Re:Puerto Rico files for biggest ever U.S. local government ...
by LeifCarrotson on Thursday May 04, 2017 @07:30AM
(#14264056)
> If everyone has the expectation that the lenders and borrowers will try their best to live up to the contract they made in good faith, wouldn't it be a better equlibrium?
No. This will result in bad actors defaulting with little penalty except shame and guilt (which they won't care about) and good actors suffering. We want an equilibrium where good behavior results in at least equal if not better economic outcomes to bad behavior.
This should be priced into the lending until the penalties of defaulting (loss of credit, future lending problems, loss of existing assets and so on) creates the right cost to balance out the cost of paying off the loan.
No. This will result in bad actors defaulting with little penalty except shame and guilt (which they won't care about) and good actors suffering. We want an equilibrium where good behavior results in at least equal if not better economic outcomes to bad behavior.
This should be priced into the lending until the penalties of defaulting (loss of credit, future lending problems, loss of existing assets and so on) creates the right cost to balance out the cost of paying off the loan.