Out of student loans and treehouse homes we all would take the latter

November 6, 2015 § 13 Comments

I recently discussed bank loans, usury, and the ‘creation of money’ in a thread at The Thinking Housewife which readers may find of interest.  At the very least discussing the same subject matter with different words, and with different questions and answers, can sometimes be helpful.

To simplify matters, you can think of a bank – in the absence of usury – as a big pooling of claims against property.  When a bank loan against property is made, that specific property is added to the pool of property against which the bank has claims, and the borrower is issued a deposit account of that same value in return.  The deposit account is a generic claim against the whole pool of property.  So the trade is that the bank gets to add the property to the pool, and in return the borrower gets a claim of equal value against the whole pool.  Since the bank now has an ownership claim against the new-to-the-bank property while the borrower still gets to use that whole property, the bank charges the borrower rent for its share: interest.

The problem with a simple usurious loan is that there is no property; and with a collateralized usurious loan that the loan is made against “more” than just the property itself. The “more” is the borrower’s personal guarantee of repayment above and beyond forfeiture of the property.  So in the usurious case it looks like the bank creates ‘money’ – a deposit account or part of a deposit account – out of nothing, by adding the promises of borrowers to repay to the pool of ‘property’ — a pool which is now partly composed of nothing but personally promised IOU’s.

This is important simply because it is true, of course, but also because it shows not only that the Church was for thousands of years more morally correct than the rest of the world but that the Church’s doctrine on usury continues to this day to be more financially correct than pretty much all of the modern world.

Post title swiped from twenty one pilots, who seem like nice kids:

§ 13 Responses to Out of student loans and treehouse homes we all would take the latter

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