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PSA - things I should have done....

nittany03

Recovering NFO. Herder of Programmers.
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Super Moderator
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Right, but if you borrow against it and your lifestyle depends on it then you're hosed if it goes to zero because you can't pay a mortgage off of zero.

My point is that the monetary system already allows me to buy real things off of things that only have value because we believe them to. And if that belief falters then you're screwed.
Yeah, but anyone who underwrites a loan is going to look at the risk involved and base not only the interest rate, but their willingness to even lend you money based on that. That's why credit ratings are a thing. Some people are better credit risks, and other people aren't.

I mean, a bank lent me a lot of money to refinance my house in Greater Seattle based on the assumption that over 30 years, I'll be good to pay off the note. I don't have all that money now. Over the next 30 years, I'll either have enough money periodically in enough quantity to service the note, or I'll move somewhere else and sell the house. If not, the bank will take it from me, and torch my credit and my security clearance in the process. Not a lawyer, but if I were to hypothetically declare bankruptcy for some reason, I think they'd likely be at least partially fucked, seeing as it's my primary residence. But my credit is good enough (read bulletproof) that they know that's unlikely enough for their risk tolerance.

Risk management in lending is a thing; banks aren't just loaning money willy-nilly. Or at least they haven't been since 2008 or so.
 

RedFive

Well-Known Member
pilot
None
Contributor
imagine having to pay your boss every day for the privilege to work.
Pretty sure there were some flying gigs like that in the 2000s where you had to pay to get typed in their plane before they would actually start paying you ?
 

Jim123

DD-214 in hand and I'm gonna party like it's 1998
pilot
I'll either have enough money periodically in enough quantity to service the note, or I'll move somewhere else and sell the house. If not, the bank will take it from me...
CSNY, Track #5 on American Dream, 1988

R-3924931-1382417049-8701.jpeg.jpg
 

ABMD

Bullets don't fly without Supply
To be clear, negative inflation rates do not necessarily portend a deflationary spiral; they are used as an instrument to drum up inflation. Japan and some European countries have tried it. Some economists have suggested using negative inflation rates to avoid what's called a Liquidity Trap, although, it is a poorly studied economic concept relative to other ones, partially because, until about 2016, no one had really tried it so it was all just theory.

more words

This. It's a forced way to get people to either spend their money (consumerism) or seek other alternative investments that will generate a return >-n. We've had interest rates near 0% for almost a decade and it was slowly starting to rise again, but they COVID hit and we are back to near 0%.
 

ABMD

Bullets don't fly without Supply
Yeah, but anyone who underwrites a loan is going to look at the risk involved and base not only the interest rate, but their willingness to even lend you money based on that. That's why credit ratings are a thing. Some people are better credit risks, and other people aren't.

I mean, a bank lent me a lot of money to refinance my house in Greater Seattle based on the assumption that over 30 years, I'll be good to pay off the note. I don't have all that money now. Over the next 30 years, I'll either have enough money periodically in enough quantity to service the note, or I'll move somewhere else and sell the house. If not, the bank will take it from me, and torch my credit and my security clearance in the process. Not a lawyer, but if I were to hypothetically declare bankruptcy for some reason, I think they'd likely be at least partially fucked, seeing as it's my primary residence. But my credit is good enough (read bulletproof) that they know that's unlikely enough for their risk tolerance.

Risk management in lending is a thing; banks aren't just loaning money willy-nilly. Or at least they haven't been since 2008 or so.

I used to do this for parties we traded with, so not individual credit. Based on our perceived credit risk we would factor in additional cost into pricing to account for potential of default. This is also why your home is collateral for your loan. No matter how good your credit score is, risk of default is never 0, unless you pay cash and there is no note. In which case it doesn't matter what your credit score is.
 

Notanaviator

Well-Known Member
Contributor
To be clear, negative inflation rates do not necessarily portend a deflationary spiral; they are used as an instrument to drum up inflation. Japan and some European countries have tried it. Some economists have suggested using negative inflation rates to avoid what's called a Liquidity Trap, although, it is a poorly studied economic concept relative to other ones, partially because, until about 2016, no one had really tried it so it was all just theory.

But think about it: if you make it such that keeping your money in the bank costs you money, you're more likely to spend it or invest it. The potential upside: actual consumerism driving demand to juice a stagnant or shrinking economy. A potential downside (beyond the obvious of hurting savers/retirees, etc.) is that you may just inflate the price of stocks, bonds, and other assets without any real addition to their value (some would argue that's already happening in our current inflationary environment).

I'll have to read the article about how digital currencies could lead to negative inflation rates.

Edit, I see it's behind a paywall. What's the TLDR? Because of less demand for cash, we have deflation in USD, thus interest rates go to zero or below in order to prop up demand for cash (by basically forcing it to be spent)? I personally think it's a bit of a stretch. I also think the hype over crypto is overblown. My questions that I never get good responses from the disciples of crypto currencies are (but I am open minded to good answers):

  1. Explain to me how this is different than FOREX trading/speculation?
  2. Explain to me how this isn't the lesser/greater fools' theory in action?
  3. If you think there is a fixed number of a specific currency (which I understand there is) which you think is the root solution of ending inflation (which it isn't), then what happens when new currencies enter the market like Doge Coin, Ethereum, and other non-bitcoin competitors? Now they are different currencies, but in theory, if they just announce they will fix their end fixed value to the same as another, then you've doubled the amount of crypto currency available without an underlying increase in actual value?
  4. What societal problem does this solve compared to investing in a company that does solve a problem that people pay that company to do or manufacture?
4.a. The answer I usually get is the idea of secure, nearly instant, and anonymous transactions, to which I would respond, "no, that's not the crypto, but that's blockchain techonology. What makes you thinks banks and clearing houses won't adopt blockchain technology in the future? Did you know that ACH is restricted more by government regulation than it is by actual technical limitations in transferring between banks? (In fairness, the ACH limitations were put in place by the government largely due to lobbying by smaller banks who are priced out from upgrading their technology to make nearly instant bank transfers possible.)

I think the world of Crypto is a great example of the truth being somewhere in between. True believers think Crypto will replace the existing financial system. For a lot of reasons, not least of which is regulatory, there’s merit to the idea that it’s a completely revolutionary world, BUT it will be weaved into the existing financial services sector to increase access, efficiency, transparency, etc.

On 4a, @DanMa1156, and I’m not an expert here, but I feel like you’re sorta right and sorta off on the ‘that’s not the crypto that’s the blockchain tech’ aspect. One way to look at it is buying the crypto currency may be akin to buying a company’s stock. As there is greater adoption of, say, Cardano’s smart contract platform, the value of the currency would increase due to demand. If, like last week suggested, that platform isn’t deemed as being viable, demand and use, and thus price of the associated currency drops.
 

Pags

N/A
pilot
Yeah, but anyone who underwrites a loan is going to look at the risk involved and base not only the interest rate, but their willingness to even lend you money based on that. That's why credit ratings are a thing. Some people are better credit risks, and other people aren't.

I mean, a bank lent me a lot of money to refinance my house in Greater Seattle based on the assumption that over 30 years, I'll be good to pay off the note. I don't have all that money now. Over the next 30 years, I'll either have enough money periodically in enough quantity to service the note, or I'll move somewhere else and sell the house. If not, the bank will take it from me, and torch my credit and my security clearance in the process. Not a lawyer, but if I were to hypothetically declare bankruptcy for some reason, I think they'd likely be at least partially fucked, seeing as it's my primary residence. But my credit is good enough (read bulletproof) that they know that's unlikely enough for their risk tolerance.

Risk management in lending is a thing; banks aren't just loaning money willy-nilly. Or at least they haven't been since 2008 or so.
Yeah, that's how it works for peasants like you and I. But not how it works for rich people. You can get a loan against your stock and then use that loan to buy more stock and so on. If you do it right then you don't even need to get mortgage because you can buy things with cash. But that cash comes from assets that only have value due to belief.

I say this based on personal experience with folks I know who do this. A personal contact I know used to have Steve Jobs take his phone calls because he was in so deep with Apple. But at some point in this person's life the market took a hit and he had to sell his jet and some of his houses overnight because he lost a bunch of zeroes overnight.
 

DanMa1156

Is it baseball season yet?
pilot
Contributor
This. It's a forced way to get people to either spend their money (consumerism) or seek other alternative investments that will generate a return >-n. We've had interest rates near 0% for almost a decade and it was slowly starting to rise again, but they COVID hit and we are back to near 0%.

Which is why Chairman Powell pushed against President Trump's overtures to keep rates low infinitely because he needed to keep bullets in the gun. Looking back now, as predicted by most economists, it was also probably a bad move to lower taxes in the middle of an economic boom time. It was a short rush of sugar for the markets, that created a huge debt that will definitely never pay for itself, only to need more tax relief and or government handouts in bad times (COVID). Super predictable.

I think the world of Crypto is a great example of the truth being somewhere in between. True believers think Crypto will replace the existing financial system. For a lot of reasons, not least of which is regulatory, there’s merit to the idea that it’s a completely revolutionary world, BUT it will be weaved into the existing financial services sector to increase access, efficiency, transparency, etc.

On 4a, @DanMa1156, and I’m not an expert here, but I feel like you’re sorta right and sorta off on the ‘that’s not the crypto that’s the blockchain tech’ aspect. One way to look at it is buying the crypto currency may be akin to buying a company’s stock. As there is greater adoption of, say, Cardano’s smart contract platform, the value of the currency would increase due to demand. If, like last week suggested, that platform isn’t deemed as being viable, demand and use, and thus price of the associated currency drops.

To which my counter is twofold:
  1. The currency valuation right now isn't based on people assuming adoptation of the currency, it's speculation that there will be a "greater fool" (economic term, not actual insult... but kind of an insult) to purchase it at a higher price.
  2. If the currency is widely used, demand for it would go up. That doesn't necessarily mean the value of it will go up - it means there will be inflation - inflation is both a function of how much of a currency is in circulation and the speed of transfer (which in a sense, represents the demand for money). As more services are demanded by the increased velocity of the spend, those services will raise prices... again negating the cryptomaniacs' argument "there can't be inflation when there's a set amount!"
 

DanMa1156

Is it baseball season yet?
pilot
Contributor
Yeah, that's how it works for peasants like you and I. But not how it works for rich people. You can get a loan against your stock and then use that loan to buy more stock and so on. If you do it right then you don't even need to get mortgage because you can buy things with cash. But that cash comes from assets that only have value due to belief.

I say this based on personal experience with folks I know who do this. A personal contact I know used to have Steve Jobs take his phone calls because he was in so deep with Apple. But at some point in this person's life the market took a hit and he had to sell his jet and some of his houses overnight because he lost a bunch of zeroes overnight.

What you're saying is basically the message that ProPublica put out as to how the rich avoid taxes - they never sell their assets - they just take out loans against them, so that they pay some miniscule amount of interest that's way lower than taxes.
 

Pags

N/A
pilot
What you're saying is basically the message that ProPublica put out as to how the rich avoid taxes - they never sell their assets - they just take out loans against them, so that they pay some miniscule amount of interest that's way lower than taxes.
Yes. The system is totally set up to make the rich richer. The rules for them are totally different...nittany03 calls his bank for a mortgage and hopes they give him a good rate...rich people call the bank and say "you're gonna give me a loan at this rate or I'll take my money elsewhere."
 

ABMD

Bullets don't fly without Supply
What you're saying is basically the message that ProPublica put out as to how the rich avoid taxes - they never sell their assets - they just take out loans against them, so that they pay some miniscule amount of interest that's way lower than taxes.
This shouldn't surprise anyone. The offsetting tools used by billionaires to avoid paying taxes, are the same tools ordinary people use to also avoid paying taxes. I can show on paper that I lost money on a rental property, when in reality I actually made money. I'm allowed to take certain deductions and apply expenses to income gained, but always show a loss on paper for tax purposes. Does that make me evil?

People hear "Billionaire" and assume these people literally have a billion in cash in the bank. Like @nittany03 said, most of these "billionaires" are only billionaires on paper (Net Worth). Same as anyone who holds stock/assets in a brokerage account, you haven't gained anything until you sell. Otherwise you're just paper rich, and people confuse Net Worth with Income. Even if these people pay less in income taxes, they pay multiples of what everyone else pays in other taxes (sales, property, etc).
 

ABMD

Bullets don't fly without Supply
Additionally, one example listed in the article, borrowing against assets to pay living expenses, is the same thing millions of ordinary Americans do each year. They borrow against the equity in their home, cash out refi, and take money out of their property tax-free to pay for living expenses/excesses (boats, trucks, etc.) The smart ones use that equity to reinvest in another cash-flowing asset and the cycle continues.
 

DanMa1156

Is it baseball season yet?
pilot
Contributor
This shouldn't surprise anyone. The offsetting tools used by billionaires to avoid paying taxes, are the same tools ordinary people use to also avoid paying taxes. I can show on paper that I lost money on a rental property, when in reality I actually made money. I'm allowed to take certain deductions and apply expenses to income gained, but always show a loss on paper for tax purposes. Does that make me evil?

People hear "Billionaire" and assume these people literally have a billion in cash in the bank. Like @nittany03 said, most of these "billionaires" are only billionaires on paper (Net Worth). Same as anyone who holds stock/assets in a brokerage account, you haven't gained anything until you sell. Otherwise you're just paper rich, and people confuse Net Worth with Income. Even if these people pay less in income taxes, they pay multiples of what everyone else pays in other taxes (sales, property, etc).



Ultimately, you're right, nothing illegal, but it does go to show we need tax reform, not just tax cuts/raises.
 

nittany03

Recovering NFO. Herder of Programmers.
pilot
None
Super Moderator
Contributor
Yeah, that's how it works for peasants like you and I. But not how it works for rich people. You can get a loan against your stock and then use that loan to buy more stock and so on. If you do it right then you don't even need to get mortgage because you can buy things with cash. But that cash comes from assets that only have value due to belief.

I say this based on personal experience with folks I know who do this. A personal contact I know used to have Steve Jobs take his phone calls because he was in so deep with Apple. But at some point in this person's life the market took a hit and he had to sell his jet and some of his houses overnight because he lost a bunch of zeroes overnight.
Yes. The system is totally set up to make the rich richer. The rules for them are totally different...nittany03 calls his bank for a mortgage and hopes they give him a good rate...rich people call the bank and say "you're gonna give me a loan at this rate or I'll take my money elsewhere."
This is still arguing in circles. From the bank's perspective, there's a lot less risk making those kinds of loans to someone with a huge amount of capital to back it up. I mean, horror of horrors, you had to sell a private jet and some spare houses! Oh noes! If that's the result of the person "losing a bunch of zeroes," they're a great risk for that kind of loan, because at the end of the day, the bank's still going to get their money. It's declaring bankruptcy where stuff gets sticky, because that's when you owe more money than you can pay off selling everything besides your house, and so in that case, some creditors are going to get stiffed. They're not going to get stiffed if you had to sell luxury goods and tertiary homes to meet the debt.

So it literally works for rich folks in exactly the same way it works for proles like you or I. The bank assesses risk when deciding whether or not to grant credit, what kind of credit, what if any collateral there is, etc. The only difference is the bank is going to be pickier lending to you or I, because we only have so much capital available outside our primary homes in the event things go sideways. Rich people can make riskier investments because if they lose the investment . . . they're still rich. Worst case, they're no longer rich, and then guess what? The bank will start treating them like you or I.
 
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