61–70 of 445 posts
This guy's entire life (He's a VC) is about pushing debt in the form of promissory notes and equity-debt onto companies in exchange for his own ownership How does he reconcile the fact that the companies he lauds in the beginning, would completely shun any business with him (an investor) for precisely the reasons described? I feel like investors and VC are unaware of their own values
You can take money and pay off your mortgage or you can take that same money, throw it in a low cost index fund, and keep the mortgage. Most people are going to end up better off with the later. Cash has the illusion of being safer but start talking about inflation and it starts to lose its luster.
That is of course extreme, but proves the article point: by not having debt, you can sustain a much broaden series of events.
As everything in life, it's a spectrum. I think it's pretty reasonable to accept the "sustainability narrowing" that comes from an affordable mortgage, but I avoid taking debt for other goods that are less important and would limit my ability to withstand unexpected events and accidents
Earlier quoted context omitted.
I think the article still holds up. A financial crisis where you lose your job, a war causing deflation, a housing bubble bursting are all events that could lead to you paying _much_ more than rent. If you can't pay, they'll take your house and everything else until they decide that the debt is paid. In case of a bubble bursting this can mean that you _still_ owe money after they took your house. This has happened to…
> and everything else Unless you live in a no-recourse state, where they can't take everything else. In AZ, CA, TX, WA, and a handful of other states, banks can't go after your other assets, just the house that's mortgaged.
Debt is essentially sacrificing future well-being for immediate access to some product or service utility normally inaccessible from current market conditions. Even if a specific type of debt load is not necessarily a liability for personal profit, it is assuredly someones problem eventually... The theory debt doesn't matter only applies to 0.04% of the population dodging tax burdens with structured financial instrum…
Earlier quoted context omitted.
People don't realize how risky housing is compared to other investments. It is risky because it is SO MUCH MONEY and it is not diversified at all. If your house loses half its value, that represents hundreds of thousands in losses. And don't think that can't happen. You buy a penny stock for $2K and lose half, no big deal compared to your house. BUT, we need housing, we need a stable school for our kids, or a comfort…
If you ask a financial advisor for advice on investing half your net worth on 5x leverage in an liquid asset with one customer and one location, they'd think you're crazy.
The core (flawed) assumption is that a thousand year business is desirable. As a business owner and a worker I don’t want to work in my great, great grand pappy’s toothpick company. I want to have opportunities to create my own business, make profit, enjoy profit, hand modest generational wealth to my descendants and die without regrets. Thousand year business are not the way to achieve my goals and my goals are not…
Let me introduce the Shokunin (translated as Artisan, when you look it up on Wikipedia, which isn't quite right).
What a Shokunin produces is, sort of, the antithesis of what you can order from Temu.
A rather interesting blog post[0] explaining the concept:
"Shokunin is more than just a craftsperson or artisan. It represents the devotion and lifelong commitment of craftsmen who dedicate themselves to perfecting their art. They embody the values of dedication to craft, excellence in craftsmanship, and masterful work. Shokunin believe in meticulous attention to detail and uphold the highest standards of quality and skill in their work."
For us Westerners it's not fathomable to work 20 years, or a lifetime, ro achieve a perfect product. Who's to say that this concept is wrong?
And I think it has a lot to do with a society who believes that a 1000 year old company is not only desirable but a virtue.
[0] https://tobyleon.com/blogs/art-design/shokunin-japan-artisan...
Earlier quoted context omitted.
>> If you can't pay, they'll take your house and everything else until they decide that the debt is paid. This is new. Mortgages in the US traditionally took just the home as collateral. Thanks for the reminder that this is now a thing to look out for, as I may need to borrow one more time than I ever expected.
I think it's actually the reverse. The house is the only collateral, but traditionally you would still owe the deficit if the collateral couldn't be sold to pay off the whole loan. This is what's changed in recent decades. A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house.
This is wild. In Canada not only do we all take interest rate risk every 5 years maximum as we can’t lock in for longer (which seems to make our whole society less robust), we can’t refinance early if rates drop without massive penalties eliminating any incentive to do so, but all of our mortgages are full recourse.
I can’t believe how much worse this seems, on a societal level, than the US.
>I’m not an anti-debt zealot. There’s a time and place, and used responsibly it’s a wonderful tool.
I am, here's how I would add to this article.
How do you tell how in debt you are. How tight is the graph? Its not just your debt.
Your paycheque comes from your neighbour's spending. If they are in debt, then you too will feel their collective debt. Generally speaking debt is mortgages> cars> tuition. Not a great deal else.
So you can actually look at the public data.
Norway is 210% debt to income.
Canada is 178% debt to income.
The threshold of 100% is a big deal. It's when discretionary spending stops. At 100%, your income goes 100% toward servicing debt. It's generally regarded that you keep this in the 30-40% range.
When these thresholds hit ~130% that's typical of a financial crisis. To reach 178% or above 200%... that's only possible if actions are being taken by the central banks to prevent a crash temporarily.
Checking Norway, because I don't know the state of their central bank. It seems Norway went bankrupt in the early 2000s? It has been a steady crash since being prevented by their central bank?
Private Debt to GDP in Norway increased to 277.90 percent in 2023
So here's the thing about central banks working to prevent crashes. You can do so of course, but you also need to deflate the risk. But all they are doing is inflating the inevitable pop. You're just making the crash worse over time.
Earlier quoted context omitted.
I think it's actually the reverse. The house is the only collateral, but traditionally you would still owe the deficit if the collateral couldn't be sold to pay off the whole loan. This is what's changed in recent decades. A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house.
> A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house. This is wild. In Canada not only do we all take interest rate risk every 5 years maximum as we can’t lock in for longer (which seems to make our whole society less robust), we can’t refinance early if rates drop without massive penalties eliminating any incentive to d…
I don't think all debt is equal, and I don't think all debt hurts your ability to handle volatility. I have a 30 year mortgage on my house with a 2.75% interest rate. That has effectively given myself "rent control"; outside of a potential rise of property taxes, my "rent" payment will not exceed a certain number of dollars. That means that if the housing prices rise rapidly, I'm covered. If I had decided not to leve…
debt for productive activity in general makes sense if it isn't compounding (mortgages act like simple interest, btw, although it's complicated since you pay more interest at the start of the loan and so if you move within the first five years you've paid almost entirely interest on the home)
debt for consumption is always parasitic
that's why it's insane how hard it is to get a business loan and how easy it is to get a credit card: usurers want suckers, not shared risk on productive investments