Negative Interest Loans?

Hey, suppose we had a rational way to evaluate business and home loan risk. I don’t think we can truly solve our financial/social crisis without fixing the underlying risk-valuation issue.1

However it’s done, let’s imagine for moment that we had such a thing. Furthermore, let’s imagine that we had some way of assessing that risk relative to benefit for those doing the loaning. If the government is loaning, that means public benefit (under some political process).

If we did have such a thing, wouldn’t the most efficient way of stimulating the economy be to provide business and public loans at an interest rate based on that assessment? In particular, worthy projects might get zero or even negative interest, depending on how much we turned up the dial on desired stimulus. It’s not a blind hand-out, as borrowers have to justify their projects and make regular payments. The loan can be called in the usual way if payments aren’t made. The stimulus is in adjusting the balance-point of go/no-go.

Would Republicans support such a plan? Would Democrats? If labeled as a banking system, then I suppose neither. But what about defining it as a rational way of conducting the stimulus? With a side-benefit of kick-starting a more efficient and maybe less corruptible system of risk evaluation?

1.. Maybe something involving public peer review ala all that yummy mesh, P2P, and social network stuff?

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  1. JohnMc says:

    First, the rate of a loan typically reflects the risk associated with eventual payback of the note. Including default rates over any given loan pool.

    Negative rates really aren’t loans as they pay someone to accept capital. That is really a grant. Which for us today do not generally require payment of the principal.

  2. John says:

    When I arrived at Purdue University in January 1978 to begin graduate study in Agricultural Economics, I was surprised to find, among the textbooks required for a course in finance, Irving Fisher’s book “The Theory of Interest”.

    What was surprising about this was that the publication date was 1930.

    The book was still in print, but from the original plates, etc. The typeface and cover design were just as they had been in 1930.

    The professor said, “Fisher explained it all. As far as I know, nobody since has attempted a general introduction to the theory of interest. It would be pointless.”

    Indeed, “The Theory of Interest” is an excellent textbook, and I still have my copy from 1978.

    It’s available online here:


  3. Amputate wall street.

    Take the rest of the tarp, and directly make loans to get the economy moving, and let Citi and BoA and Goldman Sachs sink.

  4. John says:


    I think your plan is brilliant.


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