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Imagine I've just borrowed $500,000 in order to purchase the same amount of AAPL. Then someone else starts producing phones that people like better than the iPh

Imagine I've just borrowed $500,000 in order to purchase the same amount of AAPL. Then someone else starts producing phones that people like better than the iPhone, AAPL tanks and my securities are worth only $250,000! I'd be super unhappy about this. But the "best solution" to this is not for the government to somehow prevent people from buying non iPhones so my AAPL stocks don't go down. The best solution is for me to recognize that placing highly leveraged bets on the stock market is extremely risky and that I just lost money because I made a bad bet. What you are describing is socialized losses, privatized gains. Why is that a good thing?

sulam 10y ago
<nitpick>there's no leverage if you use $500K to buy $500K of AAPL. Financial leverage is created when you multiply the buying power of a fixed amount of money through financial vehicles like options. It could be as simple as using the fact that your brokerage is usually willing to loan you money up to a certain percent of your assets in the account. You can then use that loaned money to buy more stock, perhaps as a hedge or perhaps to double-down on your original investment thesis</nitpick>
- yummyfajitas 10y ago
  As I said, Imagine I've just borrowed $500,000 in order to purchase the same amount of AAPL...
  - sulam 10y ago
    Bah, my mistake for not reading more carefully. Sorry!
AnthonyMouse 10y ago
The difference between a house and shares of AAPL is that the government has been encouraging people through words and laws to over-invest in houses (and likewise student loans etc), leading to a huge bubble. The bubble is the fault of government policy, not people rationally buying houses based on the existing policy environment. To fix this, there are going to be losses. The question is, who should primarily suffer them? The homeowners who reasonably relied on official policy, or the banks who promoted and benefited from that policy? > What you are describing is socialized losses, privatized gains. It isn't. The losses would otherwise be suffered by a majority of American families, which sounds pretty "socialized" to me. Those are also who would receive the gains from inflation. The best place to actually put the losses would be the government, except "the government" doesn't actually have any money, it just spends your money which it takes through taxes or inflation. And the money has to go to homeowners/borrowers rather than come from them, so what you would effectively need is a tax on creditors, which is what inflation is. It's essentially the same logic as the 5th Amendment Takings Clause. If the government is going to take your property they should compensate you for it. Normally this doesn't apply to things like zoning changes for pragmatic reasons -- the taken value would be too large for the government to afford and then they could never make zoning laws. Which is nothing but a pragmatic injustice. If we can avoid that we should, and in this context inflation would allow us to do it. Inflation is a type of tax and you're just making the equivalent argument to "all taxes are theft".
- yummyfajitas 10y ago
  As you note, bankers and homeowners decided to exploit socialized losses and privatized gains in order to become wealthier at the expense of everyone else. Let them reap what they've sown. The best place to actually put the losses would be the government, except "the government" doesn't actually have any money, it just spends your money which it takes through taxes or inflation. Yes. So homeowners and banks have been exploiting renters like myself. Because "the government" is at fault, you'd like the government to continue exploiting renters like myself in order to prevent the homeowners from suffering a loss. It's essentially the same logic as the 5th Amendment Takings Clause. If the government is going to take your property they should compensate you for it. Normally this doesn't apply to things like zoning changes for pragmatic reasons... While the takings clause might apply to downzonings, since downzongings restrict property rights you previously held, they definitively do not apply to upzonings. Your property rights simply do not include the right to prevent others from competing economically. I'm going to speculate that you hold a leveraged long position on real estate, and you want the government to protect your investment?
  - AnthonyMouse 10y ago
    > As you note, bankers and homeowners decided to exploit socialized losses and privatized gains in order to become wealthier at the expense of everyone else. Let them reap what they've sown. The problem is it isn't current homeowners. Current homeowners are the ones who have paid twice as much for their home as it ought to be worth because there was no other option. And if you just let nominal housing prices fall, the banks get to keep their unearned gains. The homeowners still owe them the full mortgage amount. It also doesn't work, because people won't be willing (or able) to sell a house for less than what they owe on the mortgage, so the property becomes unsellable, which keeps it off the market and keeps prices higher longer. Or we get a huge number of defaults and relive the housing crisis, and then the banks keep the foreclosed homes off the market as they did last time. > Yes. So homeowners and banks have been exploiting renters like myself. Because "the government" is at fault, you'd like the government to continue exploiting renters like myself in order to prevent the homeowners from suffering a loss. How does it continue to exploit you? Are renters creditors? You are being exploited the same as homeowners because high housing prices result in high rents. Reducing real housing prices will reduce real rents to your benefit. Reducing nominal housing prices is politically and economically intractable, so the alternative to inflation is that you continue to pay real high rents. > While the takings clause might apply to downzonings, since downzongings restrict property rights you previously held, they definitively do not apply to upzonings. Your property rights simply do not include the right to prevent others from competing economically. And yet from a practical perspective the result is the same; the property value has gone down (and the mortgage debt hasn't). Which makes causing that to happen politically infeasible, leading to our current predicament. > I'm going to speculate that you hold a leveraged long position on real estate, and you want the government to protect your investment? I want real housing costs to come down. Do you have a better idea, that won't be defeated politically by existing homeowners?

sulam 10y ago

<nitpick>there's no leverage if you use $500K to buy $500K of AAPL. Financial leverage is created when you multiply the buying power of a fixed amount of money through financial vehicles like options. It could be as simple as using the fact that your brokerage is usually willing to loan you money up to a certain percent of your assets in the account. You can then use that loaned money to buy more stock, perhaps as a hedge or perhaps to double-down on your original investment thesis</nitpick>

yummyfajitas 10y ago
As I said, Imagine I've just borrowed $500,000 in order to purchase the same amount of AAPL...
- sulam 10y ago
  Bah, my mistake for not reading more carefully. Sorry!

AnthonyMouse 10y ago

The difference between a house and shares of AAPL is that the government has been encouraging people through words and laws to over-invest in houses (and likewise student loans etc), leading to a huge bubble. The bubble is the fault of government policy, not people rationally buying houses based on the existing policy environment. To fix this, there are going to be losses. The question is, who should primarily suffer them? The homeowners who reasonably relied on official policy, or the banks who promoted and benefited from that policy? > What you are describing is socialized losses, privatized gains. It isn't. The losses would otherwise be suffered by a majority of American families, which sounds pretty "socialized" to me. Those are also who would receive the gains from inflation. The best place to actually put the losses would be the government, except "the government" doesn't actually have any money, it just spends your money which it takes through taxes or inflation. And the money has to go to homeowners/borrowers rather than come from them, so what you would effectively need is a tax on creditors, which is what inflation is. It's essentially the same logic as the 5th Amendment Takings Clause. If the government is going to take your property they should compensate you for it. Normally this doesn't apply to things like zoning changes for pragmatic reasons -- the taken value would be too large for the government to afford and then they could never make zoning laws. Which is nothing but a pragmatic injustice. If we can avoid that we should, and in this context inflation would allow us to do it. Inflation is a type of tax and you're just making the equivalent argument to "all taxes are theft".

yummyfajitas 10y ago
As you note, bankers and homeowners decided to exploit socialized losses and privatized gains in order to become wealthier at the expense of everyone else. Let them reap what they've sown. The best place to actually put the losses would be the government, except "the government" doesn't actually have any money, it just spends your money which it takes through taxes or inflation. Yes. So homeowners and banks have been exploiting renters like myself. Because "the government" is at fault, you'd like the government to continue exploiting renters like myself in order to prevent the homeowners from suffering a loss. It's essentially the same logic as the 5th Amendment Takings Clause. If the government is going to take your property they should compensate you for it. Normally this doesn't apply to things like zoning changes for pragmatic reasons... While the takings clause might apply to downzonings, since downzongings restrict property rights you previously held, they definitively do not apply to upzonings. Your property rights simply do not include the right to prevent others from competing economically. I'm going to speculate that you hold a leveraged long position on real estate, and you want the government to protect your investment?
- AnthonyMouse 10y ago
  > As you note, bankers and homeowners decided to exploit socialized losses and privatized gains in order to become wealthier at the expense of everyone else. Let them reap what they've sown. The problem is it isn't current homeowners. Current homeowners are the ones who have paid twice as much for their home as it ought to be worth because there was no other option. And if you just let nominal housing prices fall, the banks get to keep their unearned gains. The homeowners still owe them the full mortgage amount. It also doesn't work, because people won't be willing (or able) to sell a house for less than what they owe on the mortgage, so the property becomes unsellable, which keeps it off the market and keeps prices higher longer. Or we get a huge number of defaults and relive the housing crisis, and then the banks keep the foreclosed homes off the market as they did last time. > Yes. So homeowners and banks have been exploiting renters like myself. Because "the government" is at fault, you'd like the government to continue exploiting renters like myself in order to prevent the homeowners from suffering a loss. How does it continue to exploit you? Are renters creditors? You are being exploited the same as homeowners because high housing prices result in high rents. Reducing real housing prices will reduce real rents to your benefit. Reducing nominal housing prices is politically and economically intractable, so the alternative to inflation is that you continue to pay real high rents. > While the takings clause might apply to downzonings, since downzongings restrict property rights you previously held, they definitively do not apply to upzonings. Your property rights simply do not include the right to prevent others from competing economically. And yet from a practical perspective the result is the same; the property value has gone down (and the mortgage debt hasn't). Which makes causing that to happen politically infeasible, leading to our current predicament. > I'm going to speculate that you hold a leveraged long position on real estate, and you want the government to protect your investment? I want real housing costs to come down. Do you have a better idea, that won't be defeated politically by existing homeowners?