to not understand capitalism

[IceBeing]

Some people work hard (say 60 hours a week all year) and get paid about £20000 a year...and some people work hard and get paid 10 or even 100 times as much a year.

How can 60 hours a week of work from 1 person be worth 100 times as much as 60 hours a week of work from another person?

crescent - I was talking about the difference between those two terms. You seem to be using the word 'usury' in place of 'interest' and I understand why, of course: In Islam, interest is forbidden. Fine, if you don't want to pay or benefit from interest, but that doesn't make it usury.

The 'end goal' of capitalism is not perpetual indebtedness, by the way. I honestly can't imagine how you came to that conclusion.

I believe in Capitalism and am a Capitalist at heart....but sometimes Capitalism is prevented form working the way it should because a large firm or firms or Government stop Capitalism working by manipulating or intervening in a market.

A lot of disquiet about bankers is well founded. A lot of banks that took too much risk should have been allowed to fail and the bankers that worked for them lose their jobs. That is how Capitalism works. Bad firms go out of business and bad employees lose their jobs.

Problem was that Capitalism was NOT allowed to work as it should in the Financial Crisis. Bad banks were saved, and bankers kept their jobs, we bailed them out and they kept on earning their big bonuses. Now THAT is not how Capitalism works.

I used to be a commodity trader, I earned large sums for my firm. I got paid well. No one bailed me out.

Capitalism works. Where it goes wrong is when markets are manipulated either by powerful firms with dominant positions or Governments.

In general, in the UK, people are paying really low interest rates.

I don't think interest in itself is a problem - you are paying somebody for the service of providing you with money now. Whether or not you are realistically able to repay the debt is a different question. Clearly the 2008 crash was preceded by a lot of people taking on debt that they couldn't repay and a lot of banks lending money to these people and selling derivatives based on something that didn't exist. The idea that anybody honestly thought this could go on forever is laughable.

The problem is when financial transactions aren't underpinned by real value.

This is why companies like Enron fail and why people decide they didn't want that tulip after all.

Giving somebody with little power a loan on unfair terms is not about capitalism, it's about kicking around somebody with less power. Equally you could invade their country, stick them in a factory and force them to toe the party line or sell them as a slave.

1. It is virtually impossible to get an interest only mortgage now.
2. Equal monthly repayments are calculated based on the length of the loan and the interest rate. This is agreed when the mortgage is arranged.
3. Whether or not you can make overpayments depends on the kind of mortgage you obtain. Generally you won't be able to make overpayments on a fixed rate mortgage while the fixed rate is in operation. However, it would be unusual not be be able to make overpayments on a variable rate mortgage.

Caveat Emptor.

Add to that -if you have an interest only mortgage you are supposed to have a way of repaying in the future eg an alternative investment. They're not suitable for everyone but they are highly appropriate for some.

crescent - re "who the market works for and why."

I think you need to have a minimum understanding of how markets work in order to ask these questions and really understand the answers.

"The market" you are referring to, I presume, is the stock market. It is there so companies can finance their big projects/future growth/whatever through selling shares (= equity) in an IPO (Initial Public Offering). It is also there so that investors who buy those IPO shares can then sell to others, and they can expect to sell to others, etc. If there was no secondary market in those shares, nobody would buy IPO shares and companies could not raise money through selling their shares to the public.

There is also the bond market, where companies can sell debt obligations - i.e. "You give my company money, and I will pay you x interest over y years, then pay back your initial investment". This is another way of raising money for a company, if owners don't feel like selling part of it. Once company's debt is out in the bond market, its price and interest rate fluctuate according to (1) time (how close you are to maturity) and (2) demand (how risky your company is perceived to be at any point in time). Again, this secondary market (where bonds are traded) is necessary so investors can sell them when they want to. Again, they would not have bought them otherwise.

So that is why markets work - so large companies can be financed.

It also works for reasonably knowledgeable investors like me, who want to invest in their future prospects. If you don't know anything about them or don't want to be involved, nobody is twisting your arm to buy a share or a bond.

"It's certainly not for the good of society"

Not everything can be a charity. And financial markets are not there to help the elderly across the street, build libraries or whatever else you mean by "the good of society". They are there for the purpose of raising large amounts of money, without which companies cannot grow beyond a certain point.

But I don't care about companies' growth, I care about the good of society, I hear you say Well, what is going to happen to the society if companies don't grow - i.e. economy doesn't grow? Where will those people work? And if the majority can't work & pay taxes, who will pay for the NHS, education, social housing, and all those other things which I assume you would classify under stuff that is "for the good of society"?

IceBeing - there isn't a better way than Capitalism but there is a better way of making capitalism work and Governments are the culprits in not allowing Capitalism to work and/or not regulating the large firms and banks to stop them abusing their dominant market position.

Banking licences really are a licence to print money - especially if they can take on huge risks to earn enormous profit in good times and dump the losses on tax payers during bad times. Likewise large firms that can abuse their market position to gouge consumers with high prices and poor service because Govt fails to regulate are another example of where Capitalism fails.

That really is not Capitalism - it is Socialism for the already very rich owners of capital.

"the rate of interest borrowers pay back - eg 20% apr - and the rate of interest savers earn - 0.5 per cent eg - is exponentially exorbitantly different"

20%? I'm seeing best rates of 4.5% here.

"the rate of interest savers earn - 0.5 per cent "

That's not correct, either. Or rather, if you are offered that rate, you should probably change your bank (except of course, you don't have money in a deposit account anyway, since you don't want to earn interest ). I'm seeing here that deposit rates in the UK are currently at 1.4-1.6%.

Yes, there is a difference between the deposit rate and lending rate although it is nowhere near the 'usury' rates you think are happening in 'the market'. The bank needs to pay for its costs and make money for its investors, too.

Glad you picked that up cote cos I was beginning to think I was in a parallel universe!

"cote perpetual indebtedness is its goal i stand by that."

I'll try to say this in the nicest and most respectful way possible: It is because you come from a position of ignorance (theoretical as well as practical) that you can stand by a false claim.

If you are interested in this subject, I strongly recommend that you read through a starter macroeconomy textbook with someone who can explain the terms when you are in doubt. If you are going to talk about capitalist economy, it is essential that you understand the mechanisms that make it tick.

FYI, the goal of capitalism is to maximise profits. "Perpetual indebtedness" can occur to some people who don't know that they should not spend more than they earn, but that is neither here nor there. High levels of personal debts are a result of the long period of low interest rates that we have had.

"World Bank, the IMF... they give loans based on usurious rates of interest that cannot be paid back because the austerity measures required as a condition of the loans often don't allow for the raising of GDP to meet those debt repayments."

IMF & World Bank have indeed been criticised for their methods but again, you need to know a minimum of macroeconomy to understand why austerity measures are needed in some economies. IMF is a last resort for countries whose economies have literally gone bust. Just giving them money doesn't help, because the illiterate morons in power would piss it away on crowd-pleasing but economically useless projects, squirrel it in their Swiss accounts, or erect more golden statues of themselves with it. So IMF keeps a tight control on their economy decisions and makes them live within their means - as good an advice for a country as it is for a consumer - while investing in projects with long-term benefit that are painful in the short term.

It is not impossible to pay back IMF loans, by the way.

"It is virtually impossible to get an interest only mortgage now"

That was a UK thing, anyway, by no means possible to generalise across all capitalist economies.

We are paying people to work out exactly how much of our money they should charge us for the privilege of working exactly how much of our money they should charge us for the privilege of working......

If that aint fucked up then what is?

"If the profit for the bank was on the house itself, not the money lent, then it wouldn't matter whether someone paid it after five years or 25 years."

How can the profit for the bank be on the house itself? The whole purpose of buying a house is that you get to be its owner and decide when/if to sell it and make that profit. Not the bank that loans you the money to buy it.

In fact we pay more to people whose job it is to work out how much the bank can steal from our accounts without us getting pissed off and switching banks than we do to farmers who supply us with say milk, which they now do at a loss thanks to tesco et al.

Capitalism in action.

Ice - I have no idea what your grievance is in that last post.

"people whose job it is to work out how much the bank can steal from our accounts without us getting pissed off "

Do you have any idea how interest rates are determined?

Please attempt an explanation.

Ermm well mostly that we actually need milk while we don't need bank middlemen.