Pluralistic: Apple’s robo-repo (25 Jul 2026) – Pluralistic: Daily links from Cory Doctorow

Skip to content

->->->->->->->->->->->->->->->->->->->->->->->->->->->->->

Top Sources:<br>None

-->

Today's links

Apple's robo-repo: Privatizing the risk premium, socializing its costs.

Hey look at this: Delights to delectate.

Object permanence: Printed batteries; Monopoly credit cards; Mapping airport power outlets; EMI loves pirates; Mexican indigenous phone co-op; Sewer cover textiles; Surge pricing v antitrust; Carbon offsets v forest fires; Charter schools as money laundries.

Upcoming appearances: Edinburgh, Sydney, Melbourne, Brighton, London, South Bend.

Recent appearances: Where I've been.

Latest books: You keep readin' em, I'll keep writin' 'em.

Upcoming books: Like I said, I'll keep writin' 'em.

Colophon: All the rest.

Apple's robo-repo (permalink)

It may strike you as weird, but lenders love to lend money to poor people who will have trouble paying back their loans. Obviously, lenders want to be repaid, and obviously the more money you have, the easier it is to settle your debts, but (paradoxically) that means that if you have a lot of money, you expect to pay less to borrow.

In other words: because poor people have a higher likelihood of defaulting, their loans come with higher interest rates and worse terms. Debt is steeply regressive: the less money you have, the more you're expected to pay. The industry term for this is the "risk premium": the riskier a loan is, the more it costs the borrower.

Lenders are always seeking the highest possible return on their loan-books, which makes that "risk premium" awfully tempting. Why loan $1m to Elon Musk at 0.5% interest when you can make 10,000 $100 payday loans to non-union Tesla workers on food stamps at 1,000% interest?

Obviously, the fly in the ointment here is the risK in "risk premium." The reason the risk premium exists is that poor borrowers have a harder time paying their loans. That can be good, up to a point: if you're Klarna and you're originating loans to people Chipotle lunches on the installment plan, you want your borrowers to miss several payments. Klarna loans are free if you pay them back on time, but if you miss a payment, you're hit with a huge penalty charge and sky-high interest (on top of the principle and the penalty). On a small purchase, penalties and interest can quickly add up to a triple-digit APR.

That's where Klarna makes its money: people who miss their burrito installment payments. However: if a Klarna borrower goes bankrupt before they've repaid the principle, Klarna loses money. A successful loan-book of unsecured burrito mortgages depends on the existence of many missed payments and few defaults.

"Financial innovation" is often just a project to decrease the 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.

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. These pieces were recombined according to complex mathematical formulas that supposedly "proved" that the default risk from poor borrowers had been "offset" by combining them with other borrowers' loans and wrapping them in opaque insurance contracts.

Those subprime mortgages came with cheap "teaser rates" – the interest rate you paid over the first couple years – but then the interest payments "ballooned" to farcical sums that borrowers had no hope of repaying. Those farcical sums were the risk premium. When financier transmuted these high-risk 30-year mortgages into complex derivatives, they were effectively promising their customers a piece of that risk premium for 28 out of the 30 years that the mortgage ran for.

But it wasn't all financial engineering: subprime mortgage salesmen could also promise customers that they wouldn't lose everything even after a wave of borrower bankruptcies and defaults. That's because mortgages are secured: they are backed by deeds for the homes the borrowers own(ed). If a borrower goes bust, the lender can repossess their house or apartment and sell it to recover the loan amount.

Now, the finance sector did repossess a fuckton of houses after the crash. Foreclosure and eviction became official policy: Treasury Secretary Timothy Geithner told Obama that a wave of...