credit right away (at higher rates), since you can’t go BK again for a number of years [1] and you’re eligible for an FHA mortgage 1-2 years after filing BK. It’s not great, but it’s not a financial death sentence either. It’s arguably one of the reasons for financial dynamism in the US, where failure is less risky (compared to other OECD countries without such debt forgiveness mechanisms).
> The US has relatively generous bankruptcy laws. Many people go through bankruptcy and rebuild their credit over several years.
It’s like saying that you don’t need seatbelts in the car, because you have good medical insurance.
USA obsession with credit is the root cause of the issue, and relatively generous bankruptcy laws are a smoke gun to keep the show going and make people comfortable with a system rigged against them.
Credit makes a lot of money for a lot of companies, and risk of customers bankruptcy is just a cost of business for them, designed carefully to ensure they still end up making money.
So have a combination of the federal and state government guarantee student an amount of public loans for the student to attend a public in-state school. The student also shouldn't be forced to take on private loans because their parents refused to pay their share; that's a problem for the government and parents to figure out, not for the student to be punished for.
The estimated 2021 cost of attendance at the public school i graduated from are low enough that you should still be able to graduate with less then "6 figures debt" scenario that's tossed around, especially if you're working a part-time job throughout your education. If in-state schools are too expensive for federal govt to fund, then that's the state's problem to solve since that seems like a broken public college system.
Kids should have a right to education, but if someone doesn't have the money or is getting a degree without prospect of sustainable financial return then they should be prevented from making the bad decision of going to a more expensive private university.
Just out of curiosity, do you known anyone with significant private student loan debt? I do, and from my experience their debts are not only extremely burdensome, but impossible to renegotiate.
When I went through it about 10 years ago, I took out an unsecured personal loan for 2.5% and used the cash to "pay off" my student loans. Then I just had a $500/mo payment until I was done with it.
I was making about $35K per year but was careful to have excellent credit. It can be done.
Renegotiating isn't the same as refinancing. You can see the refinance rates lower down on the page you linked above. The rates are significantly lower.
Refinancing student loan debt is an extremely common scenario. It's not an impossible edge case. It would be difficult to do if the person had worked themselves into a situation where they have unreasonably high debt burdens (e.g. $200K+) but no career to speak of, so it's not a magic bullet.
> It would be difficult to do if the person had worked themselves into a situation where they have unreasonably high debt burdens (e.g. $200K+) but no career to speak of, so it's not a magic bullet.
There is a way: income-driven repayment plans. There are several flavors, but you pay ~10% of (your_income - 1.5 x federal_poverty_wage). The poverty guideline depends on household size (info here: https://aspe.hhs.gov/topics/poverty-economic-mobility/povert...). Most loans are eligible.
Any balance that is left after 20 years is forgiven. It’s a lot harder to default on these loans, and it’s the best way out for people with an insurmountable amount of debt. Actually, it’s probably the best repayment plan for most people, and there has been talk about making them the default plan.
However, you may have to pay taxes in the forgiven amount. There are some edge cases where you could pay more over the life of the loan if your income increases dramatically, but it’s unlikely.
Forgiven can be a real problem because the balance balloons and it could easily triple resulting in a huge tax burden. Once forgiven it becomes income and you get to pay taxes on the whole “gain”
Honestly, what would you prefer? That people are forced to repay loans they can't afford? Or that nobody is allowed to take out a loan unless they have enough capital in the bank to repay the loan anyway (e.g. loans are only for rich people)?
Pretty much every first-world country other than the USA has at least partially solved it. Social safety nets, regulation of utilities/public goods (education for example), and a guaranteed standard of living.
On this theory, they shut down mental health institutions. Now what happens is mostly that jails serve as ill-suited, ad-hoc mental health institutions. Turns out making things worse without having a plan doesn't always have salutary results.
“loans distort the clearing prices for …College tuition”
Does it though? I thought the same thing until I started paying tuition for my kids private elementary schools. It’s almost as much as college and no loans around to distort prices.
As a result, private school remains kind of a luxury product for people who don't like the free public offering and can afford to pay to send their kids somewhere else.
I can only imagine that if we extended some version of our school loan program to primary/secondary education we would have a lot of highly indebted parents or, god forbid, children, and an explosion of private schools.
Ultimately, it would also drive prices up. The high end would need to be more exclusive (expensive) and everyone else would compete on perceived quality more than price.
Yeah I think that is exactly what would happen. Private school is like 3x more expensive than college probably 5x when you adjust for time value of money
Econ 101 would say that a free option would push the equilibrium price down. I'm not sure I follow your reasoning. There are comments on other stories everyday complaining about how hard it is to price against "free."
Moreover, the owner of the school drives a Toyota. I think my point is that the cost of providing an education is greater than many people think. It's not like colleges are turning a profit off of tuition.
People qualify for credit when times are good and they can afford to pay it back. Then something bad happens and they can't. Banks are usually in the business of getting paid back. Often when they're not, it's because of a regulatory failure.
Banks aren't in the business of getting paid back, they're in the business of getting paid back more than they gave you. The ideal customer are irresponsible enough to accumulate interest, but not so irresponsible that they completely default.
That's why the US elites are adamant about not giving any social benefits to its population: they want the largest number of people depending on loans to survive, and working hard to make banks rich! People who depend on loans are forced to work hard, both for the benefit of their employers and the banks. It is like a cassino, where the banks have the house edge: banks will end up making more in interest over the lifetime of the loans (and the people).
We absolutely need to destigmatize bankruptcy, too. And also do things like make medical and student debt dischargeable. Debt is and always should be a risk -- for the lender, who is literally getting free money out of the contract.
> Student loans (which are much lower interest rate and nothing like these loans) can’t be discharged in bankruptcy
I am in the UK
This astounded me. Bankruptcy in the UK would wipe out student loans. However it is fair to say that bankruptcy also carries a stigma in the UK. It also restricts you from certain professions
While not a slave, for many bankruptcy will ruin any chance of the ownership of assets for 7-10 years. While not slavery, bankruptcy will put you into the peasant category.
Tobacco advertising is essentially banned, since it has long term affects. Credit should be no different. If used wisely it can be a good thing, but at the same time it’s marketed to the easiest and most vulnerable.
Credit advertising itself should be banned with tax incentives given to companies that require everyone to go through a financial course.
In my personal opinion a free financial course should be required before you first get your SSN and then no higher than a $500 credit limit for 6 months after.
> While not a slave, for many bankruptcy will ruin any chance of the ownership of assets for 7-10 years.
People declaring bankruptcy aren't in a position to have good credit scores or acquire more assets anyway. If you can't service your debts, you're not going to be securing more loans and buying more assets.
Bankruptcy is a chance to reset the debt to $0 and start over. The bankruptcy even drops off your credit score entirely after several years, making it a complete reset.
Bankruptcy is better in every way than forcing people to service those debts forever.
Student loan debt should be able to be discharged in bankruptcy. If an institution gives someone a $200k education and that person can’t pay the debt back with their career, it was overpriced and should have never been give a loan.
I’ve seen people flee the country and live in Australia or Germany so as just to escape their student loans. Bad on them for making the poor financial choice but good for them sticking it to the industry that gives out these loans.
I somewhat agree, but it turns out the details are extremely tricky.
For example, how do you prevent people from finishing college, immediately declaring bankruptcy, and then getting a high-paying job with their degree? Unlike a house or car, the education can't be repossessed so the holder retains all of the upside.
It would be the ultimate financial hack to get a medical degree, declare bankruptcy, and then immediately start practicing once the bankruptcy went through.
So obviously there would need to be a lot of protections against abuse. Perhaps a provision that the student loan could only be discharged after a protracted period (many years) of too-low income.
Ironically, there's a huge resistance to this idea from within humanities departments. They fear (rightly so) that such provisions would make it harder to get loans for humanities degrees because they pay significantly less. I don't think that's really a bad thing, but you'll find some outspoken arguments against this from people in the academic world.
You can't. What you're describing is textbook indentured servitude, which is a form of slavery.
If you're suggesting that some things are only possible to fund through slavery, may I humbly submit that slavery is still wrong, and things which cannot be funded except through slavery have no right to existence?
Yeah, see, I would personally contend that indentured servitude is ipso facto immoral, and so if your "fair deal" includes that, it is not actually fair.
Specifically, you're selling future labor in exchange for an asset that you can't immediately liquidate to pay off the debt. This is not acceptable, if the counterparty makes a profit from it. (If you could immediately liquidate it, at that point there would be no need to make recourse to your earning power)
> Yeah, see, I would personally contend that indentured servitude is ipso facto immoral, and so if your "fair deal" includes that, it is not actually fair.
And I personally wouldn't call a 10 year 0-10% cut of income "indentured servitude" so that's not a very useful way to figure things out.
> Specifically, you're selling future labor in exchange for an asset that you can't immediately liquidate to pay off the debt. This is not acceptable, if the counterparty makes a profit from it. (If you could immediately liquidate it, at that point there would be no need to make recourse to your earning power)
Doesn't the same thing happen if I use a loan to buy almost any product? As soon as it becomes mine, it becomes used, and liquidating it wouldn't be enough to pay off the loan. I don't think all those loans are immoral.
Is there a difference? Or do you think both are unacceptable?
And look, I'm fine with saying you could discharge this college revenue-repayment loan in bankruptcy if you were actually in need of doing so, but I'm trying to describe the kind of repayment terms where that would basically never be needed. If your income isn't above the threshold then you owe $0 and the loan goes away by itself after a few years.
> Is there a difference? Or do you think both are unacceptable?
Loans by themselves are acceptable; loans with interest are not, because you're making a profit from what could potentially be slavery.
A licit way to do it would be to have a purchase-repurchase agreement. I pay $5000 to "buy" a car, and I'm guaranteed to be able to sell it back for let's say $4000 a week later. That way, if I default on it, I can never end up in debt.
Loans backed by people's ability to earn income are a form of slavery, and earning interest off this is not licit.
Well if you think any loan with interest is unacceptable then I don't think there's any way to solve this.
If you want it to be easy to get the loan payments reduced or even cancelled when you're having money problems, then you need to make a profit off the people that do have plenty of money. And isn't that even better than returning what you got?
> Loans backed by people's ability to earn income are a form of slavery, and earning interest off this is not licit.
To my mind, the whole point of the minimum threshold for the type of loan I'm describing is so it can't be slavery. If you don't have lots of money, the debt just disappears. If you're wealthy... then you're wealthy, not a debt slave.
Currently only about 10% of student loans come from private institutions. I'm not sure if I want the government saying "You can't have a loan to study X because you won't make enough money". I'm not sure it's even possible to say that, except for using average life time earnings that could vary wildly over time.
Teenagers applying for college usually don't have personal credit histories to be evaluated. Either we give out lots of student loans, or we don't.
If you make student loans easier to discharge, you make them harder to get. That might be part of your plan, but it does make it harder for the less wealthy to afford college, so there's a trade-off here, not a straight victory.
After a year or two, college costs would drop dramatically. The breadth of degree programs, some of which lead to careers serving coffee, would also shrink.
Harvard and Stanford admit about 1 in 20 applicants. MIT around 1 in 15. I doubt you’d see those schools get cheaper as the demand far exceeds the supply. I think you would see a lot more legacy admissions and an overall wealthier student body in the top-tier colleges if poor people couldn’t easily borrow to attend. (As one of those people 35 years ago, I think that’s a way worse outcome than today.)
State schools and schools with high admission percentages might get cheaper in tuition, but it’s still going to be expensive to live and eat for 4 years with no income coming in for most of the year.
If people had to pay $200k to attend Harvard, the price will absolutely collapse.
1 in 20 applicants is only the top 5%. Being in the top 5% income earners in the country is not a high enough bar to shell out $50k a year extra post tax to pay a child’s tuition.
That 20:1 is the depth of applicant pool and almost entirely unconnected with the 95th percentile current income of one country.
Harvard draws from all over the world and many US upper-middle class parents/grandparents are willing to save for 20 years or use HELOCs; they don’t have to pay out of current income. Upper class can just pay for it (there are well over 1M households in the US alone with a net worth over $10M; those people would barely notice putting little Chris through Harvard).
If student loans were entirely outlawed, Harvard wouldn’t need to lower its prices; it would just end up not having poor people attending.
High school students apply to many colleges, and each student rarely goes on to attend multiple colleges concurrently. That ratio about applications is misleading, and is generally understood to be intended to be social signaling of exclusivity.
Why would a student not want to work part time to have a little income? I found it beneficial.
> People declaring bankruptcy aren't in a position to have good credit scores or acquire more assets anyway.
That's... kinda ridiculous. My twitter feed[1] is absolutely filled with flush 20-somethings who clearly aren't seven years into their careers showing off their NFTs and cars and condos and whatnot.
People right out of college with zero assets are getting loans. People right out of bankruptcy can't. So it's not the same.
[1] Seeded, it seems, from my following of a few Tesla-related accounts. There's... a somewhat distressing level of overlap.
>In my personal opinion a free financial course should be required before you first get your SSN and then no higher than a $500 credit limit for 6 months after.
And when you have a lawsuit filed against you in a comparative negligence[0] jurisdiction, even if you have no debt at all, bankruptcy may be your only choice -- when the lawyer's fees will bankrupt you even if you win the lawsuit (let alone having to pay even a small percentage of a seven or eight-figure judgement).
What financial advice (free or otherwise) can you give to someone in that situation? I was in that situation and faced either bankruptcy after trial (even if I won) or bankruptcy before trial and still lose access to favorable credit terms.
Bankruptcy guaranteed. With no bad financial decisions or lack of financial education needed.
If your scenario (ignorant people making bad financial decision) were the only issue, I might agree with you. But there are a whole bunch of other scenarios that don't include bad decisions.
All you need is someone to sue you for some large amount of money (even if there's no merit to the suit, the lawyer's fees for going to trial will do the job) or incur large medical bills for injuries/illnesses that have nothing to do with poor choices.
>In my personal opinion a free financial course should be required before you first get your SSN and then no higher than a $500 credit limit for 6 months after.
While I appreciate the sentiment, SSN is required for anyone to be claimed as a dependent. My Children had theirs issued shortly after birth. I rather see something alonog a required class before you can open your first credit card. I got mine in college and had a $25k credit limit by the time I graduated. It was very easy for classmates of mine to get into serious debt.
On US laws, is it only some states where you can walk away from a foreclosed home, taking a loss on the asset, but not being forced to repay the mortgage remaining after the bank sells the house?
Because I've always thought that was a very generous law indeed.
There is an upper limit on the amount you can take in these loans and it’s depressingly low, well below the tuition of many private (and some public) colleges. To finance the rest you’re looking at much higher rates.
Yo, only parent and graduate loans are close to that, of federal loans (private loans are another issue, and also probably involve an unaccredited institution that doesn't qualify for federal loans):
Yo, just because a new student getting loans right now can get 4% doesn't mean that 7% wasn't absolutely the norm for many people over the past decades. Anyone in their 30s has 6 or 7% or more on their loans, before ZIRP took over.
And since raising rates is the way they're going to stop inflation, like it or not, that 4% is going to end real soon and kids will be back to 5-7% in the next few years.
> Yo, just because a new student getting loans right now can get 4% doesn't mean that 7% wasn't absolutely the norm for many people over the past decades
Subsidized loans were at 6.80% for the first two years they used fixed interest (the academic years 2006-2007 and 2007-2008); this is the highest they have ever been under the fixed interest regime; there are three additional years they were at 5% or higher.
Under the variable interest regime before that, they spent some time at 7% or above in the 1990s, but those would have fallen with general interest rates.
There's a happy medium with debt. Dave Ramsey takes a conservative approach in that he prefers saving your entire stack before buying something, I personally like to keep (total debt < net worth), with some consideration for liquidity risk thrown in. If I lost my job could I be a free man or am I buried and sweating? Others take that multiplier even further and sometimes luck out.
On one hand debt causes issues for those who lack knowledge, but on the other hand it allows a great degree of near-term accelerated growth and societal load-balancing. The fact that society enables folks to collectively trust others to pay their debts is why we're not still stuck with a barter economy and the inherent inefficiencies of a "trust-less" economic approach.
So much of present growth and fruitfulness is rooted in the future faith that others will make good on their promises (debt). Debt is a great thing in moderation.
The case for debt is clear enough with a home, a car, or a business investment. Hard to imagine feeling anything but embarrassment or frustration at paying off a television years after you got it.
What is the difference other than a psychological one? Especially when you use car as an example. A car will probably depreciate just like a TV. It comes down to whether the terms are good. I have purchased TVs and computers on for 0 or very low APR because I had better things to do with the cash. I have no problem paying $4000 2 or 3 years in the future for a TV I have had the whole time - it beat the alternative.
A car has obvious practical utility if you live in a country where a car is the only way to get around. In many places it's basically essential to having a basic life where you get to your job, and so on. A television has comparatively little such practical utility, and the downsides to setting your sights on a cheaper one are much easier to live with.
The value of a car is also substantially greater (making a cash purchase less practical) and your odds of recovering a substantial portion of the purchase price through resale are much better (indeed with a TV you'll likely pay to get rid of it).
Same here. I always make sure I have the cash on hand to pay for debt if I'm somehow out of income, but if I can get a 0% interest rate on a TV (or, more practically, the $4000 bed I bought a few years ago since I don't quite understand what the difference between my $500 TV and a $5000 TV is other than marketing)... I can put that money into an index fund and have it grow instead.
I think this kind of highlights the issues that GP was pointing out though. I have stellar credit so I qualify for amazing rates. Folks who are perpetually in debt and don't have great credit will always have the worst rates. Being poor is expensive.
I just buy things with cash. How much interest is $1000 realistically going to be worth stretched out over a year? Not enough to be worth playing shell games.
Both are true. Personally, I don't have the energy to optimize my personal cash flow like this, even when it is a reasonable thing to do. But then I am employed again, with a steady income. I would use those 0% credits, and manage cash flow accordingly, if I were still self-employed so.
For reasons other then cash-flow, I wouldn't take a credit for things other then a house or true business investments (as: my company needs a credit as a way of financing).
Coming from an immigrant family myself which stressed savings and frugality above all, and who even with basic literacy and no formal education understood that debt was a trap, and that under no circumstances should you ever borrow money, I wonder what's wrong with 5th+ generation Americans who think they can get something for nothing.
Not to say anything about predatory lenders, who all belong in hell right next to the people selling miracle cures for Covid, but come on. The only reason there are so many people who fall for these traps is that the economy has grown and grown thanks to the endless influx of immigrants who create value. Left to their own devices, without immigrants who work and save, Americans would end up an impoverished banana republic within one generation.
IMO debt is a complicated topic -- One could criticize debt as traps for the poor, one could also criticize that the rich can use debts to maximize leverages / avoid taxes. Is debt something you don't want to get into? If so then why are the rich taking advantages of them? Does that mean you should prevent the poor from getting in debt? Is that not even worse -- gating them from education, home ownership, etc.? Is the problem then that education and housing cost too much? Or is the issue really proper education for the poor on what debt and how much debt they can afford? More rules and regulations to prevent them from getting debt "too easily"? Is that more gate-keeping against the poor then? I don't have answers to any of these and I don't have a perspective. Just wondering out loud.
I'd rather live in a system without the institution of bankruptcy and enjoy life with almost zero risk of this happening.
If you're an average American you start getting into debt very early in your life.
This is not how young people should be entering adult lives. What you Americans think is normal, really isn't.
It's also what propels Americans into a higher standard of living than anywhere else. At a young age I bought a couple investment properties with an enormous amount of debt. Now I'm living a very nice life with little to worry about. Debt is a tool just like a hammer is. Don't be yourself in the head with it, use it to make your life better
not american, canadian, but it' hard to avoid it here, most people wouldn't tbe able to get a car, university education or home without some form of debt. It does have a very negative impact on our society I'll admit that
It's normal for people here to enter their adult lives with between 20 to 80 k of debt from university
Disagree strongly. I’ve lived in places that ban payday loans and it just goes underground.
What you’re approach is, is to just han things because “people are too dumb to make good choices”. I’d prefer not to live in a society like that.
And I’m kinda surprised you left out mortgages. The US has far less mortgage debt than other Western countries. Sure they don’t take on student loans, but they seem happy to take on massive mortgages.
There's a reason many religions have a lot to say about usury. Abrahamic religions have debt jubilees in their religious texts during which slaves were freed and debts were forgiven[1].
One can argue that it's because student loans are easy to get, that there are so many spurious universities preying on students. I wouldn't really disagree with that. Let me share a different perspective. I couldn't get a student loan. They don't make it easy to get student loans in my country. Very few are alloted by public banks and those go to the managers' favorites. Because of the lack of a collateral, private banks don't every try - too much risk. My parents had to sell the only property we had - our house - to send me to college. I don't know if that is a better situation to be honest. I'd have gladly gone into debt to let my parents keep their home.
And the best part is that education wasn't even expensive for me - esp with the govt scholarship. But even that little money was a huge expense for my family. I know so many other fellow students who had a similar story. It's hard to imagine how many other families could have been lifted if they were given an opportunity like I had.
I think in this case velociraptor is correct. The parent comment is not talking about the real dinosaurs, but rather making an analogy to the fictional creatures in the movie, which means the terminology of the movie is correct since that's the context.
The pedantic point would be "the movie meant Utahraptor" or such, but not that the parent commenter did.
One thing that I've always found interesting is that, historically speaking, usury is very consistently frowned upon, even across societies that are otherwise very different. What more, the interest limits were usually far harsher than anything that we have today.
One can't help but wonder if our society being so deviant from the historical norm is evidence of its long-term unsustainability.
That's true, but the usury back in the day was usually about loans to individuals. These days, you can bankrupt out of it.
Traditionally, the Catholic Church has made a distinction between loans ultimately backed by an individual's ability to sell their labor for money (mutuum loans), and loans ultimately backed by assets (societas loans).
For societas loans, such as a non-recourse mortgage or a business loan, there is no regulation whatsoever. This is just equivalent to moving property around.
For mutuum loans, these are considered as a form of slavery. If a profit is being made on it, it is illicit. The reason it's slavery is that it allows you to sell your time before you have it. If that money is spent, you are now in a position where you are being forced to work for nothing, i.e. textbook slavery.
I visited US once and been reading a lot about the country, I also have a friend living there and some family. I live in a half-developed European country. We have a free higher level education, free healthcare if you work or someone in your family works, some very financial regulations and very strict hygiene regulations (for restaurants etc.). Guns not allowed to broad public.
Visiting The States, gave me an impression that the country does not really like their residents. If you trip once in your life path, you have quite big chance that it's all done for you, and in one of the best scenarios you will end up with huge loans.
Many people prefer not to go to a doctor, or not to go to study, people are not guaranteed any paid holidays etc. How this is making anyone confident? How an uncertain public can be productive?
Plus super expensive plasterboard houses everywhere (however that's not unique for the US), guns to anyone and quite dirty (compared to what I'm used to see) food places. I really didn't like what I saw and I became more glad that I live in my country.
Of course there no only bad things that I noticed, I do like the military effort that protects the status-quo (I wouldn't risk going to army in my country), or ease of opening a business etc. but overall balance for me was not in favour for the US.
This isn't America. Here is season 6 ep01 of an ENTIRE reality show series in England collecting money from people not paying debts [many of them payday loans]. In England they just walk into your home and start taking things. In Dubai they put debtors in prison. Isreal is covered in payday loans.
It’s terrifying how many Europeans come out and defend payday loans and pretend their system where it’s more difficult to declare bankruptcy is somehow better than the US debt system.
It’s terrifying that people in this thread think economies built on debt and usury is a uniquely American system. These types of posts are basically just turning into reddit
It's even better when talk of forgiving student loans triggers the sorts that were fortunate enough to pay them off on their own to decry that as some sort of giveaway the victims of these practices don't deserve.
I mean it's great to pay your way out of debt but the game is rigged exactly as you state. And I deeply wonder about the hidden costs of having so much of our population saddled with this debt. No proof but I'll bet it outweighs the cost of canceling that debt not that we'll ever know.
Don't forget credit cards. They make you spend money you don't have. Bringing you in with benefits you should've had in the first place (extended warranty etc).
As an immigrant (of 27 years) I can tell you that the USA is not Jurassic Park enough (Is that a good metaphor?). The monsters keep me on the edge. It is my job to watch for the traps. I am being lied left and right, in many ways, including companies your kind empower. Everyone wants my money. I fell and got back on my feet. I am ordinary and I am thankful. I am a parent to my own children - as for me, a big daddy is the worst that can happen to me.
Agreed with your sentiment. It's scary easy to fall down and go from ok living style to becoming homeless.
But on the other hand, healthy debt is what grows the economy and it's a necessity. There should be more regulation / laws toward loan grants and far more regulation toward APR.
One thing for sure is that the system cannot favor lenders over borrowers or vice versa because failure on either side results in collapsing the system.
the credit score is pretty much an enforcement system to ensure you're constantly in debt and most people I speak to think it's a good thing it exists. Americans have been thoroughly brainwashed and can't really think clearly about how screwed up their society is.
note: I'm also an immigrant, now citizen. I get the right to complain cause I pay taxes.
My wife tried to buy a new car with an extremely high credit score. They wouldn't give her the auto loan because of insufficient credit history, which acts as a second undisclosed factor in loan approval. I had to co-sign with my worse (~700) credit score because I had a history with student loans, credit card consolidation loans, &c
Yes, that’s how credit history works. You can’t expect to get a $30,000 loan at a reasonable interest rate without having at least some history of repaying smaller credit lines first.
But you don’t need to go into debt to have a credit history. Anyone with a credit card who pays it off monthly is building a strong credit history despite never paying any interest.
It’s standard practice to use credit cards for this reason. Credit cards also have a lot of buyer protections that debit cards and checks generally don’t.
In Europe I got approved for up to a 180k mortgage at 1.9% with no history (as is common here). Same goes for auto loans and leases. Nobody asks you to build and pay debt on a credit card.
> Same goes for auto loans and leases. Nobody asks you to build and pay debt on a credit card.
See, over here, banks treat it as a good thing that you never had debt on your name. Throw in a stable and reasonably high income and you can get loans basically on a whim. Because why wouldn't you, being as low risk as a person as you can be.
EDIT: Now that I remember. We have very fucked up quirk in the way credit scores are calculated in Germany. Asking for a credit has an impact on it already, because it is assumed that you need money which makes you a risky person because you obviously don't have enough of it. With the very "funny" side effect that shopping around for a mortgage can have a negative impact on the interest rate you can get, up to the point that it can be difficult to get one at all. The trick is to go through a broker that is not sharing his clients, your, name with lenders.
Not in the sense we're discussing here. Pedantically, yes. Practically-speaking, no. If you pay your monthly statement in full each month, you're no worse off than paying cash for those same things.
Or look at it this way, are you in debt to your electric company, cell phone provider, or water utility? You use those services but don't pay for them until a month or more later. Technically you are, but I doubt you'd feel the need to prepay for those services just to make sure you have no debt.
In this context of this thread, someone made the claim that credit scores are "an enforcement system to ensure you're constantly in debt." That's an overly-cynical look at it. I see them as a simple risk indicator.
A lot of people have this mistaken beleif that paying more interest on loans will "buy" a higher score. It's just not true.
Yeah, there is actually plenty of reason to criticize credit scores (do we really think it's good that if you struggle to pay off some debt you should also start getting shut out of job opportunities or housing?), but that's not a real issue with them.
Not if you have cash already in hand to pay off the debt.
(Then you can siphon back a fraction of the card interchange fees already baked into the price of goods sold via rewards/cash back. Just another regressive aspect of our financial system.)
This one is not a new SEC proposal, this one is just fun.
If you are a young person with no credit history, or a person with bad credit history, you will want to “build your credit.” This consists basically of creating a long record of reliably repaying your debts, so that credit reporting bureaus think you are a good credit, so that banks will happily lend you money, so that you can buy stuff on credit cards and get leases and mortgages and car loans. If you have no or bad credit this is hard, though, since no one will advance you any credit, so you won’t have any debts to pay, so you won’t build credit.
There are canonical approaches. Banks will give you credit cards with low credit limits so you can start small and build from there. Or they will give you secured credit cards: You put $1,000 in a bank account, you get a linked credit card with a $1,000 limit, the credit advanced to you is secured by the money in your account, the bank takes no credit risk but reports repayments to the credit bureaus, etc.
What if there was a simpler way? Yesterday reader Sark Asadourian sent me a link to a Credit Building product from Canadian fintech Koho, and I haven’t stopped laughing about it since. Here is the “How it works” section of the website:
1 Start by subscribing to Credit Building for $7/month in-app
2 Sit back. We'll report your progress to a major credit bureau and help you grow your credit score in just 6 months — without having to lift a finger
3 Ensure there’s $7 in your Spendable account each month to cover the subscription fee. That’s it!
They will demonstrate to a credit bureau that you pay your bills, by sending you a $7 bill each month, which you will pay. What is the bill for? For demonstrating that you pay your bills. They’ll charge you $7 a month for charging you $7 a month. What you get for the $7 is a record that you paid $7. Which could conceivably be worth $7 to you! Possibly this is good for the customers! I cannot stop laughing. This is maybe the best financial product I have ever seen.[13] “For the low cost of $7 a month, you can pay us $7 a month.” Everything else is so dull and overelaborated. Imagine being the person who came up with this. Imagine the bright wild gleam in your eye, coming in to work that day to tell your colleagues.
Also though imagine messing this up. You’re a young person, money is tight, you sign up for Credit Building, you pay them $7 a month for a few months but then life gets complicated, your account balance gets below $7 and you miss a payment. Do they report that to a credit bureau? Does it hurt your credit? Oh you’d better believe it:
Just as making your payments on time will positively impact your credit score, the inverse is true. Not making your payments on time will hurt your credit score.
To keep it simple: We advise you to let KOHO do all the work after you register. Just ensure there is $7 in your Spendable balance for the subscription fee each month and you won’t miss a payment!
Seems harsh!
[13] Exercise for the reader: What do you think are the margins on this product? My guess is “surprisingly low, depending on how you count.”
You said: "No debt here and my credit score is great. You don’t have to be in debt to have a good credit score."
Technically that's true but it leaves out the very major caveat that your credit score is not usable without accompanying credit history. What is credit history? Debt. It seems like you think it's OK for the system to force people to go into debt every month as long as they pay it off. What happens when one month they can't? They are then blamed for moral failing when probably they would have preferred to never use debt for regular payment in the first place.
I would say the cultural issue is more that the employer doesn't pay you immediately for your work. I understand there are regulatory reasons behind this, but still, this is what creates the dependency on credit.
There's nothing wrong with a credit card company giving out free 30 day loans with reasonable interest if they are not repaid on time.
If you're in a position where you find yourself needing payday loans, I think that shifting around the pay schedule is not going to help; you just have too little buffer for your expenses.
I've seen the mods take a pretty hands-off stance when YC (or its companies) are being criticized. I think it's a stated policy and I've generally felt they live by it. (If they didn't, I suppose I couldn't necessarily tell for sure, but based on what I see them "let stand", I think they do.) They're human and imperfect, but they don't seem to do much "home cooking" from what I can tell.
If I get banned/downvoted for this, so be it. But I cannot image a more naive or less aware position.
This site is incredibly censored. Their mod system is very gamed with people who know how to build up credit and downvote en masse.
Whether or not the founders support this behavior, it exists. There is a nasty, nasty f-in power culture that censors people along a political power axis these days. You cannot understand YC/HN without understanding this puritanical (left-wing) culture that has burrowed its way into VC backed companies.
And here is my comment, downvoted to 0 and hidden to grey, and people who dislike me and go to my thread and downvote all my past posts by 1.
Ignore me, dismiss me, whatever. But the censorious culture of the Bay Area is the very opposite of the (pretty neat and good) hippy dippy free culture of the 60s. It's the reason people are leaving, because their free-wheeling ideas are encouraged elsewhere.
Myself... I'm actually going to go up-vote you, just so people can for sure absolutely see your bitter ad-hominem attack.
You clearly don't know what "left-wing" means if you think that a bunch of upper middle class highly compensated engineers are that... Actual "left-wing" comments on HN are generally downvoted quite intensely.
EDIT: I just want to add how ... odd... it is to slap a "left wing" accusation about YC-backed companies as we sit here on a thread talking about a YC-backed company that was basically a loan-shark pay-day lender. WTF? That's left-wing? Ok then.
That payday lender was founded with a left-wing banner of disrupting the status quo of lending. YC wouldn’t have funded someone if they were just like, “yeah, we want to start a payday lender.”
I'm an immigrant from France in Hong Kong, another predatory capitalist jurisdiction, and even here it's still bounded by some logic. Payday loans are really frowned upon, I think there's something in Chinese societies, just like the French one I come from, that prevent people to fully enslave themselves in silly debt on the same massive scale as the US. And kids can trade somewhat here, at least every child has a stock account managed by his parents, the national sport being speculative trading here, so we ARE the jungle too. We're discussing a bankrupcy low, which I think would put the final nail in the predatory coffin - in the last few years I've seen the bank evolve from full-on anti-client predators to finally proposing Debit cards !!!
But nobody in France, or in Hong Kong, would take a 30-year student loan. It seems nearly possible in the U.S., at the start of your life. How can they do that to each other, ofc kids are stupid and think college is about "the college experience" that the loan makers pushed via financing movies about it and won't choose the local one with good enough teachers that cost nothing and move on.
I think they should really close the ivy league schools, opt out of Shanghai ranking, forbid foreigners - just like France does involuntarily (no top school, Shanghai snubs us, foreigners don't care about education in the French language) which ends up with cheap colleges for local kids with good enough teachers. But admittedly poorer research funding, but I never understood why we need to learn corporate finance or java enterprise deployment or heart surgery from researchers writing theoretical papers ONLY.
I highly recommend “Debt: The First 5000 Years” by late anthropologist David Graeber. He does a good job of highlighting the oddities of our existing financial system by comparing it to others throughout human history.
High APR is quite reasonable for very short term loans. E.g. 36% APR must be around 3% a month, which does not sound unreasonable for a one month loan. Here in the UK credit cards are very commonly at circa 20% APR.
What's important is to mandate detailed and clear information so that consumers understand what the rate exactly means and what the consequences or not repaying quickly are before they sign up. Then it's a personal choice and responsibility.
3% a month is not reasonable by past metrics. Utility companies like heating oil that didn't want to loan money used to charge 0.5-1.5% per month after the grace period back when normal mortgage rates were ~7% (APY) and car loans more like 11%(APY).
This is simply being in the business of gouging people who will end up needing to carry loans over and are better off having bad credit but never really have a point of change where they realize they need to declare bankruptcy or take other financial advice.
> It’s sprung when you’ve lost your job, are vulnerable and are about to become homeless.
I mean, I think you can call this a trap, or you can call it a life raft. If you take away the option of debt, the option that remains is homelessness. I'm not really sure its fair to call that a trap.
If there is a trap there, it's the fact that the person was in a position to become homeless in the first place. Not that some lender offered them a temporary respite.
If the option to debt is homelessness maybe think about that system for a second as opposed to what society is capable of providing if you let it.
Predatory corporations rule America today so the Jurassic Park comparison is quite apt. There is very solid middle ground in a social market economy.
We built societies as a construct to support the people living in them, but America is all about competition and individuals. There is barely any sense of community left unless media frames it like a sports event (team blue vs. team red or whatever).
What kind of additional financial education would you recommend? I think we are already doing a decent putting this info in front of our young.
I grew up very rural and solidly lower middle class. We learned to balance checkbooks in 8th grade, had an accounting class in 11th, and a “life skills” required course that taught about budgets, loans, interest rates, credit cards, apartment leases, and so on.
I am in my late 30s and everyone Ive ever mentioned this to was exposed to pretty much the same set of things before they left high school.
Based on my own experiences (around same age) and discussions with friends, the depth of your financial education is the exception. The checkbook one comes up a regularly, while loans and interest rates come up in the context of math classes.
I guess I'd also be curious how deep those topics went. Like for apartment leases, notions of how to find out tenants rights in your area and how to push back on bad landlords. For budgets, what do you do if you can't make a budget work. Things to watch out for when considering employers and common scams.
A lot of this stuff I was able to pick up over the years but if you get screwed early on it can really affect your life trajectory. Sources seem less objective than when I was learning this stuff.
If you're first gen semi-wealthy - say a SWE in the valley - there's a whole other education that's necessary... I have talked to many SWEs that don't understand their comp.
You are free not to get into consumer debt. Maybe educating kids to stay the hell away from consumer debt would be a good idea.
Not all debt is bad. It allows businesses to function and to go grow. We can see the effects of trying to have debt free societies in Islamic countries, it stunts economic growth.
Student debt in America is another thing, not allowing bankruptcy in this situation is horrendous.
Any argument starting with "you are free not to..." invariably misses the point. Yes, freedom and individual responsibility are important. No, you cannot build a sane society exclusively on those.
People don't have infinite time and knowledge to identify all the things, behaviors, products, services that "they are free not to choose". They can't read all the legalistic fine print designed by professionals to deceive and obfuscate while keeping them unaccountable.
This is particularly problematic as the "freedom principle" gets applied differentially in sectoral silos: When you go to the supermarket, you don't have to choose what will not kill you. Ditto when you select a car, a medical procedure or drug. Why should the financial sector (or the tech sector for that matter, as the two increasingly merge) be any different?
When people are increasingly data mined, algorithmically and behaviorally goaded to overconsumption patterns, instant gratification, addiction etc. the argument that they "are free to choose" is more than hollow. Until the US (and imitators) address this moral rot at the core of its socioeconomic system it will be rolling from crisis to crisis. This will only open the door for worse alternatives.
Individual responsibility should only be invoked when the individuals concerned have all the required information and ability and can be reasonably expected to excercise that agency given their context across the entire spectrum of economic interactions.
Most debt in the US can be discharged through bankruptcy. Student loans that are bankruptcy proof are a gift from the government in the last 30 years.
The entire tone of your post would be different if you realized that it’s like the game Jurassic Park, not the movie, because you can start over whenever you lose. The way to win in the US is lots of tries, not guaranteed wins.
> Along with bullshit like making options trading available to kids
Have you tried to open an options trading account? There are usually multiple levels of authorization and LOTS of e-paperwork to fill out explaining your age, financial situation, and financial education.
Have you any idea what options are intended for? Yes I've opened an account and it's a series of checkboxes. There's no "LOTS of e-paperwork". You clearly have not opened an account, or you're being disingenuous. It's literally you promising that you're an experienced trader and done.
Think Alex Kearns, the 20 year old RobinHood trader who was trading options, and said in his suicide note that he didn't know what he was doing, was fully vetted?
Options are unbelievably complex. 99.9% of traders don't even know what Black Scholes is and can't read financials. They're exotic instruments used as a hedging strategy against black swan events as part of a much larger portfolio, and the hedging strategy is designed to lose continuously for a decade if needed.
It's become a casino that lets kids make cheap short term bets against a stock making big moves, for a price far lower than the underlying asset.
But the trouble with options is this: With stock you're betting on one thing: Stock goes up. That's it. With options you have to predict direction, timing, magnitude, and a wrong bet is guaranteed to lose 100% of your investment immediately on expiry. No riding it out.
We've had a huge bull market. When the market turns, and it always does, and the suicides start, and the stories of ruined families emerge, then the post-mortem will begin and we'll all heal together and, in time, we'll forget about the victims, as we always do. But their lives will remain in ruin. And the predatory cycle will repeat. As it always has.
Heard a human-interest story on local radio praising the pandemic child tax credit. Most said they paid their mortgage, bought food, etc., but one said they spent it on stocks and cryptocurrency. Yeah that's not going to end well.
There are subreddits and yt channels dedicated to people buying Glocks and ARs with their Biden bailout money.
That said, when do 20 year olds have agency but should still be infantalized? I’m good with shades of gray, but the HNaleriat seems filled with absolutists.
So where do you draw the line? Is there no sense of personal accountability? If someone screams doctor in a restaurant, I don't hold myself out as one. It's hard to feel sorry for people signing their names to attestations they know to be false.
Not to mention that in the current climate, limiting access to these markets would be interpreted as some conspiracy by the elite hedge funds or something. Look at how many call to remove qualifications to be come qualified investors.
The problem is that you're only seeing half of the picture. On the one hand you ask for personal accountability (where I totally agree with you), but you don't expect any accountability from the company that makes the profit (in this case Robin Hood).
Robin Hood grants access to option trading to just about anyone and if the client fails and rides himself into deep sh*t, they just throw up their hands and claim "personal accountability", in the end meaning that the social system in some way has to bail out the person so that Robin Hood doesn't suffer any significant losses.
Too be fair the person has to check a box saying they are knowledgeable about investment product. If they lie and then screw themselves over who cares, let them learn a lesson
Maximum interest rates on loans have actually been found to harm low income people by depriving them of the best options available and leading them to use even worse options.
Easy fix - forbid usurious loans that people are personally liable for. Only allow repossession of a actual asset in the case of failure to pay - and suddenly all these go away.
I have made the exact comment to many over the years and I hope that more people such as yourself are as eloquent and succinct in conveying this point.
You'd be surprised, but many Western European countries have a concept of being decent, sense of duty, etc. While the modus operandi in the U.S. seems to be "go for it, as long as you can get away without getting jailed or sued".
On the other hand, the European culture pushes back quite heavily towards fitting in and against entrepreneurship, so neither of them is perfect.
Then where are all of the innovative companies? Europe has a massive drain brain problem because it absolutely does not reward innovation in any business sense.
In case mmaunder comes back to reply soon, what I'm getting at that the other replies don't seem to address is what metaphor do you use for where you came from? The reason is because the idea of immigrating to Jurassic Park seems crazy to me unless you're in a much crazier spot already. To me Jurassic Park is something you might want to visit if you really like dinosaurs and get a thrill from danger, but not live in. Technically I do live "in the park" but while I don't see it as such I have occasionally thought about going elsewhere, so it'd be nice to have another data point in places to avoid/why. Is it simply that there's no other place with dinosaurs? (Perhaps dinosaurs being a metaphor for entrepreneur opportunities as replies are hinting at? Though I don't think you're getting at that since you ride them all off as monsters with one of the iconic dinos being "debt" rather than an opportunity.)
Europe's national bonds are currently yielding negative while their inflation is soaring. Europe makes America look like controlled spending so probably not there. Could be a smaller and more sheltered nation like Monaco or Switzerland
Even if you are able to circumvent all this the only way at them moment to protect your savings is to borrow money and invest it in real estate or whatever.
Interest is the counterbalance of risk. One only exists because of the other. That’s all there is to it. People are free to use both sides of that equation to their benefit or to their peril. Your argument is simply that we should protect people from themselves, and I would strongly disagree. You’re an immigrant - what did you come here for?
> I’m seeing posts here making it sound like 36% APR is acceptable. Look up usury folks. This is it. Debt that is intentionally structured so that it can never be repaid and keeps the borrower harnessed to the cart.
This is Brazil or Mexico. Or payday loans. It's emphatically not America at large unless you live in SF.
It is a country that has given only a voice to those in power too. I wonder if that plays into it. We pretend that everyone has access to it but the truth is far from that.
Not to mention "credit rating" which is capitalism's answer to the communist "social rating". Don't get me wrong, I much prefer capitalism, but it has some really dark sides.
Being an immigrant gives you an edge of being more critical towards the country you reside in, for having been raised differently and thus instinctively noticing things that natives otherwise have been normalized to ignore.
In theory. In practice I see too many comments that use the phrase ("as an immigrant") as a way to turn their opinion (not always very smart) into some kind of fact. Look at the parent comment, it's not in the form "in my opinion as an immigrant". It's "as an immigrant I can tell you" as if that's something objective. Well, I'm not an American and I can't tell you that. Quite the opposite, in my opinion his comment is rubbish.
>A central component of LendUp’s marketing and brand identity was the “LendUp Ladder.” LendUp told consumers that by repaying loans on time and taking free courses offered through its website, consumers would move up the “LendUp Ladder” and, in turn, receive lower interest rates on future loans and access to larger loan amounts. As alleged in the complaint, in reality, as tens of thousands of LendUp’s customers climbed the “LendUp Ladder,” they failed to qualify for larger loan amounts and continued to be offered similar or higher interest rates compared to previous loans.
While the initial founding direction seems well intentioned, it sounds like they were scamming customers, or unable to actually follow-through on the promise to consumers. Glad the regulators are actually enforcing some of the rules.
While it does seem like a scam, I think the "following through" aspect was doomed from a business perspective. Credit, and therefore rates, is based on a consumer's history, not their knowledge. While poor financial decisions can certainly be chalked up to not knowing any better, knowledge of what you should do goes out the door when there's bills to pay and not enough money to cover them all.
Remember, LendUp is likely just a middle man and marketer; it's facilitating the loan, not doing the actual underwriting (and therefore rate setting). Following through would mean exposing the business to risk that customers, in spite of climbing their made up ladder, still made payments. Considering the other shady stuff that this thread is talking about, it doesn't surprise me that they didn't choose to take on that risk.
Of course the irony in all of this is that the very thing that would've prevented customers from making the right choice even though they were gaining financial knowledge is the loans that LendUp was handing out. I wonder if the pitfalls of payday loans was part of that knowledge track. I doubt it.
> Credit, and therefore rates, is based on a consumer's history, not their knowledge.
But their entire premise was that they weren’t simply going to use existing credit scores.
> Remember, LendUp is likely just a middle man and marketer; it's facilitating the loan, not doing the actual underwriting (and therefore rate setting).
Over $350m to be a middle man for small loans seems like an absurd amount of funding. I assumed and hope all that cash was because they’re actually lending directly.
> I assumed and hope all that cash was because they’re actually lending directly.
It’s not typical that you lend your own money out, and banking 101 is usually that you borrow money from one person (E.g. someone who has a bank account with you that you pay interest) to lend it to another at a premium (and you get the profit between those two figures in return for holding the risk if there is a default).
Investors will typically expect a much higher return on their own funds than the loan APR (unless the APR is eye wateringly high).
Edit: Apologies I stand corrected - I’ve just looked at the internet archive and it shows rates of up to 1825% APR. These loans are definitely predatory and so could have been done directly from the capital. Not surprised they got shut down, similar companies operating in the UK got shut down years ago and pretty much everyone is better off for it. It’s a hugely predatory industry.
> I’ve just looked at the internet archive and it shows rates of up to 1825% APR. These loans are definitely predatory and so could have been done directly from the capital. Not surprised they got shut down, similar companies operating in the UK got shut down years ago and pretty much everyone is better off for it. It’s a hugely predatory industry.
It is a hugely predatory industry that ought to be shut down. Unfortunately the "payday loan" industry is still 100% legal here in the USA :( It looks like LendUp got shut down for the misleading marketing about their evil lending practices, and not the fact that it was evil in the first place.
I wouldn't be surprised if it's a scam. I also wouldn't be surprised if it was all wishful thinking and their attempt to bypass traditional risk models was just a failure.
> LendUp has been subject to multiple enforcement actions by the CFPB. In addition to ordering LendUp in 2016 to stop misrepresenting the benefits of borrowing from the company, the CFPB sued LendUp in 2020 for allegedly violating the Military Lending Act and obtained a judgment against LendUp in that action. In September 2021, the CFPB filed this third action alleging that LendUp:
So YC funded a payday lender that targeted active duty military service members?
YC wouldn't do that. I don't know the history here but I do know that both founders left the company years ago (which is pretty unusual). I can only assume that a lot changed since they started 10 years ago (they were in W12).
DanG, do you have any comments regarding the replies you received to your comment here? You seem to have made a blanket statement that YC wouldn't do that, but the evidence points to the fact that YC did do that, as it funded the founders who made these decisions that led to enforcement actions in 2016 against them.
It's not like this is esoteric finance law either, I've worked in fintech lending during this whole time period and some of these violations are lending regulation 101. Military Lending Act compliance at the very least is dead simple to comply with and is the very first thing most lenders ensure compliance with (due to it being federal, whereas some more esoteric state level stuff can often get missed).
Dang doesn't represent YC's accelerator/investments arm (i.e., he's an employee engaged to run HN, not a YC partner who makes investment decisions or official YC announcements).
I don't know much about LendUp at all, but I do remember the surprise - and feeling it myself - when it was announced that YC was funding a payday lending company. Then I remember the thinking behind it being explained (perhaps on HN, perhaps elsewhere) and seeing that the founders seemed to be making a sincere effort to offer something that was at least just less-terrible than the existing payday lending options around (many of which involve dealing with crime gangs), which made me think "OK, I guess it's worth a try". I presume YC thought the same thing when they invested almost ten years ago.
If it turns out that there's no possible way of making a sustainable business in this space that's less-terrible than that was there before, I still don't think it's reprehensible that YC thought it was worth backing founders that seemed to be making a sincere effort to try.
I don't think it's true that the only alternative is loan sharks. It's mostly "traditional" payday lenders, many of which are owned by the big banks (through a couple layers of obfuscation to cover up the stench).
I edited my comment to tone down the implication that it's only loan sharks.
That said, the "traditional" payday lenders all turn out to be quite predatory, don't they? (I understand that's what the original founding premise of LendUp was intended to address, even if they couldn't make it work.)
But aside from that, will the traditional payday lenders lend to everyone and anyone, no matter their circumstances? If not, what are the options for people who they won't deal with?
Sure, I would agree with that characterization. But apparently LendUp was even more predatory, to the point that regulators shut it down. So in retrospect, I think we need to take the claim that they wanted to create a kinder, gentler kind of lending with a grain of salt.
The claim we’re addressing in this subthread is that in 2012 YC knowingly invested in a company that intended to be predatory towards military personnel, such that it would end up being shut down by regulators, implying that YC was both deeply unethical and deeply stupid. Are we really to believe that YC was being as unethical and stupid as this claim requires us to?
"Knowing," "intended [at the time]", "would end up being shut down by regulators" are all your embellishments. The claim is "YC funded a payday lender that targeted active duty military service members." As far as I can tell, that is true, regardless of how pure anyone's intentions were at the time. The defense on offer is that the founders left the company between funding and now, but it is not very compelling given the timelines.
OK then. You weren't the root commenter, but it's pretty clear the root comment and the reply to dang were attempting to pin an accusation of unethical conduct on YC. But never mind.
There of course is another possibility: the founding team in 2011 was proposing a concept that seemed ethical and an improvement over payday lending options that existed at the time, but over time the company's idea or execution changed for some reason, in which case, there was neither poor ethics nor poor judgement on YC's part.
Occam's razor would require us to accept this explanation unless there was substantive evidence for another scenario.
By definition, Occam's razor requires us to believe that founders sincerely intended to do what they said they planned to do, unless there is evidence to the contrary.
It is not self evident to me that someone sincerely intending to do kinder, gentler lending and ending up through some confluence of circumstances doing something else is a “simpler” explanation than the same person just lying about their intent.
Without evidence that they lied in 2011-12, it requires an explanation as to why they would lie, and for us to believe that a strategy to lie to investors then defraud customers and get shut down by regulators is more plausible than to have set out with high-minded ambitions that later turned out to be fanciful.
The lofty goals are pretty much always puffery we can discount because most people find it distasteful to say "well, the main reason I want to go into this business is I think it's high-margin and I can make a lot of money at it." I doubt they openly set out with an intention to flagrantly violate the law, but I don't find it unlikely that they didn't have much qualm about skating close to where they imagined the line was on the theory that they could establish themselves before the regulators caught up with them -- after all, this is precisely the strategy that worked well for YouTube, Uber, or AirBnb.
Ok, so you now seem to be conceding they likely didn’t lie or have intent to defraud people at the beginning, in which case we now have no major disagreement about this topic.
The rest of the comment is commentary about the nature of contemporary startups and VC, including some mind-reading into the true motives of everyone who starts a company, not just LendUp. Obviously you’re entitled to your views on this but it’s all rather nebulous narrative that can be invoked any time to try and win a debate when there’s no clear evidence relevant to the specific topic of discussion.
I think I’ve learned all the can be learned here. Thanks for the discussion.
> Ok, so you now seem to be conceding they likely didn’t lie or have intent to defraud people at the beginning
I feel like the first sentence of the post you're replying to says the opposite of "they likely didn't lie" and I wouldn't say I have "conceded they likely didn't intend to defraud people" either. I said they likely didn't intend to flagrantly violate the law, which is altogether a different claim.
That first sentence is mind-reading. It demonstrates nothing but your own ideology and imagination.
So, nobody in the subthread has demonstrated that the LendUp founders or YC were guilty of any wrongdoing or malicious intent in 2011-12. All we have is conjecture based on people’s previously held feelings on YC and Silicon Valley.
Now, where I am it’s Christmas Eve, which I’m off to enjoy. Best wishes to you.
But your original notion was that "Occam's razor" simply proved that my suggestion was far less likely than yours; now you've shifted the goalposts to a standard that's impossible to meet. Anyway, I suppose I will take "I'm too busy having a great life to continue this discussion" as an improvement over "Ah, you are too slow to realize that you've actually agreed with everything I said" when I did nothing of the sort.
>If it turns out that there's no possible way of making a sustainable business in this space that's less-terrible than that was there before
This is a disingenuous response because this space is highly competitive and most of the big names in it have not gone out of business due to flagrantly breaking the law. Just because LendUp broke the law and went out of business does not mean there are no sustainable, legal entities operating in it.
You could have added your perspective without describing my response as "disingenuous", i.e., dishonest.
I said very clearly I have no specific knowledge on LendUp. I also know little about the space (apart from that it's a nightmare). The only specific insight I have here is on YC's history and ethical track record.
That said, can you educate me and other readers by linking to examples of companies that are doing well in this space (specifically, offering a better lending option than payday loans in the U.S.)?
Ok, we first have to start with acknowledging there are two different things under discussion:
* Sustainable, legal lending businesses operating in the payday loan space
* Better lending options than payday loans
I am not an expert in either of these [though I have worked with numerous people who are experts in these] so will not make blanket statements (which is why your statement was disingenuous, rather than saying look I don't know anything about this you instead chose to make an authoritative statement indicating sustainable business was not possible in this industry which is untrue) about them, rather only indicate some of the information available:
In the first group you have companies like:
* Enova [CashNet USA] - Had CFPB enforcement
* Avant - Also from a YC founder, had FTC enforcement action
* OneMain - Caps interest at 36%, actually has a carve-out in California lending law
These companies have been operating sustainably for years and looks like business is booming for them. Note how despite receiving enforcement action they were not shut down nor called "cheaters" by the CFPB like LendUp was? This is indicative that one can commit predatory actions in this industry and still be sustainable.
Now for the second group of better lending options than PayDay loans, that's a very wide field but let's assume we want to specifically discuss people who would otherwise be going for a PayDay loan. I'm going to link here to NerdWallet which actually has great overview of options: https://www.nerdwallet.com/article/loans/personal-loans/alte... Specifically, I would call out local credit unions as being a "good" option that is often overlooked despite providing a ton of loan capital in the U.S.
There are also a number of non-profits working to try to help people fall into the Pay Day loan space, in which I would specifically call out SaverLife https://about.saverlife.org/
Arguing whether or not PayDay loans are good (ethical) or not is subjective, as others have noted a high-interest loan can often be better than no loan, but what I would personally argue is that continued and improved government support for credit union payday lending (e.g. https://www.ncua.gov/support-services/access/advancing-commu... ) as well as more available physical lending options (e.g. Go to the Post Office for a loan) are very much worth exploring and supporting.
You've written a whole lot of words that bypass my point and double down on the accusation that I was dishonest.
You've only cited companies/orgs that are operating legally, not ones that are demonstrated to be highly ethical and substantially better for borrowers to deal with than the payday lending companies that existed when LendUp was conceived around 10 years ago.
Clearly, LendUp was talking about trying to build something much better for borrowers than what existed then, and that's what was compelling to YC (as I said in an earlier comment, I vaguely remember discussions about this being had at the time, and thinking it would be interesting to see how their plans would play out).
Exactly what went wrong along the way, I don't know, and I haven't seen any comments here explaining it - only indignant comments leaping to the conclusion that everyone involved must have had malicious intentions from the start but not offering any evidence for this.
This is why your comments are disingenuous. Both the comments here and the article itself discuss what went wrong legally with LendUp. You are willfully ignoring those.
If you want to weigh in with your "hot take" you should at least read the article, rather than coming in claiming LendUp did nothing wrong and then when presented with evidence fall back on well "I don't know" and "know little about the space".
This is exactly why your comment is disingenuous, because you specifically stated "turns out that there's no possible way of making a sustainable business in this space that's less-terrible than that was there before" as a defense of LendUp's actions, when as I have pointed out to you, there are plenty of sustainable businesses operating in this sector. If you want to quibble around "sustainable" vs. "good" then at the very least you should acknowledge there are companies that are operating legally vs. ones shut down (e.g. LendUp) after committing multiple violations.
I mean seriously, are you just going to ignore this statement:
“LendUp was backed by some of the biggest names in venture capital,” said CFPB director Rohit Chopra. “We are shuttering the lending operations of this fintech for repeatedly lying and illegally cheating its customers.”
The Director of the CFPB doesn't just come out and call everyone liars and cheaters.
This is very much worth harping on, because you are perpetuating and defending the idea that YC can do no wrong, instead of accepting that it is possible it made a mistake in funding and supporting these founders.
This attack is full of inventions. “Wilfully ignoring” the legal issues, and didn’t read the article. False. “Claiming LendUp did nothing wrong”. Seriously, where? “Perpetuating and defending the idea that YC can do no wrong”. Again, where, aside from pointing out that nobody has been able to provide any evidence that YC did wrong in this case?
The claim I’m disputing is that the original founders, when founding the company ten years ago, set out with malicious intentions to defraud people, and that YC and other investors knew and supported this.
(Others have later claimed that this wasn’t the allegation, and it was rather that YC made a mistake to invest in this company, in which case, fine, I have no major quarrel with that - most of YC’s investments turn out to be mistakes, that’s how their model works.)
But for those who insist that the original founders’ intentions from the start were nefarious and that YC was aware and complicit, this needs to be pushed back on, hard, as there’s no evidence for it and it makes no sense as you can’t build a successful business that way.
That the founders had high-minded ambitions that later turned out to be unachievable is the simplest explanation. Legal issues several years later, or examples of different companies doing different things to what the founders set out to do are not proof of malice on the part of the founders or YC, or of my dishonesty, and further wordy and aggressive replies from you won’t change that.
Seriously, the legal process has worked and the company has been shut down. Put away the pitchforks and torches.
I'm sorry, but I don't. I don't have any information about the specifics and I don't know anything about the startup or the domain. All I know is that YC would only have invested in such a startup if they believed it could truly be of benefit to people.
That's a fairer statement and one I would agree with.
I hope you know your words hold a ton of moral and social weight in this community.
To say "YC wouldn't do that" is strong language, especially given the facts.
To say, "YC would only have invested in such a startup if they believed it could truly be of benefit to people" is better, because it acknowledges that while YC had the best of intentions, it could have made a mistake in funding these founders rather than give an idea that YC can do no wrong.
The founders, the ones funded by YC, created a company that committed financial crimes before they left the company. Those founders should be seen in that light, regardless of their intentions.
This may not have been YC's intent, but it does appear that's what's effectively happened in the end. I have to assume that YC has some method of exit strategy to separate itself from companies that deviate so strongly. Maybe YC was just asleep at the wheel, I don't know, but in either case they are attached to the failure here.
Somebody commented in another thread, but basing it on the Military Lending Act seems like the most straightforward thing to give federal jurisdiction, as most usury laws are at the state level.
Tax evasion wasn't Al Capone's primary crime either.
YC should take steps to ensure the businesses they invest in operate ethically. Of course, the first step would be to acknowledge that something went terribly wrong here.
According to Crunchbase, LendUp has $361M in funding. Maybe they thought that a few million here and there is a drop in the bucket, and they stand to lose more if reforming themselves impacts growth. Turns out you have more to worry about than escalating fines.
Yeah, CFPB is one of the newest, or maybe the newest, federal agency. The other consumer protection agencies (FTC) lack teeth. So it is a decent gamble to test the authority.
Of course they could just stop the predatory practices, but lets not be crazy here.
It seemed to me like the business is having financial trouble and cannot pay a fine like last time, so has to be penalized in another fashion, maybe I'm misreading it.
> The order would also impose a $100,000 civil money penalty based on LendUp’s demonstrated inability to pay.
> It seemed to me like the business is having financial trouble
They were ordered to pay $1.2 million in fines and restitution for the military lending violations earlier this year, and ordered not to collect (or sell or assign) on a bunch of those illegal loans, plus the new case has them prohibited from making any new loans and from collecting (selling/assigning) on a large share of their remaining outstanding loans.
Seemingly little known fact, the boom in credit card and essentially usury law skirting was enabled by a Supreme Court decision, the “Marquette Decision”.
The Marquette decision allowed companies to export their interest rates, such that they could use usury laws in the state where the card is issued, NOT where the bank is headquartered. This is what made credit cards profitable.
It’s rarely mentioned in “history of credit cards” pop history. Somehow all the “Jurassic park” aspects of America seem to start with a little sprinkle of deregulation.
Thanks for the info, very interesting and not something I was aware of. Although I'd disagree with the idea that generic "deregulation" is the problem here, at least in this case. In my mind it's just a good example of all the inevitable "race to the bottom" dynamic that happen where the laws of the sales location can be skirted by instead only applying the laws of the production location.
Basically, locales realize they can get a huge economic boon to themselves that is only possible because they are essentially exporting their shitty policy outside their borders.
Tax havens are perhaps the best example. No country could survive as a tax shelter if businesses could only do business within their borders. But instead, you have small countries that offer no/low taxes because they can pull in tons of business from gigantic markets outside their borders.
It happens all over the place:
1. In the Marquette example, states try to pull in lots of banking business by having easy usury laws, but the vast majority of those banks's customers are from other states.
2. A couple states have gotten rid of "the rule against perpetuities" to attract perpetual trusts, even though most of the trust business occurs elsewhere.
3. Businesses can extract huge tax concessions from states by offering to set up headquarters in a state, even if most of the business is done outside that state.
I agree that the generic idea of "deregulation" is sometimes not to blame but I do want to point out that the Marquette decision is basically the lynchpin in this particular case AFAIK -- usury laws AKA consumer protection regulation (which is the regulation that was bypassed/minimized in this sense) already differed from state to state, but that wasn't enough incentive for banks to move their headquarters.
Intranational competition/racing to the bottom is fine within the bounds of regulation -- capitalism is a powerful force but in my opinion the job of the government is to set the guard rails.
The EU problem is an international problem which is why it's so much harder to solve. You can't force another nation to charge certain % for taxes but there are other things you can do. Unfortunately most of the actions you can take to disincentivize that behavior aren't quite so friendly, so the politics intensifies and countries go for what they can get away with. The control dynamic is different compared to intranational regulation.
There's certainly competition between states and companies but it's always when the guard rails bend/break that we see explosions in a certain kind of activity and then the repercussions 5-10 years later. It happens over and over again in history -- regulations that reduce corporate tax rates, roll back environmental protections, etc -- it happens across party lines, and there's usually a happy/boom period for a while for some market participants... Then the chickens come home to roost.
The addition of regulation can do it too, of course, and some of the time the ambitions are noble, but to me the removal of regulation that was well established (for a good reason) and the subsequent ill effects always feels the most avoidable.
From a linked press release RE: violations of the Military Lending Act:
> The MLA puts in place protections in connection with extensions of consumer credit for active-duty servicemembers and their dependents, who are defined as “covered borrowers.” These protections include a maximum allowable annual percentage rate of 36%, known as a Military Annual Percentage Rate (MAPR), a prohibition against required arbitration, and certain mandatory loan disclosures.
These seem like good[1], common-sense, consumer protections. Why aren't these extended to credit consumers in general and not just military personnel?
[1] I think one quibble might be the 36% max APR. This might be too low for some high risk customers to be able to get credit at all. But I'm not sure if there's any research around what a reasonable number might be instead.
More then 36% APR for anything more then a fraction of your weekly / monthly salary is likely to be crippling for most people and predatory. I can understand higher rates for very short term debts (i.e. a payday loan where the entire thing should be paid off in 1 month, but these lenders often try and have people turn over the principle into new loans).
IF someone's credit won't support a 20% interest rate then I don't think they should be leant money in the traditional sense. Either the purchase isn't required (in which case it shouldn't happen), or if its essential they should be supported by mechanisms to get people out of debt. Governments can make low value loans available to help here. In Australia, your entitled to a loan if your on benefits (centrelink) in which repayments are deducted from your welfare payments but charged no interest.
If the services are truly essential and basic and the government is stepping in, I think it's worth asking if we need to be bothering with repayment at all.
Depends on how many future benefits/welfare payments you can get be loaned/played early. Seems like eventually people would max out that option and then need some other source of loans.
The reason that this is different than what you might expect from a free market approach is that part of the “being in the military” is a host of new rules that have the force of law, and one of these is to not default on loans. If you do, and your CO gets a call, then you’re in for a bad time.
Well the existence of rules in itself does not justify more rules. That's just bureaucracy. But I think what you're driving at is there are rules in place for military folks designed to keep them from becoming targets of manipulation, keep them from making poor household decisions that would distract them from regulatory tasks, etc.
I don't imagine there are many protections for active duty folks that are designed purely to protect the individual. I suspect the primary motivation to get most of these types of laws passed is to protect the government.
> I don't imagine there are many protections for active duty folks that are designed purely to protect the individual.
On the contrary, for reasons political ('everyone loves the troops'), administrative (Congress in many ways writes the 'Employee Handbook' for military personnel), and logistical (the military is heavily made up of people straight out of high school), there are several protections in law designed to protect military on active duty.
We can cancel leases with landlords with nothing more than valid assignment orders, at any time. We can vote in elections using the easiest process there is, including instant registration and the ability to fax the vote over. And, yes, there are restrictions on lending to those on active duty to try to keep us out of trouble.
Even though active duty personnel do make convenient targets of political affection, it's not all done out of a sense to protect the individual. Active duty personnel have clearances, access to government facilities, and so on. Protecting them from getting into stupid situations is to the government's benefit.
But that all said, we get a lot of protections that exceed what the government deems necessary for its benefit. Just look at the differential treatment provided to military and government civilians (who also have clearances, access, etc etc) if you want to see.
No, I didn’t go into the multiple levels of chesterton's fence.
I pointed out how the risk is different than the assumed free for all that is the free market. I will not potentially get thrown in the brig for defaulting on a payment. A private could be.
Say I live paycheck to paycheck and I need $500 to fix my car that I use to get to work until I get paid in a few weeks.
Borrowing $500 for one month and paying $15 in interest would be completely worth it and beneficial to the borrower. That's what 36% annualized interest would look like for a single month.
Do people get in trouble with debt? Yes. And that's why we have bankruptcy. But not everyone gets in trouble with debt. I don't think it's fair to make it unavailable to everyone to protect those that fall into arrears -- because, again, that's what bankruptcy is for.
If you live paycheck to paycheck, which is consistent with your total savings being less than $500, the chance that you will be able to pay back $515 on your next payday are basically zero.
My car was towed the other day and while I was paying my bill for the $700 or whatever SF makes you pay, there was this guy at the next counter with nothing who was sleeping in his van who had it towed and they wanted $100 to release it. The tow counter lady could obviously do nothing (his price is low because of low income etc. etc.) but the guy was going to have to sleep in the street otherwise. And there is a holding fee each day it's in the tow yard.
Sure, we could find each of these risky situations and try to regulate them, but you won't even know of them because most people will never get towed. It's better to improve access to credit.
The guy could get $100 the next day, but not $100+storage-fee/day. It's like $70/day. Any loan that goes between 0% per day and 70% per day simple interest would have been a net win for this guy.
Obviously, having eavesdropped on the whole thing, I paid it as I was leaving but I think perhaps those of us with easy cash liquidity should perhaps build some intuition on what kinds of situations cause people to take on onerous credit.
EDIT: Oh, I recalled a detail I'd forgotten when first relating the tale. He wanted to go get his phone from the van so he could call for help but they wouldn't let you in the yard without paying to release. I imagine he was going to have a damned hard time asking for help without the phone.
It’s expensive to be poor and people who haven’t ever been poor just can’t wrap their heads around that. They don’t understand the loss-loss choices poor folk have to make every day and the toll and psychological exhaustion it puts on them.
I will never let a chance slide to quote one of my favourite passages from my favourite author and fantasy series: the Discworld, Terry Pratchett (GNU!):
"The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness."
I absolutely hate that quote. It may have been true-ish for classes of goods and services 150yr ago but today it serves little purpose than letting yuppie consumers pat themselves on the back for buying premium products.
As someone who has been poor 10 years ago, trying to raise a family, that’s just false. We had to deal with the literal situation from the quote: shoes. We could only afford cheap ones for our children and the shoes “broke” before they grew out of them. If you think this only happened 150 years ago then I envy your privileged outlook on life. This quote is as relevant today, as it was then. Being poor is expensive.
I stand by my statement. You might occasionally find classes of long term consumable goods where the literal cheapest is just too short lived to work or medium term consumable goods where the fancier options last longer by a big enough margin to be worth it (sawzall blades and dish soap are the only two I can think of). The majority of long term consumables get destroyed by a mishap long before it succumbs to wear and tear. Coats and pants get torn. Tools get broken from too much being asked of them in a pinch. Anything with an electric motor will live until you do something dumb that lets the smoke out. If you want to save money your default should be to cheap out. You will win some and lose some but the losses will be so, so, so rare as to be a rounding error. More often the problem is you buy something that is cheap junk and it refuses to die so you are left suffering though it forever.
I went through my fair share of Walmart black no slip shoes before moving into tech. I hope financial hardship is in your future as well as your past. Maybe you'll figure it out the second time around.
> I went through my fair share of Walmart black no slip shoes before moving into tech. I hope financial hardship is in your future as well as your past. Maybe you'll figure it out the second time around.
Wow.. I had to check your post history to make sure I didn’t misinterpret your words. There was a clear pattern. You seem smart, maybe you can find it too.
My dear internet stranger and fellow HNer: I hope you find more love in your life and the ability to see it in, and give it to others. All the best to you!
Props on paying it forward. It’s not a systems fix, but we underestimate how impactful culture is & in a future where the wealth distribution is going to be even more lopsided, benevolence & sense might be a good stopgap.
Strictly, it's $100 for the citation you pay online, then there's the city fees for ~$300 or something and the tow fees for $250 or something. They will take $50 off one of those things if it's your first-time. No one was amused by my request for a subscription plan.
I'm not so sure, living paycheck to paycheck doesn't mean you have no discretionary spending at all. Maybe you have $500 a month for one off expenses and you already used up this months on a laptop for you kid at school or something.
One off expenses don't happen 12 times a year. If you haven't been able to save $100 a month for five months, you just won't be able to save five times as much, let's be realistic.
Poor people find that one off expenses happen surprisingly often. Between car breakdowns (far more likely for those who can only afford a clunker), sudden health crises, domestic maintenance, wear and tear on clothes, unexpected inflationary price rises on essentials like energy and food, and a host of other issues, the poor have no slack at all in their budgets.
Of course the real problem is many jobs don't pay enough.
In fact not getting paid enough - and therefore being unable to budget - is considered evidence of poor character, while not paying enough is considered evidence of enlightened and mature rationality.
For example, in Italy there's a special kind of payday loan that is limited by law to 1/5th of the net paycheck. It is taken off the paycheck by agreement between your bank and the lender's. The combination of these two rules makes them more likely to be paid successfully, and gives them a better APR than e.g. credit cards despite being essentially used for the same purpose as subprime payday loans in America. There's also a maximum legal APR of ~18% for these loans (it varies every quarter), which is better than e.g. the ~24% maximum legal APR of credit cards
Unbounded APR and "letting the market figure it out" is not the solution.
Isn't Italy topping the charts of countries in financial ruin? If it weren't for Greece being worse Italy would be in the headlines. If America is to change laws, it'd help to use a successful nation as an example
Interesting spin on the ad hominem, but I just mentioned what I know about since I live here. Anyway, we're talking about private debt; and while Italy has a huge public debt, its private debt is quite low.
BTW, right now US treasury bonds have a higher 10y yield than Italy.
But then what is the alternative. If you don't get the car fixed, then you will not be able to commute to work. If you won't work, then you won't be able to pay rent. Isn't the $500 loan then a better alternative than ending up homeless ?
Would'nt it be better to rack up a $500 loan and then try to pay $100 per month so that it can be paid off in 6-9 months - even with 36% interest ?
The sane alternative is being part of movement of millions of people that pushes for better wages, better working conditions, etc. But no, instead everybody's forced into dealing with their own individual situation(s) as if they are not actually all connected to the greater economic organization picture.
One alternative is the guy who needs a $500 emergency loan gets it at a non-usurius interest rate. The system could be revamped to support easier repayment for actual emergency loans.
While true, vehicle dependency is a serious societal problem in North America that needs to be fixed. This is partially the reason. Nobody should need a personal vehicle in order to be able to live a baseline satisfactory life.
The question lawmakers ought to ask is what is more beneficial, overall, for society? Some will suffer by denying exorbitant interest rate loans. Some will benefit by restricting them. I suggest our society would be better by not having exorbitant rate loans be legal.
Why should a society be structured by majority rule / majority benefit for such things, even if one agrees with your premise that society is supposedly better off (which I disagree with, you're not counting all the required consequences that go with re-ordering the system, you're pretending we're only talking about one thing)?
Actual democracy is an extreme negative, not a positive approach to organizing society.
You can claim the majority would benefit from eating the wealth of Sergey Brin and Larry Page at this point, they no longer operate Google, they're just ~50 year olds sitting on $200 billion in Google shares, piddling around until the day they die. So why not let society benefit sooner rather than later by consuming their wealth to its (supposed) benefit, divvy up their wealth to the poorest 51%.
You can invent a huge number of scenarios for doing things like that, where society supposedly is better off if we violate the property rights of some minority group. Why shouldn't some minority of people be allowed to lend at 43% interest if there are takers at that rate? Because you say so? Why shouldn't their property rights be respected - the property right to lend their money out at the rates they can command - and why should the majority get to arbitrarily restrict their property rights? It sets up an obvious exploitation situation, which is always the case in democracy, where the majority can endlessly torture, exploit and abuse the minority.
It would very clearly be better for the top 51% (far more than that actually) - the majority of society - if the economic bottom 10% did not exist (a group that rarely holds a job, has vast health & drug addiction problems, rarely pays taxes into the system, rarely contributes much of anything; and in fact that's true in nearly all welfare states, including the US). So they should all be gotten rid of, is that right? Democracy in action. The tax paying majority is sick and tired of carrying the never-tax-paying economic segments at the bottom, time to get rid of them, for the benefit of "society" (aka the majority power herd).
> Why shouldn't some minority of people be allowed to lend at 43% interest if there are takers at that rate?
For the same reasons we have regulations and standards in construction, transportation, etc. Because we know that uninspected cars will leads to death and injury on the roads. So laws and regulations are there to reduce selling and using blatantly unsafe vehicles.
Your response delves into topics my post does not cover. I think society would be better off banning exorbitant interest rate loans. Beyond this, on this topic, I have said nothing.
Is the bottom 10% that sticky ... nvm, looks like it may be. From a quick search, 43% of the individuals raised in the bottom 25% stay in the bottom quartile.
Alas, the more likely scenario is "I need $500 to fix my car. Damn piece of shit needs repair at least once or twice every year. If I had a brand-new F350, I would save so much money on repairs!"
And they happily drive off the lot with a $80k car loan at 36%. People are, pardon my french, dumb as shit when it comes to car purchases. They are very happy to lose a guaranteed $10k/year in deprecation, so they won't get hit by a $2000 surprise bill.
The valuation of assets doesn’t matter when you have cash flow issues (especially when you can't sell that asset). It really doesn’t matter in the short term how fast an asset is depreciating as long as it’s doing the job in the short term. This is why people say it’s expensive to be poor. Someone with good cash flow can make better long term financial decisions.
You're absolutely right, and it's so frustrating to see someone opting for additional $150 per month in car payments, because they couldn't afford a $500 repair, because they're already doing $350 per month in car payments.
An old car is not a 2000$ surprise bill and you are done. It’s 1000 and after a couple of months another 2000 and after that another 1000. It never stops asking randomly for money.
While I was a student over the span of 5 years I had spent to the mechanic more than what I had paid the dealer for my 10 yo used car. Without the help of my parents I am not sure how I would be able to spit enough money to pay all of these bills.
So yes paying 400 per month for 7 years with high interest is a better deal that getting a car that you can afford with cash.
I don't mean to downplay people's problems, but this very much depends on the car, your local climate, and your ability to spot problems before they become serious. Lots of Toyotas out there that you only need to budget oil and tires for, and the occasional strut/brake pads/spark plugs as needed every few years. And there is plenty of information out there on which used cars are more reliable and how to spot parts that will need maintenance, if one is resourceful enough to search for it.
I think it's pretty hard to measure people's actual intelligence here given the way they are manipulated. US carmakers spend something like $10bn/year on advertising, for example. And car salesman are a byword for making sales by any means necessary. Car makers and dealers do that shit because it works on enough people to keep the money rolling in.
Most people don't make great decisions buying cars, rich or poor, but that logic isn't entirely specious. If your car spends weeks at a time in the shop, and you need it to get around, it's a false economy to keep fixing it instead of buying one that is reliable.
But you don’t know it when you are in the process of fixing an old car. You pay $1000 and you think that you will be good for a couple of years. The reality is that after a couple of months you will probably need to fix something else. Flush and repeat.
In other countries there are institutions such as municipal banks that will borrow you the money at a reasonably low interest rate. The US is fairly unique in having legal usury where loansharks are allowed to prey on poor people.
Well, that's your problem right there. Unless you have routine access to spending opportunities that yield more than 36% in yearly returns, which I'm going to assume is pretty unlikely.
The easiest way to yield that kind of return is aborting on pre-committed spending. In fact, that's the way the poor generate this kind of income. If they have $100 for food this month and a sudden expense needs $50, then that means they just go hungry until their budget hits $50 for food this month.
What you do is you starve a day or two and sell your food bank food. Everyone is capable of generating income while depleting from stores.
You're assuming that credit is only available at that price. If he has a car and a credible case to make that he'll be able to give them the money next month, surely he could get it cheaper than that?
Playing the devil's advocate here...loans with interest rates higher than 36% are generally reserved for subprime lending - payday loans being the most prominent. As long as we live in a society (talking US here) where minimum wages don't keep up with inflation and benefits, then these products in some sense need to exist to satisfy that subprime group. Otherwise it's literally impossible to create a profit on payday loans if these rates are much lower.
Note - I don't know what the "right APR" is to make them profitable, but I certainly can fathom why there might be a 1000% interest rate on a 7 day loan of $100 so someone can get their car out of the pound so they can drive to work. The administrative overhead to lend $100 and only make pennies is simply not worth it.
Also, yes gigantic interest rates ruin lives...more importantly predatory sales practices to get people to buy them. But maybe we should focus on why so many Americans get to that in the first place (looking at your healthcare) - thats a much easier market creation.
Yes, the type of loans that usually have these high APRs are along the lines of "we'll lend you $500 today, but we expect $550 or $600 on your next payday" (yielding an APR often well into the hundreds). The rates are high both because a) there's a high level of defaults and b) they aren't really secured by anything except for a pre-scheduled ACH from the bank, so collection is hard (and it doesn't go on regular credit reports).
Some people make good use of these, as timely sources of money when there's not a lot of other options (not everyone has credit or saving or friends and family that can help). At the same time, it is extremely predatory, and the lenders are constantly trying to maximize the money they can get from people (such as rolling a new loan into the payment of the original, meaning only the interest is functionally required on the due date, and they get to skirt the laws of the loan required to be short term).
It's one of those catch-22 situations where doing away with the market entirely hurts those you're trying to protect, but it's hard to regulate effectively because the benefit is it's quick and short, meaning too many hurdles might be the same effectively as doing away with them completely.
Capitalism works extremely well for those at the top, reasonably well for those in the middle and it can utterly suck for those at the bottom who effectively prop up the two other layers.
This has nothing to do with capitalism. Capitalism is merely private ownership of stuff. When people use the word “capitalism” like this, it inevitably sounds like a naive Marxist classism throwback. Anything bad is merely attributed to capitalism, and set aside the generations of economic nuance we have developed since the gestation of that dysfunctional construct.
> Capitalism is merely private ownership of stuff.
No, it's private ownership and trade of stuff. That seems nitpicky, until you contrast it with other economic systems, in which case trade is strictly regulated, and it becomes obvious that's a large part of it.
> the generations of economic nuance we have developed
You mean the nuance that takes us further from a pure capitalistic and free market system into a hybrid system where there are regulations and communal (government) efforts to counteract the portions of capitalism and free markets that are not palatable for a modern society because they fail to lead to outcomes we want?
There are reasons why the poor of today are better off of the poor of a century ago, and many of those reasons are not much in line with capitalism and the free market, while others are. Minimum wage, regulations on predatory practices, etc account for a lot of that, while advancements in technology and medicine much of the rest.
Without regulations, which are a restriction on private trade, we'd still be dealing with the things Upton Sinclair chronicled so long ago (whether embellished or not).
I’m not sure what you’re arguing here aside from capitalism is also free trade. I think definitionally no, but semantically or practically maybe. Free trade is also a thing, sure. I’d like to examine the mechanism you’ve identified to attribute the sources of betterment, if you are not merely making it up as you go.
> Capitalism is merely private ownership of stuff.
That's a very narrow definition of capitalism. It's not just 'stuff' that is privately held, it is also the means to generate profit and a very large chunk of the available capital. The effects of that go way beyond just 'stuff', and can make it next to impossible for someone born at the bottom of the stack to work their way up. Of course, some inevitably succeed at this and they are held up with great fanfare to prove that 'the system works' but on average, if you are born at the bottom your life will likely continue to at that level of society without much chance of upward mobility because the system is stacked against you.
And payday loans at exorbitant rates are a mechanism that keeps people down.
I agree with your punchline, but all the hypothetical before it is strictly unrelated to capitalism. As if peons in the European middle ages living under non-capitalism, Cambodia, Venezuela, or various theocracies have this remarkable social mobility. This type of analysis is inferior to pointing to correlates with moon cycles or fluorinated water; it directly ignores history.
>You're basically defining capitalism as "some people have lots of money"
Perhaps the most realistic definition.
You could also restate it as "most people don't have lots of money"
Regardless of how much you yourself actually have at the time.
I think it's good to look at "capital" as "other people's money" (OPM).
Of course if you have enough of your own you might not really need any of OPM if you don't want to get involved.
OTOH in that case you might be one lending out some of your own "underutilized" money to others who are "interested" in OPM of some sort.
The repayment includes the interest intended to compensate for the risk & delay in repayment, so it simply means more of OPM is coming back than yours that went out.
If none of this OPM was changing hands there would still be the same amount of capital.
But the capital-ism where the system is structured so financial rewards of labor are subjugated to the financial rewards of capital itself according to its magnitude would not be as much of an actual thing.
And it's this feature that can be exploited by greed in the most disadvantageous way compared to less OPM-oriented financial foundations. Regardless of the mathematically enhanced returns to the most shrewd capitalists, the greed itself subtracts from what actually could have been overall.
As the magnitude of the money that most people don't have a lot of, becomes less significant compared to the some people who have lots of money, the unlevel playing field tends to tilt toward the vertical as a function of greed.
Yes, very rich people are a problem. Not every society has the same proportions of them, however. USA before we relaxed our top tax rates didn't have so much of the political agenda determined by the same 500 people. Once billionaires have infested a society, however, they are very difficult to exterminate for the reason you cite.
I'm not convinced that payday loans should be able to produce a profit? The subprime group seems like people who should be serviced by the government, rather than pushed into a worse place to extract what little value they have.
In the UK, the consumer finance regulator the FCA did an in depth analysis of subprime lending and concluded that "fair" maximum charges were interest rates of 0.8% per day and total costs (interest, fees and penalties) no more than the amount of the loan principal borrowed.
>In the UK, the consumer finance regulator the FCA did an in depth analysis of subprime lending
source?
>and concluded that "fair" maximum charges were interest rates of 0.8% per day
"fair" in this case being what? The interest rate being enough to offset defaults? Or enough to offset defaults + overhead + profit?
>and total costs (interest, fees and penalties) no more than the amount of the loan principal borrowed.
I find this baffling. 0.8% per day compounded for a year is 18.3%, but they say that total costs can be equal to the principal? That means the effective APR can be up to 100% (if borrowing for a year), more than 5x the "fair" APR from before. Speaking of which, why isn't the length of the loan factored in? Surely a 1 week loan should have a lower "total cost" than a one year loan?
Martin Wheatley, the FCA's chief executive officer, said:
'I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.
'For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.'
I was in a recent emergency situation where I could’ve needed to spend thousands of dollars on the same day.
I just don’t have that kind of liquidity.
I can turn the required savings/stock in to cash with 3-5 days of lag. But not the same day.
This is where a subprime loan would be useful as a bridge, and in that situation I don’t think it would ruin my life.
Consumers know what’s best for them. As long as the APR is accurately advertised, I don’t see why people should be jammed up because some people think interest is a sin.
Just as an FYI: if you have stock in a regular brokerage account, you can take out a margin loan in cash immediately. It depends on the broker, but IME it's fairly common (e.g. Fidelity does it).
Margin has a bad name as a "high risk" activity, but that's mostly when you have a concentrated position and are taking out a margin loan to double down on that concentrated position. Using margin as a bridge cash loan for a few days is a fairly low-risk proposition.
Consumer credit cards aren't subprime lending; you're given an entire month of float before interest, and usually have sub-20% APRs. This is entirely different from a payday loan. Even a personal finance line of credit is much lower interest.
Except in 2008 many people did not understand what their actual monthly bill would be with an ARM in a worst case scenario, and banks were more than happy to handwave away any concerns.
Assuming that everyone is acting in their own best interest, then a 36%+ interest rate would only be used by someone who is in a situation where it is better than their alternatives. If the option was not available, then they wouldn't have the alternative that is best for them.
If someone is NOT acting in their own best interest, then there are an infinite number of things that need to be removed from their options.
Standard humans routinely fail to correctly asses options. They can’t even if they’re aware they can’t. Economists are still coming to terms with how badly the rational choice theory predicts human behavior.
As other have said, that's why bankruptcy exists. Also, loans like this aren't a 1-year repayment, it's a much shorter window, so you are not paying 36% more, you will pay likely in a shorter time window. While 36% looks bad, these kinds of loans can be helpful to people.
Just because it looks scary to you, people go to these kinds of tools because they need them. When those tools are taken away, they will go down riskier paths, or fail to pay bills (which can lead to worse outcomes). Don't treat everyone like they can't think for themselves and understand what they are getting into. Sometimes solutions like these are needed.
Ehhh I agree in general but if you want to say that universally, then you’re painting with too broad a brush. Like, wasn’t Google started with servers bought by maxing out a credit card at similar interest rates?
> wasn’t Google started with servers bought by maxing out a credit card at similar interest rates?
This is some sort of fallacy, but I don't know the name of it.
Anyway, as a counter point, I'm here from an alternative reality where we instead instituted this law limiting APR a year before google started. Google still managed to buy servers despite the law (I think that story's apocryphal, but even if it's true, they just got them at lower interest rates or got like 2 fewer servers and google was slower for a few months).
However, in this alternate future, there's also another company that did a lot of really good things founded by someone who in this reality ended up the victim of a payday loan, penniless, and is still struggling with the after effects of declaring personal bankruptcy. His even-better-company didn't happen.
Do you sorta see what I'm trying to say here?
Maybe the fallacy is just a bias towards some specific vaguely related anecdotes over data? The sorta "I agree in general drunk driving is bad, but doesn't Steve Ballmer actually drives better while drunk so maybe it's too broad of a brush to outlaw it?"
It would be more like, “Drunk driving is absolutely never acceptable” including taking your critical-condition friend one mile to a hospital on empty roads while you’re .08.
Edit: also it seems like the fallacy would be in the other direction. Up through the Middle Ages, charging any interest at all was “usury”, because no one saw the difference between “non-exploitive business loans” vs preying on the desperate; the former was the bizarre special case, until the exception became the rule.
> If a loan is so risky that it requires greater than 36% interest, it should not be made.
Playing devil's advocate: it depends. When I was younger, there were times when, if you lent money at only 36% per month interest, you'd be losing money. You'd have to lend at rates higher than that, just to break even, no matter how low the risk was.
This is an easy statement to make, but I think, empirically speaking, it just doesn't line up with reality. For payday loans, where the terms have historically been in excess of 36%, the vast majority of borrowers:
1. Pay the loan on-time (more than 90%; Community Financial Services Association of America, "About the Payday Industry: Myth vs.
Reality.")
I think fortunately/unfortunately, most HN readers won't be familiar with the benefits quick, easy access to capital can have for a person, especially those living on the margins of poverty, where missing one e.g. auto or phone payment can have cascading, long-lasting effects, such as losing a job. The nice thing about our distributed, relatively free-market economy though is that every person can act as an independent agent, analyze their own risk tolerance and ability to make responsible use of the financial products available to them, and make choices leveraging personal information that no centralized authority (or blanket rule, such as "loans with interest above 36% should not be permissible in any circumstance") could possibly have access to.
The social negatives of difficult-to-discharge debt and Ponzi-rate lending (wherein debt service cannot be met by an underlying economic growth behavior) are horrific and easily preventable. Letting even one person fall into the pit is a social travesty.
Federal government has limited purview of its citizens, but can more easily regulate the people in the military and interactions with them.
As it derives its power from the delegates of the states, it has to appease them even if it has the power to regulate all facets of life. So there isn't a law for all people as not enough delegates can stomach that, but for the military its easy.
> Federal government has limited purview of its citizens, but can more easily regulate the people in the military and interactions with them.
Congress passes these protections, the military just lobbies for them internally because they cause problems with the operations of the military. Some things I saw a lot:
- A Private, PFC, or Lance Corporal who lives in the barracks (therefore has the most straight-forward pay with little extra incentives) [1] gets approved for a car loan on a used car at 20%+ APR or credit cards which revolve into 20%+ APR with caps well above their means. When they can't pay they will attempt to contact the chain of command and pressure the military into intervening. Eventually they'll settle, the car or items get returned, the Marine gets busted down, and then they go on to do the same thing all over again with the same car.
- Lending services know that military are fixed income and that they are also low income, and will therefore shop predatory rates to them as a means of "refinancing". Really, it's debt consolidation because military members also have a high rate of divorce and debt.
- Banks will attempt to repossess homes while military members are on deployment and cannot access internet or financial services. Also happens to reservists who are without their primary income and are deployed. (ServiceMembers Civil Relief Act) [2]
Military just face some very unique situations, but a lot of it derives from the fact that we pay enlisted personnel (the greatest in number) dirt for their trade.
I worded that poorly, sorry. Businesses will contact the troops chain of command.
The military exercises a lot influence over troops, they can bust you down or remove your security clearance. They can also push you into payment plans and reflect these situations in your performance reviews. The military, for all intents and purposes, acts as much more than just a simple employer and lending services (among other businesses and people) exploit that.
The military provides your clothes, your housing, your food, your laundry, your transport, your healthcare, and your chaplain. They can control your schedule 24 hours a day, decide who you're allowed to call or write to and what you're allowed to say, and decide what electric appliances you're allowed in your quarters. They can change your place of work to a foreign country, prevent you from resigning, and even literally have you imprisoned or executed.
While in some regards the military is like an employer, in other regards it's very different.
> but can more easily regulate the people in the military and interactions with them
I always found it amusing how the "patriots" worshipping the military are pretty much the same people who hate any kind of government intervention in their lives.
I find it more amusing that the same people also worship the police ("thin blue line" etc), despite the fact that cops are literally the very people who implement day-to-day government intervention in their lives.
It gets even weirder when the same person also rants about the federal (FBI, BATFE, DEA etc) "jack-booted thugs". This is incredibly common in the right-wing gun owner community.
This is actually one of the things I like to highlight to folks that talk a little-too-gleefully about socialism. The military implements socialism for convenience and cost effectiveness. The result is atrocious. This was in Camp Lejeune, NC.
I almost never got adequate medical care. The medical system was strange and winding. There were all kinds of approvals needed for very simple things.
The food standards were absolutely terrible. I don't know if it was an actual thing, but I was told there was a threshold for the number of roaches that could be present on food dispensing equipment before they'd throw the food out.
The housing was disgusting. I lived in a barracks built in 1945 with inadequate parking, sewage that once popped a goldfish into a toilet bowl, water that occasionally would turn totally brown or yellow and is now known to have made people sick. There was a door to the interior of the building where ducts, pipes, and internet were run that all contained asbestos and asbestos warnings.
The worst part, you had no option to say, "Give me the dollar amount you spend on this so I can find my own options" but they'll gladly tell you what they spent at an inflated rate.
I have heard similar stories from all members of my family that served in the military. Their experiences with healthcare in the military have essentially guaranteed they will never get behind a single-payer health-care system.
I think it's possible. I existed in that system and am at times still bound to it when dealing with the VA. I think my attitude is more, "go fix the system you already have to experiment with."
On the flip side, the military also has Bethesda Naval Hospital and Walter Reed Medical Center (both who regularly treat the President, such as when Trump had covid), life insurance, TSGLI, G.I. Bill (free plus monthly stipend), lifetime disability, Tricare, VA home loans, among others. I know people who lived in brand new barracks with keycards. People who lived in air conditioned pods in the middle of the desert with four square meals a day.
Sounds like you had a bad experience and things could certainly improve. The military won't always offer a stellar experience, and Marines are often rough with their surroundings. Just ask people deployed to Iraq and Afghanistan.
> I almost never got adequate medical care. The medical system was strange and winding. There were all kinds of approvals needed for very simple things.
The military implements socialism _poorly_.
By contrast, when I had a horrific gout flareup in Australia, there was no approvals needed to admit me for a nine day inpatient stay with rheumatologist, PT, etc.
I am getting surgery on a heavily deviated septum, in the US. It shows up on imaging so notably that even when I had a head CT for something completely else, the radiologist flagged it as being of note. When I went to an ENT, he confirmed a "90%+" occlusion that would need septoplasty and a bilateral turbinate reduction to relieve. He talked me through the pros and cons of surgery for informed consent purposes.
"I'm fine with all of that, let's schedule."
"So, no. Not yet. First I'm going to give you these two nasal sprays for six weeks, that you'll take and come back and tell me didn't resolve your issue, and _then_ we can schedule. That way your insurance won't reject it."
I had to spend $180 on two nasal sprays that, according to my insurer, may have resolved a cartilage issue in my nose.
i.e. 1) the non-socialist system in the US also requires all kinds of approvals (I'm also a paramedic - UHC years ago got fined for denying Heli EMS coverage for people involved in among other things, car accidents, for "lack of preapproval"), and 2) "socialist" systems in other countries don't require all kinds of approvals - that isn't an inherent aspect of the socialism.
Your experiences are meaningful to you, but they don't indicate anything significant about socialism. Socialism is not the goal of USA military. The point of the exercise is to transfer resources from citizens to armaments manufacturers. Who lives or dies, how they're treated in the meantime, the stories we tell about the whole mess, all this is random noise about which the generals DGAF. If we want to know about socialism, we'll observe Scandinavia or anywhere else where it actually happens. We don't need the tortured analogies of frustrated NCOs.
I don't think it's entirely accurate to say "ignore this evidence of a failed system". My point in highlighting it is there's an opportunity to fix it and experiment on a small scale. Imagine if you made that system work, how much you'd learn, and how much support you'd garner.
You only consider USA military to be a "failed system" because you don't realize its actual purpose. One might imagine that it's about security... which, sure, total failure on that front. The actual purpose, as indicated above, is to transfer resources from USA citizens to armaments manufacturers, a purpose that is accomplished to greater degrees every year. Taking good care of the troops would detract from the goal, which is why that doesn't happen.
You were at Camp Lejeune so you might have heard about "baby heaven". [0] That shit is just evil. No socialist system has deliberately poisoned military families just so the generals could get sweet jobs from private companies after they retired, so your experiences were of capitalism, not socialism. Calling it socialism just makes you look sort of clueless.
This awful poisoning shit is still happening right now. [1] The officers who run particular installations DGAF about the health of people living there. They just want to "accomplish their objectives" which is invariably some wargames bullshit or fake statistical readiness scam. They get their ribbons or promotions or whatever and GTFO. Their grandkids won't have to drink tetrachloroethylene when they're living in some swanky NoVA suburb.
Of course we do! Even the military covered bit is nonsense.
Americans do not take kindly to voluntary transaction meddling by the government because who is the government to say what two private parties agree on so long as it does not infringe on the rights of others?
Believe it or not, the social part of our society finds there to be something coercive about Hobson's choices. Something about people not existing purely to be grist for your ideological mill? Shocking, I know, but, well, it is what it is.
That social part of our society has cottoned onto the idea that for the poor among us the game is rigged--and that it is not merely rigged but it is being played such that the information necessary to know about the choices to get out of it show up far too late to be of use, or not at all.
And while that is speaking of a just government, and ours is frequently unjust--sometimes it gets something right.
If this service existed in an extortionary way, why isn't there competition that undercuts the 36% rate? Perhaps it's because such high rates are necessary to make the business profitable at all.
While the government thinks they just saved people from an evil corporation, all they've done is completely prohibit such customers from acquiring loans.
If there is opportunity for arbitrage, you or I or anyone could step in and create a seemingly profitable business while also providing a social benefit.
The moral hazard introduced by the government is the issue.
> Perhaps it's because such high rates are necessary to make the business profitable at all.
It could also be that undercutting that 36% rate does not make you competitive (instead of profitable) against less scrupulous actors (they can advertise more and lobby more; convincing society that they are necessary). Also, it is a kind of business that has a very very high barriers to entry (enormous amounts of capital, regulatory, etc.).
Competition alone can not solve profitable abuse (particularly on those with no options). The less scrupulous you are the more you can abuse, the more you can profit, and the more you drive your competition to implement your practices. The only limit is that fine-tuned equilibrium of casinos: only constrained to the point that allows the larger proportions of your customers just get by earning & spending (as long as minimizing the ones that get under the bus does not reduce the income generated by the majority kept at equilibrium).
> It could also be that undercutting that 36% rate does not make you competitive (instead of profitable) against less scrupulous actors (they can advertise more and lobby more; convincing society that they are necessary).
This is still consistent with profitability. If you're not competitive, you can't earn customers. Businesses are thought to set prices at the level where the margin cost of acquiring a new customer is 0.
However, if you could find a more efficient way to deliver value, reduce costs, etc. you could do so and flourish at a price lower than your competition.
> Also, it is a kind of business that has a very very high barriers to entry (enormous amounts of capital, regulatory, etc.).
Part of the barriers to entry are exactly the regulatory hurdles in place, which are totally unnecessary in my opinion.
Two parties could draft a contract and sign it voluntarily, without government oversight, and petition the courts if any grievances occurr. Keeps government out and lowers costs, likely lowering the necessary apr charged.
> Competition alone can not solve profitable abuse (particularly on those with no options).
This completely violates the idea of a market economy. There are laws against collusion to fix prices. Such laws exist precisely because competition is the mechanism to prevent abuse.
> The only limit is that fine-tuned equilibrium of casinos: only constrained to the point that allows the larger proportions of your customers just get by earning & spending.
While true, this is still not a problem. People are voluntarily transacting at the casino. It's not for a 3rd party to determine if they can or cannot give it a shot to get under the bus.
I've never gotten a loan that wasn't from a "person" that only exists as a government-sanctioned construct. I'm all for natural rights for natural people, but corporate entities are creatures of law, not nature.
Those loans wouldn't really exist because of the free market.
The people who are going to take those loans because they can't get one at 150|100|50|whatever% are going to have a huge challenge, if they are even (blood from a stone) able to.
And while you as the lender may "enforce" repayment with guns and violence, you can only hurt someone so much, and the dead don't repay loans. You can't visit that violence on family and friends, because that is a crime, even if in the most wild west environment you're being allowed to enforce repayment from the lendee with violence. And in the end, while beating the shit out of someone delinquent may be psychologically satisfying to your psycopathic or sadistic ways, you're still out your principal.
The wise lenders will rapidly find the sweet spot between repayment and default.
Even if you fully remove the law, the single-lenders ability for extortion is limited by the fact that they are a known person who can likewise have violence directed back at them.
Yes I like that autocratic regimes, terrorist groups, and rogue states have a very hard time financing their operations. The meddling is certainly not perfect and not without collateral damage, but yeah I think most Americans are probably pretty okay with that.
Awfully suspect that people start coming out of the woodwork with arguments from “principle” coincidentally with them having a vested economic interest in a weak dollar/weak state generally (or at least thinking they have interests in those things).
Why do you believe any of that marketing? Rogue states? Terrorist groups? It's about power. If the US government cared about its people, then there would be real regulation to protect them. There isn't any because it's profitable to exploit them, not because of any libertarian ideal.
Meddling in the affairs of any corporation that handles just a single US dollar transaction is the opposite of interpersonal freedom. I am not sure how you can get this far into thinking about the subject while holding such a bizarrely cognitively dissonant belief.
These sanctions are frequently a point of negotiation against our adversaries. That’s my evidence that they matter. Unless you think they’re just wasting their asks on things that they don’t care about?
What evidence do you have for it being profitable (to whom?) to exploit (how?) the American people (by whom?)?
> This might be too low for some high risk customers to be able to get credit at all.
We're living in near-zero interest rate land. 36% is usury, even 20% is that.
Maybe the US should not only put a hard cap for any kind of loan at FED interest rate + 10%, but also force through an actual livable minimum wage so even the poorest classes don't have to choose between ridiculously expensive credit card debt or starving/dying because they can't afford healthcare.
The issue with low APRs on high risk short term debt for consumers that need it is that it generally makes it expensive to issue the debt almost regardless of the risk of the person.
Hypothetically if you need a $700 payday advance today, paid back in 2 weeks when you are paid, a credit card level (25% apr) would be an extremely small amount of money paid to the servicer (like 7 dollars total).
Just as a heads up the Consumer Financial Protection Bureau recently launched a whistleblowing program for people who work in tech who see sketchy stuff going on around them that is worth checking out if you have something to share https://go.usa.gov/xe66f
> The Commission is authorized by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected.
Is it really fair to calculate an annual interest rate when the loan term in question 14 days (literally one payday)?
I'm not defending payday loans but it seems like an intentionally skewed comparison when you're looking at installment loans of terms in the years or something revolving like a credit card.
APR is the financial equivalent of those labels in the grocery store that give price/100g (or price/oz if you prefer). It allows you to compare the cost of borrowing money across a range of products regardless of a loan's duration, compounding frequency, or non-interest fees. So yes, it's very fair.
Not the OP but I always fail to see how this is useful in the real world (I'm sure you already guessed I'm no financial guru).
Can someone please explain why isn't this akin to comparing the price of a gallon of water to that of printer ink and then thinking: "hmm, the water is way cheaper. I'll take a dozen of bottles, yet I'll be spending less."?
The point is to have an equal point of comparison (APR or gallon or 100ml or whatever), so that the vendor can't trick you with numbers - e.g. a bottle of Fanta is 3 bolivars, a bottle of Sprite 3.5 bolivars, but the first one is 85ml, the second one 100ml. Most people wouldn't be able to do the math even if they immediately notice the difference in size/quantity.
Same thing with interest. Unless it's normalised ( in a yearly equivalent), it's very hard to know how expensive the loan will be. That's why in France it's mandatory when advertising loans to state the yearly interest rate and the total amount paid in the end, just to be clear what you're getting into.
Because the thing you're buying is short term, unsecured credit, it's generally pretty fungible. Regardless of the credit product - payday loan, credit card, line of credit, or something else - what you're paying for is immediate access to money. And in most cases, these products allow you to borrow as much (or as little) as you want - so you're not going to "overborrow". This is more like comparing the cost of buying 30L of water in 330ml containers for $2/ea vs. in 481ml containers for $3/ea except the math for compound interest is harder to do correctly.
Unless you’re entering an agreement where you MUST wait a year before paying the second loan off, it absolutely makes sense to compare the APR of those two loans. If you could pay the second loan after a day, you would save money.
> Is it really fair to calculate an annual interest rate when the loan term in question 14 days (literally one payday)?
Yes. Because annual interest rates are the standard of this country. That means you compare the interest rates apples-to-apples.
My credit card is 13% annual rate, even if I only ever borrow money for 30-days at the max. Comparing this platform vs my credit card on an apples-to-apples basis (APY) is just fair.
That's only true if you're using your credit card to buy stuff. If you withdraw cash from your credit card at an ATM you start accruing interest immediately; at least on every credit card I've ever owned.
Yeah but the point of withdrawing cash is to buy stuff.
Credit card checks can also be used in many cases where credit cards cannot, and those don't always have the fee or immediate interest of cash advances.
If you shy away from defending payday loans, you may be aware of how easily those loans can "get away" from their financially-unstable borrowers and turn into longer-term cash sinks. In light of that, how is it not fair to consider the interest rate over a longer period?
Yes, it's a standard measure so you can easily compare interest rates.
Why shouldn't consumers be able to easily compare rates other than making it easier to mislead them? Arguably not proving an APR is an "intentionally skewed comparison."
I'm going to disagree with the sibling responses here and agree with your premise - I actually think in some cases it's not fair to calculate APR for short term, low value loans. Here's why: There's a transaction cost with making a loan - paperwork, time, etc., and in many cases that transaction cost doesn't scale with the loan size.
Example to illustrate: Let's say I ask you for a personal loan. If I need $100,000 and I want to pay you back over a few years, let's say you charge me 5% APR. You write me a check and you can roughly count on the fact that I'm going to pay you ~$5,000 a year for the service. I get the money I need, you make a nice return, we're both happy.
Now let's say I need $100 for a week. If you charged me the same 5% APR, that means I pay you back about $100.096 next week. Is it worth it? Pretty good deal for me - I'm happy to get a week's usage of $100 and it only cost me a dime. Pretty bad deal for you - and in fact, I expect you wouldn't want to even do the deal. Not worth the risk!
So what do you charge me? What's it worth to hand me a $100 and hope you'll get it back in a week? $1? Still pretty low - and that's 52% APR! $5? Getting closer - now you can buy a beer or two at the bar next week. But that's 260%! $10? Now we're at 520% APR.
I agree that one single metric like APR is not sufficient to compare all possible cases of lending without making some options to look worse than they really are.
But if you were a safe enough borrower to even get a $100k loan, then you're sfe to loan $100 to for a tiny return also. Payday loans probably tend to be for people who can't get better loans of any size.
It is not fair, nor is it reasonable. It's about as useful a metric as the weather forecast being provided in degrees kelvin.
As someone that's had their ass saved by payday loans a couple times, I'll gladly defend them every day of the week and twice Sunday. At no point was I ever unclear about payback schedules, the cost of the financing, penalties, any of it, and neither is anyone else with the financial literacy to have a bank account, a job, and regular paychecks/deposits, all of which are a requirement from your average lender.
You need to borrow $200 for 60 days. Is it cheaper to do so for a flat $10 fee on repayment or by using a credit card with an APR of 20% (compounded monthly)?
I can't do the math to answer this question in my head. I suspect you can't either. The point of normalizing the cost of borrowing money to an APR is so that a consumer can make this decision without having to solve exponential equations.
If I had a credit card with a limit large enough for the need, I wouldn't be even thinking about payday loans in the first place.
This hypothetical doesn't happen in the real world; there's no time where even the most awful subprime credit card (even at cash advance rates!) will be cheaper than a payday loan.
Its usefulness as a metric for a loan intended to be held for a couple of weeks to a month is very limited. Maybe when shopping across short-term lenders, but at that point, it's more intuitive to think in terms of how much the fee is in absolute terms.
It appears LendUp was given plenty of notice of these issues, which look pretty correctable, yet somehow they didn't manage to do that?
Why? Surely simple things like "Your advertising misrepresents the way your service works" can be fixed by adding a few more weasel words to the claims?
Great advice from Jared but the example is unfortunate with this news. Would love to hear/see writeups/talks on how YC and the founders handle this unique situation in the future -- what happens when regulators this deep in your fondue as a startup? Is it a reconsider-pivot-and-proceed or a burn-it-all-down moment?
Can someone share how is then any different from another company like Affirm? They are a public company and this seems very similar to them at high-level
In addition to extremely high interest rates, a lot of these companies rely on being pretty aggressive to get people to pay. I kind of assume that without that these products don't really work.
Was the idea that the "ladder" was meant to be a carrot sub for the near "we'll break your legs" stick tactics that a lot of other lenders in that space use?
Funny as I saw example of LendUp yesterday in How to Get Startup Ideas by YC (https://youtu.be/uvw-u99yj8w?t=1072). Apparently Payday loaning was broken and scammy industry. (So they decided to scam some more I guess)
> “LendUp was backed by some of the biggest names in venture capital,” said CFPB Director Rohit Chopra. “We are shuttering the lending operations of this fintech for repeatedly lying and illegally cheating its customers.”
Exactly, and by “shutdown” they mean “shutters lending for now”
The business is still available to do anything and is well capitalized.
The regulator has to make it seem like a laser strike from orbit, using words like “LendUp was backed by some” in the past tense as if the company is dissolved, but its not and still is backed by the same capital sources.
Time to remedy the operation, challenge the CFPB in court, pivot etc
I like news where the US federal govt is like - nah ah, you dont get away with this. It's good learning in how to regulate enough to ensure economic growth.
I'm always amazed at the sheer magnitude of crimes commited by "businesses" with nothing but an eventual fine(s) as a slap on the wrist... Individuals are routinely dragged off to jail for doing much less to the public, if they're lucky enough not to be choked in the street until dead...
It is a trap sprung at the very start of your adult life when you’re most vulnerable, as a student loan.
It’s sprung when you’ve lost your job, are vulnerable and are about to become homeless.
It’s sprung when you’re already in debt and vulnerable, by other lenders.
Anyone see a pattern here? Debt preys on the vulnerable, turns them into something that delivers returns for decades to the holders, and wraps all that up into tidy looking financial products.
The business of debt is the financial equivalent of the US pork industry: Everyone treats it as part of American life, but the details would make most people throw up.
Anyone remember microfinance? That was the same play: usury with a fresh coat of paint.
I’m seeing posts here making it sound like 36% APR is acceptable. Look up usury folks. This is it. Debt that is intentionally structured so that it can never be repaid and keeps the borrower harnessed to the cart.
It’s incredible how folks, particularly in the US, have become this morally uncalibrated.