Linked by Thom Holwerda on Mon 20th Feb 2012 11:22 UTC
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Member since:
2006-07-14
While its difficult for people to understand proper moderation and regulation, I'll try anyways.
Without getting interest on a loan, the party making the loan has no incentive to give the money in the first place. Especially if there is a non negligible inflation rate. Your $100,000 loan taken out in 1970 was able to buy a lot more than it was in 2000, when a conventional 30 Year mortgage would be repaid.
Now, what caused the financial crisis in the United states then? Well, greed obviously. Instead of charging a fixed rate, banks made loans to people with adjustable rates. They also stopped actually sufficiently investigating if people could pay for the loans, also bad. So all of a sudden those rates went up all at once for a large section of the people who took out loans, and they couldn't pay. Meltdown achieved due to excessive greed and lack of adequate regulations, and a poor understanding of math.
There is nothing wrong with a properly regulated market economy. The tough part is the "properly regulated" part, finding the balance between market forces and regulation is difficult both academically and politically,