America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis • Hacker News Board

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

#181

Post by taeric » Thu, Jan 12, 2017, 3:28 AM UTC

curun1r wrote: post #180

taeric wrote: post #55

Earlier quoted context omitted.

You can just as easily say that banks were giving out loans they expected to refinance in the coming years. That is, I find it misguided to fault people for defaulting on loan without faulting people for aggressively pushing people to refinance. The cost of the system failure is being pushed to the people with the least control over it. I'm not looking for punishment. But responsible stewardship of the system control…

> You can just as easily say that banks were giving out loans they expected to refinance in the coming years. Can't it be both? There's enough blame to go around. My only point was that the narrative of victimized homeowners preyed upon by evil lenders, put forth by a surprisingly large number of people, is misguided.

It can be both.

However, the blast radius is different. For every lender that was irresponsible, you hit many lendees. For each lendee, you likely did not increase the number of lenders touched.

That is, you fix one lender, and you likely fixed many more lendees.

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

#182

Post by pm90 » Thu, Jan 12, 2017, 3:42 AM UTC

adflkjfeiuwer wrote: post #178

ArkyBeagle wrote: post #161

Earlier quoted context omitted.

The great unanswered question is: what happened to growth? You've outlined exactly one dimension of why we need it - without it, it's rent-seeking all the way down. I am concerned that the emerging "Greatest Generation/Silent Generation/Baby Boom used up all the growth and now we're ... messsed up." becomes a self-fullfilling prophecy, aided by the cumulative nature of assets. I am loath to call rent seekers "capital…

Growth in any finite system is inherently unsustainable.

Exponential growth is unsustainable.

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

#183

Post by pm90 » Thu, Jan 12, 2017, 3:49 AM UTC

pfranz wrote: post #177

ArkyBeagle wrote: post #161

Earlier quoted context omitted.

The great unanswered question is: what happened to growth? You've outlined exactly one dimension of why we need it - without it, it's rent-seeking all the way down. I am concerned that the emerging "Greatest Generation/Silent Generation/Baby Boom used up all the growth and now we're ... messsed up." becomes a self-fullfilling prophecy, aided by the cumulative nature of assets. I am loath to call rent seekers "capital…

> The great unanswered question is: what happened to growth? What I've heard others say is that the internal combustion engine, railroad, electricity, the telephone, indoor lighting, assembly line, the airplane were all huge things. Half of those things our grandparents didn't have growing up. The Internet is more recent and has definitely allowed growth, but not quite has much as the others had and other significant…

Well, the internet is one tremendous piece of infrastructure, but that's not just it. Moore's law and the growth in computing power, the solid state of research universities around the world etc. is all contributing to the growing corpus of knowledge, fueling innovation.

Now, growth like what America saw post WW2 was definetly a one off thing: the rest of the world was in ruins, and there was great demand for manufactured goods and services from Western Europe and the rest of the world. Today, many more countries are stable and have the infrastructure to manufacture and provide goods and services. So its quite unreasonable to expect that kind of growth anymore in the US.

Where the US has excelled is in innovation and first comer advantage. e.g. Advanced computing systems, electronics manufacturing, automation, advanced weapon systems, space exploration etc. So, as the rest of the world catches up, the US economy moves on to create new markets where they have the first mover advantage. The only way to make this happen is through innovation.

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

#184

Post by thedufer » Thu, Jan 12, 2017, 4:49 AM UTC

nommm-nommm wrote: post #170

thedufer wrote: post #162

Earlier quoted context omitted.

> A house has a more important primary purpose Aren't houses purchased for the intent of renting them out investments? This would argue that they are not. Seems to be proving too much. Despite the title, this section of the article is actually about how illiquid houses are. Which, again, proves too much - old bonds are also extremely illiquid, but no one says they aren't investments. > A house can’t be an investment…

>Aren't houses purchased for the intent of renting them out investments? Those are investment properties which is a different thing than we are talking about. We are talking about a primary residence bought to live in. Yes, some investments are illiquid, I have some personally, but its stupid to have your entire portfolio in illiquid assets. >I buy plenty of VFINX that I don't intend to ever sell. I buy them for the…

> A house doesn't provide dividends. Unless you are talking about investment properties, which, again, isn't what we are talking about here.

A house pays you by saving you rent, which as I pointed out farther down is mathematically indistinguishable from renting it to someone else and continuing to pay rent (although this is muddied a bit by tax laws that care about whether the owner is also the tenant).

> Very, very, few people are going to spend as much on rent as they would a house.

This can only be true if you're not comparing similar housing - like, yeah, if I buy a house twice as big as the one I was renting I've lost money. But if you're comparing like for like, this assertion implies that investment properties are a net loss. It's a bit curious how those rental companies stay in business.

I agree with most of your responses, though. But they are all arguments that your house is a _bad_ investment, which is different from it not being an investment at all.

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

#185

Post by desireco42 » Thu, Jan 12, 2017, 6:05 AM UTC

grzm wrote: post #64

desireco42 wrote: post #62

I wish I could read this article... but i can't. It's been a problem for a while here on HN. I wish moderators would not allow articles with paywall.

As long as there's a workaround, it's allowed. https://news.ycombinator.com/newsfaq.html Within the past few days the WSJ has changed access to their site and the previous workarounds no longer work. I wouldn't be surprised if a new workaround isn't found that WSJ submissions will no longer be accepted.

Thank you for explaining this.

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

#186

Post by ArkyBeagle » Thu, Jan 12, 2017, 11:25 AM UTC

adflkjfeiuwer wrote: post #178

ArkyBeagle wrote: post #161

Earlier quoted context omitted.

The great unanswered question is: what happened to growth? You've outlined exactly one dimension of why we need it - without it, it's rent-seeking all the way down. I am concerned that the emerging "Greatest Generation/Silent Generation/Baby Boom used up all the growth and now we're ... messsed up." becomes a self-fullfilling prophecy, aided by the cumulative nature of assets. I am loath to call rent seekers "capital…

Growth in any finite system is inherently unsustainable.

It's sustainable when you keep changing what growth is - and we do. I used to have a TV/stereo cabinet modeled on a 19" rack ( head high, six or eight feet across ) ; now some people substitute for that with a phone.

Example: Can you even build a boat out of mahogany any more?

The only things that got bigger - universities, McMansions, and medical centers - appear to be subsidized. Everything else is smaller.

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

#187

Post by slv77 » Fri, Jan 13, 2017, 1:45 PM UTC

AnimalMuppet wrote: post #145

smallnamespace wrote: post #122

Earlier quoted context omitted.

Marx and other classical economic thinkers speculatively connected the fall in the rate of profit to increases in inequality and long-run economic cycles [1]. Essentially, the idea is that since the rate of profit exceeds the rate of growth, rent seekers (capital holders) tend to get richer and richer and own more and more of the wealth. This impoverishes all other parts of the economy and starves it of resources, ca…

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 capital gets destroyed, because the bad ideas can't pay it back

But isn't that the crux of the problem. At some point those with capital accrue enough power that they don't allow capital to be destroyed?

Instead of taking a loss they lobby for laws and institutions that allow them to socialize their losses. For example laws that prevent student loans from being discharged in bankruptcy; Federal guarantees on loans; the asymmetric response of the Federal Reserve with interest rates (slow up, fast down); suspending of mark-to-market accounting rules; inflation targets that paper over bad investments; and rigged markets (i.e. prescription drugs).

The result is a subsidy from labor to capital and from new capital to old capital, increasing wealth inequality and lower social mobility.

For example assume that electric cars are the way of the future and that companies like Tesla will dominate. In that case anyone who invested in internal combustion engines invested wrong and should lose their money. That is capitalism.

Instead what do we see? Thickets of laws to protect the business models of dealers of ICE cars and a market with thinner profit margins because companies were repeatedly bailed out rather then be forced to shrink or die.

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

#188

Post by jholman » Sat, Jan 14, 2017, 10:13 AM UTC

John23832 wrote: post #101

SubuSS wrote: post #86

Earlier quoted context omitted.

>Your home is NEVER and investment. A house that you own, maybe. But, I repeat, your home is never an investment. Can you expand a bit more on this? Usually it might not directly turn into an investment, but it does act as a 'savings vehicle' in many cases. For example when I moved to US a long time ago, the choice was between a 1200 rent and a 1600 mortgage (assuming I put a down of 25k or so). At that point it felt…

You don't typically consume an investment. If I buy a house and live in it, how quickly can I reasonable divest myself from the house? For the average American, not quickly at all. Why is that? Because I need to a home to live in. If not this one, another. And generally the equity in my current home will be used to secure my future one. A house that you buy and don't live in (or is easily divested) could be seen as a…

If you agree with chillingeffect that one's home "is an illiquid investment that appreciates at a rate that varies in conjunction with inflation", then you think it's an investment, albeit one with some drawbacks.

Yes, it's illiquid, absolutely. (Although not much more so than any other home one buys, say an apartment block; I can move on less notice than I can sell a property.) Yes, there are some concerns about the ROR, relative to inflation (although I note that world population, and population in most markets one cares about, is increasing, and they're not making more land, so one should expect real estate to appreciate somewhat, relative to inflation, although perhaps not enough to be interesting).

But why on earth would you say that it's "not an investment"? Why does illiquidity and poor RoR disqualify something from being an investment?

Do you also claim that buying negative-rate bonds is not an investment? What about buying gold against inflation (for those who see gold as an inflation hedge)?

What is the definition of "investment" that you're using? It must be a pretty compelling one, for you to use the phrase "not an investment" so confidently in so many comments. Me, I thought that the nature of investing was allocating capital, the opposite of divesting (selling).

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

#189

Post by imagist » Sat, Jan 14, 2017, 7:27 PM UTC

nommm-nommm wrote: post #59

imagist wrote: post #32

Okay, it's fastest-growing, but is energy-conscious lending anywhere near the size of subprime mortgages? Even if it is, it doesn't seem like as big a tragedy if the bank seizes your solar array as of they seize your home.

That's not how it work though. These loans are added as a tax assessment on the property so the local government adds the premiums on the tax bill and collects with tax payments. Because its added as a tax assessment if you stop paying on your loan its the same as if you stopped paying taxes. Which means the city seizes your entire house. This structure makes it so the PACE loan is ahead of even the mortgage holder i…

Ah, yeah. That's problematic.

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

#190

Post by nommm-nommm » Sun, Jan 15, 2017, 4:21 AM UTC

pfranz wrote: post #179

dcherman wrote: post #107

Earlier quoted context omitted.

Depends on your definition of investment and what you're looking to get out of it. If they maintain value by appreciating at least at the rate of inflation, then they're a great store of value. At that point, you need to take all expenses into consideration (including any applicable tax deductions and rental incomes from rooms) in order to determine whether you're net positive or net negative versus renting. This can…

In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.[1] I don't think people are saying you'll never come out ahead (like one might say about someone who wants to take up d…

Perfect comment, you explained my feelings and points better than I could.

Like I said, I am a homeowner. I love being a homeowner. But I just can't stand the myths around homeownership that people tell me. I didn't buy a house in order to get rich, I bought a house for consumption, to live in. I hope I come out ahead when I sell my home. I'll be happy as pie if I break even.

My dad asked me why I was buying a house if I thought it was a poor investment. "To live in." He was honestly confused as to why someone would buy their primary residence other than "because it's an investment."

Nobody believes a car is a good investment but we all still buy them, to use them.

>When fixing up your house it's easy to not think about cost/benefit or blindly think your upgrades will pay for themselves.

This is a great point that should not be overlooked. I think HGTV is terrible in this regards. One of my coworkers told me you should always get every single upgrade you want because you will always get that money back when you sell. This is just so untrue I find it difficult to believe that anyone would actually believe that.