

Why the poor are poor - alnayyir
http://bitemyapp.com/posts/6/

======
coffeedrinker
The issue of liquidity is important. One aspect that affects all of us is the
borrowing of money. The easy borrowing of money drives the price up for that
which it is borrowed.

Housing would be more affordable if one needed to save a greater portion of
the purchase price. Being able to borrow hundreds of thousands of dollars
causes an artificial bidding war.

The same happened with education. When it became possible to borrow for
education, the prices for education rose as well. This also degraded the
quality of education in many fields, as the barrier to entry (not finances!)
was removed. Institutions enrolled students in many worthless classes only for
the income stream.

This affects the poor because the price of everything is inflated through
borrowing and debt (even the extra few percent the merchants charge to cover
credit card fees).

I've never taken out a loan in my life, and I am comfortably liquid. But my
liquidity is always eaten away when someone borrows beyond their means.

Note that I am not against borrowing, and see the value of it in certain
circumstances. But when borrowing is easy for the consumer, and consequences
for borrowing are removed, it affects all of us.

~~~
mitko
I agree with you that borrowing when needed is good, but excessive borrowing
can create crisis. Karl Marx did foresee this:

 _Owners of capital will stimulate the working class to buy more and more of
expensive goods, houses and technology, pushing them to take more and more
expensive credits, until their debt becomes unbearable. The unpaid debt will
lead to bankruptcy of banks, which will have to be nationalised, and the State
will have to take the road which will eventually lead to communism._

Karl Marx, Das Kapital, 1867

Another citation here:

[http://www.theatlantic.com/business/archive/2009/01/faux-
mar...](http://www.theatlantic.com/business/archive/2009/01/faux-marx/4565/)

Edit: markup

~~~
alnayyir
He never said that.

From _your link_ : " Laura of 11D says this quote is making the rounds of Wall
Street.

...

And indeed, searching all three volumes for "houses" and "homes", which are a
pretty straight one-to-one translation, yields nothing that sounds remotely
like this.

Every time I see one of these things, I wonder. Who the hell makes them up?
And why? What do you get from passing your mediocre musings off as the work of
a long-dead revolutionary?"

~~~
hughw
Good for you alnayyir. I also doubt in 1867 "buy[ing] more...technology" was a
concern. Sign of a good Snopes target.

~~~
brazzy
Yeah, because technology did not exist before the internet... The word may not
have been used that way back then, but the 1867 equivalent of an expensive
smartphone bought as a status symbol rather than for its actual utility would
have been a pocket watch.

~~~
alnayyir
They didn't speak like that back then, and mass consumption of technology
wasn't a concept yet.

Pocket watches weren't a mass consumption item at the time, nor would they
have been considered technology.

------
mnemonicsloth
From the site guidelines:

 _Off-Topic: Most stories about politics, or crime, or sports, unless they're
evidence of some interesting new phenomenon_

The political left and right have been arguing about the causes of poverty and
the distribution of wealth for the last fifty years. This is not hacker news.

~~~
alexqgb
Replace "poor" with "startup", "poverty" with "solvency", and this post
becomes very germane.

"[The problem is] that startups are proverbially illiquid and can't cope with
disruption of their finances and lack the spare resources to cover anything.
That's what causes disaster and prevents ascent to solvency."

I don't know if the cultural, legal, educational, and mental health issues
that define the poor will ever permit widespread savings, but entrepreneurs
fortunate to have avoided a critical mass of afflictions can take this lesson
to heart.

~~~
alnayyir
>Replace "poor" with "startup", "poverty" with "solvency", and this post
becomes very germane.

 _Thank you_

------
pmorici
"What we need to be encouraging isn't equity, home ownership, or income in any
traditional sense. We spend too much time chasing silly things like SBA loans
and home ownership/net worth pumping.

Social welfare isn't necessarily the answer, instead we need to encourage
savings and stop incentivizing actions that increase their risk profile."

I think he is missing his own point. He says people are to fixated on "net
worth pumping" but then advocates "savings" as the appropriate metric.
Increasing savings is equal to increasing net worth by definition.

What he is really arguing against is crappy investment advice, which is what
buying a house with an interest only loan is. It's speculating on housing
prices and probably the only way a poor person could invest with such extreme
leverage. In other words this post could be boiled down to saving, not
gambling is the surest way to increase ones net worth.

~~~
alnayyir
Home ownership doesn't assist in establishing fiscal stability. It's a symptom
of financial health, not a cause. At best, it's an affectation in the absence
of investment properties.

Savings for the purpose of establishing flexibility and stability is more
important. The fact that it happens to increase net worth is immaterial.
Giving them a CD they couldn't touch would increase their net worth without
improving their circumstances.

You can't leap to telling people that buying a house is gambling. They won't
understand it and they'll reject the statement out of hand because you didn't
build them up to that conclusion.

That's what my post was doing.

You
write/live/travel/socialize/eat/drive/ride/swim/bike/code/dream/learn/read/play
for the journey, not for the pithy conclusion.

~~~
pmorici
I don't disagree with you but I think you are jumping around a lot and your
ideas don't flow well as presented. This reads more like an outline or rough
draft than a finished piece IMO.

~~~
alnayyir
I'll do some more editing next time.

