Or just delete all 3 from the earth, physically destroy all of their data storage media and let people make loans the way they always have for millennia, without three unaccountable private behemoths stealing and hording private data on every citizen then charging them to see/access/protect it, then cutting costs around security and getting all of it stolen. They do not need to exist and their services are a net negative on society.
> let people make loans the way they always have for millennia
I.e, hardly make any loans at all! Most people agree that access to credit has greatly increased the wealth of our society. Not everyone agrees - but I believe this is the consensus.
> They do not need to exist and their services are a net negative on society
Perhaps, perhaps not. The more information that a lender has about a potential borrower the more specific they can make their loan assessment.
Without a credit history, lenders will have to rely on averages. Some people will win from this (e.g. people who "look" like good borrowers on the surface) and some will lose (people who "look" bad on the surface, but have a good history).
The likely outcome if we remove this background information from a lending check will be more misallocated credit.
To be clear, I'm not really arguing that "credit agencies" in their current form should exist, but some sort of information about borrowers is useful to improve allocation of resources. Perhaps each person could manage their own signed Merckle tree of information...
Perhaps, perhaps not. The more information that a lender has about a potential borrower the more specific they can make their loan assessment.
So what? The lender's interests are not he only ones at stake. I'm not convinced of the objectivity or desirability of perfect economic efficiency in credit allocation. There's plenty of evidence to suggest the information asymmetry will be abused by unscrupulous corporate actors.
My point is that certain borrowers will lose out if the lender can't be specific in their assessment - see the paragraph following that quote about how some borrowers will win and some will lose.
> I'm not convinced of the objectivity or desirability of perfect economic efficiency in credit allocation. There's plenty of evidence to suggest the information asymmetry will be abused by unscrupulous corporate actors.
Interesting. There are certainly plenty of flaws with credit. A big one for me is that consumers often don't act in their own long term interests and get into too much debt. Another one is that credit is inflexible (compared to equity) when things go bad, and has a tendency to cause crashes. Both of these are a challenges to economic efficiency.
On the other hand, I'm not sure about the benefit of reducing the information that lenders have. I'd be interested to hear your point of view.
Centralized credit scores can be gamed, easily, helping those who are inclined to game them -- these are currently the "winners". Taking out a debt for no reason and then paying it back on time is a stupid economic decision, but it's great for your credit score.
The minimal increase in efficiency that comes from lenders having all this often incorrect, unaccountable private information about borrowers must be balanced against the damage the big 3 do as well as the damage lenders can do by exploiting the aforementioned information asymmetry it gives them. It comes up pretty short in my view.
And a big fuck you to everybody that has made efforts and sacrifices to improve their credit rating, they can take the same (higher) interest rate as everyone else?
> And a big fuck you to everybody that has made efforts and sacrifices to improve their credit rating, they can take the same (higher) interest rate as everyone else?
If it becomes harder to get credit then there will be less inflation (or allow the same amount of it to be caused by government printing money instead, which allows lower taxes), either of which means less need for credit to begin with. Moreover, less need for credit means less credit fraud, the cost of which is paid by everyone.
The concept that credit is a good thing is perpetuated by creditors. Credit is a competitive advantage when you're the only one who has it, but when everyone has it it's just an arms race. It's better for everyone (except creditors) for everyone to have less of it.
I don't know if there should be more or less credit, although it sure seems like an improvement to reduce fraud and have less people up to their ears in debt.
Even if the companies running the system have serious problems, it still provides a mechanism of trust. Most people are likely to experience at least one event in their life, for example an unexpected expense or some long term investment, which would easier to navigate if credit were available.
Replacing the credit score system with the subjective judgement of a creditor introduces arbitrary, discriminatory bias into the system.
If credit is a competitive advantage then isn't hurting its fair availability is somewhat an own goal as long as the USA remains part of a global economy?
> Most people are likely to experience at least one event in their life, for example an unexpected expense or some long term investment, which would easier to navigate if credit were available.
For unexpected expenses that is the purpose of insurance. For investment opportunities that is the purpose of savings.
Finding a sensible investment opportunity that provides a risk-adjusted return higher than the interest rate on borrowed money is very rare, because why would the investment company use you as a useless middle man instead of borrowing the money directly from the lender?
> Replacing the credit score system with the subjective judgement of a creditor introduces arbitrary, discriminatory bias into the system.
The existence of bias is independent of the existence of credit reporting.
> If credit is a competitive advantage then isn't hurting its fair availability is somewhat an own goal as long as the USA remains part of a global economy?
Geography mitigates most of that. An engineer in China is not borrowing money from a Chinese bank to bid on a condo in San Francisco because he isn't in San Francisco to live in it. And to the extent that foreign speculators do that, we could prohibit it -- require US real estate to be owned by US citizens or corporations owned by US citizens. They do it to us.
But the more important point is that availability of credit is not the same as availability of money. As an economy expands the money supply has to increase to prevent deflation. The primary way this currently happens is borrowing -- Alice deposits $1 in the bank, the bank loans it to Bob, now Alice and Bob each have $1 in their accounts but in the bank's vault there is not $2, there is only $1 and a promise from Bob to pay $1 plus interest.
An alternative way to create money is for the government to do it by fiat. If they create a dollar then they can charge Bob a dollar less in taxes, or provide an extra dollar in UBI. So as long as the government increases the amount of money they create by fiat by the reduction in the amount that banks would be lending, Bob has the same amount of money in his pocket to buy things with -- but now he is not paying interest on it to the bank.
> Finding a sensible investment opportunity that provides a risk-adjusted return higher than the interest rate on borrowed money is very rare, because why would the investment company use you as a useless middle man instead of borrowing the money directly from the lender?
I guess this must be news to all the businesses that reguarly operate on credit.
The only thing like an "investment" most people are going to buy on credit as individuals is a house, and besides being an investment it's also a place to live in. Arguably that's more salient than the speculation opportunities.
> Deflation will certainly make fewer people take out loans, but not necessarily because they are living high on the hog without them.
Deflation is caused by the economy growing faster than the money supply. Increasing the supply of money counteracts this. Both banks and the government are allowed to do this. Banks create money when they make loans; suddenly you have more money in your account but there is the same amount of cash in the bank's vault.
Creating too much causes hyperinflation, so more of one requires less of the other. If the banks lent less money the government could create more.
