(Edited to add: This probably would work only if we were dealing with a large likelihood of default. Otherwise, why would any business take less than they could get from letting a loan continue until paid in full? Does make me wonder what happens when loans get sold from one bank to another...)
Sorry, thought I was done with it...but the ol' brain went on ticking.
Seems crazy that any business would forgive a debt. And how would they make a profit?
Except.
Except as studies of lottery winners show, it's not just about having money and being debt free. It's about changing your lifestyle. Let's say you had credit card debt and that debt was forgiven. How many people are actually going to avoid wracking up more debt on a credit card? (Probably not as many as we should hope). And mortgages? Someone would probably use the opportunity to trade up to a nicer house, and get a new mortgage. Oh...and then their old house would be on the market for someone else to trade up to. So in less than a year, creditors would probably still have plenty of loans and whatnot to profit off of.
Plus, I was thinking "who in their right mind would give up all the money owed?" Except that most people don't pay that all at once. They pay portions of it on a monthly basis...so a creditor wouldn't be losing billions of dollars all at once, they'd lose the monthly principal+interest they were expecting...income that would probably be made up quite quickly.
I'm not so sure about what debt forgiveness would do for some of the more complicated financial transactions (i.e. mortgage backed securities).
Still, I find myself wondering what would happen if we agreed to use our tax money to pay creditors a portion of some debts with the understanding that the entire debt would be forgiven. The portion of the debt would essentially cover what would have been lost in the time it would take to have new loans made and new interest to count on.
Sort of a 'the bird in the hand is worth two in the bush' kind of a deal. Take a certain amount of money now, don't worry about trying to recover the entire debt over thirty or more years, and then be back in business with new loans.
Sorry, thought I was done with it...but the ol' brain went on ticking.
Seems crazy that any business would forgive a debt. And how would they make a profit?
Except.
Except as studies of lottery winners show, it's not just about having money and being debt free. It's about changing your lifestyle. Let's say you had credit card debt and that debt was forgiven. How many people are actually going to avoid wracking up more debt on a credit card? (Probably not as many as we should hope). And mortgages? Someone would probably use the opportunity to trade up to a nicer house, and get a new mortgage. Oh...and then their old house would be on the market for someone else to trade up to. So in less than a year, creditors would probably still have plenty of loans and whatnot to profit off of.
Plus, I was thinking "who in their right mind would give up all the money owed?" Except that most people don't pay that all at once. They pay portions of it on a monthly basis...so a creditor wouldn't be losing billions of dollars all at once, they'd lose the monthly principal+interest they were expecting...income that would probably be made up quite quickly.
I'm not so sure about what debt forgiveness would do for some of the more complicated financial transactions (i.e. mortgage backed securities).
Still, I find myself wondering what would happen if we agreed to use our tax money to pay creditors a portion of some debts with the understanding that the entire debt would be forgiven. The portion of the debt would essentially cover what would have been lost in the time it would take to have new loans made and new interest to count on.
Sort of a 'the bird in the hand is worth two in the bush' kind of a deal. Take a certain amount of money now, don't worry about trying to recover the entire debt over thirty or more years, and then be back in business with new loans.
No comments:
Post a Comment