Originally Posted by
Dave Cutter
"Credit rating bureaus and lenders" don't made decisions for others. "Credit rating bureaus" merely collect and redistribute credit data for a fee. And "lenders" only manage their product [loans] in ways to help assure a profit for their investors. Most [almost all] high-end cars are purchased without the use of ether. And plenty of other cars are also bought with cash... or with less conventional loans.
You said the following: "It isn't up to you or anyone else to determine who can afford what... and when." and my response was that credit rating bureaus and lenders do in fact decide 'who can afford what . . . and when.' If they don't think you can afford it, they don't (or at least shouldn't) recommend the loan.
The thing about trading paper is that it becomes less important whether the borrower can actually afford to pay back the loan in the long run than it is to be able to convince a secondary investor/underwriter to buy the debt in order to take a chance on the borrower repaying or not. If the borrower eventually defaults, it doesn't matter because the lender already got money for the loan by selling it to a third party.
From a manufacturer's point of view, such arrangements are like printing your own money in that you can effectively produce whatever product you make, such as a car, and then give away the product in exchange for a promissory note, which can then be resold. Even if the buyer doesn't have the money to pay off the loan, the promissory note gives the third-party leverage to harass the borrower to repay whatever they can.
E.g. I give you a car and in exchange you promise to pay $25,000 over the next so many years. Then I take the contract you signed and sell it to a debt-collector for, say, $15,000. Now the debt collector might be willing to invest $15,000 for the opportunity to squeeze up to $25,000 out of you (or more if penalty fees, late fees, etc. can be added to what you owe). So all I really have to do is raise the price of the car high enough to get the money I want plus entice a third-party to buy the debt-contract from me. Then I get $15,000 free and clear and it's up to the debt-collector to squeeze at least that $15,000 out of you.
What happens if you never pay back even the full $15,000 that I got from the financier? I still keep the money and the financier has to argue with you about who gets the car and what happens to you for not repaying the debt.
Instead of setting up situations where debtors and creditors squeeze each other for money, why not just eliminate such debt-spending altogether and require businesses to sell their products for cash or not at all. Let financiers help people to save up money instead of lending them money they may eventually default on. This way the economy wouldn't fill up with products that no one can actually afford and send out the false message that these products and lifestyles have something to do with freedom and prosperity rather than indenturement and debt, as is really the case.