Author Topic: Investments and Ethics  (Read 8502 times)

zw-j

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Investments and Ethics
« on: July 01, 2013, 11:12:59 AM »
Hi everybody!
I really enjoy the MMM stuff, but there is one thing i can't wrap my head around...

How can a 10-30% interest rate (for borrowers; this Lending Club thing e.g.) be ethically correct?

Thanks so much for your responses!

fiveoclockshadow

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Re: Investments and Ethics
« Reply #1 on: July 01, 2013, 11:32:16 AM »
High interest rates are the price one has to pay if you are perceived to be a credit risk (i.e. likely to not pay back the loan).

Let's say Treasuries yield 4% a year.  You will get that no matter what short of a meteor striking the US and wiping half the country off the map.

Now, lets say you are going to lend money to a group of individuals for a year and that 10% of them will default on their loans.  What interest rate do I need to set?  Well, you will lose 10% of your principle so roughly at a minimum you'd want 14% return to match Treasuries.  But it isn't that simple, because there is much more risk than that.  If the average default rate was 10% then your particular portfolio might do much worse, say 20% default.  So why on earth would I make risky loans that barely beat the safe returns of Treasuries?  The only answer is if there is an even better return - so now interest rates need to be significantly higher than 14% (this is called a risk premium).

As to how real is this risk?  Just ask early investors in prosper.com.  That was an unmitigated disaster as default rates were much higher than expected and most everyone took it in the shorts badly.  They change their system and relaunched and things seem better now, but it highlights just how risky these loans are.

That's the math, in very simplified terms, in case you didn't already know it.

So, for people with few assets to borrow against and poor credit (be it bad credit history or poor future earning potential) there is going to be a high interest rate involved.  Their options are - not to borrow at all, or to borrow at high interest.  Perhaps some really shouldn't borrow at all, but in many cases there may be very good reasons to borrow (e.g. consolidating higher rate debt).

So the issues isn't high interest rates, there is nothing unethical about high interest rates for certain borrowers.  The alternative to high interest rates is that credit not be available at all to those borrowers and there are serious ethical issues with that (e.g. consider most anyplace in the third world).

It would be unethical to hide the true cost of borrowing in fees (e.g. payday loans), to suddenly and dramatically change the interest rate of the loan (e.g. credit card debt) or structure the debt so it will never be paid off without proactive action from the borrower (e.g. again credit card debt) .  There are plenty of companies out there doing exactly this and preying upon borrowers with poor credit. 

Lending Club and the like, on the other hand, are fixed term loans of 3 to 5 years with clearly defined costs and predictable interest rates.  They are vastly superior to things like credit card debt and payday loans.  Yes, the interest rate may be "high" but it is commensurate with the risk of lending to such borrowers and is still a vastly better option for the borrower than the alternatives (i.e. not being able to borrow at all or borrowing at even higher cost).
« Last Edit: July 01, 2013, 11:34:26 AM by fiveoclockshadow »

randymarsh

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Re: Investments and Ethics
« Reply #2 on: July 01, 2013, 11:44:04 AM »
Many Lending Club borrowers are already paying 20%+ on their credit cards. Paying me 10% or even 15% seems like a good deal for everyone.

zw-j

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Re: Investments and Ethics
« Reply #3 on: July 02, 2013, 02:26:26 AM »
Thanks guys...

The 'why' sure is logical. Difficult & extensive topic...

SnackDog

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Re: Investments and Ethics
« Reply #4 on: July 02, 2013, 03:16:45 AM »
It only gets ethically shaky if you hide the terms from the borrowers, present them in confusing ways, lend to people with no capacity to understand the loan terms, or threaten to break their legs if they miss a payment.

nataelj

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Re: Investments and Ethics
« Reply #5 on: July 03, 2013, 01:38:29 PM »
I actually disagree with the other comments. My day job is in the finance world so I understand the theories about the extra return compensating for extra risk and the availability of these loans being a better alternative than the credit cards people are probably using otherwise, but in the p2p lending case I still think it sounds sketch and runs counter to MMM kind of beliefs.

Yes the borrowers would likely have higher loans otherwise, yes someone else will likely do it if I don't put my money in, but this is an ethical question about whether something is right or not in which case someone else doing it if I don't doesn't have an impact (you could use that logic to justify taking a contract to kill someone as long as another bidder was lined up already).

If we were talking institutional borrowers that would be one thing, someone financing a million dollar apartment building or buying riskier bonds knows enough about finance to be able to understand the risks and what it all means in which case I don't have any ethical concerns about a high rate. The average person with credit card debt though just doesn't get finance at all. They have debt because some marketer sold them on buying a product they couldn't afford at a low monthly rate and they don't understand the long term impacts that will have on their lives. As such, lending them money at exorbitant rates and justifying it as being okay because it's lower than other people's rates just perpetuates a system that traps a lot of people in debt and is tantamount to usury.

That said, I really like the Lending Club idea and wanted to take part. My solution has been to invest only in better quality loans that have a 10% or lower interest rate and focus primarily on debt consolidation loans. The 10% is somewhat arbitrary (though there's a campaign based on it at http://www.10percentisenough.org/, their argument is a bit odd at times but interesting), but allows me to take part in the profit (at a reduced rate) without feeling like I'm loaning money to people who really shouldn't be borrowing. Below 10% I can believe that people are actually potentially using these loans as a stepping stone to get out of debt. Higher than that and I just start to think such a thing unlikely.

Of course I don't mean to condemn those who are investing in higher loans, I think most people just haven't considered it, but I think it's worth considering. And I agree with SnackDog's comment too, I just happen to believe that the type of person with bad enough credit to need a 15% loan to reduce their interest rate probably is not someone that actually understands what borrowing money like that actually means. Lending that person money at such a high rate just starts to feel like stealing lunch money from the students on the financial short bus.

Eric

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Re: Investments and Ethics
« Reply #6 on: July 03, 2013, 02:34:33 PM »
Of course I don't mean to condemn those who are investing in higher loans, I think most people just haven't considered it, but I think it's worth considering. And I agree with SnackDog's comment too, I just happen to believe that the type of person with bad enough credit to need a 15% loan to reduce their interest rate probably is not someone that actually understands what borrowing money like that actually means. Lending that person money at such a high rate just starts to feel like stealing lunch money from the students on the financial short bus.

Correct me if I'm wrong, but shouldn't you say that these people were on the financial short bus, but have now expanded their knowledge enough to realize their folly and as such are trying to get on the right path by lowering their interest rates?  I'm not sure what it takes to get approved by Lending Tree, but it's sure stricter than applying for a CC, no?

nataelj

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Re: Investments and Ethics
« Reply #7 on: July 03, 2013, 03:02:01 PM »
I'd like to think that's true, but given the credit scores of those who are ineligible for rates lower than 10% and the kind of behavior that results in that type of credit score I just don't believe that's true. And I can't remember offhand the differences between Lending Club and a CC but I don't believe it's meaningfully different. After all, if your credit score is worse you just get a higher rate, right?

fiveoclockshadow

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Re: Investments and Ethics
« Reply #8 on: July 03, 2013, 03:41:23 PM »
A big difference between a CC and LC is that the CC minimum payment is designed to extend the term of the high interest loan for an extremely long period and it is subject to fairly extreme interest rate adjustments.

On the flip side the LC loan is fixed term, short (3 to 5 years) and unlike a CC can't be drawn down again when partially paid.

To me that is a clear and distinct ethical difference. The CC is obviously designed to keep the debtor in debt forever. The LC loan is designed to resolve the debt quickly.

I would add it still sure does seem poor credit debtors seem to pay rates well above a reasonable risk premium. There is a reason lenders trip over themselves flooding the airwaves with advertising directed at such borrowers. I think low credit indicates financial ignorance just as nataelj suspects and that means it is an excellent way to select borrowers who don't know enough to avoid predatory lending. Sad.
« Last Edit: July 03, 2013, 03:45:38 PM by fiveoclockshadow »

NCoffey

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Re: Investments and Ethics
« Reply #9 on: July 03, 2013, 06:21:00 PM »
The ironic thing is, the higher the interest is, the less likely you are to get repaid.

Honest Abe

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Re: Investments and Ethics
« Reply #10 on: July 03, 2013, 08:51:06 PM »
I only invest in 15%+ loans.. The way I look at it... These are unsecured loans and there's nothing stopping an AA rated loan from default any more or less than a C loan. So if I'm not getting more than 15% I'm not interested.

Having said that... I only invest in Debt Consolidation, because taking a 15% loan out for anything else makes me question that person's judgement or intent.

nataelj

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Re: Investments and Ethics
« Reply #11 on: July 03, 2013, 09:15:42 PM »
NCoffey, I agree, but that's the point, isn't it? There's more risk so the potential payoff is higher to compensate you for it. That's more or less how all of finance works generally.

Honest Abe, do you not question the person's judgment for getting a 15% loan regardless? I do, which is more or less the premise of my thinking that enabling such behavior is ethically questionable. I take it that isn't a concern for you?

Honest Abe

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Re: Investments and Ethics
« Reply #12 on: July 04, 2013, 12:22:43 PM »
If its debt consolidation then I don't consider it enablement. The person takes the loan under the pretense that they're stepping down their interest obligations with the intent to pay it back sooner. I can only take them at their word, and if they mess up or are dishonest, it's their own fault not mine.

nataelj

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Re: Investments and Ethics
« Reply #13 on: July 04, 2013, 09:40:05 PM »
I agree with you in theory, but in practice I'm surrounded by people who make terrible financial choices on a daily basis and think they're informed enough to understand those choices. After various conversations with them I no longer believe that someone stating that they understand the impacts of a financial decision makes it actually true, quite the opposite often, particularly when said person is taking out a 15%+ rate loan.

In truth I think the mere taking out of such a loan proves said person is too financially ignorant to make good financial choices because who in their right minds would ever do such a thing regardless of the reason? So, like I say, I understand your point, but in this case I think looking a little deeper at the situation makes it fairly clear that the higher rate loans on those sites are in fact just another form of enabling a consumerist culture that is actively damaging. And again, to my short bus example, the fact that I can talk someone who a mental handicap into giving me their money and make them happy about it doesn't mean it's right to do. In such an instance outsourcing responsibility for the choice to them may not be outright dishonest but I still don't think it's very ethical.

Daley

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Re: Investments and Ethics
« Reply #14 on: July 05, 2013, 12:23:00 AM »
Nataelj, you're just going to have to get used to the logical disconnect around here and rubbish defense of these sorts of practices. A lot of people in these forums wouldn't tolerate these levels of interest rates with their own loans, yet have no problem inflicting that level of toxic interest on another person. Some even go as far as claiming the practice is charitable.

It's usury and it's hypocritical horse crap, but some people here will bend over backwards to make excuses to do it because it lines their own pockets.

nataelj

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Re: Investments and Ethics
« Reply #15 on: July 05, 2013, 08:33:13 AM »
Ahh, excellent to hear from you I.P. Daley, I'd got that sense but nice to have it affirmed. Given that you largely agree, what's your perspective on my willingness to participate in the process at sub 10% levels? You feel that's also wrong? And you have thoughts on the 10% as the cutoff?

simonsez

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Re: Investments and Ethics
« Reply #16 on: July 05, 2013, 09:59:09 AM »
Sounds like an arbitrary cut-off point (10% or any amount) to protect from usurious lending is a slippery slope calculus-esque limit leading to lending at 0% before you have all parties in agreement that the interest rate is ethical.  If not 0%, then some other artificially low rate where markets would not clear and people needing to borrow would not be able to find any willing lenders.  That is, of course, if other people's opinions not being consistent completely shut down the lending market. If the system of financial risk or at least an area of it bothers you, don't borrow or lend and live a happy life on your own terms.  Just because a legal practice bothers you on an ethical level, doesn't mean it has to bother someone else in the same way.  To each their own.

P.S. If an issue REALLY bothers you and the simple act of other people doing something grates against every cell of your body, gather up a large enough group and let your voice be heard to try to inflict change with the legal/political system.  Gun control.....abortion.....same-sex marriage.......and lending!

Nataelj, you're just going to have to get used to the logical disconnect around here
Logical disconnect?  Is this a forum-wide plague or just on the topic of lending?  Like actual logical fallacies?

A lot of people in these forums wouldn't tolerate these levels of interest rates with their own loans, yet have no problem inflicting that level of toxic interest on another person.
What does this mean?  So you'd be okay with high rates of borrowing if the ones lending money also had their own open loans borrowed at high rates?  That just seems like an absurd criterion.  Toxic?  Perhaps in some situations but no lender has a gun to the borrower's head to take out legal toxic loans.  I think the more toxic is the original financial situation in which the only solution to live at an acceptable level of consumption (in the view of the borrower, of course) is to borrow money at a high rate.  Pay back the toxic loan(s) and become a lower risk and the rate goes down moving forward.  Build some credit history and become financially accountable/wary.  It is easier said than done for some and it may take awhile but it is possible to dig out of most situations.  Bankruptcy/government programs exist for those tougher situations but I don't want to thread drift too much.

These are unsecured loans and there's nothing stopping an AA rated loan from default any more or less than a C loan.
Not a fan of probabilities/law of large numbers or do you just not trust the risk-calculating algorithms being used?  I'll admit that when comparing a single entity (or any other low sample size) to another entity with different probabilities attached, it is quite possible to have the lower risk entity experience the negative event (in this case a default) whereas the higher risk entity turns out to be a success.  It's just not the most probable scenario.

nataelj

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Re: Investments and Ethics
« Reply #17 on: July 05, 2013, 10:11:52 AM »
If the system of financial risk or at least an area of it bothers you, don't borrow or lend and live a happy life on your own terms.  Just because a legal practice bothers you on an ethical level, doesn't mean it has to bother someone else in the same way.  To each their own.

P.S. If an issue REALLY bothers you and the simple act of other people doing something grates against every cell of your body, gather up a large enough group and let your voice be heard to try to inflict change with the legal/political system.  Gun control.....abortion.....same-sex marriage.......and lending!
I take your point, but I'm not trying to impose my views here, rather to discuss it and reach a more well considered conclusion myself while perhaps also encouraging others to reconsider a perspective they likely hadn't stopped to think about. I don't think anyone on this forum even implied we wanted to impose limitations on others based on the ethical concerns. That would be kind of...unethical. :)

What does this mean?  So you'd be okay with high rates of borrowing if the ones lending money also had their own open loans borrowed at high rates?  That just seems like an absurd criterion.  Toxic?  Perhaps in some situations but no lender has a gun to the borrower's head to take out legal toxic loans.  I think the more toxic is the original financial situation in which the only solution to live at an acceptable level of consumption (in the view of the borrower, of course) is to borrow money at a high rate.  Pay back the toxic loan(s) and become a lower risk and the rate goes down moving forward.  Build some credit history and become financially accountable/wary.
I think this is a bit of an oversimplification. FI-type forums often use phrases like "wage-slave" to discuss the perspectives of people trapped in consumer spending cycles, the whole premise of much of the ER perspective being that people are unwittingly suckered into buying things they don't need for "easy monthly payments" and as such and end up trapped under masses of debt. So no, no one literally has a gun to these people's heads, but that doesn't mean they're making the choice freely.

As for the perspective that this logically leads to no lending, I don't think that's true. First I made the distinction earlier about people who are professional investors and those who aren't. I have no issue charging professionals any rate they're willing to pay even if it were 50% because they have an understanding of the decision they're making. For the average financially ignorant consumer though, I think it's reasonable to believe those who have worked their credit up to a better level are actually on track to get out of debt in which case a 6% consolidation loan may genuinely help them get out of the consumer trap. If you're only eligible for a 15% loan though then I think the behavior that leads to that level of credit score indicates fairly clearly that you're in a pretty bad way financially, and the availability of a slightly lower rate loan than what you could get on a credit card is not actually helping you get out of debt since it's a behavior-based problem.
« Last Edit: July 05, 2013, 10:14:21 AM by nataelj »

simonsez

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Re: Investments and Ethics
« Reply #18 on: July 05, 2013, 10:37:01 AM »
I take your point, but I'm not trying to impose my views here, rather to discuss it and reach a more well considered conclusion myself while perhaps also encouraging others to reconsider a perspective they likely hadn't stopped to think about. I don't think anyone on this forum even implied we wanted to impose limitations on others based on the ethical concerns. That would be kind of...unethical. :)

Haha, touche and refreshing to read that.

Right, I get people buy stuff they don't need, I do plenty of that.  I guess I just have less sympathy for adults (professional or not) who bite off more than they can chew because they feel society expects them to act a certain way and they don't have a robust way to pay for the privilege.  In your example with the 6% consolidation loan, I think you are just pointing that not all risk-calculating algorithms are the same.  This is good as it allows people to shop around and explore options.  Some lender might take on the risk whereas others won't because the focus is on different factors that might ignore the "turnaround".  Hopefully the borrower and the lender are able to meet somewhere where they both deem it beneficial (with vastly different values of course as to what beneficial means).

it's a behavior-based problem.
Yup.  The culture needs to change which would change eventual behavior.  I also think it is a lack of proper basics at the secondary education level (or age).  I would've loved a personal finance planning class at my slightly below average public high school.  I had a senior dance class that was somehow mandatory for graduation yet a class which touches on topics that will likely be incredibly relevant for an adult's entire life flies under the radar as even being offered.  Parents can be a big help as well.  I love mine to death but I don't think getting financial advice from them in my teenage years would've been very beneficial but it may work for others to sit down and talk finances.

Daley

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Re: Investments and Ethics
« Reply #19 on: July 05, 2013, 10:59:49 AM »
Ahh, excellent to hear from you I.P. Daley, I'd got that sense but nice to have it affirmed. Given that you largely agree, what's your perspective on my willingness to participate in the process at sub 10% levels? You feel that's also wrong? And you have thoughts on the 10% as the cutoff?

Well, my feelings on the subject of loans and interest rates tend to be best embodied by the Hebrew Tanakh and the B'rit Chadasha, and I think the best way to distill down my feelings on the subject are best encapsulated by Yeshua as related in Mark 12:28-34, specifically:

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The second is this, 'You shall love your neighbor as yourself.' There is no other commandment greater than these.

Let's keep the analysis simple for simplicity sake. Basically, that implies don't charge interest to a neighbor at all, don't charge a higher interest rate on your fellow man who isn't a neighbor than you're willing to pay yourself in their specific situation, and be willing to forgive and release any remaining debt in total if it cannot be paid in full by the beginning of the seventh year (or a limited and finite timeframe)... which as a means tends to set a reasonable cap on realistic loan amount limits in my book if you intend to receive the entirety of the loan back, with or without interest.

If you yourself are comfortable with loans up to 10% in your own portfolio, then I think you're being reasonably just in your approach. Further, your desire to keep rates in the single digits indicates your awareness of the dangers of debt and your unwillingness to inflict that danger upon others. One can say that 10% is a bit arbitrary as a cutoff, but it's well within reasonable rates culturally and historically (excluding the corrupt and cruel empires).

My own personal feelings would put a hard limit on interest rates at around 12-13% as the highest acceptable, and I regard that as steep and bordering on the edge of usury itself, and wouldn't particularly want to personally charge more than half that rate under most circumstances if I were to participate at all (which is a tangentially related topic). Personally, I find all forms of financial debt (with or without interest) as a requirement of servitude to others, and dislike the inherent conflict that being beholden to multiple masters can cause.

It's not to say that if I found myself in a position where doing so might genuinely better another person, I wouldn't invest in their future as such because doing so could help enable their own freedom, but Torah and my conscience would dictate the rules in which that loan was made, I certainly wouldn't do it at all unless I was capable of eating the entire debt myself without one penny returned (though means to securing debt and contractual agreements is a discussion in itself), and it would be done strictly to the guidelines above.

Basically, I wouldn't do it myself as a means to grow wealth... but I also don't begrudge your own practices as they're at least reasonably fair and don't smack of a double standard.



Simonsez, to address your questions:

1) Yes, there is great logical disconnect and fallacious logic by a great deal of members on these forums. In general, subjecting oneself to high interest rates are regarded as anti-mustachian and grounds for face punches... until the person in question is the lender, then it's regarded as a high yield "investment". Hypocrisy is hypocrisy.

2) What does that mean? Again, it's a matter of hypocrisy. It's not that I'd be okay with seeing my fellow man participate in usurious lending practices against others, and I'd still denounce it... but if someone is actively undergoing the very financial practices presented in their own life by taking out loans at equal rates to what they're lending under similarly appropriate circumstances? Then I would consider the person foolish, but I could at least respect them for not being a hypocrite.

It's not about imposing my own values on others here, it's a matter of holding others accountable to their own stated values.

People can try to justify and defend the practice all they want citing that "nobody's holding a gun to their head" or "enabling others to dig out" or "if it's legal it's okay" because their rates are lower than credit card rates but still unconscionably high... but they can't escape the fact that they know better than to ever hold debt at those rates. That makes them guilty of actively exploiting another person for their gain.

If you want to cite the example of genuinely helping someone shovel out? You can do so at rates that you would be willing to pay yourself.

simonsez

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Re: Investments and Ethics
« Reply #20 on: July 05, 2013, 11:44:03 AM »
1) Yes, there is great logical disconnect and fallacious logic by a great deal of members on these forums. In general, subjecting oneself to high interest rates are regarded as anti-mustachian and grounds for face punches... until the person in question is the lender, then it's regarded as a high yield "investment". Hypocrisy is hypocrisy.

If you want to cite the example of genuinely helping someone shovel out? You can do so at rates that you would be willing to pay yourself.

1) Not everyone is mustachian IMO.  I don't think a mustachian lender shies (or would shy away from) away from the fact necessarily that people borrowing from he or she really do need a face punch.  Also, I don't even think there is a consensus on what mustachian truly means.  It's a self-given label.  There is no explicit manual, it's a person-by-person approach to see what is most efficient and rational in a scenario on one or more parameters given a person's individual characteristics.  This is why/how people (including mustachians) justify paying for phones, travel, organic food, tv's, vehicles, or whatever else because everyone has a unique utility function.  I just think mustachian utility functions are bit more fine tuned for the reality of choices made to match the theory of optimality (i.e. what an individual thinks is best and then what actually happens).  You have every right to have your own opinion of what it means to be mustachian as well.  In this situation, I think it would only be hypocritical to have the viewpoint that borrowing money to finance certain types of consumption is not optimal and THEN going out and borrowing money to fund those certain types of consumption.  Agree to disagree on the context of hypocrisy in this case I guess. 

I have loaned small amounts of money (<$1000) to my brother and close friends at 0%.  Sat down and had a talk about what was expected with repayment, why the money needed to be borrowed in the first place, the non-pecuniary value I received out of lending to them, and the gravity of the situation should repayment not go according to plan.  Me talking to them could totally be seen as a scolding or face punch but that was a condition of them being able to borrow the money in the first place.  If they didn't want the face punch, they were free to "pay for the ignorance" somewhere else I suppose.  Then again, these situations weren't very dire so the shoveling was not very deep.  I myself don't really touch Lending Club or other P2P sites for various reasons but I'm 100% okay with other lenders and borrowers (including banks and cc companies) finding a common, agreed-upon ground to make transactions happen.

if someone is actively undergoing the very financial practices presented in their own life by taking out loans at equal rates to what they're lending under similarly appropriate circumstances? Then I would consider the person foolish, but I could at least respect them for not being a hypocrite.
Haha, foolish indeed but at least they the respect working in their favor!

fiveoclockshadow

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Re: Investments and Ethics
« Reply #21 on: July 05, 2013, 12:41:40 PM »
If you yourself are comfortable with loans up to 10% in your own portfolio, then I think you're being reasonably just in your approach. Further, your desire to keep rates in the single digits indicates your awareness of the dangers of debt and your unwillingness to inflict that danger upon others. One can say that 10% is a bit arbitrary as a cutoff, but it's well within reasonable rates culturally and historically (excluding the corrupt and cruel empires).

I presume you mean 10% above inflation?  Otherwise the US and most of the world was a corrupt and cruel empire through the late 70s and early 80s. 

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Personally, I find all forms of financial debt (with or without interest) as a requirement of servitude to others, and dislike the inherent conflict that being beholden to multiple masters can cause.

Since you seem to be a fan of slippery slopes I am forced to point out the slippery slope here.  All modern civilization, and most importantly the end of serfdom is largely based on the liquidity of capital created by commercial and private lending that began in the late middle ages.  The issue here is that while there is clearly a slippery slope to usury there is a slope on the other side towards capital stagnation that is extremely detrimental to all people.  Be aware of both, and be aware that scriptures similar to those you reference have been used to the extreme detriment of a number of third world nations.  Your particular interpretations are reasonably sound, but you stand on mountain with slippery slopes on all sides.  Be careful how hard you throw that stone or you might find yourself back-peddling down the slippery slope behind you.

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Basically, I wouldn't do it myself as a means to grow wealth... but I also don't begrudge your own practices as they're at least reasonably fair and don't smack of a double standard.

See above, if people hadn't specifically stopped following this ethic we'd still mostly be serfs serving the local landed gentry.  It sounds nice, but it can quickly become a different kind of moral hazard that "first world bleeding hearts" to use your term are blissfully unaware of to the detriment of society in general.  I guess at least you "don't begrudge" the practices of those who dug us out of the middle ages and made the founding of the US at all possible.

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It's not about imposing my own values on others here, it's a matter of holding others accountable to their own stated values.

No, actually it is exactly applying your own values on others though you seem blind to it.  You have applied your value of "only apply interest rates to others that you would apply to yourself".  That is your value, and not the value of most people.  And you don't even seem to consider the position others are in because you lack the empathy to be in their shoes, you assume everyone else has your evaluations of the utility of various interest rates both as lender and borrower.

This "holding others accountable to their own stated values" can be the worst kind of application of moral relativism.

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If you want to cite the example of genuinely helping someone shovel out? You can do so at rates that you would be willing to pay yourself.

This doesn't even begin to work.  I don't need to borrow, so by definition the rate I'm willing to pay myself right now is 0%.  On the other hand, if I need $100K tomorrow with minimal documentation I'll gladly pay 15%. 

Which is not to say I don't largely agree with your choices - I'm not interested in making loans at higher interest rates to high risk borrowers.  I also agree with the objections raised to the often shallow and barely defensible arguments about available credit at any price being justifiable.  But if you are going to post that you aren't holding other people to your value system when you clearly are, I'll call you on it.  And when your value system is conservative enough that it would crunch credit markets to a degree not beneficial to anyone I find that hard to agree with.

Basically the moral high horse you are declaiming from is at significant risk of trampling some of those you hope to defend.  You might want to dial it back a bit and understand a bit better what the positive impacts of credit markets are and how your relatively arbitrary opinions of rates and practices may be sub optimal.

grantmeaname

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Re: Investments and Ethics
« Reply #22 on: July 05, 2013, 01:02:29 PM »
Your particular interpretations are reasonably sound, but you stand on mountain with slippery slopes on all sides.  Be careful how hard you throw that stone or you might find yourself back-peddling down the slippery slope behind you.
Translation: "You're not using a slippery slope argument but other people having other conversations sometimes do, so I thought I'd attmept to discredit you anyways"

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See above, if people hadn't specifically stopped following this ethic we'd still mostly be serfs serving the local landed gentry.  It sounds nice, but it can quickly become a different kind of moral hazard that "first world bleeding hearts" to use your term are blissfully unaware of to the detriment of society in general.  I guess at least you "don't begrudge" the practices of those who dug us out of the middle ages and made the founding of the US at all possible.
You didn't demonstrate that, you stated it and moved on. You're piling shit pulled from your ass on top of vitriol about rhetorical mistakes that he didn't make? Side note: moral hazard does not mean "things I think are bad".

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That is your value, and not the value of most people.
Counting me, it's a rule three of the ten posters in the thread share. It's an important part of the majority religion in this country, and it's not such an outlandish view that I think many object to it in a general or specific case. If it were, why would you have appealed to equity and fairness yourself?

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And when your value system is conservative enough that it would crunch credit markets to a degree not beneficial to anyone I find that hard to agree with.
The only thing here that conservative is your caricature of his views, as far as I can tell. I disagree with Daley, but I don't think he's nearly as extreme as you're painting him to be. You'd also note, if you were interested in doing so, that he was giving his values and explicitly said that he doesn't expect everyone (the markets) to agree and act accordingly. Finally, lending to a corporation or government for investment purposes is a totally different matter than lending to a sole proprietorship or an individual for debt consolidation, and little of Daley's logic applies to that -- in fact, it looks to me like he deliberately kept his post narrow in scope.

nataelj

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Re: Investments and Ethics
« Reply #23 on: July 05, 2013, 01:10:39 PM »
No, actually it is exactly applying your own values on others though you seem blind to it.  You have applied your value of "only apply interest rates to others that you would apply to yourself".  That is your value, and not the value of most people.  And you don't even seem to consider the position others are in because you lack the empathy to be in their shoes, you assume everyone else has your evaluations of the utility of various interest rates both as lender and borrower.

This "holding others accountable to their own stated values" can be the worst kind of application of moral relativism.

Woah, that seems a bit harsh, and I don't think I agree, while stating an opinion that might decry the actions of others I don't see Mr. I.P. actually advocating the implementation of legal limits on these practices anywhere, which is I believe what he means. He may disagree with the actions but he's not imposing his view on them, just disagreeing from the sidelines. I don't see that as hypocritical in the slightest, and the accusation that it implies a lack of empathy is kind of unnecessary harsh don't you think? It's quite possible to empathize with someone, even having had the experience yourself, while disagreeing with the actions they take as a result.

This doesn't even begin to work.  I don't need to borrow, so by definition the rate I'm willing to pay myself right now is 0%.  On the other hand, if I need $100K tomorrow with minimal documentation I'll gladly pay 15%.

This seems an oversimplification to me, because you're simplifying to an example when you have to have 100k, which, frankly, implies a whole mess of other things; short of paying off mob debts most of the time in our lives borrowing money is a choice. The more general point is in an instance where you wanted 100k but didn't have to have it, what rate would you take it at? I'm assuming the 6% rate would make you more willing to take it, whereas the 15% rate might make you decide you didn't actually want to pay that price and could do without whatever you needed the 100k for. In which case Mr. I.P. is quite reasonable in discussing not lending at rates higher than those you'd borrow at yourself.

I think your general points about the utility of loans, particularly in helping worse off socioeconomic classes rise, is somewhat true, but I think your slippery slope perspective applies strongly to this. Yes indeed the availability of money to borrow can and does help people move up in the world in many situations, but the dynamic of that particular exchange is also one fraught with risk as the person taking out the loan is more or less at the mercy of the lender since they are in a situation that affords them no reasonable alternatives. As such it's a situation rife with the possibility of predatory lending, which is what I see as the real risk and the issue at hand in the high loans on these p2p lending sites.


P.S. greatmeaname added his post just as I wrote this, I'll simply add a "hear hear!" to much of what he said.
« Last Edit: July 05, 2013, 01:21:07 PM by nataelj »

fiveoclockshadow

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Re: Investments and Ethics
« Reply #24 on: July 05, 2013, 02:53:52 PM »
Translation: "You're not using a slippery slope argument but other people having other conversations sometimes do, so I thought I'd attmept to discredit you anyways"

Not entirely fair I think, but I'll grant you it is a weak enough argument to be discounted/ignored.  The "slippery slope" of usury being discussed here is probably much more relevant than and credit crunch to be concerned about.  I concede.

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See above, if people hadn't specifically stopped following this ethic we'd still mostly be serfs serving the local landed gentry.  It sounds nice, but it can quickly become a different kind of moral hazard that "first world bleeding hearts" to use your term are blissfully unaware of to the detriment of society in general.  I guess at least you "don't begrudge" the practices of those who dug us out of the middle ages and made the founding of the US at all possible.
You didn't demonstrate that, you stated it and moved on. You're piling shit pulled from your ass on top of vitriol about rhetorical mistakes that he didn't make? Side note: moral hazard does not mean "things I think are bad".

I'm sorry, I presumed the history of credit in Europe was pretty well known as well as its role in the rise of all we know of as modern western civilization.  As to "moral hazard" I understand what it means, but my use was weak.  My point was he doesn't bear the risk of his decision, if the credit market for high risk borrowers grows stagnant (or similarly in third world nations) it is of little consequence to him and greatly impacts them.  But it is a poor use, because the "benefit" I view him taking (feeling good about a moral position) is a very weak sense of an economic benefit nor is there a perceived upside to him.

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That is your value, and not the value of most people.
Counting me, it's a rule three of the ten posters in the thread share. It's an important part of the majority religion in this country, and it's not such an outlandish view that I think many object to it in a general or specific case. If it were, why would you have appealed to equity and fairness yourself?

My point is many people (myself included) do not include "charge the interest rate you would be charged" as equivalent to "do unto others as you would have done to you".  That assumes all borrowers have the same risk, and they don't.  And application of it would cause a credit crunch since by definition those who are able to lend are a lower credit risk than those that need to borrow.  He's taking a common value and translating to a specific and literal instance not many people would share with him.  Or so I interpret from his post (perhaps erroneously on my part).
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And when your value system is conservative enough that it would crunch credit markets to a degree not beneficial to anyone I find that hard to agree with.
The only thing here that conservative is your caricature of his views, as far as I can tell. I disagree with Daley, but I don't think he's nearly as extreme as you're painting him to be. You'd also note, if you were interested in doing so, that he was giving his values and explicitly said that he doesn't expect everyone (the markets) to agree and act accordingly. Finally, lending to a corporation or government for investment purposes is a totally different matter than lending to a sole proprietorship or an individual for debt consolidation, and little of Daley's logic applies to that -- in fact, it looks to me like he deliberately kept his post narrow in scope.

You are quite possibly correct I am applying far broader scope that he means and that the fault of interpretation is entirely mine.  If that's the case, then I certainly apologize.  I suppose I find his rather vitriolic and judgemental language in parts to lack the nuance that is best applied to the topic at hand.  Again, I refer you to many nations under Islamic law that have non-functioning credit markets as an example of the fact there is a very real slippery slope on the other side of the mountain.  It is quite possible I allowed the preachy moral judgments being thrown around in that post to misread it as broad and inflexible when the intent is otherwise.

Honest Abe

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Re: Investments and Ethics
« Reply #25 on: July 05, 2013, 03:00:13 PM »
Someone explain to me how P2P lending at 15% for the purposes of Debt Consolidation is wrong, but buying real estate expecting to rent to someone with 15% ROI to help pad for future vacancies and repairs is any different.

+1 if you can do it without quoting the Bible. (although if you want to have that discussion in another thread I'd be happy to do it.)

How much ROI is "enough" in P2P and then go ahead and apply your supposed expertise to every other investment vehicle while you're at it.

The market dictates the acceptable risk/reward for lending. If someone can lend to a 650 credit score at 13% instead of 15% and still make money they will do it in the interest of taking business away from the other lender. If someone wants to take out a loan to consolidate their debt I'll lend it to them at the market rate. If they'd rather pay Citi 24% interest without consolidating then more power to them. I don't lend money to people claiming to buy engagement rings or vacations, but I'm not going to judge other people who will.

People are free to make their own decisions in life, regardless of how they fit in with your personal beliefs. And you're damn lucky that that is a true statement... be careful what you wish for, friends.
« Last Edit: July 05, 2013, 03:02:35 PM by Honest Abe »

fiveoclockshadow

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Re: Investments and Ethics
« Reply #26 on: July 05, 2013, 03:00:45 PM »
I don't see that as hypocritical in the slightest, and the accusation that it implies a lack of empathy is kind of unnecessary harsh don't you think? It's quite possible to empathize with someone, even having had the experience yourself, while disagreeing with the actions they take as a result.

The lack of empathy I was referring to was not being able to put oneself in the shoes of someone who needs a loan and the credit market options are 28% or nothing.  In that case said person would very much like a 15% loan but the poster is saying people who would offer that person are unethical.  Thus denying the borrower access to the loan.  I didn't mean at all he was an unempathetic person at all - I just meant in that case the empathetic perspective is to think of the position of the borrower, and to consider it carefully rather than to just think of the lender and what a religious document recommends.

So apologies if it was harsh, I intended it to be no more so than his claim that he is holding others to a self consistency he is imposing from his own moral framework.  (albeit one I mostly share).
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I think your general points about the utility of loans, particularly in helping worse off socioeconomic classes rise, is somewhat true, but I think your slippery slope perspective applies strongly to this. Yes indeed the availability of money to borrow can and does help people move up in the world in many situations, but the dynamic of that particular exchange is also one fraught with risk as the person taking out the loan is more or less at the mercy of the lender since they are in a situation that affords them no reasonable alternatives. As such it's a situation rife with the possibility of predatory lending, which is what I see as the real risk and the issue at hand in the high loans on these p2p lending sites.

Yes, I agree.  And I very much appreciate your earlier posts.  I think they give a good a clear illustration of the ethical issues with many p2p lending.  And also very much appreciated IP's link to the Kiva thread - excellent discussion in there.

My apologies if I stepped on to many toes!

nataelj

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Re: Investments and Ethics
« Reply #27 on: July 05, 2013, 03:10:57 PM »
I just meant in that case the empathetic perspective is to think of the position of the borrower, and to consider it carefully rather than to just think of the lender and what a religious document recommends.

I agree with this, but I think a repeated point in this discussion all along has been that this kind of empathy, when applied to high rate loans, would logically lead one to think that offering such a loan is often just enabling self-destructive behavior.

fiveoclockshadow

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Re: Investments and Ethics
« Reply #28 on: July 05, 2013, 03:39:15 PM »
I just meant in that case the empathetic perspective is to think of the position of the borrower, and to consider it carefully rather than to just think of the lender and what a religious document recommends.

I agree with this, but I think a repeated point in this discussion all along has been that this kind of empathy, when applied to high rate loans, would logically lead one to think that offering such a loan is often just enabling self-destructive behavior.

Yes, and I think that is a really good point and one without a particularly easy answer.  It seems like maybe a good role for regulation and government.  For example, cap the rates and fees that can be offered in the market place to shut down the exploitive loans from disreputable commercial interests and provide a government funded consolidation loan with restrictions.  I'm just thinking out loud here, please don't take that particular example seriously or consider worthy of critique.  The problem to figure out to solve is to provide an exit for people already trapped that doesn't cause new people to be trapped or enable further self-destructive behavior.  Obviously not easy.

Anywho, your earlier perspective from the lending side on how the same loans that could be justified as consolidation loans can easily also enable self-destructive behavior is a sticky issue I hadn't thought of in detail before.  IP makes some similar points in the Kiva thread he linked to.