A lovely essay by John G on his parents, how he got into economics and his work in the financial sector.

On the importance of collateral:

[E]very businessman knows leverage is important. Even Shakespeare
understood that collateral is more important than the interest rate. Who here
can remember the interest rate Shylock charges Antonio in the Merchant of
Venice? But all of you remember the pound of flesh collateral.

On debt forgiveness:

Imagine a $160,000 loan on a house that is now worth $100,000. Lenders on average get less than
25% of the loan back when a subprime borrower is thrown out of his home,
meaning in this case the lender can expect $40,000. Why? Because it takes years
to throw the family out of the house, during which time the owner does not pay
his taxes or his mortgage, and the house is ruined. If the loan had been written
down to $80,000 the borrower might well have paid all $80,000 back, perhaps by
selling the house, because then there would be $20,000 in it for him. By
demanding everything and then throwing the borrower out when he refuses, the
lender loses even more. As Portia says in very similar circumstances in the
Merchant of Venice “The Quality of mercy is not strained …It helpeth him who
gives and him who takes.” The most catastrophic blunder the American
administration has made is in not coordinating a forgiveness on mortgage loans
by lenders.

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