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America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

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Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#151

Post by kgwgk »

elastic_church wrote: post #150
slededit wrote: post #148

Earlier quoted context omitted.

It would be amazing if you could get leverage at rates below T-Bills. You are most certainly not at lower risk than the US government. It may be possible if you play duration arbitrage taking short term loans to buy long term treasuries. But then your playing a very dangerous game.

Would be amazing right Four child replies deep and someone mentions that leverage could be dangerous, might be a new record folks! Ironic if you are successful then poor people that can't even lock up $1,000 for a few years will say you are a rent seeking mess.

You can have margin interest rates below the 30-year rate. Is that amazing? (Edit: Never mind, I see this possibility was mentioned in another comment. If your point is that your previuos comment about getting 9% using a leveraged investment in 30-year bonds makes no sense, I agree completely.)

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#152

Post by AnimalMuppet »

smallnamespace wrote: post #149
AnimalMuppet wrote: post #145

Earlier quoted context omitted.

The standard view of the business cycle is that the capital gets invested somewhere. When all the good places are gone, what's left gets invested in marginal places, and then in bad ones. That capital gets destroyed, because the bad ideas can't pay it back. That can result in a crisis, but more often in merely results in a recession. So that's somewhat similar to Marx's idea, with two key differences: 1. Capital only…

> that means that capital is wasting the resources, which means that the capital is not earning a return, _which means that it stops growing_. What's interesting is that people might not notice for awhile that the capital isn't earning a proper return, and the realization can be in the form of a sudden price adjustment + crash (think tech bubble burst or housing bubble). I think even standard economics is starting re…

> What if it turns out that severe crashes to the tune of 1-2 a century are a rule?

During the 1800s, it was more like 5-10 severe crashes a century. Add in the crash of 1907, as well.

What changed? The Federal Reserve, created in 1913.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#153

Post by yuhong »

John23832 wrote: post #10

The title made me think that this was going to be about subprime auto loans, which are definitely in "crisis" territory. This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. It used to be that fortunes were both made and lost on Wall Street. Now, for large investors ("whales"), it's 3.5% or I take my money to another fund. If I don't have a consis…

At least part of it comes from how an increase in credit cause the economy to "boom". Basic income would be better, but still may have the same fundamental problems.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#154

Post by smaddox »

smallnamespace wrote: post #149
AnimalMuppet wrote: post #145

Earlier quoted context omitted.

The standard view of the business cycle is that the capital gets invested somewhere. When all the good places are gone, what's left gets invested in marginal places, and then in bad ones. That capital gets destroyed, because the bad ideas can't pay it back. That can result in a crisis, but more often in merely results in a recession. So that's somewhat similar to Marx's idea, with two key differences: 1. Capital only…

> that means that capital is wasting the resources, which means that the capital is not earning a return, _which means that it stops growing_. What's interesting is that people might not notice for awhile that the capital isn't earning a proper return, and the realization can be in the form of a sudden price adjustment + crash (think tech bubble burst or housing bubble). I think even standard economics is starting re…

> Another is that it's hard to come up with a good theoretical reason why asset prices can be persistently wrong for so long.

The reason is well understood, but not by mainstream economists. I suggest reading about Hyman Minsky and Steve Keen's research. To summarize, increases in total debt (private or public) contribute to demand, while decreases in total debt subtract from demand. This results in a financial instability. More demand => more debt-fueled investment => more demand. Eventually, businesses that could never have survived at the bottom of the cycle can get huge loans; they might not even seem speculative, because demand is so high and keeps growing. However total debt rises too quickly, due to speculation and Ponzi financiers, and it can't rise at such rates indefinitely. Once debt growth begins to slow, businesses financed primarily by debt begin to fail, because demand slows and they can't convince anyone to give them more loans to cover interest. This triggers runaway deleveraging and fall in demand. In such a down-turn, even businesses that could have survived at the bottom of the cycle have trouble because they've taken out loans or sold shares to invest in growth, since they expected demand to continue to rise. Instead, demand shrinks, because much of it was debt-fueled and unsustainable.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#155

Post by smallnamespace »

smaddox wrote: post #154
smallnamespace wrote: post #149

Earlier quoted context omitted.

> that means that capital is wasting the resources, which means that the capital is not earning a return, _which means that it stops growing_. What's interesting is that people might not notice for awhile that the capital isn't earning a proper return, and the realization can be in the form of a sudden price adjustment + crash (think tech bubble burst or housing bubble). I think even standard economics is starting re…

> Another is that it's hard to come up with a good theoretical reason why asset prices can be persistently wrong for so long. The reason is well understood, but not by mainstream economists. I suggest reading about Hyman Minsky and Steve Keen's research. To summarize, increases in total debt (private or public) contribute to demand, while decreases in total debt subtract from demand. This results in a financial insta…

Yeah that's a reasonable model that links the debt and business cycles together, but it makes a key assumption: that investors only depend on lagging metrics of credit quality (business defaults), so fail to stop the bubble from inflating.

What is required is a good theoretical explanation for why investors fail to predict the point they are in the bubble and rein in speculation, since obviously this cycle has happened many times in the past.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#156

Post by smallnamespace »

AnimalMuppet wrote: post #152
smallnamespace wrote: post #149

Earlier quoted context omitted.

> that means that capital is wasting the resources, which means that the capital is not earning a return, _which means that it stops growing_. What's interesting is that people might not notice for awhile that the capital isn't earning a proper return, and the realization can be in the form of a sudden price adjustment + crash (think tech bubble burst or housing bubble). I think even standard economics is starting re…

> What if it turns out that severe crashes to the tune of 1-2 a century are a rule? During the 1800s, it was more like 5-10 severe crashes a century. Add in the crash of 1907, as well. What changed? The Federal Reserve, created in 1913.

Considering that all developed economies are deep in the liquidity trap and therefore unresponsive to marginal changes in monetary policy, looks like we will be in for some tough times.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#157

Post by dxhdr »

jholman wrote: post #93
John23832 wrote: post #58

Earlier quoted context omitted.

> I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." I think we can amicably disagree. I'm not in the "fuck Wall St." camp. I understand what it is supposed to do and the value it is supposed to provide. > Maybe I'm wrong and I'm one of the lucky, shrinking few who still has this option, the option of mobility than once made the US great? Because I'm young and employable? Yes.…

> I'll go ahead and say this. Your home is NEVER and investment. A house that you own, maybe. But, I repeat, your home is never an investment. I'll go ahead and say this. My home is certainly an investment. I allocated some capital to some real property, and this real property generates value for me every day, which I might have purchased otherwise (indeed, would have been nearly forced to). Because of the ability of…

Your home is a durable consumer good. You spend (lots) of money maintaining it and paying insurance, because it's in a constant state of decay. Your home isn't paying you anything, quite the opposite.

Maybe someone will come along later and pay you more than what you've spent on it. Maybe not. On average you're likely to get back what you paid plus inflation. It's a speculative investment at best.

Now, owning a home where someone else is paying you to live there? That's an investment.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#158

Post by elastic_church »

kgwgk wrote: post #144
elastic_church wrote: post #41

Earlier quoted context omitted.

Could just leverage up on some 30 year treasury bills for at least 9% annually. 3-4x leverage will get you that.

If you invested in 30 year treasury bonds six months ago, you have lost 15%. With 3-4x leverage you would have lost half of your investment!

yep, fortunately you have those 9% coupons to lower your cost basis

but really thats what the stop losses are for

(man this really isn't the place to talk about financial markets huh, whats this article doing here then)

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#159

Post by AnimalMuppet »

smallnamespace wrote: post #155
smaddox wrote: post #154

Earlier quoted context omitted.

> Another is that it's hard to come up with a good theoretical reason why asset prices can be persistently wrong for so long. The reason is well understood, but not by mainstream economists. I suggest reading about Hyman Minsky and Steve Keen's research. To summarize, increases in total debt (private or public) contribute to demand, while decreases in total debt subtract from demand. This results in a financial insta…

Yeah that's a reasonable model that links the debt and business cycles together, but it makes a key assumption: that investors only depend on lagging metrics of credit quality (business defaults), so fail to stop the bubble from inflating. What is required is a good theoretical explanation for why investors fail to predict the point they are in the bubble and rein in speculation, since obviously this cycle has happen…

> What is required is a good theoretical explanation for why investors fail to predict the point they are in the bubble and rein in speculation, since obviously this cycle has happened many times in the past.

I think the problem is human nature. People forget. Sure, this has happened many times before, but the most recent time was, say, eight years ago. That's a long time in peoples' memories.

And, while there may be this nagging memory of trouble, right now there's money to be made...

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#160

Post by gozur88 »

John23832 wrote: post #10

The title made me think that this was going to be about subprime auto loans, which are definitely in "crisis" territory. This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. It used to be that fortunes were both made and lost on Wall Street. Now, for large investors ("whales"), it's 3.5% or I take my money to another fund. If I don't have a consis…

> This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street.

You don't support this statement at all.

>It used to be that fortunes were both made and lost on Wall Street. Now, for large investors ("whales"), it's 3.5% or I take my money to another fund.

Investors have always done this, large and small. And 3.5% isn't a great rate of return. The official CPI, which probably understates increases in the cost of living, was 1.7%.

>If I don't have a consistent positive return, then it's something wrong with the fund/firm, not the natural order of things. This behavior encourages siphoning from pensions, the retirement funds of average people and "fudging the numbers" on packaged securities in order to keep up with the expected returns of the "whales".

That's pretty illegal if true. Do you have any evidence it's actually happening?

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