I'm guessing you're referring to home loans, which had the lovely property of inflating prices without any correspondence to a real increase in value. There was more money in the system to bid on a fixed set of assets, so prices went up.
Business loans are fundamentally different, aren't they? Sure, a lot of these businesses will fail, but at least the whole point of a business is to create value, and there will be a lot of winners, too. Money has to move around, that's how the economy works. I'd much rather see it moving around trying to drive people to create value, than to consume concrete assets.
Yeah.. really though I think I was bitching more than trying to make a real point.
A couple of points though. First, there were a lot of "concrete assets" created in recent years. As simple evidence google "condo glut." Also, you're right - these business loans are fundamentally different. Unless I'm missing something, they're fundamentally riskier - there's no collateral (overvalued collateral is better than none), and the entity you loaned money to is FAR more likely to simply disappear.
As to whether they'll go to better uses - hey - I hope you're right. I hope it helps create more value / helps the economy, etc. However, plenty of people took money "out of equity" in loans and spent it on stuff that created value in a similar manner. For instance, there used to be quite a burgeoning business in selling solar panels to homeowners.. many would argue it's good for the environment, adds value to the home, etc. The interesting part here though is that the salesman weren't really just selling solar panels. Their job was to walk the homeowners through how to get the money in a mortgage "out of equity" on the always-rising value of their home and collect any tax credits available.
Condos built at breakneck pace to satisfy demand driven largely by spec rather than need, it's kind of hard to think of those as assets right now (figuratively speaking, of course). The biggest problem is that 'always-rising value' part - that was a complete myth, at least at the pace that was being seen and assumed would continue.
Businesses probably are fundamentally riskier, but there's probably a power distribution in there somewhere, where a few pay off like mad and offset everything else. I'm not advocating irresponsibly handing out business loans or anything like that, but if a bank has the choice between investing in a risky mortgage or a risky business, I guess I would hope they'd pick the business. Then again, I'm not really interested in buying a house anytime soon.
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I'm guessing you're referring to home loans, which had the lovely property of inflating prices without any correspondence to a real increase in value. There was more money in the system to bid on a fixed set of assets, so prices went up.
Business loans are fundamentally different, aren't they? Sure, a lot of these businesses will fail, but at least the whole point of a business is to create value, and there will be a lot of winners, too. Money has to move around, that's how the economy works. I'd much rather see it moving around trying to drive people to create value, than to consume concrete assets.
Yeah.. really though I think I was bitching more than trying to make a real point.
A couple of points though. First, there were a lot of "concrete assets" created in recent years. As simple evidence google "condo glut." Also, you're right - these business loans are fundamentally different. Unless I'm missing something, they're fundamentally riskier - there's no collateral (overvalued collateral is better than none), and the entity you loaned money to is FAR more likely to simply disappear.
As to whether they'll go to better uses - hey - I hope you're right. I hope it helps create more value / helps the economy, etc. However, plenty of people took money "out of equity" in loans and spent it on stuff that created value in a similar manner. For instance, there used to be quite a burgeoning business in selling solar panels to homeowners.. many would argue it's good for the environment, adds value to the home, etc. The interesting part here though is that the salesman weren't really just selling solar panels. Their job was to walk the homeowners through how to get the money in a mortgage "out of equity" on the always-rising value of their home and collect any tax credits available.
Condos built at breakneck pace to satisfy demand driven largely by spec rather than need, it's kind of hard to think of those as assets right now (figuratively speaking, of course). The biggest problem is that 'always-rising value' part - that was a complete myth, at least at the pace that was being seen and assumed would continue.
Businesses probably are fundamentally riskier, but there's probably a power distribution in there somewhere, where a few pay off like mad and offset everything else. I'm not advocating irresponsibly handing out business loans or anything like that, but if a bank has the choice between investing in a risky mortgage or a risky business, I guess I would hope they'd pick the business. Then again, I'm not really interested in buying a house anytime soon.