Or just delete all 3 from the earth, physically destroy all of their data storage media and let people make loans the way they always have for millennia, without three unaccountable private behemoths stealing and hording private data on every citizen then charging them to see/access/protect it, then cutting costs around security and getting all of it stolen. They do not need to exist and their services are a net negative on society.
> let people make loans the way they always have for millennia
I.e, hardly make any loans at all! Most people agree that access to credit has greatly increased the wealth of our society. Not everyone agrees - but I believe this is the consensus.
> They do not need to exist and their services are a net negative on society
Perhaps, perhaps not. The more information that a lender has about a potential borrower the more specific they can make their loan assessment.
Without a credit history, lenders will have to rely on averages. Some people will win from this (e.g. people who "look" like good borrowers on the surface) and some will lose (people who "look" bad on the surface, but have a good history).
The likely outcome if we remove this background information from a lending check will be more misallocated credit.
To be clear, I'm not really arguing that "credit agencies" in their current form should exist, but some sort of information about borrowers is useful to improve allocation of resources. Perhaps each person could manage their own signed Merckle tree of information...
Perhaps, perhaps not. The more information that a lender has about a potential borrower the more specific they can make their loan assessment.
So what? The lender's interests are not he only ones at stake. I'm not convinced of the objectivity or desirability of perfect economic efficiency in credit allocation. There's plenty of evidence to suggest the information asymmetry will be abused by unscrupulous corporate actors.
My point is that certain borrowers will lose out if the lender can't be specific in their assessment - see the paragraph following that quote about how some borrowers will win and some will lose.
> I'm not convinced of the objectivity or desirability of perfect economic efficiency in credit allocation. There's plenty of evidence to suggest the information asymmetry will be abused by unscrupulous corporate actors.
Interesting. There are certainly plenty of flaws with credit. A big one for me is that consumers often don't act in their own long term interests and get into too much debt. Another one is that credit is inflexible (compared to equity) when things go bad, and has a tendency to cause crashes. Both of these are a challenges to economic efficiency.
On the other hand, I'm not sure about the benefit of reducing the information that lenders have. I'd be interested to hear your point of view.
Centralized credit scores can be gamed, easily, helping those who are inclined to game them -- these are currently the "winners". Taking out a debt for no reason and then paying it back on time is a stupid economic decision, but it's great for your credit score.
The minimal increase in efficiency that comes from lenders having all this often incorrect, unaccountable private information about borrowers must be balanced against the damage the big 3 do as well as the damage lenders can do by exploiting the aforementioned information asymmetry it gives them. It comes up pretty short in my view.
And a big fuck you to everybody that has made efforts and sacrifices to improve their credit rating, they can take the same (higher) interest rate as everyone else?
> And a big fuck you to everybody that has made efforts and sacrifices to improve their credit rating, they can take the same (higher) interest rate as everyone else?
If it becomes harder to get credit then there will be less inflation (or allow the same amount of it to be caused by government printing money instead, which allows lower taxes), either of which means less need for credit to begin with. Moreover, less need for credit means less credit fraud, the cost of which is paid by everyone.
The concept that credit is a good thing is perpetuated by creditors. Credit is a competitive advantage when you're the only one who has it, but when everyone has it it's just an arms race. It's better for everyone (except creditors) for everyone to have less of it.
I don't know if there should be more or less credit, although it sure seems like an improvement to reduce fraud and have less people up to their ears in debt.
Even if the companies running the system have serious problems, it still provides a mechanism of trust. Most people are likely to experience at least one event in their life, for example an unexpected expense or some long term investment, which would easier to navigate if credit were available.
Replacing the credit score system with the subjective judgement of a creditor introduces arbitrary, discriminatory bias into the system.
If credit is a competitive advantage then isn't hurting its fair availability is somewhat an own goal as long as the USA remains part of a global economy?
> Most people are likely to experience at least one event in their life, for example an unexpected expense or some long term investment, which would easier to navigate if credit were available.
For unexpected expenses that is the purpose of insurance. For investment opportunities that is the purpose of savings.
Finding a sensible investment opportunity that provides a risk-adjusted return higher than the interest rate on borrowed money is very rare, because why would the investment company use you as a useless middle man instead of borrowing the money directly from the lender?
> Replacing the credit score system with the subjective judgement of a creditor introduces arbitrary, discriminatory bias into the system.
The existence of bias is independent of the existence of credit reporting.
> If credit is a competitive advantage then isn't hurting its fair availability is somewhat an own goal as long as the USA remains part of a global economy?
Geography mitigates most of that. An engineer in China is not borrowing money from a Chinese bank to bid on a condo in San Francisco because he isn't in San Francisco to live in it. And to the extent that foreign speculators do that, we could prohibit it -- require US real estate to be owned by US citizens or corporations owned by US citizens. They do it to us.
But the more important point is that availability of credit is not the same as availability of money. As an economy expands the money supply has to increase to prevent deflation. The primary way this currently happens is borrowing -- Alice deposits $1 in the bank, the bank loans it to Bob, now Alice and Bob each have $1 in their accounts but in the bank's vault there is not $2, there is only $1 and a promise from Bob to pay $1 plus interest.
An alternative way to create money is for the government to do it by fiat. If they create a dollar then they can charge Bob a dollar less in taxes, or provide an extra dollar in UBI. So as long as the government increases the amount of money they create by fiat by the reduction in the amount that banks would be lending, Bob has the same amount of money in his pocket to buy things with -- but now he is not paying interest on it to the bank.
> Finding a sensible investment opportunity that provides a risk-adjusted return higher than the interest rate on borrowed money is very rare, because why would the investment company use you as a useless middle man instead of borrowing the money directly from the lender?
I guess this must be news to all the businesses that reguarly operate on credit.
The only thing like an "investment" most people are going to buy on credit as individuals is a house, and besides being an investment it's also a place to live in. Arguably that's more salient than the speculation opportunities.
> Deflation will certainly make fewer people take out loans, but not necessarily because they are living high on the hog without them.
Deflation is caused by the economy growing faster than the money supply. Increasing the supply of money counteracts this. Both banks and the government are allowed to do this. Banks create money when they make loans; suddenly you have more money in your account but there is the same amount of cash in the bank's vault.
Creating too much causes hyperinflation, so more of one requires less of the other. If the banks lent less money the government could create more.
Maybe entrust this function to a government agency? A least they wouldn’t be in the business of selling your information—i assume that happens in some fashion under the current system but maybe someone can clarify?
I agree with your intention, but I worry about the consequences: One thing worse than a group of companies controlling credit ratings is one company having a monopoly on controlling credit ratings and being "too big to fail".
What exactly is the best case scenario here I wonder? More credit rating companies equals more competition but greater attack surface and chance of breach, but fewer companies approaches a monopoly situation which isn't good for consumers either. This feels like a lose-lose...
> What exactly is the best case scenario here I wonder?
Pass a law that (a) lets Equifax fail, thereby (i) sending a clear message while (ii) solidifying, in law, the industry's liability to consumers; and (b) prohibits existing credit rating agencies from purchasing Equifax's data, thereby priming the pump for a new entrant. Alternatively to (b), mandate a separation (Glass-Steagall style) between those who warehouse credit data and those who use it to calculate a credit score.
> What exactly is the best case scenario here I wonder?
It seems clear: a transition away from the economic and financial models of the industrial age, which Experian, TransUnion and Equifax - along with the banking cartels and various national reserve banks - represent.
Fortunately, that's happening; the best-case scenario seems inevitable.
I submit that, for example, the explosion in creativity surrounding blockchain tech is evidence that the model embodied by these entities is no longer relevant.
And that these sorts of developments are tantamount to entry into a different age (the "information age" is the typical vernacular) which has a different set of norms than the industrial age did.
and I think people in the Tech Bubble massively over state the importance of "the block chain" as some kind of savior when in reality one of 2 things will happen
1. The Banks and National Reserves will fold the technology into their operations making it apart of the current system. This process is already in the works. This will result in the same system we have today just backed by different technology, but will not lead to the end of Centralized Authority like the vision of block-chain supporters seem to have
2. The Technology will fizzle and die. Which seems unlikely at this point but it is still possible. Security concerns and other aspects still remain high....
However I very pessimistic that block chain will be what brings us to a different age, where these entities are no longer relevant
Outside of the Tech Bubble, there are very few people that even know what a block chain is.
How about we not let them declare bankruptcy and send them to corporate debter's prison instead: hold them accountable by garnishing future earnings until their debts are accounted for. Essentially let them continue operating but let them hang out in the pink sheets for a decade or so as punishment.
I know it's probably a rash idea full of a million flaws and unintended consequences, but sometimes bankruptcy is too lenient of a punishment. And this feels like one of those cases.
> How about we not let them declare bankruptcy and send them to corporate debter's prison instead: hold them accountable by garnishing future earnings until their debts are accounted for. Essentially let them continue operating but let them hang out in the pink sheets for a decade or so as punishment.
The purpose of bankruptcy is to determine how to proceed when a company's liabilities exceed its assets. The company had $10B in assets and $7B in liabilities, a fine added another $5B to their liabilities, now they're bankrupt. Not all creditors can be paid the amount they're owed. Bankruptcy laws exist to make sure what happens next is fair, e.g. each creditor gets 75c on the dollar instead of having the CEO pay all the debts owed to his brother's company first and leaving the other creditors with nothing.
In practice what usually happens in a case like that is that the company files for bankruptcy, sells all its assets --including its name -- to a new corporation that continues operating its business, and the proceeds from the sale are used to satisfy the old corporation's liabilities as much as possible.
Assuming the sale price is fair market value, there is no way to extract any more money from the company than that -- that's what fair market value means. You can't get any more money by forcing them to continue operating. Their future profits are built into the price of what you can sell their operations for. If that amount is less than what they owe, there is nowhere for the rest of the money to come from.
Well, you could eliminate limited liability and go after the shareholders, but if that's the intention then it shouldn't be done ex post facto.
Two things: impose duty of care and accuracy requirements, violation of which can kill the entire business; and restructure the industry to reduce switching costs, so that new rating administrators can come online faster and eliminate TBTF.
Not a big deal, just break it up into 4 smaller companies and let them fight it out. I'm sick of this craven unwillingness to interfere with business' systematic exploitation of consumers.
There's more than just 3 credit agencies, it's just that those three are the most reliable of them for credit reports. Given all the complications people have with even those three, it really doesn't say much for the rest of the industry.
The odd thing is, I never had to worry about this stuff in the UK. There's no notion of a credit score or centralised credit agencies that I needed to worry about. Most loan etc interactions take place with your existing financial institutions who already have your information on record.
There definitely are credit ratings in the UK! Try taking out a new credit card or loan or even getting a phone on contract -- they will almost always run a credit report check.
Just Google "UK free credit report" -- there are websites like Noddle that will show you your report for free.
The odd thing is, I never had to worry about this stuff in the UK. There's no notion of a credit score or centralised credit agencies that I needed to worry about.
This the opposite of how things are here in the UK.
I'm wondering how you've not encountered Equifax, Experian, Noddle and the other credit reference agencies in the UK before.
Even an application for a mobile phone contract in the UK will definitely end up going through these agencies at some point, and your bank most certainly will consult them when applying for a loan.
Uhh there totally is a credit score and reports in the UK. In fact Equifax and experian are two of the major agencies in the UK. So you aren't in the clear.
So what if you want to interact with an institution you never worked before - what happens? I.e., you move in to a new city and want to get a credit card?
Maybe we could encrypt each credit update with the person's Social Security Number? That way, it would at least approximate the current level of security.
This would be much easier if we could replace the current Social Security Number system with a public/private Social Security Number key system. But alas, that would require much regulatory change.
You're going to encrypt publicly accessible sensitive data with a 9 digit number ? This is not even close to the current level of security. You don't get to make millions of guesses when some dumb website or clerk requires your SSN to do something.
To decrypt data you get to guess over and over again. An SSN would be a terrible key for that.
Combine with zero-knowledge proofs. A bank can inquire whether the party that has given it a scoped token meets Criteria X, Y, and Z. The bank gets back a yes or no.
While Bitcoin and Bitcoin-like blockchains use no encryption, others like zcash do. It's possible to hide secrets in a blockchain using encryption and selectively confirm narrow assertions without compromising privacy.
So each credit interaction would be stored, encrypted, on the blockchain? And then to check my credit an agent would request all those blobs? What prevents me from just handing over the blobs I haven't defaulted on?
You'd need a blob that links a "me" blob to all those interaction blobs, and an authentication mechanism that links meatspace me to the "me" blob. People will lose their private keys, so you need a trusted party comparing the meat and blob "me". This ends us up at the same place we started, with extra steps and a structurally-ensconced middleman.
For the sake of brevity I'm ignoring that a blockchain kicks dispute resolution to an oligopoly of miners.
Much as Bitcoin addresses the double-spending problem to ensure that a single output isn't spent twice, a "credit interaction" would be added to the ledger as a continuation of an existing history (or a new one). The zero-knowledge proof would assert various attributes of that history.
At one point or another, the history could be associated with a specific human. Or not; depending on the goal of the design, a single credit history might pertain to one person, multiple people, or a business association. A single person might have multiple histories -- though longer-lived and more active ones would be more valuable, which reduces the viability of a Sybil attack.
Loss of private keys is a problem if users are their sole maintainers. A credit union would surely be willing to safely store a key for a 2-of-3 transaction that empowers it to manage a customer's history.
Distributed ledgers absolutely do not need miners, especially if level of trust is a variable aspect of the design.
By the way, your initial question could have been interpreted as a request to engage in a brainstorming discussion to produce a blockchain-based public record that preserves privacy. If so, you should know that your subsequent response is inconsistent with that sentiment, though I'm giving you the benefit of the doubt by continuing in the spirit of additive discussion. If you're not interested in brainstorming, then please state your intentions so we don't waste time talking past each other.
yes, though it could be pseudo-anonymous like bitcoin. you could have each side of a transaction rate the transaction, and use a page-rank algorithm to create ratings.
