[GJM] James Robertson

[Peter Hogwood]

Rodney, my replies are inserted [Reply]:

Peter Hogwood
Certified Public Accountant
Monroe, Louisiana
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Dear Peter,
 
With reference to your reply to Steven Nieman on home
loans.
 
1.    You appear to be convinced of the virtues of the
present American 'free market' and refer to contracts
freely entered into by the parties.  In your view, are
the "sub-prime" mortgages now damaging the financial
system freely entered into by the parties? 
 
Moreover, do you generally approve of them and the
circumstances which produced them?
---------------------------------------------

[Reply]:  I generally approve of them but there was
certainly fraud involved with some of them.  It should
be noted that only about ten percent of them are in
default or in arrears, which is certainly a
significant number, but which also means that ninety
percent of them are current.
-
 
2.  If the banking system were to be limited in its
present ability to create money out of nothing, would
you think it a good idea for home loans (ultimately
coming from the national bank) to be issued at 0%
interest (but, of course, with an administration
cost)?  Plus,  of course, criminal penalties for
deliberate falsifications of income and valuation.
---------------------------------------------

[Reply]:  "Out of nothing" simply means that
depository money is created by contracts written on
paper, rather than something tangible dug out of the
ground, like gold.  There is nothing nefarious about
the phrase whatsoever.

I prefer the principle that the purchasers of goods
and services should generally pay for the costs of
supplying them, which would not be the case for zero
percent loans.  It distorts the very concept of the
free enterprise economy.

What you call administration cost is only one of the
three important elements of interest that borrowers
pay for the service called bank credit. 
Administration cost would I presume apply to salaries,
wages and ordinary business expenses of the financial
sector.  The largest element within interest is what
is effect an insurance premium charged for loan
defaults within the particular risk category, which is
why low risk loans cost less than high risk loans.  I
understand that you propose something called credit
risk insurance, but how can you guarantee that such
insurance would cost less than the insurance premium
already built into the interest rate?  The smallest
element in interest is the profit paid to the
financial sector.
 
3.  You ask what planet Steve Nieman lives on.
 
That is a most interesting question.  May I ask if,
taking account of the failings now becoming apparent
in the American (and global) financial system, you
feel that people in the USA are living on the best of
all possible planets?
---------------------------------------------

[Reply]:  I certainly do believe it is the best of all
existing countries, but not necessarily the best
possible country or world, which is why we struggle to
better things.
-

 
Thankyou.
 
Rodney Shakespeare.


--- Rodney Shakespeare
<rodney.shakespeare1 at btinternet.com> wrote:
[snipped]


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