Can We Survive the Next Financial Crisis? • Hacker News Board

Re: Can We Survive the Next Financial Crisis?

#31

Post by yourbandsucks » Mon, Sep 10, 2018, 6:40 PM UTC

oihoaihsfoiahsf wrote: post #26

HashThis wrote: post #5

The surprise that is coming is that the working class won't tolerate being robbed in the next financial crisis. Working American's had to financially absorb the 2008 Mortgage crisis. 2008 was a direct robbery because Mortgage Orginators KNEW the mortgages would blow up, because their own Underwriting equations said they would. That is why they did fraud on the customer's income levels or worked with politicians to al…

> It caused a $5 trillion in transfer from wealthy away from the working classes to the investor class in that 2008 Mortgage crisis. This sounds like a made up number. What is your source? > The 2008 Mortgage crisis robbed the working classes How? I.e. what did working class people own that was subsequently taken away by some other entity? > Wall Street over leveragged had huge wealth handed to them in money printing…

A lot of Americans have/had home equity as their biggest asset.

Re: Can We Survive the Next Financial Crisis?

#32

Post by bogomipz » Mon, Sep 10, 2018, 6:40 PM UTC

The article states:

>"Leverage has shifted to companies from consumers, and some risk has migrated to shadow banks from traditional lenders."

Can someone explain this statement to me. The banks were the one's that were too heavily leveraged before. This is why the required the bailout. What am I missing?

Re: Can We Survive the Next Financial Crisis?

#33

Post by the_gastropod » Mon, Sep 10, 2018, 6:41 PM UTC

ram_rar wrote: post #19

jorblumesea wrote: post #7

Earlier quoted context omitted.

If you bought an actively managed fund 30 years ago, it was literally an index fund with more fees attached. Active managers actually just index, but try hard to obfuscate this fact to justify their high fees. If you dive into their books, they are basically buying the market. I think it begs the question, how active was/is active? The math is clear, you are statistically unlikely to beat the market.

But, what if everybody only buys index funds and there arent any active players anymore ? I am not an expert in this field, but I do feel that the passive nature of index funds has been benefiting greatly from the actions of active investors.

Yep, if everyone went passive, it would probably become a problem. But currently, less than 18% of global stocks are owned by index investors [1]. And there's likely an equilibrium point between 18% and 100%, where both active and passive investment make sense.

[1] https://www.reuters.com/article/us-funds-blackrock-passive/l...

Re: Can We Survive the Next Financial Crisis?

#34

Post by adrianN » Mon, Sep 10, 2018, 6:41 PM UTC

ram_rar wrote: post #19

jorblumesea wrote: post #7

Earlier quoted context omitted.

If you bought an actively managed fund 30 years ago, it was literally an index fund with more fees attached. Active managers actually just index, but try hard to obfuscate this fact to justify their high fees. If you dive into their books, they are basically buying the market. I think it begs the question, how active was/is active? The math is clear, you are statistically unlikely to beat the market.

But, what if everybody only buys index funds and there arent any active players anymore ? I am not an expert in this field, but I do feel that the passive nature of index funds has been benefiting greatly from the actions of active investors.

The more people invest in index funds, the more opportunities for active investors. The market balances itself naturally.

Re: Can We Survive the Next Financial Crisis?

#35

Post by oihoaihsfoiahsf » Mon, Sep 10, 2018, 6:43 PM UTC

yourbandsucks wrote: post #31

oihoaihsfoiahsf wrote: post #26

Earlier quoted context omitted.

> It caused a $5 trillion in transfer from wealthy away from the working classes to the investor class in that 2008 Mortgage crisis. This sounds like a made up number. What is your source? > The 2008 Mortgage crisis robbed the working classes How? I.e. what did working class people own that was subsequently taken away by some other entity? > Wall Street over leveragged had huge wealth handed to them in money printing…

A lot of Americans have/had home equity as their biggest asset.

That's true, but also a non-sequitur, since nobody "stole" home equity from anyone. The value of homes went down across the board because of oversupply, and that is a phenomenon that required potential homeowners, financiers, builders, and other entities to tango. It's not something the banks caused to happen on their own, nor something they bear sole and unmitigated responsibility for.

Re: Can We Survive the Next Financial Crisis?

#36

Post by darawk » Mon, Sep 10, 2018, 6:43 PM UTC

acconrad wrote: post #2

One of the few times Bettridge's Law of Headlines doesn't apply. "Survive" is an extreme word here, but I do see a big issue w/ index funds. Perhaps an unpopular opinion - but I believe index funds will be the next major bubble that cripples the financial system. It's one massive way to persist the same inequality status quo. You know what made Bezos so rich in spite of a company that doesn't make much accounting sen…

This is a real misunderstanding of how markets work. An index fund invests in everything, market-cap weighted (usually). This means that your investment merely reinforces the prices already determined by the other participants in the market. There are still huge numbers of active managers, not to mention quants and others. They, collectively, determine the prices of assets. When you invest in an index fund, you're just saying "I'll have what they're having", basically. It doesn't cause amazon to rise in price. Lots of companies are in the S&P 500, they don't have returns like Amazon does. Amazon has those returns because people allocate capital specifically to them, i.e. non-index investors.

> And by we, we mean the fat cats who are taking in that investment money you're giving us. You'll make a meager return, but we'll make oh so much more.

Index funds are the least fat-cat-remunerating route you have available to you. They have lower expense ratios than you'd be able to achieve on your own, unless you're using a free service like Robinhood (and if you do that, you're probably paying in other ways, like poorer execution prices).

Re: Can We Survive the Next Financial Crisis?

#37

Post by kolbe » Mon, Sep 10, 2018, 6:44 PM UTC

HashThis wrote: post #5

The surprise that is coming is that the working class won't tolerate being robbed in the next financial crisis. Working American's had to financially absorb the 2008 Mortgage crisis. 2008 was a direct robbery because Mortgage Orginators KNEW the mortgages would blow up, because their own Underwriting equations said they would. That is why they did fraud on the customer's income levels or worked with politicians to al…

This would be wonderful to believe, but I only see the world becoming more controlling of the freedoms that allow people to do anything about it. My guess is that from here on out, the middle class have increasingly irrelevant influence on anything powerful governments or individuals choose to do.

Re: Can We Survive the Next Financial Crisis?

#38

Post by briatx » Mon, Sep 10, 2018, 6:44 PM UTC

Yes.

The lesson of 2008-9 is that TBTF and bailouts will be applied in case of any financial crisis. Not much has been done to rein in moral hazard and so institutions will continue to offload risk to the public when they can.

This works as long as the Treasury and Fed can absorb the shock and will create near term stability, at the potential cost of a currency crisis if the shock is too big to be absorbed.

Re: Can We Survive the Next Financial Crisis?

#39

Post by nradov » Mon, Sep 10, 2018, 6:45 PM UTC

mikert5671 wrote: post #9

jorblumesea wrote: post #7

Earlier quoted context omitted.

If you bought an actively managed fund 30 years ago, it was literally an index fund with more fees attached. Active managers actually just index, but try hard to obfuscate this fact to justify their high fees. If you dive into their books, they are basically buying the market. I think it begs the question, how active was/is active? The math is clear, you are statistically unlikely to beat the market.

Some of them do beat the market. They are also producing returns that are more robust to a downturn. So even if they dont match the S&P performance, in a downturn they dont lose as much as the S&P does. It's difficult to compare index funds to hedge funds, they have different purposes. When the market is always going up, it looks like a scam.

Did they beat the market because they are actually better investors, or did they just get lucky? There are so many hedge funds now that statistically a few of them are guaranteed to have long lucky streaks.

Re: Can We Survive the Next Financial Crisis?

#40

Post by kolbe » Mon, Sep 10, 2018, 6:47 PM UTC

yourbandsucks wrote: post #31

oihoaihsfoiahsf wrote: post #26

Earlier quoted context omitted.

> It caused a $5 trillion in transfer from wealthy away from the working classes to the investor class in that 2008 Mortgage crisis. This sounds like a made up number. What is your source? > The 2008 Mortgage crisis robbed the working classes How? I.e. what did working class people own that was subsequently taken away by some other entity? > Wall Street over leveragged had huge wealth handed to them in money printing…

A lot of Americans have/had home equity as their biggest asset.

> A lot of Americans have/had home equity as their biggest asset.

In all fairness, the only reason their home equity had any value was thanks to an inflated housing market. It seems that what people 'stole' from them was the delusion that their homes had actually increased in value for the long term.