
Croatia just canceled the debts of its poorest citizens - petethomas
http://www.washingtonpost.com/blogs/worldviews/wp/2015/01/31/croatia-just-canceled-the-debts-of-its-poorest-citizens/
======
popee
Hi, croat here. Just one detail, this year there will be elections in Croatia
and current gov didn't do anything useful for our economy, so this is kind of
popular measure. Don't get me wrong, it's always nice to help, but situation
is little bit complicated, taxes are very high and in some way this is not
fair to people that are paying everything. Also, there are huge number of
people living and exploiting social measures, so ... In this context it's
impossible to help those who really need help.

You know what is the saddest part? Opposition party (conservatives that ruled
from 2007-2011) is convicted for criminality and they are atm most popular, so
for _common_ and _independent_ people there is no light at the end of the
tunnel. If someone can solve this chaos he/she will be candidate for Nobel's
price.

P.S. Sorry on bad english

~~~
byoogle
Interesting, this quote comes to mind:

“The American Republic will endure until the day Congress discovers that it
can bribe the public with the public’s money.” – Alexis de Tocqueville

~~~
nickthemagicman
The term, bribery, is extremely subjective in this context.

It's the same ephemerality as saying someone is a hater of "Freedom".

It makes an easy soundbite but what does that even mean?

~~~
michael2l
I think most people use the concept of being for or against "Freedom" to refer
to the opposite sides of the bottom-up versus top-down modes of economic
development and governance.

Certainly, it's an over-generalization, and the word freedom is used
specifically to evoke an emotional response, but I don't think it's devoid of
meaning.

An unfortunate side-effect of having a democracy with 300 million plus people
in it, is that to a certain extent these sort of over-generalizations are a
necessary part of coalition building.

~~~
nickthemagicman
Overgeneralizations? You mean "propoganda"?

Coalition? You mean "fear fueled mob"?

Not sure what you mean by a bottom up government but the buzzwords are flowing
I'm assuming it involves something along the lines of privatizating
everything.

------
rfrey
The article says the government "convinced" banks and other companies to
cancel the debts, but the lenders will not be compensated. It's left as an
exercise to imagine how the lenders were convinced.

I can see the benefits of getting a large number of people out of what must be
a terrible situation - the numbers suggest most of the people affected
probably didn't have enough income to even service their debt.

But I wonder how this will affect the ability of non-elites to borrow in the
future. Although we all like to hate our financial institutions, they really
have been an incredible force against class structures over the last 100 years
or so, allowing the middle class to own property, start businesses, etc, by
gradually extending credit to more and more people. (I recognize it's not been
perfect <coughsubprime>.) Reverting to a situation where only the rich and
connected can get loans would be a negative consequence. I hope the government
of Croatia can counter that.

~~~
raverbashing
" allowing the middle class to own property, start businesses, etc,"

Well, there's this crazy concept called "saving money" where you don't borrow
from a bank but rather put some money aside every month to be able to afford
something expensive

I wonder what would happen to property prices if lending was severely
restricted, maybe then the value would actually be affordable and not a
lifelong debt that becomes unserviceable in the first hiccup

~~~
Sandman
_Well, there 's this crazy concept called "saving money" where you don't
borrow from a bank but rather put some money aside every month to be able to
afford something expensive_

Yeah. Unfortunately this only works if you have enough money after you pay the
bills etc. to put aside.

~~~
falcolas
Plus, saving up the 10-50 thousand dollars (say, to start a restaurant in the
US) required to start a business would take a significant chunk of someone's
working lifetime.

To use a more concrete example, you can't make money weaving cloth when you
can't afford a loom.

~~~
wtbob
I think your numbers are off by an order of magnitude, which makes it even
harder to do for someone with few resources.

~~~
rch
Not really - I know someone in the town where I went to school who opened a
coffee shop using a combination of cash and credit cards at that level. She
now owns the building the shop is in and a home in Hawaii. Not VC riches or
anything, but not bad either.

~~~
rhino369
A coffee shop isn't a restaurant.

~~~
zo1
Well, a restaurant isn't the _only_ business venture an individual can get
into. Just the other day I saw meme-photo (can't vouch for the
validity/truthfulness) about a woman that made money at the beach by attaching
balloons filled with margharita mix over her breasts. And charging party-goers
(probably mostly male) for the chance to drink out of them.

Ridiculous and asinine example, but I bet she started off with no more than a
hundred dollars in capital. Which means that entrepreneurship, and ingenuity
are what's most important. Capital will follow.

~~~
juliangregorian
Do you libertarians even listen to yourselves? The amount of disease that
would spread... "hustling sketchy shit" is not a sustainable model of
entrepreneurship.

~~~
mikerichards
Do you communists even listen to yourselves? He never said he was a
libertarian. And where the hell do you get this "hustling sketchy shit" from?
Do us a favor and reply to the comment, not whatever your mind twisted it
into.

~~~
juliangregorian
Butthurt libertarian detected. Sexual arousal at thought of drinking from
bacteria-laden water balloons probable.

~~~
dang
> Butthurt libertarian detected

This violates the HN guidelines and I'm afraid some of your other comments
have as well. Please re-read the site rules and try harder to follow them:

[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)

[https://news.ycombinator.com/newswelcome.html](https://news.ycombinator.com/newswelcome.html)

[https://news.ycombinator.com/newsfaq.html](https://news.ycombinator.com/newsfaq.html)

------
bmmayer1
Let's just look at the predictable consequences of this move:

1) Banks and other corporations will never lend money to poor people again.
Full stop. If there is a chance that the government will write off that debt
(effectively stealing future earnings from banks) for these loans, banks just
won't issue them. Say goodbye to educational loans, healthcare loans, car
loans. Say goodbye to home loans and mortgages. If you're poor, you just
became a ward of the state. And you thought being in debt was bad...

2) If a legitimate institution _do_ want to lend money to poor people,
interest rates will skyrocket to compensate for this additional government-
cancellation risk. If they skyrocket above usury laws, then legitimate
institutions will no longer be in the market and the job of lending at-risk
capital will turn to the black market. Look out for loan sharks and indentured
servitude, including sex slavery, on the rise in Croatia in the future.

3) The money has to come from somewhere--it isn't free. By canceling $31M in
debt, the government is causing $31M in losses to corporations and
institutions that were owed that money. That means $31M less in spending,
economic growth, job creation, not to mention taxes, which will have to go up
to compensate for the loss. These taxes (or inflation) will hit the poorest
people while the rich horde more money or offshore it to prevent it being
taken away.

4) Lending is the foundation of economic growth, especially for the poor, by
allowing borrowers to leverage their limited assets in exchange for future
earnings. All things being equal, people will borrow money smartly or
stupidly, but the consequences, good or bad, are faced by the people who
borrow. If the government cancels debt, it is incentivizing bad borrowing and
making it harder for good borrowers to get the capital they need.

It's the worst kind of pandering to the voters with long-term destructive
consequences to the people of Croatia.

In other words, exactly what you'd expect from politicians. Keep up the good
work!

~~~
raffomania
Did you read the entire article?

> Prime Minister Zoran Milanovic has convinced multiple cities, public and
> private companies, the country's major telecommunications providers, as well
> as nine banks to clear some of their citizens of their debt.

This means that the losses happen with consent of the corporations involved.

~~~
ptaipale
There's consent and there's consent. Like as a shop owner I consent to give
some money to a don, because it would be such a shame if my business burned
down.

Not saying that the convincing is necessarily done via threats, or is a bad
thing at all, but "convincing" has many meanings.

------
bmajz
This is an interesting concept and a really old one to boot. Planet Money
recently did a great podcast covering a similar measure (although it was
specifically for mortgages) in Iceland:
[http://www.npr.org/blogs/money/2014/12/05/368723679/episode-...](http://www.npr.org/blogs/money/2014/12/05/368723679/episode-587-jubilee)

Interestingly, Saudi Arabia also did something similar (alongside many other
measures) to boost public support for the new king:
[http://www.arabnews.com/news/696661](http://www.arabnews.com/news/696661)

~~~
rhizome31
I'm reading Graeber's _Debt, the first 5000 years_ which explains how this
practice is as old as debt itself. It already existed in ancient Mesopotamia.
I highly recommend this book to anyone interested in the topic. It also shows
how debt is deeply linked to slavery, women slavery in particular, through the
phenomenon of debt peonage.

~~~
bmajz
Sounds awesome - will have to check it out.

Totally random aside: does it talk about the evolution of debtor's prisons
after slavery was no longer an option? I always wondered why people thought it
made sense to lock someone up with no economic recourse to pay down a debt.
There were probably much better options to deal with the potential moral
hazard.

~~~
zo1
Why are you removing responsibility from the debtor? It's just as much the
fault of the creditor to give the (maybe unpayable?) loan, as it is for the
debtor to take/agree to it.

On the one hand, the debtor pretty much ends up stealing. And on the other
hand, the creditor took a too-risky loan without _considering_ the repayment
ability of the person he was giving it to. We're conditioned to think this as
some sort of cruel injustice (and it is indeed a sad situation), while
completely ignoring the actions of the debtor.

You could go one step further and say that perhaps the debtor was committing
fraud by tricking the creditor into giving out the loan when he knew the
chance of repayment was low. (Assuming debt-slavery wasn't the goal of the
creditor in the first place). Also exclude accidents and life-altering events
(corner case). I'd imagine that after a few of these horrible incidents came
to light in a _connected_ world (i.e. modern times, not centuries past)
creditors would start adding clauses into their contracts about possible re-
payment plans/options, etc. Hell, they might not even offer to give the loans
out if they were too risky.

If there is one thing I'd like individuals to take from this comment, it's
that laws and regulations aren't the only solution to society's problems. I'd
argue that they merely "mask" away the problems, without ever giving
individuals a chance to resolve it amongst themselves in peaceful and non-
barbaric ways. This is true now more than it has ever been in the history of
our world, with the advent of modern communications and the internet. At
least, give it a brainstorm/thought next time you jump to government
intervention for any perceived injustice in this world.

------
reqres
While i applaud the motivation behind cancelling the debts of Croatia's
poorest citizens, the way it was done is likely to hurt them more in the long
run.

Forcing banks to absorb the losses of this write-off will likely make it
harder for the poorest to access credit in the future. Banks are not social
institutions - they're pathological profit making entities. They will have no
qualms with raising interest rates or denying credit altogether to compensate
for the increased risk of doing business with their poorest customers.

The poorest section of the population do not borrow money for no reason.
Borrowing is often required for emergencies (i.e. medical) or short term
liquidity (paying bills on time). Just as importantly, it's vital for people
who want to improve their economic situation by starting new businesses.

My primary concern is that banks starting to shut/price them out. The least
well off will end up resorting to informal lenders (i.e. loan sharks).

~~~
Yetanfou
With a bit of luck the least well off will end up seeing the truth in the
money game - they can't win, no matter what they do. This actually goes for
many (maybe even most?) people, except for the small_number%. The best way to
play the game is not to play it at all - avoid loans, avoid debt, avoid a
dependency on money whenever possible. Use the money you make to reduce your
dependence on future money by acquiring means to increase your independence.
For some this will be hard - if you live in a city there is only so much you
can do - while for others it is easier.

Barring a revolt of some kind (war, revolution, catastrophe, take your pick)
or a radical change in the concept of money, more and more wealth will be
concentrated in fewer and fewer hands. Increased automation will reduce the
number of ways a large part of the population will be able to make even a
semblance of a living wage. If there is no system in place to take care of
these people - most likely in the form of a base living wage provided by some
authority - they'll revolt before they starve. And who are they? Are you one
of them? If not now, maybe soon?

So... like Tic-Tac-Toe, the outcome of the money game is known before the game
starts. They who make the first move, win. You probably did not make the first
move, so you won't. Best not to play, then? This does not mean you should
avoid money at all cost, it just means you should not follow it. Don't count
on making more tomorrow than you do today. Don't base your plans around the
money you'll make or that which you accrued. If you have money, use it to
reduce your dependency on future money. Buy land if possible. Use money to
become energy-independent. Try to become less dependent on automotive
transport. Don't get insurances for anything which you can do without. Learn
to produce, not consume. Be creative. Entertain yourself instead of being
entertained.

~~~
ZenoArrow
> If you have money, use it to reduce your dependency on future money.

Spot on.

People talk about the rat race. Just like any race, the idea is to finish
first, but that doesn't mean working your arse off until you pop your clogs,
it means stopping running first, or at least that's how I see it.

The financial game is rigged. Consider, a bank wants to lend money to help you
start a business, because it thinks you'll be successful. The benefits to
itself if you're successful are twofold, you pay back the loan with interest,
and the money you've used to pay off the interest has come out of the pocket
of savers, so less interest to pay out to them too. A term you'll hear in the
banking world is 'liquidity', which describes how easily money flows through
the system. The goal isn't to make other people rich through savings, the goal
is to get everyone spending, and make sure they get their cut. If their plan
backfires and people stop spending and start saving, we have a deflationary
recession, governments start implementing austerity measures, and all that's
really happened is people being more careful with their money.

Then there's the whole game of infinite growth on a finite planet, but I
imagine that's backwards enough for everyone to see.

There will be another economic revolution, within this century I'd imagine,
Jah knows what it'll look like but we won't keep our current system forever.

------
onesongonesong
If debts are under 35 000 kunas, monthly income is under half of minimum
salary ( you know what sucks? Many workers are on minumum salary, yet don't
receive salaries for months, whilst company owners drive luxury cars for a
salary 3-4x the average one, so those workers are not eligible) and the
citizen doesn't own any land or savings.

One of the main problems is that about 10% of our citizens have their accounts
frozen. They could change laws to help it, but that would hit their budget.
It's absurd that you can get sued by the government for tons of money just for
not paying a monthly TV subscription payment, that you are subscribed to by
having more than 1 radio frequency receiver, no matter be it a radio, phone or
a TV. Or even having an screen in your home. This is like focusing on fighting
acne, when your patient is dying of cancer.

Yes, it will help a lot of families, and that's great, but elections are
coming up and this is mostly a political points move, since the "right wing"
won the presidential elections, the political "left" is now worried.

------
failed_ideas
In part, I love this idea. However, as someone who struggles with debt, I've
worked to the point of causing serious health issues just to keep my head
above water, so if Canada were to do this, I'd be more than ticked. The
slacker next to me gets a clean slate, and I get an early grave.

~~~
rfrey
I totally understand your sentiment, but to me this reflects one of the
biggest scams that has ever been pulled on the "average guy" \- the notion
that debt has moral weight.

I was taught by my parents, and by the books I read and TV shows I watched,
that "paying your debts" made you a good person. If you don't pay your debts
you're slacking. We've all heard the parables of the great person who went
broke, but managed to pay his debtors later even though he legally didn't have
to.

What hogwash. Lenders get paid interest in compensation for the risk that the
loan might go bad. They deny credit to people if the risk is too high. That's
their business. If you borrow to start a business and the business goes south,
that's not a moral issue - it's built into the bank's models. Turning it into
a moral issue, rather than "just bizness", is just a way for the lenders to
shift the risk - that you're paying for - back to you. It's like buying
insurance and then not collecting for your burnt house, because you didn't
work hard enough to put out the fire.

OK, sucky analogy, but you can bet that people like Donald Trump don't worry
about the morality of debt when one of their companies go broke. It's in the
contract.

~~~
gmunu
This is a very interesting comment and I used to think similarly, but Matt
Levine over at Bloomberg convinced me over several articles (couldn't find
exactly which ones on a casual searching) that it's a little more subtle than
that. In contracts between big companies, this is absolutely true. Financial
institutions expect that companies will act as rational economic actors and
discharge their debt when it's beneficial for them to do so. But in contracts
with very small business or with individuals (say mortgages), people act
economically irrationally, constrained by social norms, and not dumping their
debts as quickly as the laws allow. This results in lower delinquency rates
than would otherwise be the case, so the actuarial models allow for the
pricing of lower interest rates, more lenient credit policies, etc. If
individual people starting acting like big corporations, then default rates
would go up and correspondingly interest rates on things like mortgages would
go up to.

This isn't to say that that state of the world is worse. It might be better!
Certainly we shouldn't discount the burden it places on people to feel guilty
over their debts. That's real cost to them and to society generally. But if
the social norms around debt changed, they wouldn't change in a vacuum.
Probably rates would go up and that's a real cost as well.

~~~
sergiosgc
You make a common economy error. You are assuming the price of a good or
service is defined by its cost. This is only true in very liquid (competitive)
markets. Banking is no such market.

You make a perfect case of justifying that the cost of providing the lending
service would be higher. However, prices are not defined by cost. They are
defined, loosely, by what the market can bear. The cost is a lower limit, but
nothing more. Namely, it does not define the price.

For the price of a good or service to approach cost of goods, you need very
strong and constant competitive pressure. The banking market, in most
countries, is not nearly competitive enough.

~~~
gmunu
It is certainly not the case that cost == price, I agree. Price is determined
by supply and demand. But if you change the cost of mortgages, you probably
change their supply curve and hence the market clearing price. To argue that
raising the cost of mortgages doesn't change the market clearing price is make
a pretty strong claim about the shape of supply and demand curves.

------
DanielBMarkham
Related sidebar: one of the observations Jefferson made while in France at the
beginning of the French Revolution was that institutional debt prevented
needed changes from ever taking place. That is, the country was so intertwined
in various entities owing various other entities that there was no solution
that was acceptable to a plurality.

One of the ideas I've toyed with over the past few years is a "debt sunset
clause" for all debts, both public, private, institutional, and governmental.
Whenever you lend money, you have, say, 30 years to get it all back. Or it's
gone. The clock starts when you write the check.

From a market standpoint, the additional risk would just be written into the
interest rate. But from a systemic standpoint, major gains could be achieved.
That way you wouldn't have to have "debt holidays", "debt forgiveness" and so
on. It would just take care of itself. (And if you wanted, you could have
different time frames for different types of debt, but then you're heading
down the over-complicating route again)

------
nsxwolf
You know there's at least one poor Croatian that paid off his debts and feels
like a real sucker now. Kind of like how the last Americans to pay for their
own community college tuition will feel.

------
zb
A similar act occurred as part of what may now be regarded as the foundation
of Western democracy:

[https://en.m.wikipedia.org/wiki/Seisachtheia](https://en.m.wikipedia.org/wiki/Seisachtheia)

was a regular feature of the ancient world:

[https://en.m.wikipedia.org/wiki/Jubilee_(Biblical)](https://en.m.wikipedia.org/wiki/Jubilee_\(Biblical\))

and occurs on a smaller scale in our own society on a daily basis:

[https://en.m.wikipedia.org/wiki/Bankruptcy](https://en.m.wikipedia.org/wiki/Bankruptcy)

So if we ask a so-called expert on the subject, what will he say?

 _Among economists, the scheme is regarded as unprecedented and exceptional.
"I can't think of anything comparable," Dean Baker, co-director of the
Washington-based Center for Economic and Policy Research, told The Washington
Post._

Of course he's against it anyway.

------
oldpond
This is great news, and I hope the world follows suit. Debt amnesty is indeed
a time honored solution to the current crisis. When a person goes into debt
they sell their future wages. When a government goes into debt they sell
future tax revenue. Now all the future wages and tax revenue that can be sold
are in the hands of the banks. (Sure, governments could keeps selling future
tax revenue from future citizens who haven't been born yet, but let's pretend
they don't.) So the banks are in a bad spot; no more debt to buy. If they stop
lending, the money system dries up and everyone loses their jobs (happening
now). If they try to raise the interest rates (effectively zero now) nobody
will be able to afford the payments on their debt and everyone goes broke. So,
the whole system needs a big reset. Hence the need for debt amnesty.

What we do after debt amnesty is critical. Do we just start the same old cycle
over again? Or do we take this opportunity to make a fundamental change. The
government is the only body that can legally create money, but they don't.
They create the money in the banks and then borrow it back at interest
essentially giving the banks control of the currency. We need to take back
control of our currencies and declare general debt amnesty for all governments
and citizens at all levels. Business can carry on as usual; they get to keep
their debt. Governments should never be in debt again.

With governments out of debt the economy starts moving again. In Canada, the
largest employer in the country is the Government of Canada, and in each
province the largest employer is the respective provincial government. Not
hard to see the benefits of a government able to spend enough money to fix the
roads, schools, parks, and all the other shared services we use.

Of course the banks won't like this idea. However, if the government creates
enough money ONE TIME to cover the debts that are being erased then the banks
are made whole. Basically, the banks get one chance, just like everyone else,
to sort themselves out and figure out how they plan to operate post-amnesty.
But they won't rule the world anymore.

~~~
kaonashi
> When a government goes into debt they sell future tax revenue

This depends entirely on which government.

It's true in the case of California or Greece, but not Australia or the U.S.,
for example.

------
bnt
Croat here: This is BS. They canceled peoples phone & other commodity debt.
This is basically rewarding people for being financially irresponsible. I
could have easily taken 5 phones on 2 year contracts, decided not to pay and
gotten that written off with this law.

~~~
rospaya
> I could have easily taken 5 phones on 2 year contracts, decided not to pay
> and gotten that written off with this law.

Not really, since the law only covers people who have no savings, no propery
and earn a third of the minimum wage. You have to be seriously poor to get
your 5 phones for free.

------
JamisonM
[http://www.reuters.com/article/2015/01/15/us-croatia-
welfare...](http://www.reuters.com/article/2015/01/15/us-croatia-welfare-
idUSKBN0KO13220150115)

    
    
       The government program involves major local banks,
       leading telecom operators, the four biggest Croatian
       cities and several public utility companies. The
       government will not pay the debts; the creditors
       will simply absorb them.
    
    

Frankly in the absence of consumer bankruptcy laws it is clear why these
particular creditors are willing to go along with this scheme, even though it
will cost them some revenue, without much of a fight. These were likely
amounts small enough, given the parameters of the debt-cancellation rules,
that recovery was never a particularly practical option anyway. If the debt on
the books of utilities or a bank is not good enough to sell to a third party
and is not considered recovery internally then the accountants would be quite
happy to simply have these amounts off the books and the corporations and
governments probably reap more rewards in positive PR than the debts were
worth.

The perhaps larger problem that I think is being solved here, besides the debt
itself, is the bank account "blocking"[1] that appears to be a provision in
current law that the government is not interested in changing. Once someone's
bank accounts are blocked I presume that they are forced into the cash economy
and that is bad for the government in lost taxes as well as citizens with
respect to many things, including good old fashioned "getting ripped off".

[1] [http://www.croatiaweek.com/over-300000-accounts-blocked-
due-...](http://www.croatiaweek.com/over-300000-accounts-blocked-due-to-debt-
from-bills/)

------
velcro
Note that the amounts in the article are not factually correct. Its really not
$138. Its actually:

A.) max. 2500kn (croatian kuna) or $367 USD for singles B.) max. 1250kn or
$183 per household member (so for families of 4 it would be $183 x 4)

This is obviously for the poorest of the society that have had their accounts
blocked for debt longer than 360 days. Most working people in Croatia would
not be able to meet that criteria - minimal state-imposed gross salary for
2015 is 3030kn ($445 USD). People also tend to mix net and gross amounts
(everything salary-related in Croatia is usually presented as a gros amount -
while in the US/EU its usually net). Not an insignificant difference because
Croatia has some of the highest taxes in the world.

Source: [https://servisi.fina.hr/otpis-duga-javna-
objava/info](https://servisi.fina.hr/otpis-duga-javna-objava/info)

------
hackuser
A similar method of helping the impoverished, one which has strong support
among at least some economists (and maybe more widely), is cash transfers
directly to the people who need it. That is, don't fund a service for those in
need, fund the people directly and they can buy what they need. GiveDirectly
is a leading implementation of this idea:

[https://www.givedirectly.org/](https://www.givedirectly.org/)

It was founded by economists, and their blog has a lot of interesting
discussion and analysis of the idea:
[http://blog.givewell.org/category/givedirectly/](http://blog.givewell.org/category/givedirectly/)

One way to approach this idea: Why not do it this way?

~~~
themartorana
I argue, albeit inexpertly, that TARP money given directly to homeowners to
make payments on their toxic mortgages would have been of infinitely better
societal good than handing b(tr?)illions to banks without any oversight at
all.

But you are morally bankrupt for taking out a mortgage difficult for you to
pay. The bank, however, doesn't have such moral failings for they are not
people.

Wait...

~~~
maxerickson
Saying TARP had no oversight is a bit much. The money mostly got paid back, it
wasn't a festival of stealing from the government:

[http://projects.propublica.org/bailout/](http://projects.propublica.org/bailout/)

The best way to look at TARP is as a preservation of the status quo. Whether
that was the right thing or not, given how many people have investment assets
that are exposed to banking and insurance, the benefits were a lot wider than
just to the banking system.

Also there were mortgage relief programs that come out of the bailout:

[http://en.wikipedia.org/wiki/Home_Affordable_Modification_Pr...](http://en.wikipedia.org/wiki/Home_Affordable_Modification_Program)

[http://en.wikipedia.org/wiki/Home_Affordable_Refinance_Progr...](http://en.wikipedia.org/wiki/Home_Affordable_Refinance_Program)

They didn't just make mortgage payments though.

~~~
themartorana
Well, yes, except for where not entirely or at all. [0]

[0] [http://www.npr.org/blogs/thetwo-
way/2011/11/28/142854391/rep...](http://www.npr.org/blogs/thetwo-
way/2011/11/28/142854391/report-fed-committed-7-77-trillion-to-rescue-banks)

~~~
maxerickson
Could you explain more about what you mean? I don't understand what I am
supposed to get out of your link (I see where it says banks profited from a
program designed to help them profit, but I don't see anything about money
they didn't pay back).

~~~
themartorana
Well, I'm just going to rehash what's in the link, but the banks had already
been "rescued" to the tune of $1.2 trillion, with a Fed guarantee of $7.77
trillion BEFORE Congress was lobbied for TARP.

The government made back a small portion of the total output to banks
throughout the financial crisis, not close to 100%, and then proceeded to
further deregulate since the bailout.

~~~
maxerickson
At least some of those big numbers are overnight loans that were granted in
exchange for collateral (i.e., they were secured by some asset or another) and
paid back the next day.

That doesn't meet 'not paid back'. You can probably call it unfair.

I don't know the timeline of it, but the fed published a bunch of the data on
one of the facilities here:

[http://www.federalreserve.gov/newsevents/reform_pdcf.htm](http://www.federalreserve.gov/newsevents/reform_pdcf.htm)

Note that on that page, it says _All loans extended under this facility were
repaid in full, with interest, in accordance with the terms of the facility._

The Bloomberg articles don't really talk about where the numbers come from,
but I expect most of the other loans were similar, short term and secured by
assets.

We've also gone beyond TARP here.

------
cubancigar11
I just want to add that Indian governments have always canceled debts of
farmers (who make up the majority population) in election year. So this kind
of measure is neither novel nor unprecedented, as the article in WaPo
suggests.

------
nathan_f77
This is a beautiful idea. Straight from the Bible, too [1].

But I wonder how many citizens are right on the edge of these limits? That
would really suck if you had a monthly income only slightly higher than 1,250
kuna. Also, if you have 40,000 kuna in debt, is the first 35,000 wiped out? Or
none at all, because you're over the limit?

> They cannot have any other property or savings.

What if you have 2,000 kuna in savings, but you're still 37,000 kuna in debt?

I think a function might be fairer than hard thresholds. Maybe take monthly
income as a parameter, and then wipe out lots of debt for the extremely poor,
a bit less for people who are closer to the poverty threshold, and none for
anyone who has a reasonable monthly income. Round the output to the nearest
1,000 kuna. Sure, it's more complex, but we have computers now.

Also, "The government will not pay the debts; the creditors will simply absorb
them." That really sucks for the creditors, even though those debts probably
had a low chance of being repaid. But it just feels wrong to force a company
to forgive debts. Surely the right way is to use taxpayer money, or take a hit
on inflation.

I really want to read the actual bill. Does anyone have an English
translation?

[1]
[http://en.wikipedia.org/wiki/Jubilee_%28biblical%29](http://en.wikipedia.org/wiki/Jubilee_%28biblical%29)

~~~
alienasa
> What if you have 2,000 kuna in savings, but you're still 37,000 kuna in
> debt?

This is directly translatable to being 35,000 kuna in debt. You can't ignore
savings when determining ability to pay debt.

------
whiddershins
Economists called the move "unprecedented."

I assume those economists never read any history at all, or they would have
known debt forgiveness has been used since ancient Sumeria to help rebalance
messed up economies.

[https://archive.org/details/Debt-
The_First_5000_Years](https://archive.org/details/Debt-The_First_5000_Years)

------
mrow84
The idea that lenders will stop lending to poorer people seems very popular,
but can someone explain why this situation will remain immune from market
effects?

Markets are not an exercise in rationality, they are an exercise in making a
return on investment, and, investment will occur where people think they can
make a return, _almost_ irrespective of the existence of crashes (in this
case, government cancelling debts). I really don't see why people won't invest
under the belief that they will be smart enough to pull out in time, just as
they do in lots of other markets such as housing and shares.

It seems to me that this "no lending to the poor" argument is popular more
because it fits with a particular set of politics, and is justified only by an
appeal to its rationality as an idea, rather than to whether or not it might
actually obtain.

------
seesomesense
If I was a Croatian lender, I would immediately stop lending to the poor.
Alternatively I would find a way to charge them very high interest rates to
compensate for the risk of the government doing this again.

------
guard-of-terra
"If lenders think this can happen again they will charge very high interest
rates to low-income borrowers"

If lenders got their money back from government, they will be much more eager
to lend.

~~~
nandemo
Lenders won't get their money back.

> _The government will not refund the companies for their losses._

------
olefoo
Something to consider; high-interest consumer debt is a public health problem.
It travels with and exacerbates substance abuse, compulsive gambling and other
social pathologies.

If we view it this way our current permissive attitude towards payday lenders
and such is quite literally insane. The equivalent of allowing gonorrhea
infested prostitutes to operate a brothel on Main st. that offers bareback
specials.

------
scotty79
I have trouble understanding this.

> the program is expected to cost up to 210 million Croatian kuna ($31
> million),

> "I am not sure that this is the best way to help low-income people. If
> lenders think this can happen again they will charge very high interest
> rates to low-income borrowers," Baker said.

Will the money be paid for debtors or not at all? (in case of those lenders
that did not agree to forget the debt)

~~~
nandemo
No.

> _The government will not refund the companies for their losses._

------
blackstrype
This sounds too ridiculous to manage... The cost simply of controlling who is
eligible for debt cancellation adds more burden on taxpayers. I think they'd
be better off to calculate a debt cancellation eligible for everyone. Tax
rebates for those who wish to donate their debt cancellation to others. In
large: let the community decide what to do with their own tax money.

------
jqm
I wonder if this has anything to do with attempts to tamp down Russia's
influence in the region. Poor people without a lot to loose are destabilizing
force in a society. 31 Million is peanuts to help insure order. Maybe banks
and corporations were convinced this way?

------
dsirijus
Responsible countries handle this through a simple legislated idea - _personal
bankruptcy_ ; this is a political populist move not inspired by any actual
reasoning into effects of this on economy. Not that I think effect is of any
serious impact, for anyone.

This move is _exactly_ of the category that is crippling Croatia. We (yes, a
Croat here) are in a bit of a pickle, and let me explain the core of the it...

Even excluding astonishing amount of pensioners (many from previous regime)
and war-inflicted disabled persons (whose actual condition is matter to be
looked upon suspiciously) and other non-working class of people, work-force
segments into two distinct categories - directly or indirectly dependant on
the goverment as source of income, and the good "old" private sector. The
trouble here is that former is riddled with _catastrophic_ inefficiency,
corruption and evades competitive market, and the latter carries the burden of
former. The issue is - in democratic elections, majority wins, and the former
here _is_ the majority.

So we keep up with this cancerous tumor of goverment-dependants who won't ever
vote for someone who'll put a stop to it (hey, they're not crazy, why would
they vote against their immediate interests), and violently cut it out of the
system.

Maybe, and just maybe (haven't crunched the numbers), within a generation,
when few factors align (war-disabled die off, unemployed numbers increase even
more), the actual critical mass of value-adding work-force outweighs the
tumor, brighter days await us. And even that is under assumption there will be
an election choice that'll be catalyst for those changes at that point.

I personally don't hold an optimist view. Hell, even our geographical
geometric shape looks unstable and unnatural. War ended by higher powers
putting a stop to it, not resolution. And as far as EU membership goes - meh,
we're again at the age-old role of a border country as a proxy for keeping the
region stable and keeping the muslims out. Important role, but hardly
grateful.

Not to end on a completely sour note - I did notice a sentiment of unity last
few years. Particulary noted during holiday sales (or the lack of excessive
spending), people seem to coalesce in misery, slowly perceiving that we're in
this shit together, unlike during last two decades, where they would aspire
beyond means, due to many factors including prominence of war-profiteers. Like
my grandma said: "It was never worse here during my lifetime. After WWII at
least _everyone_ was poor."

------
jliptzin
Isn't that what declaring bankruptcy is for? Does Croatia have bankruptcy
laws?

~~~
ptaipale
There are in fact several European countries where personal bankruptcy is not
possible, or where only a "Chapter 11" (re-arrangement of debt, not cleaning
table altogether) is possible.

------
craigds
Does anyone know if bad debts are tax deductible in Croatia?

If so, the government would have just needed to convince the banks that the
chance of getting the money back was lower than the tax they'd be repaid by
forgiving the debt.

------
jkot
Is not this called bankruptcy?

------
ksk
I don't know if this was motivated by religion but this stuff is _very_
Christian in nature :)

[http://biblehub.com/deuteronomy/15.htm](http://biblehub.com/deuteronomy/15.htm)

------
tn13
So the people who were responsible enough to pay their debt ended up paying
for irresponsible people deep into debt ?

Government did not "cancel" the debt, it simply paid it off using someone
else's money.

------
Shivetya
my understanding is that Croatia doesn't have bankruptcy laws similar to some
Western countries so once you cannot pay simple debts, like bills for
utilities, your bank accounts can get frozen by the state?

As for it being unprecedented, nah, many near failed states will do about
anything to prop up the popularity of the ruling class.

------
JDiculous
Now I'm just waiting for them to do this in the USA for student loans

------
shitgoose
You don't save money by reloading, you just shoot more.

------
juliangregorian
> Among economists, the scheme is regarded as unprecedented and exceptional.

Couldn't be further from the truth. In times past it was commonplace to cancel
debts periodically. Moses and Hammurabi are just two examples off the top of
my head.

~~~
igravious
Yes. I am not an economist but it troubles me that economists would be
unawares (or claim to be unawares) about this aspect of the history of debt.
As usual Wikipedia (the wise, the all-knowing) has a page[1] about it. Mass
debt relief and forgiveness is unexceptional in history and certainly has
precedent.

Even as recently as the turn of the century (only a decade-and-a-half ago!)
there was an international movement[2] calling for the cancellation of a great
deal of so-called third world debt as many countries spend more on debt
reparations (just paying off the interest) than on building up the
infrastructure of their countries or spending on health or education.

[1]
[http://en.wikipedia.org/wiki/Debt_relief](http://en.wikipedia.org/wiki/Debt_relief)

[2]
[http://en.wikipedia.org/wiki/Jubilee_2000](http://en.wikipedia.org/wiki/Jubilee_2000)

~~~
meric
Coincidentally 2001, 2008 and 2015 are Debt relief "Shmita" years according to
Abrahamic tradition. The Bible instruction is to provide debt relief to
creditors every seven years. Putting my non-religious hat on, I wonder if this
crept into the bible from ancient society's observations that human credit
cycles last seven years.

~~~
igravious
I thought it mentioned every 50 ((7*7)+1) years in the bible?

Very interesting about this coinciding with a notion of a short human credit
cycle in actuality. Wasn't there an economics article on here recently that
claimed that there are natural short and long human credit cycles?

~~~
meric
In the Bible, "At the end of every seventh year you must cancel the debts of
everyone who owes".

In Judaism, on Shmita years debt is remitted.

On Jubilee year, land lost is returned. Indentured slaves are freed. (I
interpret this as returning lost collateral.)

1987 was also a Shmita year.

1967 was a Jubilee year. Israel's land was returned.

The long credit cycle you referred to, may it be the Kondratiev wave?

