The way it should be. The quicker we do away with interest bearing and yielding assets, the better. It's the cause of the vast majority of the economic mess we're in today. We've literally known about this issue for thousands of years, interest and usury have been prohibited in Islam, Christianity, and Judaism. We still think we're smart and not going to be bitten by the dangers of interest, yet that won't happen.
I had an interesting conversation with someone who took the view that all short positions were ursary. They had well thought out & logically reasoned from their premises arguments to back that up. I was really glad to hear their position.
It filled me with dread because it would destroy our current agricultural industry. And as much as I recognize the problems with it, “a large percentage of the population starving rapidly” was not an outcome Id endorse because of injunctions from pre-industrial wisrmen.
> who took the view that all short positions were ursary
It's more than usury. There is usury involved because "lending" the stock is done with interest. However, the problems don't stop there.
Stock shorters, as you point out, actively bet against a company or industry or economic structure in general, it's their benefit to see a company collapse or not do well. This isn't how a stable society should be set up.
Furthermore, stock shorting exposes three parties to risk: the original owner, the shorter, and the new owner. There is risk being created in the market that does not justify the value that comes out of it. Let alone the fact that it's possible to short more than 100% of the total stocks, on what planet is this even acceptable? In a normal stock trade, risk is transferred from one party to another equally.
The conclusion is that shorting is a heavily immoral, predatory, and dangerous practice. It's quite ironic that when ** hits the fan, the government has to step in to limit certain trades or practices that we've known all along to be dangerous (e.g. they lower interest or ban shorting).
This simply doesn't make sense. When nobody is incentivized to correct stock prices downwards, you just get injustices in the opposite direction. You can look at the private markets to see what this looks like: Theranos.
The law of supply and demand doesn't require shorting in order to "correct" prices downward. The counterpoint to your Theranos example is the fact that Enron existed too. Both of them were fraudulent. Both collapsed after some number of years. One privately held, one publicly-traded and shortable. Same outcome, no?
I can't (directly) short the price of strawberries at my farmer's market, or the cost of rent in my small town, or the prices of artwork at an auction house. Price discovery seems to work reasonably well in all these venues. What is with this canard that shorting is necessary for price discovery to occur? There is no such requirement in the law of supply and demand.
Short and long positions are important for things that a) have a future value of money component and b) have risk that can be mitigated in a cost effective way.
Artists would take advantage of this in the form of working on commission. Large enough commissions do in fact allow shorting in the form of insurance. The same is true of strawberry farmers & landlords at various places on the size distribution.
One of the complaints my farmers market strawberry vendors have is that they don’t have access to the same finance agreements that large producers have. Part of that is because it’s not cost effective enough to short them.
This is a fallicious argument. Just because we don't allow people to engage in predatory practices, does not automatically mean that everything else is being run correctly. We don't correct one injustice with another.
For those injustices in the opposite, we need to set proper rules and hold people accountable. I mentioned several times in this thread that the current financial system is fundamentally broken, big part of which is because it heavily relies on interest, which pushes people to commit even more injustices like the example you mention.
I responded to your comment because I follow Kasey's comments; I didn't notice your comment upthread suggesting that you believe the entire concept of debt needs to be eliminated. I apologize for replying to you, because I don't think there's any productive conversation we can have.
> Stock shorters, as you point out, actively bet against a company or industry or economic structure in general, it's their benefit to see a company collapse or not do well.
Companies that have inefficiently deployed capital or have problems like a Theranos or Enron should collapse. People keep acting like shorts show up to a company like Apple and take it down. That's not at all what happens. Shorts are a lot like vultures. We may not like to see what they do, but they provide a service by cleaning up dead carcasses.
If you want to argue that shorters spread (dis)information in a company and should be more closely looked at, I might agree. My immediate counter though would be that I see way more positive information spread in general, and people rarely seem to check that until it so blatantly false things collapse.
The shorts don’t take money from the company, they take money from people unfortunate enough to invest in a failing company. In some cases that money could have helped the company land, in others it was going towards something doomed and possibly fraudulent, but either way it doesn’t come from the companies coffers directly unless the company does a buyback from the shorts. The people losing money are other investors.
What if smart money had to bet on a competitor or growing some other investment instead?
That’s a fine position to take so long as you recognize the vast majority of long money also doesn’t go to the companies coffers unless the do another offering.
Much long money is absolutely used by the company indirectly; they can use their stock like a currency to raise funds with debt, pay employees, acquire companies with stock, etc. Thats hopefully a virtuous cycle where people do more stuff that creates value.
I don’t mean to make a moral argument, just question the need for short positions. If the company is truly bad their shares should deflate as demand deflates, no short seller position necessary. I think, from the perspective of the needs of society, punishing bad investors who fail shouldn’t be as rewarding as finding the right investments to grow.
Theranos collapsed without any shorting involved. Isn't this a counterpoint to the argument that shorting is required for "price discovery" and the unmasking of fraud?
> This isn't how a stable society should be set up
and why not? antifragile systems gain stability as they endure shocks. why not cyclically generate then destroy business? makes it easier to funnel resources to the top, because only the biggest - i.e., the most moneyed, hence the most liquid, hence best reactive to risk, hence most stable - firms can survive.
you may not like it morally, but two centuries of corporate history leave little to gainsay empirically about this notion.
Because we already have systems that are already superior and much more stable, we don't have to endure any artificial shocks due to inherent instabilities in the system (caused in large due to interest and other immoral practices).
The 2008 crash was just one manifestation of what happens when the system is taken to its logical conclusion, it all comes crumbling down eventually because it is not sustainable. We saw it these past two weeks with GME, however, the big players stepped in to put a stop to it because they can't allow the market to play by their own rules (because they're unstable).
I have no issues with businesses going under because they can't compete, that's how a free market operates. I have issues with lending money with interest and other predatory practices, such as shorting, because they destroy economies and/or exploit one class, causing the lender to gain an unfair and immoral advantage simply because he has money.
Gain wealth, but do it morally and without exploiting others. I'm all for that.
If investors believe shares of these companies are a ripoff, they can sell any holdings and / or abstain from buying. Just like they can do in nearly every other type of market.
If a used car salesman is trying to rip me off, I walk away from the deal. I don't need to be able to short his inventory! And the supply / demand dynamics of the used car market will trend toward equilibrium without any such shorting.
ok, but what incentives does anyone have to actually look at potentially fraudulent situations, especially if the stock is ripping, as in the case of Valeant Pharmaceuticals? In fact the incentives are so perverse that it pays _not_ to state your research on why the company is not worth what it is. Even the time value spent on research is non trivial.
Your example would make more sense if the car they were selling a what may seem as a perfectly fine Lambo, but in actuality it was a lemon. And the only way to find out if it was a lemon or not is to tear it apart piece by piece.
How does that make any sense? If the stock was growing 15% year over year without any indication that there are any issue, why would any investor want to provide any information or do any research on why that isn't the case? If an investor knew that there was fraud going on they would probably keep it to themselves and simply invest in the company anyways, because the financial incentive is there.
In your hypothetical example, a stock is going up and up, and I suspect it might be fraudulent, and you believe I have no incentive to pull my money out before the house of cards collapses?
Getting my money out is all the incentive I need! I bet plenty of Theranos investors would've loved to do exactly that. And there was no shorting involved in that company.
Sorry, but fixing one wrong with another is not the way. Are you honestly saying that stock shorting is the only incentive someone has to look at fraud? I don't buy that one bit.
You answered it, fix regulators, and heavily punish fraud, don't let people get away with a slap on the wrist. This is literally the job of the justice system. You may as well say what benefits do police or FBI have for catching criminals. The reward is a stable and just society, on top of their salaries.
On a side note, this is one aspect that religion addresses. Ripping people off is not going to end up well when facing God.
that's because it wouldn't do you any good. if, however, the used car salesman is engaging in fraud and selling expensive cars way under their market value while buying inventory at inflated prices, you could expose this by borrowing a friends mercedes, selling it for USD 100000 (then buying it back at USD 1000, so you can return it to your friend) making a nice profit along the way.
I also don’t think short selling as it is currently practiced is a net social good, but I don’t know anything about it’s importance in the agricultural sector. What does short selling provide there?
All futures contracts contain a “short” position. In its most basic a producer of the commodity agrees to sell in the future at a certain price now. This locks in their profit but is only useful to them if they are trying to hedge the price being worse in the future. They are borrowing a future position to make it tenable to produce now.
Without it most agriculture would be too risky to engage in (without a governmental entity stepping in and doing the same activity as the futures market).
I am not an expert but this seems different from the short selling we're talking about. In short selling of a stock, the stock is borrowed and sold immediately for profit. There is no productive action the short seller engages in to recover the stock, they just rebuy it on the open market, or not at all if the company has gone bankrupt.
If you are really stretching it, they can produce research that shows the stock should be worth less in this time, without committing any crime- which means it is based entirely on public information the market already has. Bashing a company could be considered a productive activity we are incentivizing from a certain point of view. But their incentives are all towards tearing down the underlying security.
In the agricultural example, the person selling the futures to their goods has to actually produce the goods. While someone might be borrowing the stock to resell it, ultimately the end farmer has to produce new value to deliver on their future contract. Otherwise, they would just sell futures to their crops, and then take their money to do nothing! But this is exactly what someone who short sells a stock does. They take the money, and they just sit around waiting for the stock to drop, no doubt resisting the urge to make it drop themselves through legally gray methods to increase their profits.
If I’m a farmer that has corn crops to sell, I receive immediate renumeration for production in the future (in the simplest contracts) if I don’t produce anything at all, I literally take the money and run, it what happens? What about if hail destroys my entire crop? What if it destroys half my crop but I claim it destroys all of it?
There are definite moral differences between those cases but in operational terms it’s better for everyone if I just payout everything as efficiently as possible. Presuming it’s all equal anytime I spend holding real claims because fraud might happen is a net bad. Now expand that to more complicated valuations of future value of money? Should I impede farmer John’s payouts to Farmer Bill because the rain was ever so slightly different on his acres than the other? What if farmer John is willing to forego that expedience for future consideration on his plot?
Multiply this by a billion. We have a complicated market where producers and consumers need to a) set a first price and then b) change their price as both the market conditions change _and also my own as an investor, decisions change_.
It is dramatically more efficient for everyone to just take positions in the market even if some of them are pessimistic.
The same thing is true of any product that had future value and also it’s efficient to make risk management easy. Stocks clear both hurdles trivially.
> I literally take the money and run, it what happens?
That can happen regardless, there are many scammers who did this with or without shorting. Shorting is not required to keep things in check, that's the job of law enforcement.
Taking a step back it's really quite simple. Shorting is literally a bet that provides no value other than that some people will profit at the misery of others. This is unethical and immoral. Furthermore, done at a large enough scale, it will cause harm to specific companies or firms. You bring up scammers that will take the money and run, yet don't discuss what happened with GME where the shorters piled on it like sharks to drive it down, it's literally a scam in the opposite direction. We shouldn't fix one wrong with another.
I accept that you and I have different moral positions. Mine is that a market without shorting is a fallacy.
That said, you are required to explain crop insurance in your world view. It is a fundamental part of modern agriculture. One I think of as existential. It’s a short position. If your religion doesn’t allow it I won’t argue. Similarly I won’t argue with Shakers who don’t believe in procreation.
From what I understood from his comment, he was worried about how shorting would cause the collapse of the agricultural sector, so agreeing with you that it's a bad and dangerous practice.
This is absurd. Capitalism is predicated on the ability to loan out money. No debt means no credit for new businesses. No mortgages. Governments can't issue bonds to raise capital.
For all it's evils, our modern society and advancement as a species comes from capitalism. Society would literally collapse if we "do away with interest bearing and yielding assets."
That being said, we can still work to create better finance regulation.
> Capitalism is predicated on the ability to loan out money.
If that's true, then it's fundamentally broken (assuming interest bearing loans of course). You will never have a sustainable economic system that is based on interest bearing loans, we see it all the time with people waiting for the next crash to happen.
> No debt means no credit for new businesses
Not true. There are moral alternatives. If you want to start a business, pitch your idea to investors who are willing to put in money in exchange for a portion of the company. If it works out, everyone profits, otherwise, everyone takes risk equally and the holder of the idea is not left with crippling debt. This is just and fair.
> No mortgages.
Mortgages artificially increase property prices, continuing the cycle. There are alternatives that don't involve interest. You see it all the time in the auto industry where they have 0% loans. Do the same with houses. We already did that historically in Muslim nations.
> Governments can't issue bonds to raise capital.
Raise capital in an ethical way. The government can invest in its society and businesses for example. Obviously there are other solutions but that's for the specialists.
> Society would literally collapse if we "do away with interest bearing and yielding assets."
Except it didn't when people followed the teachings of their religion (specifically Islam). Great empires were built without interest. It's possible, it's just that it isn't as easy or perhaps convenient to those who stand to benefit the most from interest.
>Mortgages artificially increase property prices, continuing the cycle. There are alternatives that don't involve interest. You see it all the time in the auto industry where they have 0% loans. Do the same with houses.
If your perspective is that artificial bubbles in asset prices will be reduced by lowering the cost of borrowing (i.e. no interest) then you're going to have to explain that, because it's the opposite of what normally happens.
EDIT: Shariah-compliant mortgages are generally constructed so there's no interest, but the cashflows between the parties often look very similar. e.g. a Musharakah loan where you only initially own the home in the proportion of your downpayment but gradually buy more of it over time by paying the bank off over time, as well an element of rent. Interest rate is replaced by return rate because the form of the contract is different.
When did we have 0% interest on houses in modern times? I said that mortgage interest contributes to bubbles, not that it's the only cause. Interest is more insidious, because it allows people who have wealth to gather even more wealth without putting in the appropriate risk to balance it, giving them the luxury to purchase assets easily, contributing to those bubbles somewhat indirectly.
However, because of interest, those same wealthy people have an even bigger advantage. They take out mortgages, and after a while they can take out loans on said mortgages to acquire even more assets. It's genius really (in a very evil way).
These things are very interconnected. Just banishing mortgages won't solve the issue. The economic system has to be fundamentally turned over.
Renting a car or house is very different from renting money.
When you rent out a car, there are many logistics involved, and there needs to be work done to upkeep the car or house (maintenance, repairs, etc.). The asset itself is consumed. There is risk involved, and the "lender" (the asset owner) is not guaranteed profit (the house might burn down or the car might get totaled). Being a landlord is not easy.
Compare that to money, which Islam sees as a means to an end, not as an ultimate goal in and of itself (that doesn't mean that Islam is against gaining wealth, on the contrary, as long as the wealth is gathered and spent in good, there is a lot of reward for it).
Money when lent out is never consumed. It's an abstract thing that the lender is contractually owed it plus the lending fee (interest). For literally doing basically nothing, he's able to generate income while taking minimal risk, and exploiting the borrower at the same time. If the borrower defaults, the lender is able to go after him for not just the principal, but the interest as well. He'll go after his assets and sell them to make his basically guaranteed profit.
Furthermore, it's possible to chain debt in a way that becomes a series of dominos, where if the first one topples, everything goes. We've seen this in 2008, it's inherently built into the system. You can't really do this with rent. While you can technically sub lease, there is a limit in practice, and because of fees, it isn't really feasible to go more than one or two steps. Not so with lending. You have borrowing on top of borrowing for instance, people take out loans against their partially paid for mortgages, to take out more mortgages, to buy property. Then the whole thing collapses at a moment's notice when the markets become finicky. Banks pool debts and sell them in packages, we've seen the end result of that.
>However, because of interest, those same wealthy people have an even bigger advantage. They take out mortgages, and after a while they can take out loans on said mortgages to acquire even more assets. It's genius really (in a very evil way).
A mortgage is a liability, not an asset. You can't take out a loan against a liability. Nothing you're writing here really makes any sense to me, despite the benefit of the doubt.
You can take out a loan on an existing mortgaged asset after you built some equity into it, especially if the asset increased in price during that period. You don't have to have paid it off. It goes to show how evil the entire setup is. It's basically laying domino blocks, the moment something happens, the entire thing collapses.
> You can take out a loan on an existing mortgaged asset after you built some equity into it, especially if the asset increased in price during that period.
Is not a mortgage very similar to owning X% of a thing? Like, if I had a mortgage for $100,000 and I've paid $10,000 towards it, it's almost akin to owning 1/10 of the house (which would play out in the event of liquidation, all other things equal). That real estate tends to rise in value as an asset class is tangential to the topic of usary. It seems plain to me that there is a concept of the current value of something versus the future value of something, with the difference being expressed as interest (to some degree)?
You sound like you're defining "development" when you talk about the difference between the future and present values of something. But I guess if the people actually doing the development pay interest to the people they got money from to do the development then it is... interest to some degree? Of course that results in less net development (due to the interest paid) but am I at least describing it in a way you recognize as accurate?
I have some bad news for you if you think profit sharing is going to replace free cash flow as a metric for company expansion. What happens if there's no profit? Have you been watching that Khadim Hussain Rizvi video where he tells the Pakistan Army to just repay the IMF loans' principal?
The fact that there are other examples of exploitation and fraud is tangential. The argument is that interest is one form of exploitation, it's not the only form.
> If that's true, then it's fundamentally broken (assuming interest bearing loans of course). You will never have a sustainable economic system that is based on interest bearing loans
Yes we should all switch the current economic system which has been the root cause of societal development. And we should switch to a fairy-tail system which you describe but miraculously does not and has not ever existed. One where people will lend out money for free! Why don't you start us off? I'd like a free loan please.
> Not true. There are moral alternatives. If you want to start a business, pitch your idea to investors who are willing to put in money in exchange for a portion of the company.
This is hilarious because its just another form of lending which in fact does yield interest. How do you think the investors will track ownership of the company? Shares which appreciate aka big bad interest.
> There are alternatives that don't involve interest. You see it all the time in the auto industry where they have 0% loans.
There are strings attached to those loans and the average auto loan absolutely has a non-zero interest rate. We are currently experiencing a massive auto loan bubble. Handing out low interest loans indiscriminately is irresponsible and the cause of massive economic damage throughout history.
I think you are confused. The government is "taking out the loan" by issuing bonds and paying an interest rate to the bond buyers. So which side is unethical? The lender or the borrower?
> Great empires were built without interest.
Like which?
At the end of the day, nobody is going to lend money without financial incentive. Why accept the risk? If you disagree then ask yourself why aren't you loaning out YOUR money for free? I will happily accept a free loan.
I think part of the problem is that the GP is conflating debt leverage and interest. My understanding is that there have been societies essentially without debt leverage, and no societies without loan yield.
As far as interest, all non-altruistic loans have strictly positive yield. You can use contracts to shift payments around and nominally get rid of interest, but you can always calculate an equivalent interest rate from the loan's yield. In the middle ages, they discovered that an investment, an insurance contract, and a contract-for-difference (sale of profit) together (contractum trinius) could perfectly replicate the cash flows of an interest-bearing-loan.[0] Presumably the contractum trinius is what eventually lead to the Catholic Church allowing interest-bearing loans.
My understanding is that the joint ventures set up for Islamic finance end up having cash flows equivalent to interest-bearing loans, though perhaps with important differences regarding collateral and leverage.
The yield on these loans is always strictly positive, and an interest rate equivalent to that yield is easily calculated. You can shift payments around and structure things so that there's nominally no interest, but there's still yield on the loan.
Now, I think there is some healthy debate to be had over the role of leverage and collateral in the economy, and also non-dischargeable debt like student loans.
> that the GP is conflating debt leverage and interest
I'm not :)
> The yield on these loans is always strictly positive, and an interest rate equivalent to that yield is easily calculated. You can shift payments around and structure things so that there's nominally no interest, but there's still yield on the loan.
In Islam, any loan that contractually requires benefit to the lender is prohibited, and that benefit does not have to be cash either, it could be a service or something intangible. Any attempt to dance around the issue (e.g. by stitching together intermediate contracts) does not change the fact that it is still interest under the covers, nominally or not. Islam cares about the actual substance, not what people call it on paper. This is already established in the texts which anyone can look at. As such, contractum trinius is prohibited in Islam.
Proper Islamic finance shares risk between the investor and investee, loans are strictly an act of charity since they cannot take interest. By looking at history, we know that it is possible to have societies that do not rely on interest, but on proper risk sharing. They don't teach that in the popular economic books though.
Believe it or not, real estate owners back in the day were willing to sell their house in installments without upping the price. So neither of your suggestions apply.
Even with interest and predatory loans, people today are not buying properties until later anyway, so that's not really an argument.
Secondly, in Islam the government has duties to perform, including providing good quality of life to its citizens, something we don't see done by so many governments today. Housing goes under this.
What do you mean by debt leverage? I don't really see how you can have interest without allowing for borrowers to profit from that debt. Businesses use debt to finance their operations. I can get a mortgage and profit off the appreciation of my property.
I had never heard of that contractum trinius thing! But it really doesn't seem any different. The borrow has to pay insurance premiums to the lender instead of interest premiums. Its only different in name. Additionally, the borrow has to pay for a separate contract that will allow them to profit off the debt! That's debt leverage for you!
You're correct, they're just thinking they found loopholes around the issue. Islamic texts explicitly call out this behavior and prohibits it. You can't stitch together individual legal contracts to reach the goal of lending money with interest. You can't "kid" God.
> switch the current economic system which has been the root cause of societal development
Strawman argument, and red herring. Just because we rely on something immoral that brought some value does not mean that there isn't a superior solution.
> switch to a fairy-tail system which you describe but miraculously does not and has not ever existed
Proper Islamic finance exists and has existed and has built empires.
> One where people will lend out money for free!
That's only in a capitalistic society where the only way to raise capital is lending. No they won't lend money for free (except if they want to be charitable). The solution is that money would be invested and risk shared equally among both parties, investor and investee, not lender and borrower, it's very different.
> This is hilarious because its just another form of lending which in fact does yield interes
It's very different. With an interest bearing loan, if the company doesn't work out, the lender will come after the borrower with the full support of the law, taking not only his principal, but the interest on top, destroying the latter. With an investment, if it doesn't work out, then the investor has lost his money and is not owed anything. It's risk sharing.
> and the average auto loan absolutely has a non-zero interest rate
I'm aware, but I wasn't talking about the average auto loan. You see it all the time when auto manufacturers offer 0% loans on certain models because they want to sell.
> Handing out low interest loans indiscriminately is irresponsible and the cause of massive economic damage throughout history.
Poison is still poison, regardless of the amount. The solution is not to give out more poison.
> The government is "taking out the loan" by issuing bonds and paying an interest rate to the bond buyers. So which side is unethical? The lender or the borrower?
Both are unethical. The Islamic perspective is that both the lender and borrower are equal in terms of sin (assuming the borrower is not doing it out of literally a life or death situation, which let's be frank, the vast majority of people are not in such a situation).
> Like which?
Islam prohibits interest, look up the Islamic empires all the way until the Ottoman empire.
> nobody is going to lend money without financial incentive. Why accept the risk?
That's the whole point. Without financial incentive, loans in Islam are purely an act of charity. If you want to invest your money, you invest it in ethical means that involve proper risk sharing. Interest bearing loans aren't that, there are countless other ways to make money. There were and are many rich Muslims that did not make their wealth using interest, but through investments.
> What empires has it built since the Catholic church started allowing interest on loans?
What does this discussion have to do with the Church? Islam is a separate religion and system, and up until relatively recently (post WWII mainly) the Muslim world was not involved in interest. Even post WWII, there existed nations that did not deal with it (e.g. Kosovo). Furthermore, just because someone decides to abandon their religion or morals does not mean that we have to do the same. We take pride that Islam is the only religion left in the world that is the way it was when it was revealed, without corruption.
> How does that work for someone buying a house?
Firstly, the government is responsible for providing a good quality of life for its citizens. Secondly, people can save money and buy, or buy in installments like they did back in the day and still do today in some parts of the world. Finally, owning a house is not an end goal, that's very materialistic thinking. I understand that it one has to secure his future, but home ownership as per the Western or American view wasn't the norm historically as far as I know. Today there exists governments that provide housing for their citizens (e.g. the UAE).
I disagree with you on every point. Capitalism has lifted far more people out of poverty than charity. Its not even close.
Society should not remain poor and underdeveloped just to adhere to your religious beliefs. I just want to point out one last thing:
> It's very different. With an interest bearing loan, if the company doesn't work out, the lender will come after the borrower with the full support of the law, taking not only his principal, but the interest on top, destroying the latter. With an investment, if it doesn't work out, then the investor has lost his money and is not owed anything. It's risk sharing.
It's absolutely not different. A loan which receives interest in the form of equity is still interest. The lender provides capital in exchange for ownership over the company. Instead of being paid in cash, the lender is paid in equity that ideally becomes more valuable than the original loan amount. That is in no way a charitable act. Also you are not necessarily personally responsible for a loan to your business.
I bet you have never used a credit card, opened a savings account, worked for an employer that has debt, rented a home, rented a vehicle, bought a mortgage, taken a loan for education, made an investment, or ever have any relationship with a financial institution. /s
I'm still waiting for the name of a society that operated without debt or interest.
> Capitalism has lifted far more people out of poverty than charity. Its not even close.
This is not the argument. Islam does not prohibit all capitalistic practices, as a matter of fact, it's generally pro free market. All it does is it places some boundaries on unethical, immoral, and parasitic practices. Interest is one of those prohibited things. Everything else that is not prohibited goes. Furthermore, Islam pushes people to work and to be self sufficient and not rely on charity. https://sunnah.com/riyadussalihin:296
> Society should not remain poor and underdeveloped just to adhere to your religious beliefs
Strawman argument. The Islamic world during the Islamic Golden Age was prosperous and ahead of everyone in all facets of life, while the rest of the world was in the so called Dark Ages.
> Instead of being paid in cash, the lender is paid in equity that ideally becomes more valuable than the original loan amount.
The difference is in the contract. In an interest bearing loan, the lender is contractually owed a profit. This is not the case in a proper risk sharing model, where the investor is willing to accept a loss. Risk is shared proportionally among both parties. A borrower who defaults will have the lender come after him not just for the principal, but also for the accrued interest, with the full support of the law.
Incidentally, the Quran addresses your very claim that interest is the same as trade: https://quran.com/2/275.
It is very clear that interest is *not* the same as trading and ethical investments.
Renting a house or car is not an interest bearing transaction as I explain in another post here. One main difference is that a rented asset is consumed (e.g. subject to wear and tear), whereas "rented" money isn't. And since you're asking, yes I didn't take on a mortgage, nor opened a savings account (to be fair, the bank opened one for me, and I had to contact them repeatedly to close it).
Furthermore, we have narrations that there will come a time where even people who do not consume interest will be affected by it. We live in those times today, even dealing with fiat currency causes individuals to be affected by interest because it's money printed at will to cover the government's debts:
> I'm still waiting for the name of a society that operated without debt or interest.
All throughout Islamic history until the fall of the Ottoman empire and the subsequent colonization by the West, which pushed its financial institutions in Arabia.
> A borrower who defaults will have the lender come after him not just for the principal, but also for the accrued interest, with the full support of the law.
You have a very narrow understanding of loans. In fact, creditors lose money on loans all the time. Borrowers routinely escape paying out the entirety of their loans.
> Incidentally, the Quran addresses your very claim that interest is the same as trade: https://quran.com/2/275.
> It is very clear that interest is not the same as trading and ethical investments.
You logic is that because allah declares it so, then it must be true. It really is as simple as charging a fee for borrowing an asset. In the case of a cash loan, the asset is cash. You can perform all the mental gymnastics you want, but renting out a car or a property or capital is really all the same principle. You have drawn a silly distinction for equity based on your religion.
All the Islamic financial institutions still charge interest. They just use different names.
> In fact, creditors lose money on loans all the time. Borrowers routinely escape paying out the entirety of their loans.
Just because some lenders lose money, does not make the contract any less predatory or immoral. That's like saying that there are some people who don't wear seatbelts and make it out of accidents without issues. The very fact that the US has trillions of dollars of student and auto and mortgage debt is more than enough to illustrate how much of a disaster usurious money lending is.
> In the case of a cash loan, the asset is cash.
I already explained how it's not the same. A tangible asset is consumed, experiences wear and tear, needs maintenance, etc. Money doesn't need any of that, you get back your asset in pristine condition, plus more.
> All the Islamic financial institutions still charge interest
If they do, then they're not Islamic, regardless if they claim they are. It's quite simple, and many scholars have called them out. Calling something prohibited by a different name to make it palatable is already mentioned in our books, and is outright prohibited. Dancing around the issue by stitching together a series of permissible contracts to result in something that mimics interest is prohibited. We have narrations about this.
The so called "Islamic banks" are a recent problem as I mention in another post. It's one of the many effects of post WWII colonization, where the West forced its values on the lands it occupied.
Dude how do you even survive without participating in ANY interest? If you don’t have a mortgage, you must rent. That property was bought with a loan. You have any bank account or investments? Those institutions provide loans. Did you get an education? How did you pay for it? You gotta be filthy rich to afford all those things in cash.
I’m just amazed that people actually believe what you’re saying. I would never want to live in a society where I am forced to accept charitable scraps from the wealthy elite.
Tangibility is a dumb argument. The car and the property or whatever are being rented out for a profit INCLUDING maintenance costs. Money depreciates and the lender absorbs risk. There’s opportunity cost with money.
Loans can absolutely be predatory! There should be absolutely be proper regulation. But your suggestion that ALL interest is evil just tells me you have no idea how the world works.
You use products and services from companies which use interest. Your government uses interest. It’s all around you.
Not necessarily. But I do my part of not participating in the system, that's the least I can do. Similar to how boycotts happen, if enough people partake, change will come, until then, we stick to our values.
> You have any bank account or investments?
Yes, but I don't have a savings account.
> Did you get an education? How did you pay for it?
Fortunately, I didn't go to college in the US where the student loan industry is out in full force. There are other countries where college is affordable, and for people who can't afford it, provide true student aid. Not "student aid" as in federal loans, student aid where the college works with the individual person depending on his or her family's situation to work out a solution, including discounts.
Also, let's take a step back. Just why are colleges so unaffordable in the US? Easy loans play a big role. The universities see that there is easy money to be had, so they up their prices under false premises. It's basically supply and demand, where the supply is poor folks being pushed to take on crushing debt. It's a very parasitic cycle.
> I would never want to live in a society where I am forced to accept charitable scraps from the wealthy elite.
That's not what I said, it's a strawman fallacy. I said that in the Islamic position, loans are only done as an act of charity. However, Islam heavily encourages people to work and self sustain: https://sunnah.com/riyadussalihin:296. Where does it say to sit back and rely on charity?
The government has a responsibility to provide stable conditions and tackle issues like unemployment. This has nothing to do with interest.
> Money depreciates
Because of interest that the government takes on, forcing it to print more money to devalue the currency, see how this all works out?
Renting and loaning money are fundamentally different. Show me any car rental agreement that goes on for 30 years like a mortgage. That's just one difference.
> But your suggestion that ALL interest is evil just tells me you have no idea how the world works.
I do, and I can't help but be amazed and saddened that people keep crying at the many economic issues and crises that keep happening, not realizing that interest is at the center of the entire mess.
> You use products and services from companies which use interest. Your government uses interest. It’s all around you.
I do not deny it. All I can do is make people aware of the dangers, and that because interest is so prevalent, many of the problems we see today are going to stay until that changes: https://sunnah.com/mishkat:2818. Today, we are all affected by the dust of usury even if we don't partake in it.
The way it should be. The quicker we do away with interest bearing and yielding assets, the better. It's the cause of the vast majority of the economic mess we're in today. We've literally known about this issue for thousands of years, interest and usury have been prohibited in Islam, Christianity, and Judaism. We still think we're smart and not going to be bitten by the dangers of interest, yet that won't happen.