Thursday, July 16, 2015
About Greece, and defaulting on debt, ... I've been thinking about the news about debt, Greece, defaulting, student loans, who can and who can't just wipe away a debt. There's a piece missing! Payment is a return on the use of the lender's asset. And included in the interest rate charged is insurance to the lender against default. Built into how much a lender charges the borrower for a loan – mortgages at 4%, credit cards at 18% - is the expectation of getting the whole loaned amount back, and the risk to the lender of default. So if the lender isn't paid back, that's just part of the expectation, and the cost of not getting paid back is built into the rate. So I don't understand why there is so much noise about defaulting. It seems to me all that means is the interest rate wasn't set high enough, that it's on the lender, not the defaulter!