The banks should only lend money to people who would be capable of saving for a house. But if you're capable of saving for a house, and someone has money they're not using, why not use their money to buy the house and pay them back?
If every party satisfies their self-interest, their transaction creates value (which is distinct from wealth).
Financial market problems are finance problems to the extent that North Korea's nuclear tests are physics problems. The body of knowledge exists, an actor uses it.
My personal estimation is that a lot of the good things in this world exist because of fractional banking and finance and that humanity is better for it. I think we can do better, but throwing the baby out with the bathwater is a recipe for disaster.
Replace 'finance industry' with 'airline industry'. Sure, the airlines pollute, and planes crash and that's unimaginably bad. But each time a plane crashes, all the subsequent trips get safer. We're never going to make it perfect, but we can make it easier to roll the dice. And people don't fly places and engage finance for no reason - they do so to improve their lives. We should focus on improving peoples lives, whether that's making it easier for them to find a place to live or transport themselves.
The problem IMO is by adding intermediaries to a transaction you also increase costs. Society pays a massive subsidy on home loans so many of these costs are also hidden. EX: Home ownership limits mobility reducing economic growth.
What happens without loans? Well, someone with capital to give out a home loan could just as easily buy then rent out a house. This would increase the pressure on home construction industry to build things to last. Further assuming there was no tax subsidy we would reach a different equilibrium.
I don't know if this would be 'better' but it would have different costs.
The banks should only lend money to people who would be capable of saving for a house. But if you're capable of saving for a house, and someone has money they're not using, why not use their money to buy the house and pay them back?
If every party satisfies their self-interest, their transaction creates value (which is distinct from wealth).
Financial market problems are finance problems to the extent that North Korea's nuclear tests are physics problems. The body of knowledge exists, an actor uses it.
My personal estimation is that a lot of the good things in this world exist because of fractional banking and finance and that humanity is better for it. I think we can do better, but throwing the baby out with the bathwater is a recipe for disaster.
Replace 'finance industry' with 'airline industry'. Sure, the airlines pollute, and planes crash and that's unimaginably bad. But each time a plane crashes, all the subsequent trips get safer. We're never going to make it perfect, but we can make it easier to roll the dice. And people don't fly places and engage finance for no reason - they do so to improve their lives. We should focus on improving peoples lives, whether that's making it easier for them to find a place to live or transport themselves.