Is interest unethical?

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Reply Thu 3 Dec, 2009 12:08 pm
In much of the ancient world interest was considered the way of a parasite. Does anyone think this is true today? Is it wrong to have economies based on this principle?
 
kennethamy
 
Reply Thu 3 Dec, 2009 01:11 pm
@josh0335,
josh0335;107851 wrote:
In much of the ancient world interest was considered the way of a parasite. Does anyone think this is true today? Is it wrong to have economies based on this principle?


True also in the Muslim world even now. But, of course, "more honored in the breach than in the observance". If money is a commodity (which it is) why should not the use of money be paid for just as the use of anything else is paid for. You don't think that it is wrong to rent a car, do you. Why would you think it is wrong to rent money?
 
Zetherin
 
Reply Thu 3 Dec, 2009 01:29 pm
@josh0335,
It would depend on the cirumstances, but generally I would find it wrong to ask for interest from a friend, but I wouldn't find it wrong to ask for interest from a non friend. I would view it as kennethamy noted with a non friend. Friends, in my mind, should have priviledges and should be treated with a different respect. Very biased, I know, but that's just how I do things.
 
kennethamy
 
Reply Thu 3 Dec, 2009 01:39 pm
@Zetherin,
Zetherin;107866 wrote:
It would depend on the cirumstances, but generally I would find it wrong to ask for interest from a friend, but I wouldn't find it wrong to ask for interest from a non friend. I would view it as kennethamy noted with a non friend. Friends, in my mind, should have priviledges and should be treated with a different respect. Very biased, I know, but that's just how I do things.


Yes, of course. I have lent money to family, but never asked for interest. That's family. But that's a special case. But it is not, in general, wrong to charge interest. You are renting money just as Hertz or Avis rents cars and charges for doing so. It is a business proposition. You can waive interest, of course. But that is up to you.
 
Khethil
 
Reply Thu 3 Dec, 2009 02:17 pm
@josh0335,
josh0335;107851 wrote:
In much of the ancient world interest was considered the way of a parasite. Does anyone think this is true today? Is it wrong to have economies based on this principle?


I'm not sure, I supposed I never really had much interest for it (drum-riff).

No, in all seriousness, it seems to me an equitable way for a loaner to charge for lending.
 
RDanneskjld
 
Reply Thu 3 Dec, 2009 02:32 pm
@josh0335,
No I dont think interest is inherently unethical. I think it is highly unreasonable for us to except people/institutions to lend money and save money without the incentive of interest. We have to remember that both saving and lending carry risks and people should be entitled some sort of return for the risk they are taking, with both Saving & Lending are of vital economic importance.

Self Interest is not inherently unethical, both from the fact you have preferences which are morally important and that self interest can often lead to favourable outcomes. To quote Adam Smith 'It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages.'

Though this doesnt make all lending morally neutral. The use of disproportionate of Economic power in order to charge exorbitant interest rates to a desperate individual (much like the activity undertaken by Loan Sharks) is in my opinon morally wrong. But we can do our best to regulate and protect against these instances. But I dont think that these certain instances of abuse can lead us to call interest unethical due to the many cases where borrowing has been mutually beneficial for both parties involved.
 
Fido
 
Reply Thu 3 Dec, 2009 05:42 pm
@josh0335,
josh0335;107851 wrote:
In much of the ancient world interest was considered the way of a parasite. Does anyone think this is true today? Is it wrong to have economies based on this principle?

Yes; but out of exploitation of native populations enough capital has been raised to attempt the exploitation of the whole world, and all the people on it... Of course interest bleeds people, and of course, it sucks up all the hard won capital of an entire land into a few mouths more wealthy than wise... And; of course, in the process, people are destroyed, and capital is wasted, and the health of the culture is ruined... There were rich people aplenty in Rome, but the poor had nothing to defend but their liv, which they could defend with their feet; and the rich could not defend their spoils from spolation...The whole of Italy became a shore where successive tides of humanity rode high, and were washed away... Weath destroys societies...
 
josh0335
 
Reply Thu 3 Dec, 2009 05:59 pm
@RDanneskjld,
What about on a national level, where central banks charge interest? My understanding (which is very limited) of modern banking is that central banks, who produce the national currency, do so with interest attached. Thus making it mathematically impossible for the nation (population) to get out of debt.

Is this fair?
 
Robert phil
 
Reply Thu 3 Dec, 2009 06:46 pm
@josh0335,
I think it's not inherently unethical as a financial instrument but that like almost anything it can be used unethically.

Time + money = more money. If I use money wisely it will make me more money. If I borrow someone else's money I am depriving them of their ability to do so and interest compensates for it.

Time has value that interest represents. I see how interest can be predatory and parasitical but it's not inherently so. It represents real value.
 
Aedes
 
Reply Thu 3 Dec, 2009 07:03 pm
@josh0335,
Clearly there is a service opportunity in loaning money to people who need it for the short term but will be able to eventually pay it back. And most people would never be able to buy a car, a house, or expand a business without loans.

So what sort of incentive is there for people with money to lend it then if not for interest?

Doesn't seem to be inherently unethical outside of the predatory examples. How is it different than paying Alamo to rent their car or Blockbuster to rent their video? Instead you're paying Bank of America to rent their money.
 
salima
 
Reply Fri 4 Dec, 2009 01:18 am
@josh0335,
i think exploitation is the unethical part. you can loan money for a fair sum as in rent, but to loan money to people you know will never have the money to pay you back and then take their property is unethical. that is the oversimplified explanation.

i wouldnt ask money as interest from my family, but they have asked me and i have paid it without flinching because if they took it out of where it was being kept so i could use it, they would be losing interest or other form of income that it provided them. too often people become greedy and instead of using their own money for projects they let it work for them and bring income while borrowing money at a rate of interest that is less than what is being generated by the money they have in order to accomplish their plans. this may seem particularly smart, but it can also become a way of exploiting the lender.

both the lender and the borrower can be exploited when interest is involved. it is easy to say let them beware and be educated, but laws have grown up to protect those who are not able to make informed decisions and sometimes penalize the innocent in the process.

in a perfect world, no one would have to lend or borrow. those with an overage would freely and gladly give to those who had less. but i dont think that world will happen on this earth-

and as aedes brought up, i would never have been able to buy a house had it not been for the bank giving me the wonderful opportunity of paying three times as much as it cost by charging interest so they could give me no interest at all in my bank accounts. it sounds like a person would be crazy to do something like that, but it was cheaper than paying rent on an apartment. life really isnt fair, is it!

there are a lot of other business that i think are unethical which people dont even mention, for instance insurance. they seem pretty much unethical all the way around, their principles for making money are unethical. come to think of it, i think all ideas for making money are unethical. money itself is unethical. what about all the businesses that manufacture things that dont even work, like miracle cures for this and that, a la late night television ad programs?
 
fast
 
Reply Fri 4 Dec, 2009 11:52 am
@kennethamy,
[QUOTE=kennethamy;107868]Yes, of course. I have lent money to family, but never asked for interest. That's family. But that's a special case. But it is not, in general, wrong to charge interest. You are renting money just as Hertz or Avis rents cars and charges for doing so. It is a business proposition. You can waive interest, of course. But that is up to you.[/QUOTE]Yes, it is a special case, but should that therefore serve as an exception to any general rule? I think it should, as I suspect you do as well.

Dave Ramsey, however, teaches us that we should not loan money, especially to family, yet despite his teachings, if my family needs me, I'm there for them, so I would lend money to my family, as you apparently would lend money to yours as well.

According to Dave Ramsey, loaning money to a family member is a classic sign of being an enabler, and though enablers generally have good intentions of helping, they often make matters worst--so says Dave Ramsey.

In fact, he says, "Under no circumstances do you want to ever give a family member a loan." He says, "Anyone asking for a loan is clearly in financial trouble." He also says, "loaning money to a family member can result in hard feelings and permanently damage a relationship."

He says a lot more than that too, and what he says is usually not without accompanying reasons, but I, for one, would not let his reasons or justifications stand in the way of what I think is the right thing to do when faced with the decision to help or not help my family--yet I wonder sometimes if I'm being dogmatic or emotionally invested, as opposed to simply weighing the facts differently.

Of course, we have to remain conscientious about whether or not we're actually helping or inadvertently making matters worst, and I think there are plenty of cases where our actions are helpful actions, but Dave Ramsey either thinks there are no cases or that they're so far and few between that it's not worth the negative consequences of loaning money to family.

He makes good money selling his advice, and I'm mindful of that, but I do not think his advice is completely without merit, but supposing it does have merit, when faced with the reality of the situation of being there for those that have been there for me all my life, I can't allow the reasons and justifications he brings trump that.

Even if I am being dogmatic, and even if I'm emotionally invested (which I'm not claiming that I am), I still suspect that objectively speaking, it may very well be the case that his judgment is faulty despite the rationale, justifications and reasons he brings to bare. He fails (in my opinion) to properly weigh the benefits and good will that loaning money to family members can bring.
 
Aedes
 
Reply Fri 4 Dec, 2009 12:29 pm
@salima,
salima;108058 wrote:
had it not been for the bank giving me the wonderful opportunity of paying three times as much as it cost by charging interest so they could give me no interest at all in my bank accounts.
In the "simplest" model of a bank, there is one interest rate for money loaned, and a different (lower!) interest rate for money put into an account. This means that the bank is incentivizing people to create accounts, but the bank will always come out ahead by collecting more interest than they pay. In the real world there are different sorts of accounts, though, and banks need to be competitive with one another. Checking accounts earn nearly zilch, but if you look around at different banks, credit unions, etc you can often find savings accounts that accrue 2 or 3% interest.
 
Zetherin
 
Reply Fri 4 Dec, 2009 12:38 pm
@josh0335,
fast wrote:

Even if I am being dogmatic, and even if I'm emotionally invested (which I'm not claiming that I am), I still suspect that objectively speaking, it may very well be the case that his judgment is faulty despite the rationale, justifications and reasons he brings to bare. He fails (in my opinion) to properly weigh the benefits and good will that loaning money to family members can bring

In the case of family, I would always make the choice to lend money. If we agreed it was a loan, and the person did not pay me back, Ramsey is right that it could result in hard feelings. But that doesn't matter. I'd rather have helped them when they needed help, even if I developed hard feelings later. I should understand that this is simply a risk I am taking. And you have to look at this realistically. If you really see a family member is struggling financially, you can't expect them to always be able to pay you back in a timely fashion. I would understand that they are in a time of need, and may not be able to pay me back for a while, if ever. And that would be ok with me. They are family, and I love them. Money means nothing. I would give up every material possession I own for my mother, for instance.

Also, I rarely even loan money to family members. I give money to family members. And, in this case, I think I would rarely develop hard feelings. I accept that I have given money to a loved one and expect nothing in return.
 
salima
 
Reply Fri 4 Dec, 2009 06:10 pm
@Aedes,
Aedes;108148 wrote:
In the "simplest" model of a bank, there is one interest rate for money loaned, and a different (lower!) interest rate for money put into an account. This means that the bank is incentivizing people to create accounts, but the bank will always come out ahead by collecting more interest than they pay. In the real world there are different sorts of accounts, though, and banks need to be competitive with one another. Checking accounts earn nearly zilch, but if you look around at different banks, credit unions, etc you can often find savings accounts that accrue 2 or 3% interest.


i know! but isnt it taking an awful lot more from people than necessary to make a profit? and if it isnt, there is something wrong with the system i think.

what i see here in india are people who loan small amounts (like enough to buy some medicine the doctor prescribed) to a poor peasant, who has a savings in the form of gold or silver jewelry. the loan shark holds it until the loan is payed back, the interest rate is very high. if the peasant cannot pay it back, the jewelry (regardless of its value in comparison to the loan) becomes the property of the loan shark. even if they always pay back in time and get to keep their jewelry, they dont understand how much more they are paying for this medicine and how much poorer they are becoming because of it, and why they are unable to put enough food on their table.

how did a house become so expensive that a person is not able to get one without taking out a loan? something went wrong somewhere...
 
jeeprs
 
Reply Fri 4 Dec, 2009 06:32 pm
@josh0335,
actually I don't think that it is interest that is unethical, but the love of money. I think the rot sets in when money becomes an end in itself. As a means to an end, it is very useful. But in the hands of those whose only interest is money, no matter what you do to regulate it or try and make it ethical, it will always be a corrupting influence. So I agree with the Bible, the love of money is the root of all kinds of evil.

We see it every day. The guys who invented all these 'sophisticated financial instruments' that practically wrecked the world economy last year, and made whole populations a great deal poorer - most of them walked away with a fortune while the taxpayers of the world will have to clean up after them.

So it that is the result of charging interest, then as a principle, it sucks.
 
Aedes
 
Reply Fri 4 Dec, 2009 09:07 pm
@salima,
salima;108214 wrote:
i know! but isnt it taking an awful lot more from people than necessary to make a profit? and if it isnt, there is something wrong with the system i think.
Well, for consumer loans it's about market value. For those complex things that crashed the economy, like bundles of loans, I don't think supply and demand suffice as an explanation.

salima;108214 wrote:
what i see here in india are people who loan small amounts (like enough to buy some medicine the doctor prescribed) to a poor peasant, who has a savings in the form of gold or silver jewelry. the loan shark holds it until the loan is payed back, the interest rate is very high. if the peasant cannot pay it back, the jewelry (regardless of its value in comparison to the loan) becomes the property of the loan shark.
Well, loan sharking is a different story, I think, because that can truly be predatory.

salima;108214 wrote:
how did a house become so expensive that a person is not able to get one without taking out a loan? something went wrong somewhere...
What went wrong is that we're not building our own houses with our own hands, we can't acquire all the parts and labor to install electricity, plumbing, floors, walls, etc, and the population density (India hardly being an exception) is so high that land and houses have accelerated in value much faster than has individual wealth.
 
Pangloss
 
Reply Fri 4 Dec, 2009 09:31 pm
@josh0335,
I don't see how interest itself could be unethical. It's simple economics.

The interest we pay when taking out a loan is the fee that we (willingly) pay for having early access to a sum of money. Interest is basically just the difference between present value and future value...you are paying for the time that you have the borrowed money, or the opportunity value of the borrowed amount.

If you get $10k today, and only pay back $10k a year from now, the creditor is just losing the deal. Without interest, the economy as we know it would not exist, because no one would be willing to loan money, and we'd be paying in cash.
 
Aedes
 
Reply Fri 4 Dec, 2009 09:59 pm
@josh0335,
What's unethical is when you offer immediate money to people with immediate need, place unrealistic terms on it, but clearly their imminent need of money overwhelms their ability to think through those terms. That's what's predatory -- i.e. tricking people into balance transfers, tricking college kids with a deluge of credit card ads and offers, and also the subprime crisis.
 
Pangloss
 
Reply Fri 4 Dec, 2009 10:07 pm
@josh0335,
Yes, predatory lending is unethical. The same thing could be said of the practices of 'wealth managers' or brokers who convince someone to invest in some fund with ridiculous fees and commissions, when they could put their money into a no-load index fund that will likely outperform the managed fund. The entire finance industry is driven by predatory tactics designed to exploit the ignorance of the consumer.

With lenders essentially preying on the ignorance of the consumer, people need to stay informed. This is why you read the terms of a contract before agreeing to it, and make sure that you can pay off the loan before taking it.
 
 

 
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