[Avodah] Heter Iska

[Chana Luntz]

I wrote:
> 
> >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.
> 

And RYC replied:

> I don't know about the broader issue under question, but I want to
> point out that Rn Luntz's analogy doesn't really work. Even though the
many successful loans cover for
> the loans that fail, that doesn't mean the bank doesn't lose. If the loans
that failed hadn't failed, the
> bank would make even more profit than they do. So, the bank has a loss.
> 
> The confusion seems to come from the attempt to compare the bank loans to
the 'Shabbos switch' that began
> this discussion (and, similarly, to a coin toss). But, with the switch,
you either have a success (the light comes on)
> or a failure (it doesn't). But a bank's outcomes aren't dichotomous like
that: Sure, the bank doesn't fail because of
> one failed loan. But, it has less success than it would otherwise...

But the light also has "less success" than it does otherwise, because if the
coin toss fails the first time, then the person gets "less light" because
he/she has to wait for the second toss, or the third toss, or whatever.  Now
the reality is that the person probably doesn't mind, he is happy with the
reasonable light that he achieves after however many coin tosses it takes,
but it is still true that he has the benefit of fewer minutes of light if
the coin toss falls (or bigger electricity bills, whichever way you want to
look at it).

Similarly with the Bank. While agreed, if the bank was spectacularly lucky,
and no loan failed, then it would indeed make a greater profit (just as, if
the coin toss worked first time, the person would get more light), but it is
happy with a reasonable level of profit, and that is the basis on which is
has engineered its business.  You can see this perhaps more clearly if you
think of an insurance company.  Yes, if nobody the insurance company insures
has a fire or similar accident requiring a payout, then the lucky insurance
company will clean up.  However, the reasonable assumption is that some
people will have a fire or similar accidents, resulting in the insurance
company having to pay and having few profits, but since the insurance
company will have set its premiums based on the known accident statistics,
which will then allow it to make a reasonable profit from those premiums
even if the reasonably expected accidents and payouts occur.  Thus the
insurance company really "does not mind" making a reasonable number of
payments - it has factored them into its business model, and it is therefore
regarded as trivially as the person who has to wait for a bit of light
Where it really starts to mind is where the statistics turn out not to be a
reasonable predictor of the number of accidents, reducing the profit that
the insurance company reasonably expected.

Regards

Chana