Lord of the Interest Rates

There was a brief period of time, when I was in the 5th grade, when I simultaneously became the world's cheapest mercenary and the world's most predatory loan shark.

It all began during recess. I was playing around in a field with some friends, when we all decided to gang up and beat up this one kid. It might be hard to believe, but I swear we weren't bullying him - it was play-fighting, and everybody was "in on the joke". As part of the joke, I offered to sell kicks. Pay me a penny, and I'll kick the kid once. If you don't have the penny on you, no problem, we'll talk about it later...

I had one client who purchased six kicks from me, so by the end of recess he owed me a total of six cents. He promised to pay me back the next day and I agreed, under one stipulation: every day he failed to pay me back, the amount he owed me would double. That, I figured, would incentivize him to pay me my dues in a timely manner. I wasn't old enough to understand what usury was, and besides, it didn't even matter, because he was just going to pay me back tomorrow.

Then, all of a sudden, it was tomorrow, and the unthinkable had happened: a 5th grader forgot to bring some random thing to school. But it was no big deal, I reassured him, just bring 12 cents tomorrow and we'll be square. And wouldn't you know it... he forgot yet again. Alright, I told him with a shrug, guess it's 24 cent's tomorrow - and if you don't mind, let's round it up to a quarter, just to make it easier to keep track of. He nodded his head and said that made sense. 11 years old, and I was already a menace to society.

Over the next week, I kept reminding him what he owed me every day, but he just kept forgetting. I was especially insistent that he get me the money on Friday, because the money would double on saturday and sunday as well, and he wouldn't even have a chance to pay me back! I had absolutely no concept of "business days", no morals, and no mercy. When the amount he owed me broke five bucks, I started seeing green - it was a lot of money for a kit. But alas, it all had to come to an end. He finally brought in fifteen bucks to school one day that he's swiped from his dad's desk. I'd started feeling kinda bad for him, so I didn't mention that he actually owed me sixteen bucks that day, and that the remaining dollar he owed would also start doubling... after all, I wasn't a complete monster.

I was proud of that fifteen bucks, though. So proud, that I waved it in my parents' faces when I got home, and enthusiastically explained to them how I'd earned it. They listened to the entire story with horrified looks on their faces, and promptly made me return the money. Several years later, when I was old enough to take algebra, I understood why:

If you're buying a house, you'll end up paying 5 to 10 percent interest on a mortgage payment. That's considered fair.

Credit card debt can be over 20 percent interest. That's considered borderline predatory.

But what I'd attempted to do was astronomically worse.

If the amount that somebody owes you doubles once per year, that's 100 percent interest - absolutely ridiculous. That's the kind of interest rate you charge somebody when you have their family locked up in a cellar.

But my loans were set to double once per day. If my math is right, the annual interest rate I was charging my classmate would be 100 * (1 + 2^364).

Two to the 364th power is... big. It's not millions, or billions, or octillions... It's a number so big that the english language does not have a word for it. In conclusion, it's a good thing that banks aren't run by 5th graders.