[Spaceships] Islamic Banking and Financing Spaceships Purchases

[vicky_molokh]

Originally Posted by malloyd

Do you actually want an economic system to reduce the problem to an un-notable one? Because to the extent you do, you inevitably reduce the willingness of people to loan anybody money. That's largely the point of relaxing the religious bans on usury in the first place after all - they sound nice if you are usually a debtor, but the practical effect isn't debtors are better off, but that there are no debtors because nobody will loan them anything.

Completely pushing the responsibility onto bank would indeed discourage existence of banks. Thus the search for mutually acceptable alternatives, and for divergent paths spawned by the cultural sentiments mentioned. Though right now I feel like asking for a brainstorm about how to best make a divergent techpath facing a given direction results in mostly being pulled onto the Modern Homeline Terran techpath.

Originally Posted by Anthony

Not sure how that's a problem. People should want to avoid debts they can't pay off. The goal with things like bankruptcy law is to have a penalty that's large enough to discourage the unwanted behavior (people borrowing money they cannot or will not repay) without being utterly crippling. You can certainly argue with the proper magnitude of the cost, but there has to be a cost. Unless of course you want credit to be unavailable.

Ideally, credit will usually be unavailable for things that are not likely to fail, unavailable for things that are likely to result in bankruptcies. Also, ideally, the cost for debtors who failed to pay up due to their own faults should be significantly higher than the cost to debtors who failed through no fault of their own (e.g. due to a significant shift in inflation of one currency relative to another). Clearly at TL8 of our techpath, things like mass hard-currency debt mis-evaluations are still a thing.

Originally Posted by Anthony

What is it you think is the root cause? It's not interest. Interest is not per se bad. The root problem is borrowers making bad financial decisions and bankers encouraging people to make bad financial decisions. You can't legislate away stupidity, but you may be able to structure the financial system to discourage it.

'Bad' is something of an ethical judgement, while I'm trying to make the two techpaths into rivals with no clear winner. Anyway, interest itself is not the sole contributing factor here. However, the 'ability' to apply interest in an unconditional way seems to be part of the contributors to such issues.

Originally Posted by Anthony

It's impossible to make the problem un-notable; credit cannot exist without a means for the lender to profit, and an enforcement mechanism to require borrowers to make an honest effort to repay their debts. This is, necessarily, going to be bad for people who fail to repay debts.

This assumes a captain who is honest and competent. Neither of these things can be taken for granted.

Well of course a good system should encourage/reward both competence and honesty, and punish the opposite.

[malloyd]

Originally Posted by vicky_molokh

Ideally, credit will usually be available for things that are likely to fail, unavailable for things that are likely to result in bankruptcies. Also, ideally, the cost for debtors who failed to pay up due to their own faults should be significantly higher than the cost to debtors who failed through no fault of their own (e.g. due to a significant shift in inflation of one currency relative to another). Clearly at TL8 of our techpath, things like mass hard-currency debt mis-evaluations are still a thing.

Unfortunately I suspect distinguishing the "fault" of failures requires omniscience, and certainly distinguishing between things likely to succeed and fail in advance does. In any case, why should that be the responsibility of the lender? The borrower presumably should be smart enough not to borrow money for something that is going to fail too. If he couldn't tell, why would the lender necessarily know better?

We do already have an alternate technology that shifts the responsibility some, selling shares. This does protect you from the bad effects of failure to a considerable degree, involves more responsibility for the lender, and consequently it is both more difficult to obtain money this way and cedes more control to your lenders/partners.

[whswhs]

Originally Posted by vicky_molokh

'Bad' is something of an ethical judgement, while I'm trying to make the two techpaths into rivals with no clear winner. Anyway, interest itself is not the sole contributing factor here. However, the 'ability' to apply interest in an unconditional way seems to be part of the contributors to such issues.

In economics, "bad" need not be an ethical judgment. It's a value judgment, but the values are the subjective values of the person making a decision. A decision is "bad" if it results in outcomes that the person likes less than the outcomes of a different decision, and if it was possible for them to foreseee that result given the knowledge they had at the time.

See, for example, the Prisoners' Dilemma. It's more prudent for X to betray Y to the cops, and for Y to betray X to the cops; but the result is that they both end up getting punished, when if they had kept faith with each other neither would have gotten punished, and both would rather not have gotten punished. So the reward structure of that situation encourages them both to make choices that turn out to be "bad" by their own standards.

Judging what is "good" or "bad" for the economy as a whole is a different matter. This comes down to the Problem of Social Choice. The Arrow Paradox shows that there is no comprehensive solution to this problem; that is, that "good" and "bad" are not uniquely defined for a society, and can't be. It's important to distinguish individual preferences from social preferences, and to distinguish both from what is considered creditable by any particular ethical system.

[vicky_molokh]

Originally Posted by malloyd

Unfortunately I suspect distinguishing the "fault" of failures requires omniscience, and certainly distinguishing between things likely to succeed and fail in advance does. In any case, why should that be the responsibility of the lender? The borrower presumably should be smart enough not to borrow money for something that is going to fail too. If he couldn't tell, why would the lender necessarily know better?

We do already have an alternate technology that shifts the responsibility some, selling shares. This does protect you from the bad effects of failure to a considerable degree, involves more responsibility for the lender, and consequently it is both more difficult to obtain money this way and cedes more control to your lenders/partners.

On the topic of responsibility: the opinion whether or not it should be the responsibility of the lender will of course vary by culture. E.g. some cultures would deem a mostly-equal split of risks, while others will say that since bank-guilds hold disproportionally more power, they should also carry the brunt of responsibility. In other cases, it may be such that the homeline-like and the divergent approach coexist, with some people willing to tolerate some drawbacks in exchange to being more defended against risks, while others would take more risks in exchange for other benefits, and different bank-approaches would cater to different demands. In some ways it reminds me of the topic of insurances, both in the sense that whether to insure against some not-known-for-sure-in-advance bad event is a choice which different people and cultures make differently, and in the sense that ability to predict even the probability of different sorts of bad stuff happening is generally something that financial organizations can benefit from.

And yes, shares-like alternatives do seem like a basis on which the divergent finance can be based, and some steps on that path have been made in previous posts.

[Anthony]

Originally Posted by vicky_molokh

On the topic of responsibility: the opinion whether or not it should be the responsibility of the lender will of course vary by culture.

It's the responsibility of the person spending money how they want to spend the money. A money lender can look at how someone wants to spend money they have been lent, and choose to not lend them money if the plan is bad (this is very common for corporate loans), but it's still the responsibility of the borrower what they want to spend money on.

[jason taylor]

Originally Posted by whswhs

In economics, "bad" need not be an ethical judgment. It's a value judgment, but the values are the subjective values of the person making a decision. A decision is "bad" if it results in outcomes that the person likes less than the outcomes of a different decision, and if it was possible for them to foreseee that result given the knowledge they had at the time.

See, for example, the Prisoners' Dilemma. It's more prudent for X to betray Y to the cops, and for Y to betray X to the cops; but the result is that they both end up getting punished, when if they had kept faith with each other neither would have gotten punished, and both would rather not have gotten punished. So the reward structure of that situation encourages them both to make choices that turn out to be "bad" by their own standards.

Judging what is "good" or "bad" for the economy as a whole is a different matter. This comes down to the Problem of Social Choice. The Arrow Paradox shows that there is no comprehensive solution to this problem; that is, that "good" and "bad" are not uniquely defined for a society, and can't be. It's important to distinguish individual preferences from social preferences, and to distinguish both from what is considered creditable by any particular ethical system.

It's both. If one brand of coffee gets a higher price because all the Bohemians in town hear rumors that, "every other brand uses coffee produced by whip-scarred serfs and this one gets it from honest deals with honest freeholders" then it has given it a higher price for a value judgement. If the rumor is true then it deserves it's extra price. The price comes from the ethical superiority.

[whswhs]

Originally Posted by jason taylor

It's both. If one brand of coffee gets a higher price because all the Bohemians in town hear rumors that, "every other brand uses coffee produced by whip-scarred serfs and this one gets it from honest deals with honest freeholders" then it has given it a higher price for a value judgement. If the rumor is true then it deserves it's extra price. The price comes from the ethical superiority.

Sure, but it would work exactly the same way in economic terms if there were a large class of sadists who enjoyed seeing images of whip-scarred serfs and gloating over them, and would pay more for that brand of coffee.

[Curmudgeon]

Originally Posted by malloyd

<snip>
In any case, why should that be the responsibility of the lender? The borrower presumably should be smart enough not to borrow money for something that is going to fail too.
<snip>

Originally Posted by vicky_molokh

On the topic of responsibility: the opinion whether or not it should be the responsibility of the lender will of course vary by culture.
<snip>

Originally Posted by Anthony

It's the responsibility of the person spending money how they want to spend the money. A money lender can look at how someone wants to spend money they have been lent, and choose to not lend them money if the plan is bad (this is very common for corporate loans), but it's still the responsibility of the borrower what they want to spend money on.

These quotes seem to be at the heart of the problem you're having. Sharia banking is, at a guess, a term of convenience, to get across the general sort of activity the Bank engages in. It is not, however, a bank in the sense that we in the West are used to thinking of the term.

It is a partnership and we'd be better served in thinking about how it works if we dropped the use of the terms lender and borrower entirely and substituted the word partner. That done, I suspect a number of knottier problems will fall away as, "Well, that would be fine for a borrower-lender relationship, but it's nonsensical if you're talking about a partnership."

[Anthony]

Originally Posted by Curmudgeon

These quotes seem to be at the heart of the problem you're having. Sharia banking is, at a guess, a term of convenience, to get across the general sort of activity the Bank engages in. It is not, however, a bank in the sense that we in the West are used to thinking of the term.

Well, this assumes you think Sharia banking is more than just semantic games. Assuming it is, however, what this amounts to is "loans, as described on SS2:27, do not exist".

This is not impossible. There are other ways to raise funds for commercial ventures, and it's perfectly possible that spaceships are not funded via conventional loans (the most likely alternative being cash for equity swaps, such as venture capital or issuing stock; it is somewhat peculiar that SS2 doesn't even discuss this). However, they render the discussion of interest rates moot, because charging interest requires making a loan, and that's not what you're doing. It's also problematic for non-commercial loans, because there's no actual business to be a partner in.

[cptbutton]

Originally Posted by Anthony

Well, this assumes you think Sharia banking is more than just semantic games. Assuming it is, however, what this amounts to is "loans, as described on SS2:27, do not exist".

This is not impossible. There are other ways to raise funds for commercial ventures, and it's perfectly possible that spaceships are not funded via conventional loans (the most likely alternative being cash for equity swaps, such as venture capital or issuing stock; it is somewhat peculiar that SS2 doesn't even discuss this). However, they render the discussion of interest rates moot, because charging interest requires making a loan, and that's not what you're doing. It's also problematic for non-commercial loans, because there's no actual business to be a partner in.

To drag this on to one of my favorite ideas, the Family starships in Citizen of the Galaxy and Cherryh's Union/Alliance stories might come from a de facto reality of banks not being willing to finance starships because they are too hard to repossess.

So the family owns the ship and everyone lives aboard. When you have enough saved, you buy another ship and split the family into two. Or cut a deal with another family both buy a ship and staff it from both ships.

(Except in the U/A setting there is little or not merchant shipbuilding during the times shown because of war an politics.)