A glimpse at American's savings accounts shows a single healthcare incident can wipe out most anyone, let alone financial crisis: https://smartasset.com/checking-account/savings-account-aver...
You're basically dropping you bloody name to a pool of sharks who have little respect for what is legal or ethical.
If any debt collector is brave enough to do any of this I'm documenting all of it and suing the everloving pants off of them. Because that is harassment.
Just document all calls, save all letters, and get a good grasp of the Fair Debt Collection Practices Act and any state-level equivalent (Rosenthal in CA) -- in CA you get to shoot the violators with a double barrel for federal AND state violations.
Having the major credit card companies increase my APR to 30% in 2009 having never missed a payment on anything in my life, while being backstopped via TARP and having literal 0% Fed/interbank lending rates blew my top off and I decided giving them the finger was my individual right of protest and damn the consequences. Little did I know I was entering an exciting world of learning how to beat the bottom feeders at their own game. Never paid a dime, made about $20k suing for violations, and my credit score was above 700 within 4 years and after everything fell off (7 years) it's like it never happened. But I'll never forget it - was pretty damn exciting to be honest.
It's basically trying to get them to trip up and make a mistake - and it blew my mind how often and unabashedly these collection agencies would! Hell even BofA and Chase violated before they sold the debt off and I got an immediate removal from my report and the debt wiped away / no more collections (I was happy just to make things 'disappear' in these instances..didn't put money in my pocket but at the time is was a huge win, as one can imagine).
Yes, I've received things in the mail, which I simply threw into paper recycling. Eventually, these stopped as well.
A debt collector has yet to physically come to my home, however, having grown up in 1990s Russia, I'm prepared to take care of them in a swift, permanent, and legal way.
Could you elaborate on this? I don't know if it's what you intended but it just comes off like you defrauded a company.
They do it because, in most cases, it is not fraud - defaults are just a fact of business. Being a lender is not a ticket to free, zero-risk money.
Both parties in a lender/borrower transaction understand that there is a risk of default, as well as consequences for a default. In a secured loan, the borrower loses the secured item. In an unsecured loan, more of the risk falls to the lender (which is why unsecured loans have much higher interest rates.)
This is the advice I've heard given to people who are severely underwater on a mortgage, but the idea that you can get sick one time and be financially ruined is still astonishing to me.
I guess everywhere has some legislation that is just bonkers, though. I only just recently found out from a friend that you can't legally walk away from a mortgage here (UK) without declaring bankruptcy like you can in the States, which is bananas.
If I'm a bank, and you come to me for a $75k mortgage on a $100k house, the $25k down is my security. That should be the beginning and end of our transaction.
If you stop paying the mortgage, the bank gets the house. If the bank reasonably believed there was a chance of the house being worth less than the amount borrowed during the term, they shouldn't have made the deal.
It's a simple system that makes perfect sense. Holding people to account beyond the security, as they do in the UK, encourages predatory lending behaviours and is utterly unfair to the borrower.
In the occasion you stop paying, the bank will foreclose the house, but YOU are still liable for the rest of the loan. If you still don't pay, an official collection agency (not your bank, that would be a conflict of interest) will try to cut a deal, come and take your stuff and/or garnish your wages to pay of the loan. You can insure yourself against calamities like divorce and losing your job, for which the bank will give you a discount on the interest rate.
Mortgages are limited by what you can afford, so a predatory mortgage loan is practically an oxymoron.
Down payments are uncommon, especially for a first time buyer. The only money you need to bring with you is transaction costs (~5% : taxes, notary, financial advisor, etc.) and whatever you think you need for decorating.
I've tried to convince people for years that the biggest cause of the 2008 crash wasn't the banks, it was the rating agencies, but that's more complicated than people want to get with it.
It's a lot easier to just believe that "the system" is "rigged" and "out to get you".
In the UK, people should've known they couldn't repay their mortgage if they got in trouble, and it's why I continued renting until 2013.
In the US, I'd have happily bought a house with 0% down and no obligation if it goes against me.
FWIW I'm not aware of many people who come down with a cold and are financially ruined. The people I know who are in crippling medical debt have, for example, had both kidneys replaced. While I'm not happy they are in those circumstances, it's not hard to picture two replacement kidneys and all the other treatments involved as mind-bendingly expensive.
It seems worthwhile to distinguish, at least a little bit, severity when we are talking about this.
That's nuts in 2018 in a wealthy democracy.
Think about how cuba is able to have similar life expectancy, etc at a fraction of the cost with chronic shortages and subpar sanitation. Most likely there are many medical procedures doing at best nothing for the patient except draining their wallets.
Worse, it could be that treatment 1 for problem A causes problem B which leads to treatment 2, etc, etc for some moderate benefit at great cost over just dealing with problem A.
Worst, it could be the medical treatments are having a net negative effect on people's health. Eg, those studies that estimate hospital errors (not even just death from dangerous treatments applied as standard) are the third leading cause of death in the US.
I suspect most of the US' problems is the atrocious lifestyle most live; overeating and under-exercising are literally a lethal combination.
I would post a pubmed link but sorry, youll have to just try it yourself and read blogs because the medical researchers still haven't caught up to this. They are still calling a 30% carb diet "low carb".
Treating complex conditions (like cancer) is exactly where the US excels, compared to other countries. Yes, it's expensive, but the alternative is, well, dying.
Since the grandparent mentioned the UK specifically, I'll point out that the US has dramatically higher survival rates for treatable forms of cancer than the UK does. For prostate cancer - generally one of the most treatable forms of cancer, if treated properly - people in the US have over a 90% chance of survival. The UK, on the other hand, has absolutely abysmal surival rates - second-worst of all OECD countries, and a mortality-to-incidence ratio that's almost twice what you see in the US.
Yes, the US could do a better job at making that top-of-the-line care accessible to more people, but even then, the baseline care for complex treatments specifically is actually much higher than what the UK provides.
 That's over the entire population, so it's including people who are uninsured and can't afford the most expensive treatments.
Perhaps there is a tradeoff between treatment of complex conditions, and treatment of more frequent but less complex conditions?
However I am specifically a proponent of voluntary collectives for things, as government forced cooperation seems suboptimal and fragile to me.
Isn't this the exact thing insurance solves, in particular catastrophic coverage insurance? Nobody really gets "ruined" by paying out of pocket for one X-ray and two aspirin.
The problem is that the insurance is so expensive some people can't afford it. But the only sense in which single payer would "fix" the high cost/overhead/waste problem is by de facto regulating prices, which can be done even without it but which has a lot of obvious problems -- if the regulator chooses too high a price then it's still wasteful/unaffordable but too low and there will be no providers (or the providers will sacrifice quality to hit the regulated price).
What we need is a real solution to cost disease, which probably has something to do with reducing the regulatory compliance costs so there will be less overhead and more viable competing providers, requiring price transparency from providers, and then having people pay out of pocket for all non-catastrophic care so the patient has the incentive to decline treatment or find a less expensive provider when the treatment is unnecessary or overpriced.
This is why there are regulations to ensure a minimum standard of care. Above that, the provider is the one who has to convince the patient that their service provides some benefit over the lowest cost provider.
And isn't voluntary collective healthcare just another way to describe private insurance companies, especially HMO's?
Chapter 7 bankruptcy (?) is probably the only way forward for most folks after a certain point.
I’m not sure what I’d do if I was presented with a $150k bill for snake bite. https://www.wideopencountry.com/actual-cost-rattlesnake-bite...
I’m fairly sure the US health system is broken,
The prices aren’t even related to cost of materials or time or even linked to inflation. Maybe patents or research costs are included, maybe not. It’s all a game between hospitals and financial companies.
Sort of like student loans...
This is a harmful myth. It's possible to get emergency care under pretty much any conditions. Everything else isn't available.
You can use this trick if you got hit by a truck or had a big infection. It doesn't work to get a hip replacement, or chemo, or post-stroke occupational therapy, or a prosthetic, or a pacemaker, or...
That stuff requires insurance. You need to stop telling your friends that fraud is the answer and start telling them to sign up for care.
Your point about "fraud" is just a nitpick over a moral vs. legal definition of the term, and it too isn't helping anyone live a happy life.
She received care, without insurance, for heart failure(including oxygen concentrator and tanks), a pulmonary embolism, and back pains(among other things which I can't fully recall and am actively trying to forget).
I'm not saying it happens to everyone, but it does happen.
which is to say, preventative and maintenance care are important, and i don't see any of that in what you described. parent's talking about emergency care. you're describing emergency care.
I'll also say that people like her are why preventative care isn't always what it's cracked up to be. There are plenty of people like her with conditions like diabetes(which she also developed due to her sedentary lifestyle and poor eating habits) who willfully disregard their doctors' attempts at moderating their behaviors.
That is literally the opposite of what "preventative care" means.
Everything is emergency care, if you wait long enough.
Once they have a judgement they can garnish your wages and bank accounts. Other times they may just sell the debt to a debt collector and not even bother trying to collect themselves.
In other states, they can.
Rules and amounts vary by state, but it general, it protects you from creditors forcing you to sell your home. They may get some of the proceeds when you do eventually sell, so it may lock you into your location if you get a lien/judgement against you, but it's still better than getting kicked out.
Per usual, IANAL, consult a proper attny in your locale.
I owed a $975 remainder on a $3000 e-room visit. I sent an email asking if they'd discuss a settlement and they just called me and said the debt would be written off completely.
I was going to open the negotiation at $900 because that's what I had left in my HSA account.
So clearly it pays to ask. In my case it probably also helped that I had already paid more than half the bill. But I didn't even have to plead poverty - I just said something along the lines of "I'm trying to figure out how to best deploy the funds I have, would you discuss a settlement"?
I'm actually surprised this doesn't come up more in discussions about the cost of healthcare.
We were actually uninsured when we had our first child right around the time the ACA came into existence, and my wife had an epidural so it was about as expensive as a birth could be without a C-Section, and after the income based adjustment the bill went from something like $30,000 to only a couple thousand dollars I believe and they also offered a 12 month interest free payment plan.
It was definitely not a side of the industry that I had ever heard about.
Here is a law office that deals specifically with this: http://georgettemillerlaw.com/can-hospitals-garnish-my-wages...
I refinanced my house and as part of the process I get copies of the credit reports pulled. Anyone know why they last a lot longer than 7 years? It has all my mailing addresses for over 20 years. They asked me about a student loan I had paid off 10+ years prior. Is the "7 year" thing just a myth?
And it's worth noting that in medicine there's no fundamental boundary for 'may cost you your life', or if it is, the bar is very low. Taking an x-ray may cost you your life. Not taking an x-ray may cost you your life. Dentist's anaesthesia may cost you your life. Almost every noteworthy medical decision (including purely preventative things or running tests) has some life-or-death effect, there's only a difference in quantity, not a difference in kind. There are no life-saving procedures, there are only life-prolonging procedures. A widespread recommendation that patients meeting criteria X, Y and Z should do a particular diagnostic test will result in deaths of some people, and a widespread recommendation that they shouldn't will also result in deaths of some other people, and the main question is which number of deaths is larger.
On a large scale, medicine is mainly a resource allocation problem - almost everyone could and would live longer if we allocated more care towards them personally or towards that condition, however, the "price/performance ratio" of such procedures is very, very different. There are things like stopping bleeding from trauma, which are very cheap and prolong your life by as many years as you'd otherwise live, and there are drugs and procedures with a six figure price that give an average survival benefit of a few weeks over much cheaper alternatives; and for most of people who'll die in hospitals today we could extend their life by at least one day with extra care; it's just that it's currently physically impossible to do everything for everyone, even if our economy consisted 100% of doctors and nurses caring for each other, because now we can (attempt to) do so much more. So there has to be a line drawn somewhere; some care will inevitably have to be refused to some people, and the only debate can be about the criteria - whether it's medical criteria (e.g. being refused to be considered for an organ transplant since you'll likely die soon anyway for other reasons, and that transplant can give much more years to someone else), or the ability to pay for certain procedures, or some other ways. On a large scale metrics like $/QALY (price for a quality-adjusted life year) make sense, but on small scale it's difficult to judge.
So they'll treat your heart attack, but they're under no obligation to offer you free cancer treatment.
This quickly comes back to grandparent's point that the terms 'we' and 'survive' need to be more established. I can't imagine a single person who thinks that a situation that gives rise to advice like that is acceptable.
Yes, it's technically "theft", but the property right being violated has no business being granted in the first place.
Getting paperwork together took a while, medical bills arrive at odd times, often delay of six months. About 60 days for the actual bankruptcy to go through (the “Discharge Date”).
Then another 60 days as the bankruptcy is recorded on the credit record.
It says here that public records will be automatically dropped from my credit file after the appropriate interval. No action required. That would be 12 months from now. I wonder if that will actually happen.
Note that bankruptcy shows on a credit report, so if you are applying for a job, or trying to rent a flat, you are going to be asked about it. And so on.
I strongly advise against having a medical crisis. Stay normal as long as possible.
As someone who doesn't live une the US, maybe I can't figure the whole complexity of such a situation, be it really strikes me that people can recommend to fraud people that saved their life...
For example in a market where nobody is willing (or able) to buy your home, your net worth can be ... well, worthless. In a financial crisis it's even worse.
Your "on-demand" cash is what's in your checking or savings account. There's no guarantee you'll be able to tap into your home, car, 401K, etc. and even if you could, in the long term it may be more damaging to you. For instance in a city like Seattle if you sell your home, you could be looking at paying double or triple your previous mortgage in rent, so you're ultimately putting yourself in a worse position.
No, because if it's true that nobody is willing to buy your home, your home isn't worth the $300,000 you're claiming it is.
There's no single metric that works for all situations, but net worth is the best way to compare financial health between people and across a population in a meaningful way.
Similarly, for your investments, if the stock market takes a huge hit, your net worth will instantly become a fraction of what it currently is.
Cash will still be cash. (But also maybe worth less!)
There is no asset (including cash) that is guaranteed to preserve its value across arbitrary amounts of time under all circumstances. Even TIPS could theoretically be worthless if the government collapses.
That doesn't mean that net worth isn't still an excellent normalized comparison between arbitrary people or parts of a population today, which is exactly what we're talking about.
The fact is that it has never been easier or cheaper for individuals to invest in a reasonably diverse portfolio and grow their wealth. The problem is that the average American has no wealth to grow:
I am fairly convinced, based on the spending attitudes of many people I know, that even if they had extra money, they still would not invest. They would just spend it on a new 4K TV, new car, or a bigger house that they don't need.
Most people seek immediate gratification.
2) Home equity line
3) Retirement account
It's not painless. Losing money never is. But you said "wipe out" not "will pay fees and lose 10% of net worth."
Mean, median, and mode are all averages and a lot of statistics actually refer to median when they say "average".
Survive also doesn't mean 'maintain standard of living.' The government has a surefire way of propping up the wealthy: Inflation. Savings accounts lose purchasing power (normal person) and the means of production gets more expensive (wealthy).
Also, when you have lots of assets, you can assume that lines of credit are available whenever you might ask for them. You are less likely to tap into emergency reserves, and may also set a lower target for those reserves if you know they only need to address the most dire scenario where you might have to abandon some of your augmented lifestyle.
Finally, with large wealth you have an opportunity to diversify into many independent assets and firewall them from one another, e.g. with limited liability structures. Having one of your investments implode is qualitatively different from having your whole wealth implode. This is the entire premise of VC investment and I would have thought obvious to this audience...
Inflation does not imply growth in real GDP, no.
> which generally raises the value of equity holdings. The impact of inflation is dependent upon asset allocation.
Ceteris paribus, inflation hurts debtholders (who, incidentally, tend to be wealthy), and it helps debtors (who, incidentally, tend to be poorer).
Is this controversial?
>"This is backwards. Inflation destroys the value of debt. Poor tend to be borrowers and rich tend to be lenders, so inflation is an equalizer."
chimeracoder seemed to be agreeing with this "equalizer" position by saying:
>"Ceteris paribus, inflation hurts debtholders (who, incidentally, tend to be wealthy), and it helps debtors (who, incidentally, tend to be poorer)."
Now, true, if you're a worker who owes money, and inflation kills your cash flow (because raises come later than price increases), it may not matter to you that the value of your debt decreased, because the cash flow problem is going to bankrupt you before the debt erosion helps you. But it's still a separate effect.
Also, this is ignoring that anyone sane issuing debt plans for inflation and accounts for this somehow (interest rate schedule, etc)...
Another thing, this "inflation helps the poor idea" seems to be a version of trickle down economics.
What I am talking about here is debt. Owe money on your house? Inflation makes you owe less. Lend money to someone buying a house? Inflation means you get paid back less.
Except that's not true. If you're a debtor, the effects of inflation decreasing your debt in real dollars is orders of magnitude more consequential than the increase in your expenses, and that's even assuming your wages don't increase (which is generally not true either).
Ain't this what Americans say when describing Communism?
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.
Questions I ponder;
Is the US in the coffin corner where then next recession inevitably induces the next financial crisis or can we still have a conventional recession that doesn't strip a bunch of gears and lead to QE funded deficits and bailouts? Is the traditional recession/recovery cycle politically feasible any longer or will the great and the good open up the QE spigot at the first sign of trouble?
The answers would help to predict a lower bound on the eventual currency collapse.
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 sense? When everyone is betting on his success by blindly investing in index funds.
Bet on the winners (because they're in the S&P 500 or some total market fund), even if they aren't performing that well by their accounting metrics. Everyone will be so invested in propping up the largest companies (or at least the US/China economic moneymakers) that when a few big players seem to be doing something egregious, it will be a tsunami of sells as opposed to a small wave.
When everyone is playing and no one knows how to play (because why do I care what the market does? I just let the index fund manage for me), it just reminds me of the advice "if it seems too good to be true, it probably is". The current narrative is: you don't need to know how to invest (neither does your investment fund manager). Just bet on everything, and we'll all win. 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.
> 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).
Yes, it does - you cannot add capital to a market without raising the market cap. It doesn't cause it to raise higher or faster than it's index peers, but it absolutely does cause it to rise.
It pushes the correlation between stocks up. Investors might be more hot handed as their investment is more liquid, which may result in more selling in a dip. There are all sort of algorithmic strategies that are pro-cyclical. And also it reduces discrimination between stocks which results in weaker stocks benefiting from just being in the index and being overpriced.
Citation needed. I seriously doubt that this is true.
> And also it reduces discrimination between stocks which results in weaker stocks benefiting from just being in the index and being overpriced.
Not really. Retail investors allocating their money to index funds just leaves the price-setting power to the professionals, which, on net, ought to be better for price discovery anyway.
But it is kind of intuitive anyway. ETFs are becoming significant in volumes, so when net volumes buy or sell them, they force the sponsor to buy/sell the whole market reducing price discrimination. To have any price setting power you need large volumes.
Actually, it does. Whenever a company is added to one of the major indexes, it almost always increases in price, and conversely, when one is removed, it generally declines.
This is specifically because of all of the index funds that suddenly must put money into/remove it from the stock when it is added/removed from the index.
Supply, Demand, price curves, you know the rest ...
Of course, when't it's there for years, it merely adds a relatively steady-state chunk to their price, affecting the level of their price curve, but not so much the slope.
Interesting question about market inefficiencies. Again, while they're not zero, I'd guesstimate them to be in the minor percentages...
If Amazon suddenly adjusts their R&D spend to show the massive profit of which they're capable, or does a massive increase to go after a new market, I'd expect it to go up or down massively more than the index and drag the index along. In that respect, the index may play a dampening effect, as people invested in index funds just go along for the general index ride instead of jumping on/off the AMZN bandwagon.
As long as stock prices are set fundamentally by deep-pocketed institutional investors buying and selling, a stock's price should only be based on expected discounted future cash flows, no?
I can understand a short-term effect if demand suddenly skyrockets, but that can only last a few days, no?
I'm struggling to reconcile traditional supply/demand with the efficient-market hypothesis here.
AMZN: up 62.93% YTD
S&P500: up 6.81% YTD
I don't think index fund investors are the cause of Amazon's growth.
FAANG+M probably has a disproportionate impact on the index
>But the Street's favorite stocks have outsized clout in the index. For instance, Silverblatt says the FANG names — Facebook, Amazon, Netflix and Google parent Alphabet — equal about 7 percent of the S&P 500. With Apple, they make up about 10.6 percent.
Sure they are.
Index funds are not equally weighted. Practically every tech ETF you can buy has Amazon weighted in the top 10, sometimes over 10% of total assets  whereas the average for other securities is below 1% at the most.
You are conflating the general notion of index funds with the common investing advice of buying and holding index funds. I would argue that holding here is the vast majority of the advice. Plenty of people day trade index funds. You should be explicit that your objection is to the un-informed buying and holding of index funds. Also, you should be explicit in how you think a crash would come about, instead of simply mentioning a popular investment category.
Index funds do not discriminate. I don't understand how you drew the connection between them and an individual company like Amazon.
You make the assumption that people who now buy index funds would otherwise be intelligent investors that would correctly set stock prices. I doubt it. The trading patterns of most people have to be near random, more noise than signal, and likely very emotional. In fact, in this way index funds reduce the chances of a crash by removing this kind of nervous money from the stock market.
You make the assumption that index funds would swallow up all investments when in reality the edge that active investors have increases as the number of active vs passive investors decreases. There is a self-balancing force at play.
You simply have a wrong outlook on index funds. Buying a total index fund is investing in the entire stock market; betting that it is healthy and will grow with time. That's all. It is as much "too good to be true" as a healthy economy. Yes, buying an index fund means not participating in the process of correctly allocating resources to the best companies. But the important thing is that you are not in any way harming the actual participants because you obey their prices. This means you are essentially investing as the average active investor.
And lastly, it is naive to think that "fat cats" take more money from passive investors than they do from active ones.
These titles are usually written by editors who think in clicks and they are not the original titles from the writers.
This was good and interesting article but unless we discuss the content (and read it) there is nothing to say.
Point being: there is some value in discussing the title. Certainly different readers value that discussion more/less than discussion of the content.
This is rarely the case.
Usually (as is the case here). The commenter uses the title title as a statement and criticizes it directly, not it's relation to the article.
It seems to me that people read the title, and come here to comment the title before reading the article.
Also famous for losing more than $3 billion (or $7.7 million per day) on Valeant
Oof. Up 1% over a time period where the S&P is up 118%. Brutal.
If you have 2 companies A, B worth both worth X billion each and you own 1 billion$ of each. Then if A's value doubles you now own 2 billion$ of A and 1 billion$ of B which is also the correct ratio.
The math is clear, you are statistically unlikely to beat the market.
I’m going to argue that the trend towards passive management is not only sustainable, but that it actually increases the accuracy of market prices. It does so by preferentially removing lower-skilled investors from the market fray, thus increasing the average skill level of those investors that remain. It also makes economies more efficient, because it reduces the labor and capital input used in the process of price discovery, without appreciably impairing the price signal.
It's not really as binary as many perceive. It's not as simple as active vs passive. The future is probably some kind of balance between active and passive.
Dividends vs stock buybacks are a wash economically - if you look at cash flows, they both reduce the market cap by the cash given to investors. It's just that dividends reduce the price of the stock directly, while buybacks reduce the number of shares outstanding.
Dividends reduce the price of the stock directly because there is an active market. Once the dividend is paid out, the stock price is decreased by the dividend because this is what market makers are willing to pay now.
Without any active market, paying out a dividend would not influence the price, because there are no market makers to begin with.
This is of course absurd, so there will always be an active market.
Once again, the best bet for the average person is an index fund. On a 30 year timeline all of these blips are smoothed out. If you can afford top level financial firms you're probably way wealthier than the average person.
Maybe this is just my ignorance of the terms of CDO agreements...but weren't they collateralized by the homes? I mean, it's in the name: Collateralized Debt Obligation. And wouldn't that make this CLO market exactly identical to the CDO market?
Much exaggerated in value homes, yes.
> And wouldn't that make this CLO market exactly identical to the CDO market?
The mortgage debt market is backed by GSEs. When the bubble popped Fannie and Freddie held over $5 trillion in mortgage securities. They are the market maker -- the buyer of last resort -- that makes the whole mortgage securities market liquid.
CLOs don't have such a market maker. There are certainly market makers, but they aren't US GSEs with multiple trillion dollar balance sheets backed by the US Treasury. This limits the degree to which the CLO market can overextend.
Not that corporate debt can't grow to disruptive proportions. Problems with corporate debt is how the term 'junk bonds' emerged as a household word in the 80's. Now that we're rolling BBB quality debt into CLOs (as of last April, apparently) the clock is ticking once again.
Survival is a very low bar. Going bankrupt qualifies as surviving since being alive along with having faith in the future can be enough to rebound successfully. Plenty of millionaires exist now because they learnt from failure from bad luck or poor execution of a plan.
Whether we taxpayers will be able to bail out various institutions that should have failed dismally last time is another matter. According to the article, banks are better off now but that remains to be seen. Nothing like reality to expose a gap in planning or regulations. Multiple institutions have likely not learnt their lesson and are probably unbalanced or unstable right now.
The downturn is likely already happening in some sectors in some obscure way and what the flashpoint will be is anyone’s guess. Possibly student loans but that’s a slow burn safely covered by the government and people who can’t escape paying so it’s effectively already bailed out. Might be the unpaid pensions which are already hitting the budgets of multiple states. Petrodollar consequences may be a factor since it might cause moneyprinting to be less effective.
Interesting times ahead I’m sure.
Our survival depends on local farms and businesses that are able to produce real value for people.
I define "real value" as resources having the ability to be bought, sold, and traded for other resources. For example, one hour of labor is worth X pounds of produce from a local farmer.
Our culture has too much of a dependence on global supply chains that will become increasingly expensive and scarce in the coming years.
So yeah, the next financial crises will be just the beginning. Add to it climate change, trade wars, unstable governments, and I start to see a troubling future that will affect us all in some way or another.
"real value" - that's a vague term. can you expand on that more? how does $6/lb (random guess at the price) bananas from california , provide more "real value" than $0.4/lb bananas from central america?
>Our culture has too much of a dependence on global supply chains that will become increasingly expensive and scarce in the coming years.
so globalized stuff is going to get more and more expensive, relative to more local stuff. isn't that supposed to be good, given how much you like local goods?
Today, it's my opinion that our culture has an unhealthy fascination and addiction towards products and goods that have a cost that is not reflective of the real value to sustainable supply the demand. Too many things these days are subsidized to create consumer demand and those dependencies are unhealthy and unsustainable.
"Like the links in a chain, one by one they will start to give until the chain collapses."
Ideally, consumers will have to pay the real value for those products and goods or go without until they can afford it.
It's entirely possible that in your example, both prices are reflective of the real cost to grow, maintain, and distribute bananas.
As a consumer, the price of $0.4/lb is cheaper and will keep more money in my pocket (or does it?) when compared to the $6/lb price.
However, as a consumer I should take into account the other factors of that cost, for example, how much did it cost to ship those bananas to my local store?
How much does it cost for the farmers to support their families?
Should I even be eating bananas right now?
Can I take a break from bananas and save up to afford the bananas that are closer to me?
Is it better to support the local farmers in my region, or the farmers across the world? Maybe both?
We need to be asking more questions about the big picture.
It's factored into the price, so I'm not sure why we should pay special attention to it.
>How much does it cost for the farmers to support their families?
>Can I take a break from bananas and save up to afford the bananas that are closer to me? Is it better to support the local farmers in my region, or the farmers across the world? Maybe both?
Again, I'm not sure how this is relevant. Farming bananas probably pays better than whatever other business they can do, otherwise they'd switch over to the higher paying business. If you want to help lift people out of poverty, donate to aid organizations, don't not buy their bananas (which is what keeps them fed in the first place!). Buying "local" bananas might not even be the most environmentally friendly solution, considering you might be growing them in sub-optimal climate conditions. Furthermore, choosing inferior (in price or quality) products just to support your clan sounds a lot like protectionism.
In addition to working in the tech field, I also work with farmers and my opinions are from my own experiences, research, and study.
From what I understand, the price of 90% of what you buy in a grocery store is not the real cost to produce and delivery that item to the grocery store.
That price is heavily influenced by what the market value is of the commodity, which at the moment is mostly driven by industrial farming operations.
Industrial farming relies on their massive scale to make a profit, and they also rely on predictable growing conditions to obtain those results, which is also a tangential problem.
Non-industrial farming operations (local farmers, family famers, etc...) rely on multiple sources of income, resources, and commodities to break even. Typically, one of the partners of the farm has a full or part time job to cover OPEX, and any profits made from farming is used for CAPEX. At the end of the day, the farmer has to decided to either compete with the industrial farmers and unrealistic market values, or they bypass that and sell straight to consumers.
Another issue, is that for everyone else who doesn't live near farmers, they are accustomed to market values that are not reflective of the real cost to produce those goods.
As of right now, the market value is reflective of industrial operations that use both scale and subsidies to produce cheap food.
My entire point, is that this trend is not sustainable for consumers, farmers, or nature.
So in addition to the next financial crisis, we will also be seeing a dramatic change in our food production and distribution system.
>From what I understand, the price of 90% of what you buy in a grocery store is not the real cost to produce and delivery that item to the grocery store.
>That price is heavily influenced by what the market value is of the commodity, which at the moment is mostly driven by industrial farming operations.
>Industrial farming relies on their massive scale to make a profit, [...]
>Non-industrial farming operations (local farmers, family famers, etc...) rely on multiple sources of income, resources, and commodities to break even. Typically, one of the partners of the farm has a full or part time job to cover OPEX, and any profits made from farming is used for CAPEX. At the end of the day, the farmer has to decided to either compete with the industrial farmers and unrealistic market values, or they bypass that and sell straight to consumers.
I don't get what you're saying. Large farms have larger economies of scale, so they can out-compete smaller farms on commodities. This is basic economics. How is this increased efficiency intrinsically bad? Why should consumers pay more for food that's produced by inefficient small scale operations?
You say that the price you pay doesn't represent the "real cost", but obviously it does, otherwise the farm will go out of business operating at a loss. The only other explanation is externalities, but you haven't really explained what negative externalities big farms are producing that small farms aren't.
>[...] and they also rely on predictable growing conditions to obtain those results, which is also a tangential problem.
Is there a reason why industrial farms are more reliant on predictable growing conditions than a smaller farm? If anything large farms can weather shocks better than small operations because they have better expertise to mitigate the negative effects and bigger bankroll to avoid bankruptcy.
>Another issue, is that for everyone else who doesn't live near farmers, they are accustomed to market values that are not reflective of the real cost to produce those goods.
disagree. in the same way that living next to a GM plant doesn't accustom me to the the real cost in producing a car.
>As of right now, the market value is reflective of industrial operations that use both scale and subsidies to produce cheap food.
scale: as I said earlier, I don't see anything intrinsically wrong with economies of scale associated with large scale operations. If anything, they're a net benefit to society because they have higher efficiency.
subsidies: this mainly hinges on whether large scale operations get more subsidies (relative to size) compared to small scale operations. I haven't done any research on this so I won't comment either way.
Wait, what's the difference here? Mortgages had collateral- the homes. That's the C in CDO. The problem was that when home prices fell, the collateral wasn't enough to cover the loan defaults. It seems like the same thing could happen for a structured product based on other types of debt if the collateral turns out to not be as valuable as we thought.
>"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?
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 allow ignoring customer's income.
It caused a $5 trillion in transfer from the wealthy away from the working classes to the investor class in that 2008 Mortgage crisis.
The 2008 Mortgage crisis robbed the working classes, and transferred to the investor classes. Homes lost because of unemployment. Savings gone via rigged economy unemployment. Bail outs. Banks offloaded their worthless assets with government buying them. Wall Street over leveragged had huge wealth handed to them in money printing that was giving directly to their balance sheets.
The surpise will come the next time a Financial Crisis comes and the government works to sell out the working class
If that's true, then why is the current government working hard to remove any protection (however meager it is/was) to prevent the same mistakes from happening all over again?
If the working class has no tolerance for these things, then it definitely isn't reflected in the people the working class has elected to 'represent' them.
I find your average worker doesn't really pay attention to the day-to-day news/politics (especially regulations & individual votes, media doesn't cover this either and nobody watches CSPAN) but by now knows that in 2008 the bankers & wall street — the people who put us in such predicament in the first place — got an enormous bail out that went to already super rich executive & CEO bonuses, but the working class lost their homes & jobs and received absolutely nothing.
I don't think think it will go that way the next time it happens.
"It couldn't possibly happen again, we're better/bigger/smarter than last time. So we have nothing to worry about, no reason to put in safety guards/regulations!" - Humans throughout history.
Because regardless of what you hear median income is the highest it's ever been: https://seekingalpha.com/article/4203346-july-2018-median-ho...
This is the first time that the real median hourly wage for full time employees is higher than it was in 1968.
I do think some people voted for Trump as essentially accelerationism, but unless the Democrats and the media apparatus succeed again in disenfranchising an actual left candidate in 2020 (which is always possible) the tide could turn.
The working class wasn't robbed at all. Maybe they lost the value they thought their homes had, but the reality is that all of that was just inflated.
2008 was an issue of moral hazard and unfortunately Joe Schmuck isn't aware of that going into a mortgage agreement. This will continue to happen forever until people finally learn that when something seems too good to be true, it probably is.
If you want to blame 2008 on anyone, you need to spread the blame like peanut butter among lending banks (but not every bank!!!), people who took on mortgages they couldn't pay (if nobody defaulted, the crisis would never have happened) and above all the credit rating agencies who exist for the sole purpose of assessing risk and maliciously failed to do so in order to not piss off their biggest customers (the banks).
Once that incentive was removed, mortgage servicing (often contracted to the same banks) could continue, putting unrelenting pressure on people who had taken out the loans. So what if they lost their loaned properties? Well anyone who had put down a down payment or had equity in their home lost that down and equity. So this ended up being a very one sided transfer of wealth out of the hands of people taking out mortgages, while preserving the profits of banks (they didn't have to accept the losses of the securities bought by the Fed...).
To me it looks like the the organizations with the deepest buffers of wealth (banks), got a bailout by the fed, while individual people bore the full pressure of having their wealth systematically reduced.
As an alternative, the fed could have risked similar or less money by offering to pay down some slice of the principal of the loans, requiring a refinance/reset to put the security back into balance with the market prices. This would have allowed wealth to stay in the hands of individuals, somewhat insulating the banks, but resulting in less transfer of wealth.
Those banks should have been insolvent, and wiped out investors, it cost Americans an estimated 12.8 trillion dollars by kicking the can down the road
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 that was giving directly to their balance sheets.
A common misconception. The government did recapitalize various Wall St. entities on favorable terms, and did, via quantitative easing, give owners of some securities more than they might have gotten in the market without intervention. But there were certainly not any "no strings attached" givings of cash to the big financial entities.
The other stuff about how working Americans were the ones most hurt by the financial crisis also sounds incorrect to me. If I had to categorize winners and losers, owners of mortgage debt and homeowners would be the biggest losers of the crisis. Working Americans suffered knock on effects, or direct effects to the extent they were in the other categories, but they were not the primary victims.
$1.3 trillion from two levels of TARP, plus AIG, plus Fannie/Fredy.
The rest has been documented from lost of people who had sustainable mortgages but lost their home due to 9% unemployment that lasted years. There are many sources that cover this. I've read several books on the mortgage crisis and they are all in this category. That is a subset of the $13 trillion referenced in wikipedia sub-prime article.
>> Wall Street over leveragged had huge wealth handed to them in money printing that was giving directly to their balance sheets.
> But there were certainly not any "no strings attached" givings of cash to the big financial entities.
You are missing the big robbery. Investment banking firms that purchased the CDOs/MBSs only had 3% of assets backing massive leverage. The reason the financial industry was going to CEASE UP was because they all didn't have the assets to backup the extreme leverage.
The robbery came because extreme money printing (QE) was used to "give assets" to banks so they would have far more than 3% assets to backup their massive leverage. The US tax payer was robbed with the money handed to them to sit on their balance sheets. That is the way their assets backing leverage raised above 3%. Banks getting more than 3% assets didn't happen any other way. Massive inflation will happen when this massive assets flood the market once a bank gets in trouble and transfers these QE "assets" into the market. That is when citizens will get robbed by the huge inflation impact of that QE.
Municipalities and pension funds would buy AAA securities even though the originators and packagers of the mortgagers knew they were garbage.
It was a big fraud caused by the bankers greed.
I understand what you saying, but I think you underestimate the lack of accountability that allowed people to get loans they were not in the best interest of anyone.
Then you can say 'oh, that scam was so obvious that people ought to have seen through it!' but it was explicitly designed to be obvious because, statistically, THERE WILL be someone (perhaps a nice but foolish someone!) who does fall for it.
Therefore, you can't have an informed public. Ever. It's a matter of how you handle the edge cases. We don't have rules making things like murder, etc. bad just because MOST people don't deserve to be straight-up murdered. We have them because it needs not to be too tempting to murder in those cases where the guy REALLY deserved it… it's inhibiting the potential murderer on general principles, not making value judgements on why to protect extremely deserving victims.
This is not the case in the financial industry, and the consequences we pay for that might be pretty dire. In the financial industry they think they can say things like 'I want an informed public', and they think they can make entire business models on screwing deserving victims, and it's not really about the victims, it's about social pressure stopping people from being monstrous on general principles. And again, nothing at all stops bankers from being monstrous. Indeed, it's a survival characteristic: we select for that.
Your comparison to Nigerian scammers is irrelevant because there is nothing legitimate about a Nigerian prince scam, it's just stealing money. Millions of people have mortgages they can afford and pay for them just fine.
But when parties enter into a transaction, there should be repercussion in the case of fraud. That never happened. One party in a transaction was lied to and there was no repercussion to the other party.
Also, thanks for taking the time to respond, really enjoy debating this topic. Wish it could be in more real time.
It shouldn't have been a shocker to anyone making 2k a month that a 1.9k/mo mortgage was pretty risky.
or with the aid of people with that necessary skill needed to convince regular people to do something only credulous people would do. What was the name of that skill,... hmm... isn't it "manipulation" or "marketing" ?
You see, if someone's is going to make a mistake, I tend to help him by preventing him to do so. I don't give him the pen to sign its destiny.
From Joe Sixpack's perspective, he paid his mortgage every month for 20 years, was all set to retire on his home equity, and then poof, the rug got pulled out from under him.
It's a bit of a tall ask to say he should've seen that his home was overvalued and planned accordingly when all of Wall St couldn't see it either.
I'm certainly not saying that I expect the average American to understand what actually happened. The average American believes all kinds of things that aren't true, even in much simpler domains of knowledge. I am just saying what actually happened.
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.
People were making decisions in a market they thought was fair. But, that market was fraudulent created by originators and bankers trying to make a quick buck.
My prediction for the next market crash:
1. Working class will lose their jobs
2. Middle class will lose their homes/investments
3. Wealthy class will get huge tax breaks to “stimulate investment”
4. Big companies will get massive bailouts in exchange for empty promises to create jobs that they never will keep
What makes you think next time will be any different?
Regardless of the "it can't happen hear" attitude, the US is clearly following the identical trajectory of about a dozen other countries which have fallen into demagogue led neo-autocracies blaming easy targets for their woes.
The only real question is whether we're talking about the future or the present.
The good news is they can be rented back from Wall St firms who have been snapping up rental properties with that windfall.
I highly doubt this sadly. As long as Americans have their internet, their cable and other comforts, they wont revolt. Its not dire enough.
I'm not sure that's really relevant in this case, but by the same token, the "increasing militarization" of police departments is probably also not relevant.
I'd wager that people upset about this stuff will continue to vote for rah-rah morons who channel their anger while sinking the knife deeper into their back. Happy to be proven wrong.
Meh. There won't be any surprise at all. Even now, people who are outraged about the bailouts are just the lunatic fringe libertarians (like myself) and some equally fringe progressives. Almost everyone I talk to about it says, "yeah, it's too bad that we had to give Citibank billions of dollars, but otherwise bad things would have happened, according to people who didn't predict the previous bad things, and are thus totally qualified in their predictive abilities, and Citibank paid it all back anyway, with no fudging of balance sheets or interest-free loans or anything like that".
I think people make the mistake of seeing the 2008 crisis as the mortgage failure, instead of the massive wealth transfer that you're talking about. When working class people paid too much and took too much leverage for real estate, and the market turned, they had to deal with the fallout. When banks like Goldman paid too much and took too much leverage betting on CDS, the proper response is the same -- not to give money to AIG to pay them back, but to have them face the consequences just as everyone else did.
They totally will again. The working class will again go against each other over irrelevant issues like guns, race and religion while the .1% will make sure to get ahead. I always like this story :
"An immigrant, a worker and a banker are sitting at the table with 10 cookies. The banker takes 9 and then tells the worker "watch out, the immigrant is going to steal your cookie"."
Like another commentator, I believe index funds are going to be ripped hard and this is what the average saver has been told to dump their money into by the banking industry since the last crisis.
I guess I should add the clarification that I think most folks who consider themselves middle-class and who are investing and saving money are actually working-class.
If you don't own your residence outright or have the liquid assets to purchase it and still make investments, you are working-class.
If you live in the valley and can't afford to buy and can't uproot your job to somewhere more affordable to buy while maintaining roughly the same income level, you're working-class too.
One can make a strong argument (even from marxist sources) that even the marxist revolutions were mostly directed by the middle class; most of the marxists call it the intelligentsia, but these were mostly educated men at a time when that meant more than it does now. (and even now, I think most people consider a good education enough to make you "middle class" even if you don't make that much scratch.)
I mean, all this depends on your definition of a "revolution" and of "middle class" - if I define "middle class" as "powerful or educated enough to get something done, while not being super rich" and I define revolution as "overthrow of the government by people who aren't already at the top of the power structure" then it almost becomes tautological; if people are powerful enough to start a revolution, by that definition, you are middle class or better, and if an elite starts a revolution, by that definition, it's then a coup.
(I'm not suggesting those are your definitions of revolution and middle class; just that the definition of those two words (and the definition of those two words is kinda fuzzy) makes all the difference in this question)
(but now it could be said that I'm changing the definition of elite to mean someone who has so much capital that they don't need to work. Still, I think that in both those wars, some of the leaders were also some of the richest people around. I'm also using a right-ish definition of revolution, especially in calling the ACW a revolution and not a reaction. I personally feel that 'reaction' might be reasonably applied to the ACW, at least, just because it was a clear attempt to roll back what would be called, really then and now, progress.)
This is sorta enshrining survivorship bias in your premises - take the largest economy around today and point out that every time it's crashed, it's recovered. Well, if it hadn't, there wouldn't be anything to point at.
There are actually plenty of examples - even among European settlers of the Americas - where the economy did not recover. The Continental Congress and the monetary system setup under it failed through hyperinflation, leading to the expression "not worth a Continental", and then the country had to be rebooted under the U.S. Constitution. Similarly, plantation owners in the Confederate States of America were totally wiped out - not only was the currency debased, the infrastructure destroyed, and the plantations burned, but the whole legal framework under which the plantation system operated was rewritten.
The mistake that index fund adherents make is that there is no such thing as passive investing.
Certain market participants have been screaming about this fact to anyone who will listen for 2+ years now.
There's an alarming amount of overlap between the groups: "claim that passive investing will underperform," and "make money when people actively invest."
Furthermore, how exactly are "passive investors" going to take a bath? They're simply making a very long term bull market bet; if DJI drops 50%, it's the active investors that might sell at this price, but the index funds will just keep their position until (and after) it recovers, the only case where they'll lose in the long run is if the DJI drops permanently and that doesn't seem plausible outside of ww3 scenarios.
Buy low, sell high; not the other way around.
I mean, that's the goal. Of course, it doesn't always work out that way, but you don't plan on selling at the bottom and buying as it recovers.