Post #4094983
2026-07-25 10:45 UTC
"Financial innovation" is often a project to decrease risk in risky loans, but *without* decreasing the risk premium you get paid for issuing those loans. It's a way to eat your cake and have it too: even though you've reduced the likelihood that you'll have to write off your loan, you still charge the borrower as though that risk is unchanged. As with so many aspect of finance, "innovation in lending" is a way to shift value from the financial industry's customers to itself.
7/
Replies (1)
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@pluralistic@mamot.fr 2026-07-25 10:46
Remember the subprime crisis? The whole point of collateralized debt obligations and swaps was to offer loans to people with bad credit - even loans they obviously couldn't pay back - without incurring a default risk. Subprime mortgages supercharged the practice of loan origination and resale (where a bank offers you a loan and then sells that loan to someone else, so your default becomes their problem) by splitting the loans into pieces. 8/