Earlier quoted context omitted.
Please edit the nasty bits out of your comments here, even if someone else missed something you thought was obvious. https://news.ycombinator.com/newsguidelines.html
Done. Apologies.
Thanks!
A new credit bubble gets ready to burst
61–70 of 126 posts
Re: A new credit bubble gets ready to burst
#62Earlier quoted context omitted.
I just looked up Zerodown. How does their model account for the foreclosure risk if there's a real estate recession?
All they have to do is bundle these mortgages together with safer ones and sell the resulting bundle as a security. The market will accurately assess the risk of the combined product and set prices accordingly. Because of the way this spreads out risk and incentivizes smart, objective analysis of the products, this is guaranteed to work well.
Isn't this bundling what caused the subprime crisis ? How is this time "guaranteed to work well" ?
Re: A new credit bubble gets ready to burst
#63Earlier quoted context omitted.
All they have to do is bundle these mortgages together with safer ones and sell the resulting bundle as a security. The market will accurately assess the risk of the combined product and set prices accordingly. Because of the way this spreads out risk and incentivizes smart, objective analysis of the products, this is guaranteed to work well.
Isn't this bundling what caused the subprime crisis ? How is this time "guaranteed to work well" ?
Through the power of extreme sarcasm.
Re: A new credit bubble gets ready to burst
#64If SF, I'm seeing ads all over for 1) Brex (corporate credit cards for startups) and 2) Zerodown (pitching no down payment for homes). It would be quite something if tech and not banks caused the next great recession.
Brex, at least currently, isn’t the kind of card where you carry a balance. Instead they look at your bank account and say “you have a million dollars in there, you can spend 100K this month” (not real numbers). You pay it all back at the end of the month.
So while not immune from risk, it’s considerably less risky, and works over a shorter time frame, than other credit options.
Re: A new credit bubble gets ready to burst
#65> And household debt has grown no faster than household income and is concentrated in households best able to pay it back. I'm not so sure about this - what I'm thinking is that the next (current?) bubble is in auto lending. I'm seeing tons of advertisements saying "We will lend up to 72 months with very little down". With the average new car priced around $37500 that's a payment in the mid $500's for someone with go…
There's been a lot of apprehension around auto lending for a long time. I'm not sure what a crash would look like though.
Very different from a housing crash in important ways, that's for sure.
Vehicles are much more "liquid" -- they're portable and fungible to some extent. A bank repossessing many vehicles will get much more of its money back than a bank trying to sell foreclosed houses.
Re: A new credit bubble gets ready to burst
#66I suspect that there cannot be effective regulation of any industry without a technological overhaul to money such as moving to cryptocurrency and smart contracts. Especially now with new technologies coming up all the time, companies will just go around the laws. Doing something like that is pretty far-fetched and would require a new type of technological government. But to me there is a structural problem with the…
> But to me there is a structural problem with the relationship between money and government (in their current low-tech forms) in society.
Can you expand on this? Your comment intrigued me.
Re: A new credit bubble gets ready to burst
#67Really seems like Wall Street is in love with the term "shadow banking", because it implies "can't regulate it". Yet we know exactly who the participants are, the types of firms, and their practices. Step 1 to better regulation of creative rent seeking is to stop treating it like it's nebulous.
Isn't the root of the problem this: > To fund all this loan-making, the shadow banks have turned to insurance companies, pension funds, university endowments and wealthy investors, offering them a chance to buy into a diversified pool of loans that offer returns ranging from 6 percent to 13 percent, depending on the level of risk they are willing to assume. If some hedge funds and "wealthy investors" want to take on…
I think we have to dig deeper. Why exactly is it that people have to rely on pension funds or put their assets into mutual funds to retire safely?
Re: A new credit bubble gets ready to burst
#68I suspect that there cannot be effective regulation of any industry without a technological overhaul to money such as moving to cryptocurrency and smart contracts. Especially now with new technologies coming up all the time, companies will just go around the laws. Doing something like that is pretty far-fetched and would require a new type of technological government. But to me there is a structural problem with the…
> But to me there is a structural problem with the relationship between money and government (in their current low-tech forms) in society. Can you expand on this? Your comment intrigued me.
The primary motivator for people is money. Government attempts to regulate all aspects of behavior, but it cannot effectively control or monitor the exchange of money. The most obvious symptoms of this are usually called corruption. It is less obvious (but still obvious to me) that corruption is just the tip of the iceberg. The problem is structural. Government cannot be effective because it is superceded or corrupted by the real motivator.
The solution is a high tech type of money that is integrated with government.
Re: A new credit bubble gets ready to burst
#69Earlier quoted context omitted.
>Really seems like Wall Street is in love with the term "shadow banking", Actually, the hedge fund and private equity fund people hate that term because it implies something nefarious is happening. In reality, the new post-2008 crisis bank regulations in both Europe and USA to ensure stability causes a new phenomenon to emerge: Non-banks lending money to companies that banks are not allowed to lend to. Every economis…
The shadow banking is fine. The taxpayer isn't responsible if a PE fund engaged in direct lending to the middle market loses all their money. But shadow banking can and should be scrutinized, and potentially regulated, if there are systemic risks that will lead to the taxpayer being on the hook once again. If it's just isolated private actors losing money it doesn't matter.
The “private actors” are not always so private: CalPERS is doing a lot of PE, for example.
Re: A new credit bubble gets ready to burst
#70Earlier quoted context omitted.
Zero down payment isn't even legal in Canada and anything less than 20% down and you must purchase mortgage insurance. I'm amazed that 0% is allowed in the US after 2008.
Mortgage insurance is required for nearly all sub 20% down mortgages in the US too. Most banks won’t do straight 0% down either, but will do ~3%. A notable exception to both of the above are VA loans, which will finance 100% with no PMI, but VA loans are only available to a very small segment of the population.
3% is typically only available for a primary residence if you haven't owned in the past X years. Otherwise, it's pretty much impossible to find anything less than 5% down.
That's not a terrible thing either. If you are not able to save up for 5 or more % down, odds are good you will be house-rich and money-poor, which can really suck a lot of enjoyment out of owning a home.
Say, for example: a $300k home with a 285k mortgage will work out to around $2,000 per month. Add in a vehicle payment or two, maybe a higher bill if you have high property taxes, phone, internet, paying down credit cards, whatever, and you're easily in the 3-4k per month just in bills. If you can afford that and not feel financially constricted, then you can afford to wait a bit, get more saved up to put more down, and you'll have more available for vacations, repairs, additions, appliances, etc.