I'm very familiar with fractional reserve banking, thanks.
>the justification for this is something about investment and risk taking. Which are supposed to involve your own funds, not money you printed out of thin air.
Money is socially constructed. If we agree, societally and legally, that banks can lend out most of the money that their depositors place with them (fractional reserve), then the money the bank lends out is no less real, no more "printed out of thin air," than any other money. And we do agree to that statement, legally and (for the vast majority) societally.
> risks are supposed to be (and are) handled by insurances.
Which is exactly how banks handle interest rates on loans. This is why we have credit scores: so that the underwriter at the bank can assess how risky your proposed loan is, and how much interest (i.e. premium) to charge you. Exactly like an insurance underwriter assesses how risky your proposed insurance policy is and how much premium to charge you. Both insurance and banking largely automate these decisions these days, but there are still human underwriters who can override the automated decisions.
A few years ago I briefly worked in the credit risk department of a bank, and as part of my orientation I spent an afternoon sitting with one of these underwriters watching and listening as they dealt with clients who wanted to appeal the automated credit decisions.
> And then there's the paperwork and checking and all that that most likely should involve a flat rate
This also already exists, it's called an origination fee.
> This should be much more ethical than charging interest over money that didn't even exist to begin with.
In summary, this is completely wrong. The money does exist, just as much as any other money exists, and if it's not repaid the lender is on the hook for it[1], just like any other money. And the way you think lending should work is indistinguishable from the way it already works.
[1] Or, in many cases, the person who bought the loans from the originating bank.
> And the way you think lending should work is indistinguishable from the way it already works.
With one crucial difference: right now the main criterion is whether the bank will get reimbursed or not. Whether it will make money off of the credit. And credits are so important to our lives right now that I don’t believe such an important decision should be left to that kind of invisible hand.
I mean, it’s as important, perhaps more important, than the state’s budget. This suggests, if not a democratic oversight, at the very least a clear set of democratically chosen rules over what kind of loans should be given.
I'd flip that around: whether it will lose money off the credit, not whether it will make money. Based on my time in credit risk this is more accurate to how banks actually think about loans. The upside for each individual loan is much smaller than the downside, so the threat of loss dominates the discussion.
Once you flip it around like that it becomes much less attractive to think of forcing banks to make loans that they expect to lose money on.
> if not a democratic oversight, at the very least a clear set of democratically chosen rules over what kind of loans should be given.
Which, again, we already have. There are many rules and regulations about what information banks may and may not take into account when deciding which loans to approve, and what interest rate to charge. Rules put in place and enforced by the democratically elected government.
> Once you flip it around like that it becomes much less attractive to think of forcing banks to make loans that they expect to lose money on.
That's not what I'm proposing, though. I'm proposing that each loan would come with the creation of central money, such that any that falls through results in nothing more than a little bit of inflation. And the people who issue the loans would effectively be government workers. Or contractors or whatever, but they would do all this on behalf of the state.
> Which, again, we already have.
I have to confess ignorance here. Do we have rules that forbid specific industries from contracting loans? (Industries that are otherwise legal, I mean.)
There's no difference between "central" money and other money, though. It's all just money.
> Do we have rules that forbid specific industries from contracting loans?
Regulations differ by jurisdiction, but generally you can't do any kind of banking business without being licensed specifically as a bank. For example, if you get a car loan "from the dealership" it's not actually the dealership giving you the loan, but a bank that they partner with.
You misunderstood my question. I was asking, are there industries, say Oil or Porn, who are by law or regulation forbidden to borrow money from any bank?
>the justification for this is something about investment and risk taking. Which are supposed to involve your own funds, not money you printed out of thin air.
Money is socially constructed. If we agree, societally and legally, that banks can lend out most of the money that their depositors place with them (fractional reserve), then the money the bank lends out is no less real, no more "printed out of thin air," than any other money. And we do agree to that statement, legally and (for the vast majority) societally.
> risks are supposed to be (and are) handled by insurances.
Which is exactly how banks handle interest rates on loans. This is why we have credit scores: so that the underwriter at the bank can assess how risky your proposed loan is, and how much interest (i.e. premium) to charge you. Exactly like an insurance underwriter assesses how risky your proposed insurance policy is and how much premium to charge you. Both insurance and banking largely automate these decisions these days, but there are still human underwriters who can override the automated decisions.
A few years ago I briefly worked in the credit risk department of a bank, and as part of my orientation I spent an afternoon sitting with one of these underwriters watching and listening as they dealt with clients who wanted to appeal the automated credit decisions.
> And then there's the paperwork and checking and all that that most likely should involve a flat rate
This also already exists, it's called an origination fee.
> This should be much more ethical than charging interest over money that didn't even exist to begin with.
In summary, this is completely wrong. The money does exist, just as much as any other money exists, and if it's not repaid the lender is on the hook for it[1], just like any other money. And the way you think lending should work is indistinguishable from the way it already works.
[1] Or, in many cases, the person who bought the loans from the originating bank.