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Can We Survive the Next Financial Crisis? (bloomberg.com)
245 points by chollida1 7 days ago | hide | past | web | favorite | 288 comments





The definition of "we" and "survive" needs to be established clearly first and I don't think all those fancy graphs and market trends will define them. There's a lot of people that ended up bankrupt, in a bottomless depression, turned to drug abuse or committed suicide because of the last crisis. Wages are still relatively low while prices continue to climb. Many people are working 2-3 jobs and having trouble affording rent across major cities in the U.S.

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...


If you have an extreme health care incident, why pay the bill? Sure it would hurt your credit score not to, but if it's between that and tens/hundreds of thousands, I think it is worth it to take the hit for 7 years. I know health care workers who give this 'unofficial' advice to their patients and I've had friends and family members do the same thing - people who had no health insurance but still got health care and paid nothing for it.

It's not just the 7 years on your credit score, it's having collection agencies hound you incessantly. It's having people constantly trying to scam your bank to drain your account. It is legal threats against you, your family, your friends, your employer, etc...

You're basically dropping you bloody name to a pool of sharks who have little respect for what is legal or ethical.


> It is legal threats against you, your family, your friends, your employer, etc...

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.


With what money?

any consumer rights attorney will take debt collector abuse cases on contingency - 40% cut. Abuse is so rampant (at least it was after the last financial crisis) it literally is like playing whack-a-mole for $1k/pop for every violation. A collector that repeatedly called my place of employment after being told I couldn't accept calls there, and threatened jail time, was forced to pay me $10k to me for their violations (and 8k to my attorney) on my counterclaim in addition to having their suit against me thrown out -- this was a law office that purchased debts and blanket sued and strongarmed/scared people into paying via violations of the FDCPA.. it's worth it for them because 90% of people give in and don't know their rights. It's even more worth it for those individuals that do understand the law and their rights.

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.


Very interesting indeed, have you written about this anywhere I can read more?

No - at the time I used forums (think creditboards or something like that and others) which have very helpful "armchair experts" that give excellent advice. Lots of form letters/response letters can be found and modified to suit your specifics. Many good strategies can be found and adapted down to the specific collection agency, etc. One of those things all the info is easily 'googled' and just gotta put in the hours reading and understanding how it all works, then use it to your advantage.

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).


This is f-cking gold man, I understand if you want to leave it all behind you, but there are millions of people suffering out there like you were. If you could write this up and monetize somehow, could be very lucrative and beneficial to a lot of people.

You should write a blog post on it. Seriously..

Does Saul do “no win no fee”?

Tough crowd. No sense of humour.

I declared bankruptcy 9 years ago and literally none of that happened. I even hired a cheap shyster lawyer. I never got so much as a phone call.

Your mighty President kept doing it for years multiple times. And he seems to be doing fine (the wealth part, not the politics part).

What does it mean to be "hounded" by collection agencies? I've allowed some of my debts to go unpaid because I considered repayment to be a poor deal. Yes, I've received phone calls, which I answered and calmly informed the caller that (a) the conversation was being recorded; and (b) this was the last time they called me because I was invoking the FDCPA. I've never had to repeat this more than twice.

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.


> I've allowed some of my debts to go unpaid because I considered repayment to be a poor deal.

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.


If defaulting on a debt is fraud, then why do lenders charge a premium for credit risk?

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.)


of course, but my interpretation of OP's comment was that they went into a purchase with the intent of defaulting. To me, that's fraudulent - IANAL but that would seem to be legally fraud too. It's really no different from chargeback scams.

It's only fraud if you take out the loan with the intention of not repaying it. sigfubar never says when he came to the conclusion that repaying the loan is a bad idea. If it's any point after he took out the loan, it's not fraud.

You would really shoot them if they just rang your doorbell? Or do they try to enter your home and arrest you? Why such drastic measures?

"take the hit for 7 years"

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.


Why is it bananas that you can't just walk away from a debt? The foreclosure system in USA is a significant part of what caused the mortgage crisis.

You should absolutely be able to walk away from a debt.

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 other countries (for example the Netherlands) YOU take the loan, not your house. To make sure the bank won't be left holding the bag, you use the house you're about to buy as collateral.

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.


It's almost as though both you and the lender should think deeply, be conservative, and do your homework before taking out something as large as a mortgage!

Let's not pull at that thread.

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.


the idea that you can get sick one time and be financially ruined is still astonishing to 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.


Still though (and correct me if I'm wrong), but if you get sick tomorrow with some ailment for which treatment is complex (and therefore expensive) AND you don't have insurance - your options are to find the money or go bankrupt?

That's nuts in 2018 in a wealthy democracy.


Nah, you just have to go elsewhere because the US healthcare system apparently includes a bunch of unnecessary or overpriced expenses. Or you just say you dont have insurance so you get charged at 10-50% the "chargemaster" price.

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.


> Think about how cuba is able to have similar life expectancy, etc at a fraction of the cost with chronic shortages and subpar sanitation.

I suspect most of the US' problems is the atrocious lifestyle most live; overeating and under-exercising are literally a lethal combination.


Well the overeating is partially the healthcare industry's fault due to poor nutritional recommendations. People in general should not have grains as the main basis for their diet. This type of diet makes many people eat more than they otherwise would.

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".


> Still though (and correct me if I'm wrong), but if you get sick tomorrow with some ailment for which treatment is complex (and therefore expensive) AND you don't have insurance - your options are to find the money or go bankrupt? That's nuts in 2018 in a wealthy democracy.

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[0]. 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.

[0] That's over the entire population, so it's including people who are uninsured and can't afford the most expensive treatments.


As someone who emigrated from the US to New Zealand (where we have a socialised medicine system), I'm curious about the relationship between those survival rates, and the related diagnoses. Here in NZ, it seems like there's much less hesitation in a person going to the doctor in the first place, compared to the US, and I'd imagine that has some positive impact on the population.

Perhaps there is a tradeoff between treatment of complex conditions, and treatment of more frequent but less complex conditions?


Why is that nuts? Honestly it seems kind of nuts that someone would expect another person to pick up their tab

I honestly feel like it’s nuts that we don’t collectively fund healthcare, precisely because I don’t want to live in a world where I may be ruined by an illness and I am willing to pay to make sure others don’t have to live in that world.

However I am specifically a proponent of voluntary collectives for things, as government forced cooperation seems suboptimal and fragile to me.


> I honestly feel like it’s nuts that we don’t collectively fund healthcare, precisely because I don’t want to live in a world where I may be ruined by an illness and I am willing to pay to make sure others don’t have to live in that world.

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.


The problem is that the patient doesn't know what the right price is, and what the difference in products will be when going to a competing lower price offer. It's fine to try out a competing smartphone at a lower price point; I would not want to gamble with my health that way.

> The problem is that the patient doesn't know what the right price is, and what the difference in products will be when going to a competing lower price offer.

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.


Aren't these two things mutually incompatible? How do you have universal healthcare that doesn't let anyone be bankrupted by their illness, where participation is also voluntary?

And isn't voluntary collective healthcare just another way to describe private insurance companies, especially HMO's?


Well, with universal and mandatory healthcare you wouldn't be bankrupted by your illness since the insurance covers it. The population at large pays for the few that need the expensive treatments.

Maybe.

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, https://www.washingtonpost.com/news/wonk/wp/2015/09/09/the-c...

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...


> people who had no health insurance but still got health care

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.


I was referring to 'extreme' health care incidents. I don't consider it fraud if a person has their back against the wall fighting for their life, and on top of that is dealing with a system that prefers surgery to stem cell injections because of the extra operating room hours that it can bill. Just my personal interpretation.

And my point was that "extreme" health care incidents represent only a small part of treatments needed, and that people NEED INSURANCE, not to be told "it's OK, you can just not pay".

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.

Get. Insurance.


Believe it or not, even with the ACA, not everyone can afford it. $150 a month is too much if you're making 15K a year, or around that number + you have children. If I was still in that income bracket when the ACA came out I would have simply had to take the fine and have it wipe my tax return because there was really no other way.

Then the proper advice becomes "get your ass out there and vote for a party that will preserve and protect your access to health care" and not "hur, dur, it's all good, you don't have to pay!"

My ex mother in law was a lazy, morbidly obese dependent of the state who received well over a million USD in care during the last 10 years of her life. Even when her moron of a husband cancelled their insurance policy she still managed to spend months in the critical ICU section of UC Irvine while they cut out a bread loaf-sized section of necrotic flesh and rebuilt her intestinal tract. They didn't, and couldn't, pay anything.

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.


i don't see anything here that contradicts the parent.

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.


She did generally have good access to preventative care once she had a condition. Since she generally always had something wrong with her, she generally always had access. I see your point though.

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.


> good access to preventative care once she had a condition

That is literally the opposite of what "preventative care" means.


> you're describing emergency care

Everything is emergency care, if you wait long enough.


[flagged]


Please don't add a personal attack to a nasty comment.

That's a pretty unfair moral judgment to throw out; considering that every use of resources involves at least an implicit tradeoff, I'll go ahead and risk damnatio by wondering aloud how many people in poor countries could be saved by the use of a fraction of this resource expenditure.

Being potentially wiped out by a healthcare incident is not simply a matter of the looming bill. Your recommendation (i.e. to carry on by ignoring the bill) assumes the illness causes little disruption and the cure is complete. Many illnesses or injuries take much time to recover. Sometimes proper medical care cannot be obtained. Sometimes doctors don't want to take on a case, or even care to be honest. Others might withold a cure to generate recurring therapy revenue. Especially in the US, medical fraud and waste is monumental and the social safety net is insubstantial. These things will disintegrate a life more surely than a bill. Employers and creditors become impatient. Opportunistic predators circle about. If people are in debt, and without savings, then life circumstance unravels quickly at any non-trivial interruption.

Having wages garnished doesn't sound like fun, but that's just me. Healthcare incident doesn't necessarily mean 100k hospital bill or something ridiculous. It can be as little as 10k (or much less) and still do a lot of financial damage to a person. Sounds like a bad idea.

I knew one person who owed 300K for cancer related surgery and another who owed 30k for appendicitis and they didn't have any legal action issued against them. One was close to minimum wage and one stopped working entirely for years after the surgery. Is this more common in specific states maybe? This was in Florida.

My sister in law has been sued by hospitals twice for unpaid medical debt, but it wasn't even a lot, like ~$1,000 maybe.

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 some states, especially retirement states like Florida, debtors can't take your home.

In other states, they can.


Filing a Homestead Exemption is a good idea when you buy a home for your primary residence.

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 think most of the time you can work with the hospital and possibly get the charge cut in half. Then pay monthly payments with zero interest. Has anyone done this?

I've done it.

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"?


Yes people do this all the time, but YMMV. I could be wrong, but I believe the hospital is not obligated to work with you. Depends on who you talk to, the type of procedure it was, your household income and more. You're making $70k/year supporting a family of 4 in a tech-hub like the Bay Area, but say you had an accident vacationing in Texas and now on the hook for $8k in hospital bills. Will the hospital look at your cost of living or will they see 70k and assume you should pay in full?

Getting a $250k bill cut in half doesn't help so much when you used to make $40k/year before you lost your job because of the medical emergency.

One of the hospitals we had a child at had income based repayment and it was a sliding scale all the way up to 100-something thousand dollars per year of income. At the lower end of the scale, they cut your bill to a small fraction of the original bill.

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.


In what state can debtees garnish debtor wages? To my knowledge, only the government has that power, and only uses for taxes or child support reasons.

Any creditor can garnish wages by taking you to court. There are state and federal limits to how much they can garnish though.

Here is a law office that deals specifically with this: http://georgettemillerlaw.com/can-hospitals-garnish-my-wages...


Thanks. I’ve never heard of this before. When my parents went through bankruptcy, it never reached that point, I guess.

All of them, but they have to sue first and get a judgement. Anyone with a judgement against you can obtain permission from the court to garnish your wages and bank accounts.

This is slightly off topic, but I'll ask.

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?


It can stay on there indefinitely but they can only use the last 7 years. They can ask about that 10+ year debt but you’re under no obligation to answer it.

Would this, for example, for cancer? Refusing to pay your first treatment might make access to subsequent treatments harder.

Is it legal for a doctor to refuse treatments that may cost you your life? I understand that an insurance company may refuse to insure you due to preexisting conditions (or at least they were able to at some point), but I think insurance is different from showing up at a hospital in the midst of a life or death situation.

In general, yes. You don't refuse emergency procedures (i.e. you're going to die right here right now without it), but life-prolonging procedures (e.g. without this procedure you have a 50% chance to die within 4 months) are a different thing. And for diseases like cancer, if you show up when you're about to die, then there's nothing much can be done; they can put you in coma on life-support to eke out some more "life" but you can't cure it anymore.

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.


Hospitals have a legal obligation to stabilize you in the U.S.

So they'll treat your heart attack, but they're under no obligation to offer you free cancer treatment.


The issue with that is that it represents a breakdown of property rights. I'd like, but don't know how, to find a less judgmental way of putting that point because from what I've heard the US healthcare system is unfair and unpleasent. That said - what you are describing is in a strictly literal sense theft.

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.


Healthcare billing is too broken for me to endorse blindly paying things. Routine care, co-pays, planned procedures, sure, pay your goddamn bills. Get hit by a car, loaded into an ambulance, and stuck with a $15k bill that your insurance company refuses to pay because it's "out of network"? Tell them to pound sand, they have no right to extract your life savings in rents simply because they happened to be the hospital closest to the relevant ambulance.

Yes, it's technically "theft", but the property right being violated has no business being granted in the first place.


Effectively, more like 10 years.

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.

Good luck.


honesty ? respect ? integrity ?

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...


Loan officers typically don't even take medical debt into account for mortgages.

This sounds like a socialised healcare system by stealth.

The data doesn't support your conclusion. Almost nobody keeps all their assets in a savings account. What you should be looking at is net worth. https://dqydj.com/net-worth-by-age-calculator-united-states/

I disagree. Net worth is an unstable data point and I always view it as a status symbol more than a realistic means of acquiring cash.

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.


You're correct in your criticisms of net worth, but that doesn't change that the use of savings accounts to estimate accessible savings is highly questionable, especially in the past few years when rates were hovering right above checking account rates and people got out of the habit of using them (anecdotal).

> For example in a market where nobody is willing (or able) to buy your home, your net worth can be ... well, worthless

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.


It may be worth $300,000 today, but after the next mortgage crisis, it may be worth a fraction of that.

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!)


> It may be worth $300,000 today, but after the next mortgage crisis, it may be worth a fraction of that. 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.


This is why you invest outside of retirement accounts. Your on-demand cash isn't getting much, if any, return. Your home equity and retirement funds are expensive to access.

Though retirement funds are usually exempted from lawsuits. If you are sued for medical debt, they can’t touch your retirement funds.

What exactly are they keeping their assets in? A house that they can't sell and make that worth liquid? A retirement account they cannot withdraw without huge costs and compromising old age? Where else?

Uh, you ever hear of taxable investment accounts? Online brokerages, mutual funds, etc?

The number of Americans who have any significant investments that aren't part of a retirement account is small.

People with < 6000$ on their savings account? Most of the population? Very very unlikely.

I'm pretty sure "most of the population" has at least seen advertisements for ETrade. Probably too complicated for them though. That's why they'll be working until 85 or eating cat food in retirement...

The amount of condescension/lack of empathy in your comment is astounding. Haven't logged in in 2 years, had to log in to say that. And before you worry that I downvoted you, I still don't have enough karma to do so.

Thanks, I appreciate it!

In case you are wondering why you're comment is being downvoted, the issue is not that investing is too complicated for most of the population, it's that most of the population lacks the money to invest in the first place. When you add up the cost of keeping yourself fed, clothed, and sheltered, along with the cost of kids, and maybe also a stay-at-home-spouse as a dependent, and deducting contributions to retirement accounts, health insurance, and other good ideas, there is not much left over for most working Americans. That is assuming you even get all the way down that list, which many cannot -- a scary number of people have far less in their retirement accounts than they would need to live on in their final years.

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:

https://www.cnbc.com/2017/08/24/most-americans-live-paycheck...


Thanks, but I totally understand why it was being downvoted. I have seen and heard all of that before.

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.


Lack of financial education is another symptom of being poor.

The average HNer probably has, yes. The average American, quite possibly not.

1) Credit card availability

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."


The distance between the average and the median is staggering. This should be why you always should be suspicious when someone uses an average as a good statistic for wealth or income in the US.

I assume you intend "mean" instead of "average".

Mean, median, and mode are all averages and a lot of statistics actually refer to median when they say "average".


really? in my experience, people who even know the difference between "mean" and "median" always use "average" in the sense of "mean".

I suppose. That's why I referred to the median and average as a "statistic" and distinct, although that may be just the way I've been used to talking about it.

I agree. It's I don't care if banks survive as long as I'm not negatively impacted. I'm sure the banks feel the same way.

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).


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.

Most wealthy people borrow significantly even if they have high net worth (think mortgage on multi-million dollar home or investment property). Inflation helps them while they put their assets to work elsewhere. And it helps them far more than it helps some poor person with a few thousand in credit card debt.

Also, it is non-linear. The amount of reserve cash you need as an individual human approaches a limit much faster than total wealth, so the portion of your assets which must remain exposed to inflation grows smaller as a fraction of the whole. This is our western legacy of aristocrats and landed gentry in a nut shell.

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...


Sure there are exceptions but inflation is (1st order) zero sum. People with a negative net worth clearly benefit and someone has to take that loss as someone is owed money. Yes there will be rich people who benefit (and more than any poor person in this scenario), but as an aggregate it will be a reduction in wealth inequality.

But the wealthy have more assets than debt, so they have more losses than gains from inflation. Sure, they may gain $100,000 on their house, but they lose $1 million on their bond portfolio.

It would take a pretty unusual asset allocation to result in the numbers you just threw out there.

But inflation also implies economic growth which generally raises the value of equity holdings. The impact of inflation is dependent upon asset allocation.

> But inflation also implies economic growth

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).


Inflation hits prices before wages. Wage increases due to inflation always lag the price increases of the food/shelter/etc people need to buy.

Is this controversial?


No, it's not controversial. However, it also doesn't seem to respond to anything chimeracoder said. You sound like you think you're arguing with chimeracoder, but I don't see which point you're responding to.

From a few posts up:

>"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)."


All true. But I fail to see how your point about raises happening after price increases refutes the point that inflation destroys (reduces) the value of debt.

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.


I just don't think the fact that there is debt erosion has much impact on the gap between rich and poor. I'm talking about an income that ten years ago would get you a full one bedroom apartment now gets you living in a converted closet. Meanwhile the pay for the same work has gone from 12 $/hr to 15 $/hr.

Also, this is ignoring that anyone sane issuing debt plans for inflation and accounts for this somehow (interest rate schedule, etc)...

Edit:

Another thing, this "inflation helps the poor idea" seems to be a version of trickle down economics.


no, the wealthy keep their capital in assets with above average returns. the rest of us get to pay for that with below average returns, fees, and inflation.

Yes that would explain them being rich. But I'm sure you have heard the phrase "Past performance is no guarantee of future results."

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.


It's only "less" if your wages also inflate. But your food and housing prices increase on the leading edge of inflation, and wages lag. And often they never catch up.

> It's only "less" if your wages also inflate. But your food and housing prices increase on the leading edge of inflation, and wages lag. And often they never catch up.

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).


Inflation is typically priced into loans in the form of higher interest rates; this is why bond prices fall (i.e. yields rise) when the inflation rate increases (or more precisely, when people believe inflation will be higher in the future). Also priced in is the uncertainty about future inflation, which is one reason why central banks work to maintain a stable rate of inflation.

How does the math work out if the wealthy have much more capital than "the rest of us"? Why have you chosen to keep your capital in assets with below-average return if you know which are the better assets?

Better individual assets or better management of your assets are both gated. Privately held companies, hedge funds, financial managers. The guy who argues the parent point is Piketty in the book Capital.

On top of the access issue is the financial knowledge gap between people of different socioeconomic backgrounds. Not only are people limited in what they can invest in, but they might not even be investing at all.

> There's a lot of people that ended up bankrupt, in a bottomless depression, turned to drug abuse or committed suicide.

Ain't this what Americans say when describing Communism?


Yes.

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.


This is dead on correct; the precedent has been set and has no significant opposition; almost no one in power today would deviate.

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.


Part of the story of 2008-9 was that congress nearly didn't act, with Paulson famously getting down on bended knee to beg Pelosi to whip the necessary votes. The government has the capacity to act – but there's no guarantee that they'll make the correct choices in a timely manner.

I'm pretty sure that Hank was part of the decision to let Lehman go, so he knew he screwed up.

That was just GS thinning out the competition.

One of the few times Bettridge's Law of Headlines doesn't apply. "Survive" is an extreme word here, but I do see a big issue w/ index funds. Perhaps an unpopular opinion - but I believe index funds will be the next major bubble that cripples the financial system.

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.


This is a real misunderstanding of how markets work. An index fund invests in everything, market-cap weighted (usually). This means that your investment merely reinforces the prices already determined by the other participants in the market. There are still huge numbers of active managers, not to mention quants and others. They, collectively, determine the prices of assets. When you invest in an index fund, you're just saying "I'll have what they're having", basically. It doesn't cause amazon to rise in price. Lots of companies are in the S&P 500, they don't have returns like Amazon does. Amazon has those returns because people allocate capital specifically to them, i.e. non-index investors.

> 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).


> basically. It doesn't cause amazon to rise in price.

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 doesn't cause it to rise in price relative to others in the same index.

But these strategies do have all sorts of side effects on the market.

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.


> It pushes the correlation between stocks up.

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.


First result on google:

https://www.bloomberg.com/news/articles/2018-09-09/asia-stoc...

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.


I don't see anything in that article that supports your point. Can you snippet out the part that you think does?

You most certainly can. The market cap (current price) is not a function of the amount of capital put in. You can put $1M into a company and have a market cap of $1B or put $1B into a company and have a market cap of $1M.

You're saying that an increase in demand won't increase the price. Obviously there are other factors that affect the price too but being in an index fund is absolutely one of them.

No, I am saying that that same demand impacts everyone in the index equally. That's the point of an index fund.

This is true, but it also means that they don't fall as much. No matter what the results, the index funds will not sell, so it means the market doesn't change as much.

That's sort of true, but it's an over-simplification. People with capital and conviction can still short heavily. What it does is dampen the emotional swings of retail investors. So, for the market as a whole, volatility should go down as indexing becomes more popular.

> basically. It doesn't cause amazon to rise in price.

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 ...


Yes, but it impacts everyone in the index equally. Index funds are not responsible for amazon in particular's performance.

around the time they add/remove Amazon (or company X) to the index, they do enhance or detract from it's performance.

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.


Yep, true. My point is just that indexing has nothing to do with Amazon's meteoric rise. Nor does it make the market less efficient or any other such nonsense.

Yes, I'd guess the effect in the single-digit percentages, and being in the index didn't help GE not get dumped.

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.


Ya, if I had to guess at an effect I think that'd be it too. It ought to dampen hysteria, by keeping retail investors out of the market for the most part.

But are those short-term artifacts or do they persist?

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.


> 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.

Let's see...

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.


[edit - sorry, read that as amzn not causing index growth]

FAANG+M probably has a disproportionate impact on the index

https://www.cnbc.com/2017/07/28/fang-tech-market-concern-vol...

>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.


That's simply because they are some of the biggest companies in the world. It's really the other way around, big tech is dragging the indexes up, not the indexes dragging up big tech.

>I don't think index fund investors are the cause of Amazon's growth.

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 [0] whereas the average for other securities is below 1% at the most.

[0] https://money.usnews.com/funds/etfs/large-growth/invesco-qqq...


The OP cites "S&P 500 or some total market fund", which are market-cap weighted.

Irrelevant. The market cap is still affected by large scale automated passive investing.

What do you consider equal weighting? Amazon is the second most highly valued public company in the world, should it be counted the same in the index as Fossil Group (one of the smallest S&P 500 companies with a market cap of $1.15b)? To me that would make no sense and would make you hugely underweight AMZN and hugely overweight FOSL.

My theory it is QE and maybe Roboinvesting.

We've been (slowly) raising interest rates for the past few years. And even if it were QE, why would it (and robo investing) affect Amazon 10x more than the broader market?

Well, not all of it. I also think Amazon is a good stock for many reasons. 10x seems like a stretch though, many other tech stocks have seen similar yields.

I see a lot of issues here

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.


For the discussion in relatively high quality formus like HN to survive there needs to be new rule adopted: Nobody is allowed to criticize or discuss the title of the article. Only the content in the body of the article.

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.


Many readers at HN find posts with interesting titles, skim the comments, and then read the article. Discussion of the title is useful for them, because if a commenter reveals that the title is misleading, the reader might choose to read something else, or approach the article with a different frame of mind.

Point being: there is some value in discussing the title. Certainly different readers value that discussion more/less than discussion of the content.


> because if a commenter reveals that the title is misleading

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.


I've got 27 points on the first comment of this article [0] talking somewhat about the title and 8 points on my follow up about how the title is misleading so some people including myself definitely think the title is important.

[0]: https://news.ycombinator.com/item?id=17941804


Looks like investor Bill Ackman, famous for shorting the housing market before the bubble burst, had the same theory back in 2016. It's an interesting perspective.

https://www.marketwatch.com/story/bill-ackman-actually-had-a...


> famous for shorting the housing market before the bubble burst

Also famous for losing more than $3 billion (or $7.7 million per day) on Valeant

http://fortune.com/2017/03/15/valeant-stock-bill-ackman/


Famous for taking big risks that sometimes pay out and sometimes fail dramatically.

Taking big risks is only laudable if you win.

https://assets.pershingsquareholdings.com/media/2014/09/1712...

Oof. Up 1% over a time period where the S&P is up 118%. Brutal.


Active funds generally underperform during periods of economic growth and we're in the longest running bull market of all time right now. Ackman makes mistakes but he is still very insightful and backs his opinions with dollars. No one who deals with risk is going to have a perfect track record, and even though his Valeant and Herbalife bets didn't pay off the opportunities/flaws he saw were real, other factors just happened to be more important such as Icahn propping up the price of Herbalife and Valeant's accounting problems.

Index funds don't necessarily need to react to price changes.

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.


If you bought an actively managed fund 30 years ago, it was literally an index fund with more fees attached. Active managers actually just index, but try hard to obfuscate this fact to justify their high fees. If you dive into their books, they are basically buying the market. I think it begs the question, how active was/is active?

The math is clear, you are statistically unlikely to beat the market.


But, what if everybody only buys index funds and there arent any active players anymore ? I am not an expert in this field, but I do feel that the passive nature of index funds has been benefiting greatly from the actions of active investors.

Yep, if everyone went passive, it would probably become a problem. But currently, less than 18% of global stocks are owned by index investors [1]. And there's likely an equilibrium point between 18% and 100%, where both active and passive investment make sense.

[1] https://www.reuters.com/article/us-funds-blackrock-passive/l...


Philosophical Economics has a thoughtful essay on this: https://www.philosophicaleconomics.com/2016/05/passive/

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.


The more people invest in index funds, the more opportunities for active investors. The market balances itself naturally.

No one really knows, to be honest. But, many "active managers" were indexing before indexing was widespread, so it's unclear how much of a real change this is. Even hedge funds use index funds to back some of their riskier moves and it's common to use a blend of indexes and shorts. It really begs the question...how active was active before wide spread indexing?

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.


If everyone invests passive, you could make a ton of money by buying companies which are worth more than their stock or just give you an extremely high dividend.

A company's dividend has zero bearing on the fair price of its stock. Profits do, but that's a separate decision from dividend. Any money a company makes is either invested in growing the business (increasing the stock's value), or returned to investors, and as long as the investment makes economic sense you don't care either way.

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.


> It's just that dividends reduce the price of the stock directly

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.


Some of them do beat the market. They are also producing returns that are more robust to a downturn. So even if they dont match the S&P performance, in a downturn they dont lose as much as the S&P does. It's difficult to compare index funds to hedge funds, they have different purposes. When the market is always going up, it looks like a scam.

Hedge funds are also statistically unlikely to beat the market and finding one that does requires a huge capital buy in that few workers can make. You're talking 250-500k minimum buy in. Hedge funds have chronically underperformed for the last 10-15 years. Now that so much information is available, much of the market performance is priced in now.

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.


Did they beat the market because they are actually better investors, or did they just get lucky? There are so many hedge funds now that statistically a few of them are guaranteed to have long lucky streaks.

If you could decide this accurately, then you would have a strategy for your own hedge fund.

I think I'll listen to Warren Buffet's advice on index funds.

> The leveraged loans are now being packaged into collateralized loan obligations and sold to investors. Sound familiar? And the CLO market has grown to match the size of the CDO market at its pre-crisis peak. Yet one major difference makes the CLOs of today less scary: The loans that comprise them are backed by collateral, and if one of the companies in the mix defaults, an investor can find recourse through the sale of that collateral. Pre-crisis CDOs built on mortgage-backed securities had no such backstops.

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?


Yeah, that doesn't make any sense. The reason CDO's were underwater is because the price of housing dropped and left the collateral worth less than the principal of the loan. Loans to companies follow the same principal. If the value of companies suddenly drops same thing. It's a weird statement and is directly contradicted by the next paragraph in the article.

> but weren't they collateralized by the homes?

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.


All true. But my point is that the factual claim made by this article - that CLOs have backing collateral and CDOs do not, is false, and a pretty egregious error for a publication like Bloomberg to make.

Short answer: Yes.

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.


Just my opinion, but...

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.


>Our survival depends on local farms and businesses that are able to produce real value for people.

"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?


Yes, in the long term having less of a dependence on the global supply chain is better for the local economy, climate, and people. But during that transition, a lot of people are going to be negatively affected.

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.


>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?

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.


I'm sorry, I didn't intend to offend. My previous reply was just a glimpse into some of the thinking behind my opinions.

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.


>I'm sorry, I didn't intend to offend.

None taken.

>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.


> The leveraged loans are now being packaged into collateralized loan obligations and sold to investors. Sound familiar? And the CLO market has grown to match the size of the CDO market at its pre-crisis peak. Yet one major difference makes the CLOs of today less scary: The loans that comprise them are backed by collateral, and if one of the companies in the mix defaults, an investor can find recourse through the sale of that collateral. Pre-crisis CDOs built on mortgage-backed securities had no such backstops.

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.


The article states:

>"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?


What are shadow banks? Sounds to me the risk was just moved off the books using some financial trickery into "shadow banks" and when those blow they take the regular banks with them.

Shadow banks were already a thing in 2007-2008

https://www.philadelphiafed.org/-/media/research-and-data/pu...


The surprise that is coming is that the working class won't tolerate being robbed in the next financial crisis.

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


> The surprise that is coming is that the working class won't tolerate being robbed in the next financial crisis.

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.


The USA government has been selling out US citizens for decades (except the priviliged classes) The US government hasn't fixed it self, and won't.

do you really believe that representatives controlling these knobs care about the true concerns of 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?

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.


The average citizen not paying attention will stop when the next financial crisis hits.

History repeats itself. The peasants, sorry workers, are peaceful and complacent right up until they really aren’t.

Only briefly, and then promptly forget when things start looking good again.

"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.


>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.

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.


The working poor did not vote for Trump more than they didn't vote. But even if you break down the vote by income, more wealthy folk voted for Trump and poorer people voted for Clinton, but more importantly, most of them didn't vote because they reckoned that neither choice affected them. I never understood this argument that poor people voted in Trump especially because it does square with exit poll data.

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.


Could you provide some citations for your claims (e.g. 'poorer people voted for Clinton')? If you do, I'll go look up my old sources. It's been awhile, but I came away with the impression that economic hardship was one of the drivers behind the election result.

The "current government" is barely functional. I'd point to changes like the unpopularity of tax breaks for the wealthy, the increasing embrace of democratic socialism and the leftward shift of the Democratic party as signs that the American public is going to be far less forgiving the next time around.

> the working class won't tolerate being robbed in the next financial crisis

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).


By bailing out the originator of the mortgages via QE2/3 purchases of securities, the Fed removed all pressure to accept a two-way reconciliation between the originator and the loaner in mortgage transactions - e.g. by reducing the principal cost of the loan to reduce further erosion of the assets and the market as a whole.

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.


SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets

https://www.sec.gov/news/press/2008/2008-211.htm

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

https://finance.yahoo.com/blogs/daily-ticker/2008-financial-...


Credit rating agencies illustrate the dangers of both government oligopolies, and conflicts of interest.

> It caused a $5 trillion in transfer from wealthy away from the working classes to the investor class in that 2008 Mortgage crisis.

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.


>> $5 trillion > This sounds like a made up number. What is your source?

$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.


A lot of Americans have/had home equity as their biggest asset.

That's true, but also a non-sequitur, since nobody "stole" home equity from anyone. The value of homes went down across the board because of oversupply, and that is a phenomenon that required potential homeowners, financiers, builders, and other entities to tango. It's not something the banks caused to happen on their own, nor something they bear sole and unmitigated responsibility for.

The banks did cause it to happen. They had an insatiable appetite for mortgage backed securities and would shop credit rating agencies (who were newly public companies) to get a AAA rating on total garbage they knew would explode.

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.


Yes, the banks were part of the cause. That is not in dispute, as you can see by reading my previous comments. But they would not have been able to commit their fraud without the aid of credulous buyers willing to purchase far more house than they could afford. That's all I'm saying.

In a functioning market, a buyer would not have received a loan, no matter how much they wanted to over extend themselves. But, because fraud was being committed from the rating agencies, investment banks and mortgage originators, they got the loan.

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.


I guess my thing is more of a reaction against paternalism and the infantilization of the public. I do think there need to be much more in the way of bank regulations. I don't think the public ought to absolve itself of all responsibility because of the absence of some regulations. I just don't think it's healthy or necessarily leads to better decisions being made in the future. I want an informed public, not a deluded one.

Statistically, you can't have that. No matter what you want, a sufficiently motivated conman will be able to find the dumbest person, for instance by the methodology used by Nigerian-prince scammers: put out bait that's bad, to pre-screen for people dumb enough to be that kind of deluded.

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.


If people are stupid enough to enter into mortgages with payments they can't afford then they shouldn't be allowed to enter into any kind of legal contract. No credit cards, no payment plans, no cell phone plans, no insurance, nothing. Honestly, they shouldn't even be allowed to choose what they eat since they aren't certified nutritionists.

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.


I agree with you about protecting the public, no one needs to be coddled.

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.


Individual loan applicants weren't defrauded though (in most cases). They knew what the monthly payments were and what would happen during possible interest rate adjustments.

It shouldn't have been a shocker to anyone making 2k a month that a 1.9k/mo mortgage was pretty risky.


Functioning markets also do not have the Federal Government backing hundreds of billions in loans every single year either (Fannie and Freddie then, and Ginnie now). It's pretty convenient to blame lenders while the government itself was pumping insane and irresponsible amounts of money directly into this market and telling lenders to find people to allow them to do this with. It's practically inevitable for lenders to get greedy when there's no oversight and trillions of dollars at stake. The truly bad actors in this are not the people doing what we know people end up doing when a system is designed like shit. It's the people who designed the shitty system.

>>> without the aid of credulous buyers

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.


Y'all keep trying to explain the morality of what the banks and lenders did to me like I don't already know. I know. It's not good. That's irrelevant to the question of whether they were solely responsible.

I'd argue you're into red herring land a little yourself with the systemic goings-on.

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.


If Joe Sixpack owned for twenty years, he was not underwater after the crisis. He might not be in as good of a shape as he was at the top, and I can understand how that would be disappointing, but he's still doing fine. If he got greedy and did a big cash out ARM refinance, well, that sucks, but people are told from a very young age that when something seems too good to be true, it probably is. Caveat emptor! And there are warnings ALL OVER the documents you have to sign to actually participate in such a transaction. I reject the notion that American adults should not or cannot be custodians of their own financial lives.

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.


What about the Joe Sixpacks who bought homes because housing always goes up and I can just flip this in three years?

But he can retire. He owns a house. Nothing poofed away. He owns it, and is not getting evicted. He can continue to live in that same house that he has lived in for 20 years.

> A lot of Americans have/had home equity as their biggest asset.

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.


They had every right to believe their homes were going up in value and make decisions accordingly, especially from 2003-2006. Subprime lenders were selling loans to people who were not qualified to have loans that greatly inflated the housing prices. It doesn't matter if they person signed off on a mortgage, by law, they shouldn't have received it.

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.


The 1%, including politicians, will find some other wedge social issue to keep the working and middle classes continually fighting each other, allowing the rich to keep siphoning off the world’s wealth. The day after the crash, headlines will be back to “transsexual bathrooms” and “football stars kneeling” and we will forget that we are losing our jobs and homes again. This play book is not new.

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?


The pattern won't repeat forever, eventually the wealth transfer will become an unnoticed constant flow.

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.


I disagree, I find the media quite seasoned at turning the working and middle classes against themselves at this point.

> Homes lost because of unemployment.

The good news is they can be rented back from Wall St firms who have been snapping up rental properties with that windfall.


"The surprise that is coming is that the working class won't tolerate being robbed in the next financial crisis. "

I highly doubt this sadly. As long as Americans have their internet, their cable and other comforts, they wont revolt. Its not dire enough.


This would be wonderful to believe, but I only see the world becoming more controlling of the freedoms that allow people to do anything about it. My guess is that from here on out, the middle class have increasingly irrelevant influence on anything powerful governments or individuals choose to do.

If you're hinting at a revolution, a.k.a. what used to be a check against the upper classes, you can't really have one of those when every police department has a tank, a swat team, and carte blanc access to all social media and mobile data/communications.

In most of America (geographically, certainly), the common citizenry are much better armed than law enforcement.

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.


Police departments are made of individuals with friends and families. Factor in all the bureaucracy and pension cuts, you'll find they are more of a wild-card that will backfire against the elite in many areas.

They also have mortgages, medical bills, and friends with mortgages and medical bills.

We already had that surprise in the 2010 and 2016 elections.

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.


> The surprise will come the next time a Financial Crisis comes and the government works to sell out the working class

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.


To be fair, lehman brothers was allowed to fail so all those bankers lost their jobs.

"The surprise that is coming is that the working class won't tolerate being robbed in the next financial crisis."

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"."


The working class will not only tolerate it, they will cheer being robbed. Their anger will be directed towards China, Europe, Mexico, even Canada.

“won't tolerate”? How, exactly?

The working class will be too busy trying to keep up. There won't be time for a revolution.

I'm bullish on the sentiment expressed by the parent poster, actually.

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.


Only around 50% of Americans own any stock at all, including indirect ownership like IRAs and pensions. So, I don’t see the working class suffering that much due to stock market decline. They will suffer due to joblessness.

If you know your history, it's the "middle class" that has directed just about every non-marxist revolution.

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.


>If you know your history, it's the "middle class" that has directed just about every non-marxist revolution.

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)


I completely agree with you, I just didn't want to trigger any socialists into a flamewar.

Really, I think the argument is weaker on the other side; I mean, there are a fair number of revolutions that were lead by the elites; the American revolution and the ACW to name two; I mean, the latter a lot more than the former, but even in the former, a whole lot of the leaders were rich enough that they didn't need to work more than they wanted to; most of them literally and legally owned other human beings, a level of wealth that is impossible today.

(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.)


Investing in total market index funds is literally investing in the economy as a whole. (Or as much of a whole as the index represents.) So while yes, they will crash with future market crashes, of which there will be many in each of our lifetimes, historically in the U.S. so far the market has always recovered.

"historically in the U.S. so far the market has always recovered."

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.


Yes, it's an imperfect predictor of the future. No one else does a very good job predicting economic futures either, however.

But you are comparing with fledgling/emerging markets. Samples of failures at this point to scare people should be declines of economies established for more than a hundred years. The falls of empires, etc. Those are what are relevant to the current US investor.

What percentage of 'the economy' do you think is represented by publicly traded corporations?

According to this article [1], public firms account for about 80% of the pre-tax profit in the private sector. That's probably enough, given that public and private company returns are probably at least somewhat correlated.

[1]: https://www.forbes.com/sites/sageworks/2012/09/21/private-co...


The P in GDP does not stand for Profit. An economy consists of a lot more than private sector profits.

Right. But I'd wager that index fund investors are more interested in profits than GDP, at least as it relates to their investments and the proposition at the top of this thread that index funds will be "ripped" (presumably disproportionately) in the next downturn.

Right. If you have a wide market downturn, all of the "active investors" are going to take their money out as cash and wait to buy and the "passive investors "are going to take a bath.

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.


> 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."


First, it's literally impossible for all of the "active investors" to take their money out as cash; some active investors can cash out by selling all their stock to other active investors who think that this is a good time to buy more stock; passive investors would/could only absorb that amount of stock at the speed of new passive capital coming in, which is gradual, not that large (compared to the flows of active investors) and would likely slow down somewhat in a market downturn.

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.


I mean, there's some causality there; when the active investors try to take their money out as cash all at once, it does tend to have negative effects on the market. but... I think that, generally speaking, the goal of your active investors is to buy during the downturn, and sell into the upturn.

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.


Not enough people felt the pain the last go around. It will be the same this time.

So a bunch of folks with poor credit and not enough income took on way more debt than they should have and got caught with their pants down. How exactly did they get robbed?

The robbery was the bailout, not the people who took on irresponsible debt.

The general public bailed out banks that profited off financial recklessness - banks that simply were not doing their job of managing risk.
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