from Hacker News

Trillions in Bad Loans May Sap World Economy for a Long Time

by es09 on 2/4/16, 4:46 AM with 80 comments

  • by ihsw on 2/4/16, 2:39 PM

    Why not forgive the loans? The negative affect of debt on people's capacity to contribute to the world economy is high, and I think it stands to reason that people would contribute more for the duration of paying off their loan if the loan wasn't hanging over their head.

    The banks would scream bloody murder, obviously, but their slack policies got us into this mess in the first place.

    The intention is to throw people a rope to save them from drowning, but the rope is ending up as a noose around their neck more than anything else. The government's may have had good intentions in their support for the proliferation of subprime lending, but I think it would've been more effective to just give people money without the expectation that they pay it back directly. It will find its way back into the economy as, so to speak, trickle up economics.

  • by redthrowaway on 2/4/16, 11:14 AM

    Almost like the better part of a decade of free money tends to create bad debt.

  • by johnm1019 on 2/4/16, 1:57 PM

    Wouldn't this only sap the global economy if all those bad loans were backed by average Joes, who were then hurt by the loss of return? If instead they were backed by governments and multi-national conglomerates who already had hoardes of (free?) cash, then the effect on the economy would be limited.

  • by marcusgarvey on 2/4/16, 3:07 PM

    One view: this article is "an economically warped account that leaves important policy options off the table."

    http://www.nakedcapitalism.com/2016/02/new-york-times-bank-b...

  • by mathgenius on 2/4/16, 7:48 AM

    So, if one views the global financial system as a big distributed belief propagation algorithm (eg. min-sum) how do loans fit into this?

    Perhaps it makes sense switching to a "quantum-like" dynamics where one may "borrow" energy for a short amount of time before having to repay it, as in Heisenberg delta E * delta t uncertainty. So decreasing interest rates amounts to messing with some kind of Planck's constant.

  • by ChuckMcM on 2/4/16, 8:18 PM

    Reminds me of the joke, that if you can't pay your $100,000 loan you have a problem, if you can't pay your $100,000,000 loan then the bank has a problem. But it captures the scale of things.

    For literally decades people have suggested that China's economy (GDP) wasn't growing, it's money supply was. And as a result there would be a time when even with relaxed credit you could not justify adding any additional debt. At which point that particular path would be cut off and a more accurate picture of the economy would emerge. Which seems to be happening now.

    What would be useful, but no doubt hard to get, would be a list of Chinese firms which are currently technically in default on their loans and so at risk of dissolution. And even more useful would be an understanding of how the Chinese government would treat them (would they bail them out like our government did for GM, or let them fail like Lehman Brothers?)

  • by orian on 2/4/16, 1:39 PM

  • by markhall on 2/4/16, 6:29 PM

    Knowing that some of this will result in a partial economic downturn, how can the 'average investor' hedge/profit from it? Not in a 'Big Short' sort of way, just using this as an investment strategy for the layman. Any ideas?

  • by masterleep on 2/4/16, 3:26 PM

    This is flat out impossible. Krugman assured us that debts do not matter and that trying to live within a budget is a wicked plot to impoverish us all.