Saturday, July 3, 2010

The Absurdity of Debt

"When a person with spare money helps an entrepreneur start a business, it should be seen as a risky investment, not as a loan. Entrepreneurs should be financed by investors who stand to lose their money if the business fails — it should not be seen as a repayable loan. No debt! This approach will massively reduce malinvestments because it will encourage high levels of due diligence. Moral hazards are eliminated when people have skin in the game. A reduced incidence of malinvestments will in turn make the inevitable recessions mild and brief, as opposed to the economic meltdown we are currently living through (and which has barely begun). For the situations in which borrowing money is inevitable, the borrower should resort to peer-to-peer lending and let the lenders compete on interest rates. Additionally, debt should be seen as a temporary measure, not as a permanent feature of life."

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