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America's pensions can't beat Vanguard but they can close a hospital

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Re: America's pensions can't beat Vanguard but they can close a hospital

#221

Post by lokar »

bpt3 wrote: post #185
lokar wrote: post #44

Earlier quoted context omitted.

There has been a lot of discussion about how the basic setup of banks (borrow short, lend long, collect the spread) is probably not a great idea, and we should just separate these two activities (see Money Stuff). People who want to lend long should do that with their own money, and people who just want to save should be able to do that. But, at least in the US, regulators keep blocking the 1st step: narrow banking.…

So I read the Matt Levine article on this and a couple other pieces, and I'm not getting the impression Levine or other mainstream economists think this is a good idea as it currently stands? I don't necessarily think they are suggesting its clearly bad either, but it didn't seem as positive on it as I was expecting from your comment. Can you provide some more information, because I'm not really seeing the value in b…

When you deposit money in a US regulated bank, there are basically two places that can end up:

- on deposit at the Fed, in the account of a Fed member bank (which could be your bank, or a bank your bank has an account at)

- loaned out by your bank (or again, a bank your bank uses)

The Fed, so far, has refused to allow new member banks (eg that could deposit at the Fed) that don't intend to ever loan out deposits. They would take all customer deposits and stick them at the Fed. Many (most? the ones at the Fed anyway) think allowing this would siphon away money that would otherwise be used to make loans. They are, in effect, putting their finger on the scale to push you to allow your savings to be used as loans.

The rise of Private Credit, where wealthy individuals and institutions loan money to private firms for to fund loans is the new thing that could break this open. These arrangements are long term, the customer can't "call" the money back, they are committed, and (for the most part) their commitment matches the duration of the loans. So there can be no bank runs. And the people providing the money know what they are doing.

Levine is mostly arguing that with so much money in private credit, we could do without forcing small savers to fund loans.

Re: America's pensions can't beat Vanguard but they can close a hospital

#222

Post by Ekaros »

shermantanktop wrote: post #79
triceratops wrote: post #19

Earlier quoted context omitted.

Because the thing you want to ban isn't well-defined.

But do you agree that there are a set of bad actors who fall under the (not well-defined) term of "private equity"? Is this a definitional quibble or do you not believe there is a problem?

It is important definition. As private equity can mean anything not publicly traded.

I do support banning certain financial actions. Like paying dividends with debt. Or structuring deals that achieve same effect. On other hand I would also ban stock buybacks.

Re: America's pensions can't beat Vanguard but they can close a hospital

#223

Post by patall »

sidewndr46 wrote: post #6
tempest_ wrote: post #3

I do wonder when some unforeseen 2008 like crash someone crashes ETFs. I can't really see how it would happen and that I suppose is part of the fun.

Unless we're just talking about regular embezzlement of funds, how do you crash an ETF? I'm talking about broad index funds. Not stuff like ARKK

I have no idea how one would crash an ETF but I do wonder if someone could manipulate an index. I.e by somehow suggesting a larger fraction of free floating stock so that the index weights the stock higher than its actual share. That should create increased demand for that particular stock (fund companies buy it more) and thus raise its value over what the market would assign normally.

Re: America's pensions can't beat Vanguard but they can close a hospital

#224

Post by thatcat »

trothamel wrote: post #166
downrightmike wrote: post #118

Earlier quoted context omitted.

Student loans currently carry no risk. They can't be discharged. Interest is the payment to the lender to accept risk. There is no risk in the current state of student loans. Therefore they should never-ever charge interest. Also schools need to be reigned in, if GA et al can pay each student athlete $40,000 a month, they MUST be held accountable for burdening the students and the state with unscrupulous debt.

Interest also compensates for the other things that money could be doing. If I didn't loan it to you (or a student), then I would be doing something else with the money, even if just buying a government bond.

I'm not sure that is accurate. You need a borrower to do that. If there were other low risk borrowers they would also lend them money, it's not a zero sum game. I'm no banker, but pretty sure the bank doesn't lend itself fractionally reserved loans and buy t-bonds.

Re: America's pensions can't beat Vanguard but they can close a hospital

#225

Post by thaumasiotes »

Braxton1980 wrote: post #132
jazz9k wrote: post #45

Earlier quoted context omitted.

I disagree about student loans. The entire system needs to be dismantled. Universities don't care if their majors will result in a job and the student loans are a source of risk-free money. They need to start taking on the risk of all student loan, not me, the tax payer.

If you had a choice between nothing being done and forgiving student loans which would you pick? Second. Let's say universities did take on the burden of loans, of course that would be via a bank right? If that's the case. How would they enforce risk? Based on certain majors? Who would give a loan with no collateral to young people with no credit on the hopes the major they picked had a viable job market years from t…

> Who would give a loan with no collateral to young people with no credit on the hopes the major they picked had a viable job market years from that point?

Who gives out scholarships now?

Let's also note that the obvious response to the risk of the job market shifting after several years is to shorten the number of years required to pad out the degree, which is pure societal upside. The standard model of a four-year college degree only has you taking classes from your major during the final two years.

Re: America's pensions can't beat Vanguard but they can close a hospital

#226

Post by gruez »

rurp wrote: post #201
aresant wrote: post #51

From first principles public pension funds are broken. The "Safe Withdrawal Rate" assumed by many private individuals planning for their own retirement assumes a withdrawal rate in the 3 - 4% range based on the "trinity study" - https://en.wikipedia.org/wiki/Trinity_study Meanwhile, American public pensions are structurally engineered around a 7%+ SWR - this was recently confirmed again by the median goal by the Nati…

Employee pensions are a tiny portion of overall government spending. There are any number of ways to handle a modest increase in costs there.

>There are any number of ways to handle a modest increase in costs there.

So the "we'll find 'efficiencies' somehow" argument that every opposition party trots out when they're campaigning?

Re: America's pensions can't beat Vanguard but they can close a hospital

#227

Post by lenerdenator »

aresant wrote: post #51

From first principles public pension funds are broken. The "Safe Withdrawal Rate" assumed by many private individuals planning for their own retirement assumes a withdrawal rate in the 3 - 4% range based on the "trinity study" - https://en.wikipedia.org/wiki/Trinity_study Meanwhile, American public pensions are structurally engineered around a 7%+ SWR - this was recently confirmed again by the median goal by the Nati…

> But this then belies a very uncomfortable acknowledgement which is that we cannot afford the government workforce currently in place

It's not just the government. It's all of the other stuff seniors buy. It used to be that you just kind of stuck around and retired in the area where you had worked. You had paid off that house, so you retired in it. Maybe you went to the Shriners' hall and played bingo with a core group of friends until you couldn't anymore. Then you moved into a retirement home and they found activities for you to do there until Father Time came to collect his due. Maybe you spoiled yourself with a Buick or Lincoln sometime between getting your gold watch from the plant manager and croaking.

Now, that's not enough. We need entire retirement communities hundreds of miles away in warmer climes where they can play golf several months out of the year. We need cruises and travel packages. We need cosmetic procedures to look younger. We need more advanced surgeries that extend life, though not participation in the workforce. And of course, now that Lincoln is a Mercedes.

And that's great, because we've told everyone that they deserve it after a long, hard career. There's only one problem: we never addressed where that retirement income was actually coming from. They're coming from that 7% SWR, which must be funded somehow. Otherwise the retirees might have to stay in-town, be cold during the winter, and provide childcare for the grandkids because preschool now costs as much as a year of college tuition. And that makes them cranky and they start calling investment advisors and politicians demanding answers.

Re: America's pensions can't beat Vanguard but they can close a hospital

#228

Post by AnthonyMouse »

cj wrote: post #207
AnthonyMouse wrote: post #158

Earlier quoted context omitted.

Bankruptcy affects your credit score for 7-10 years. Someone who graduates from college in their early 20s with six figures in debt could file for bankruptcy immediately and have it be off their credit history by the time they've saved up a down payment and want to get a mortgage. There is also the obvious drawback that if more people can discharge the debt, the interest rate goes up, and then everyone else has to pa…

Imagine a world where lenders charged different interest rates depending on the risk profile of each school. Lower interest rates for schools where graduates repay their debt, higher interest for schools where many people default. Assuming it wouldn’t disproportionately affect disadvantaged populations, that could be an interesting way to incentivize schools to get their shit together and prepare students for startin…

That effect would be drowned out by all the people defaulting en masse because getting out of a six figure unsecured debt is worth more than a temporary hit to your credit score.

Re: America's pensions can't beat Vanguard but they can close a hospital

#229

Post by rootusrootus »

Braxton1980 wrote: post #135
codexb wrote: post #68

Earlier quoted context omitted.

Ok, but forgiving student loans doesn't do that. It signals to borrowers that they don't have to repay high loans if their career can't support it. It tells borrowers that they can make risky loans without a chance of default. It tells universities that they can keep charging exorbitant tuitions because kids can still get loans to pay them. The solution is to allow judges the discretion to default them in bankruptcy…

>. It signals to borrowers that they don't have to repay high loans if their career can't support it. The loan forgiveness wasn't a thing when many students took out the loans.

It would be a signal to future borrowers.

Re: America's pensions can't beat Vanguard but they can close a hospital

#230

Post by lokar »

AnimalMuppet wrote: post #66
bondarchuk wrote: post #49

Earlier quoted context omitted.

The student loan system is fucked up, so what should happen is an acknowledgement that it's fucked up, forgiving the fucked up loans, and also changing the system to be less fucked up so it won't have to happen again.

A reasonable option. But was that on the table? Or was "just student loan forgiveness with no change to the system" what was being proposed? And if that was the proposal, would that be better or worse than the current status quo?

There has, for 30+ years, been a real problem with politicians refusing to speak truth, or anything close to it. They tell voters what they want to hear. This is often "truth adjacent", and they thus offer partial solutions that tend to not work out.

The US has real problem that require real changes, but the political system is not responding.

IMO, people sense this, grow frustrated, and become willing to take a chance on someone who seems to speak (more) truth, and claims to be willing to pursue real changes.

We are starting to see more moderate mainstream politicians willing to speak more truthfully, and propose policy changes that may not appeal to everyone. But I'm not sure it's happening fast enough.

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