[Avodah] kosher switch

[Chana Luntz]

RMB wrote:
> :> At some point, the probability gets to be a small enough miut that
> it's
> :> ignorable.

And I responded:
 
> : Why?  If at any given point, you still have only a 50% chance of
> : getting a head?

RMB commented:

> If brushing one's hair is pesiq reishei for pulling hairs out, it's
> not because we consider the odds of uprooting each hair as a separate
> risk.   AIUI, the odds add up. >>

And the RET responded

> Changing the topic there have been major debates in EY about ribis and
> heter iska for banks. Many years ago the Mizrachi bank was sued in court for a loan that
> defaulted that they signed a heter iska and so should participate in
> the loss.

Actually this is not a change of topic at all, it is a brilliant case to illustrate my point.  

> As a result various rabbis worked on a new version of a heter iska. The
> main problem is that the rational of the heter iska is that the bank
> takes some risk. However, if there is any reasonable risk then the bank
> won't make a loan.

Actually, that is not true -all banks take risks when they make loans.  They take the risk that the business or company or individual they lend to will fail or become insolvent or become bankrupt or that the price of the property given a collateral will fall and be irrecoverable.  All bankers when they enter into loans know they are taking these risk, they attempt to assess it, but it is a given that some loans will fail.  Every bank in existence has a bad loans department that attempts to deal with loans in default, including, ultimately, writing them off.  How do they mitigate that risk?  Very simply, by entering into large numbers of loans, making an overall assessment of the risk, and hopefully making enough profit off the other loans so as to allow for those loans that go bad.  It is when *too many* loans go bad that the banks are in trouble, not the reality that any given loan carries a risk.

However, the issue vis a vis the halacha, is that the risk that somebody will be declared insolvent/bankrupt and will never have to repay the loan is not considered an adequate form of risk within halacha (perhaps partly because there is no law of bankruptcy/insolvency in halacha), thus, to make a heter iska be considered valid in halacha, *additional* risk to the standard systemic risk needs to be added, risk that relates specifically to the project or nature to which the money is put.

 The solution was to write the heter iska so that the
> possible risk is extremely small so as to be negligible while not being
> zero.

The point being for the banks, that if they have to take on additional risk over and above the usual risk which is already factored into the way they do business (or one hopes so, part of the credit crunch crisis over the last few years has to do precisely with the banks inadequately factoring in the risks that they were in fact taking), that may make the loan unprofitable (especially if a comparable rate of interest is offered to that being offered by the non Jewish competitor  banks).  Again, if they could do *enough* of these loans so as to mean that overall, despite anyone having a higher probability of failure, the profit from the majority that go OK make up for it, then it would be an economic proposition for any bank, but that means a level of volume that tiny Israel (or at least the frum portion of it seeking such loans) cannot necessarily provide.  Hence the need to make the additional risk relatively small.

> If ome takes Chana's argument to the limit -  a one in a billion chance
> is ignored in halacha just as we ignore insects we can't see. As
> pointed out in the past even chamtez on Pesach which is not batel even
> if there exists a mash-shehu is batul if the amount is so small as to
> be insignificant. Otherwise every mixture in the world has some
> infinitesimal amount of chametz from the air.

But, as I have mentioned in my other post - this is a case of "in space", an infinitesimal amount is a spacial measurement, and this we clearly do ignore at the limits.

> Hence, I would assume that if a device has a one in a billion chance of
> not working that doesnt make it into grama.  So the only question is
> what is the cutoff. Standard psak in many areas is that a small miut of
> under 5% doesnt count

This is if the correct analysis is to look at the device as a whole, then I would agree.  But the question becomes, at what point do you look at "the device as a whole"?  Because, if you look at a bank as a whole, one that makes a billion loans - then, even with a reasonable (eg well above 5%) risk on every single one of these loans, according to this analysis, the bank as a whole will still "work" and is "virtually guaranteed to make a profit" because spread over that number of loans at a reasonable level of interest, even having a significant number of loans going bad would still leave it with a tidy profit.  So if you look at a bank as a whole, then you can say that in fact the bank takes virtually no risk whatsoever, or has only a one in billion chance of not working.  Thus if your overall "one in a billion chance of not working"  is applied to a bank, whatever heter iska you attempt to write for any individual loan is completely irrelevant, the bank takes virtually no risk, and hence cannot charge interest.

However this is not the approach taken by the poskim.  What they do is look at each single individual loan in isolation, and say "does the bank take a halachically considered risk on *this* loan" and if yes, then the loan is permissible if drafted in heter iska form.

Similarly, the question is, do you look at the kosher switch overall, like the bank, or do you look at each individual coin toss?  If you look at each individual coin toss, well then the risk of failure is 50%, which is clearly pretty high.  The fact that, like with the bank, if there are a billion of them, you end up with a very low risk should similarly be irrelevant.

Now RMB's point is that with hair pulling, for each individual hair, the risk might not be that high of it being pulled out, but if we look at the head of hair as a whole, then given the large number of hairs, one of them surely will be.  What I have tried to point out is that the analysis of the head of hair and the treatment of it as a whole is in the case of virtually instantaneous brushing and that is why it is appropriate to treat it as a whole.  On the other hand, the bank with its loans by no means concludes them instantaneously (those that it does indeed conclude instantaneously might perhaps more legitimately be considered one transaction) and that is why we have to look at it on a loan by loan basis, and not an overall bank basis.  On that basis, it seems to me that a series of coin tossing which occurs one after another is more like the case of the bank than the case of the head of hair.

> Eli Turkel

Regards

Chana