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You know what else is strangling prosperity? Normalization of taking debt. When someone "buys" something using debt, it must be paid for many times over. They u

You know what else is strangling prosperity? Normalization of taking debt. When someone "buys" something using debt, it must be paid for many times over. They usually don't end up paying that all on their own, even though they were responsible for taking the debt. For example, when you buy an over valued house with a mortgage, say during a housing bubble, it doesn't make sense for you to try and sell it later on for less than you originally "paid" (with your fancy loan). So you are going to hold onto it, waiting for the market to go "up", so that you can sell it to yet another person who takes out yet another loan to "pay" for this overpriced house. In the mean time, either you or some renter is busting their ass to pay the interest on that unnecessary loan. It's completely ordinary for people who who decided not too take a mortgage to get stuck paying the interest for someone who locked a house into debt. This is completely straight forward but when I try to convey how absurd it is, a lot of common sense people look at me like I'm crazy. It's considered a financially "sound investment" to buy a house and try to sell it higher. Well what if I don't want to live in a world where everyone is just playing monopoly all the time? I feel like there are much more interesting and pressing things to do with our precious human time and energy than cater to these ridiculous cycles of debt. And lot of people who take debt because it's so "smart" couldn't come up with an original exponential function if their life depended in it.

cycrutchfield 9y ago
> And lot of people who take debt because it's so "smart" couldn't come up with an original exponential function if their life depended in it. What does this even mean?
- macawfish 9y ago
  I mean that a lot of people don't understand how to write down an exponential function intuitively. A lot of people can write down the formula for compounding interest, but don't understand what it means or how to come up with it from scratch. People rely on math that they vaguely understand to govern their financial and economic relationships.
conanbatt 9y ago
I dont think you understand the economics of debt related to mortgages. If there were no morts, you would have to amass wealth for a long time to be able to purchase a home, which means ur capital becomes tied and you cant invest. Mortgages increase the amount of circulating money enormously. Everything is exponential in finance, both debts and house values. Also income and investment returns. The exponential nature of debt is not an argument against anything. Rental also has an exponential opportunity cost.
- macawfish 9y ago
  Just because I understand it differently from you doesn't mean I don't understand it. And I should be clear that I'm really lamenting about something bigger, which is the tendency for "always defect" strategies to get normalized as "smart" in our collective economy's various prisoners' dilemmas. We suffer collectively because of it. More concretely: right now because of how cheap, bad quality mortgages artificially inflated housing prices around 2008, and again today, and because of the stagnancy of wages, most people I know cannot afford to buy or rent without compromising their well-being significantly. If "cheap" mortgages weren't so rampant, how would property values even have been able to inflate like they did? They wouldn't... it'd be a totally different market. I think home values would be much closer to their physical value, reflecting the state that they're in rather than some abstract, speculative potential value. There would be less incentive for speculators to hold on to them for the sake of "investing" and more reason for people to hold on to them for the sake of living in them. Just where does that money circulate back to? Right now it circulates back to the most wealthy, those who this article is talking about, those who are usurping their feudal lordships right now. Where I live, there is a housing trust that bars people from buying its houses to rent them, and protects houses from bubbles. When people want to sell the houses, they have to sell them through the trust, where the amount they could lose or gain from market fluctuations alone is capped at 25%. If they made improvements on the house, they are able to sell it at a higher value. The houses are significantly less than market value. And are much higher quality than rental properties.
  - conanbatt 9y ago
    > right now because of how cheap, bad quality mortgages artificially inflated housing prices around 2008, and again today, and because of the stagnancy of wages, most people I know cannot afford to buy or rent without compromising their well-being significantly. If "cheap" mortgages weren't so rampant, how would property values even have been able to inflate like they did? They wouldn't... it'd be a totally different market. I think home values would be much closer to their physical value, reflecting the state that they're in rather than some abstract speculative. There would be less incentive for speculators to hold on to them for the sake of "investing" and more reason for people to hold on to them for the sake of living in them. There are several explanations to housing values being high today besides (and probably along) cheap credit. 1) 2008 crisis was devastating to construction and development rates in the U.S. and it hasn't caught up to demographic growth. That alone could cause a mid-long term increase in housing prices that can only subside if development outstrips demo-growth 2) There is a global effect of people moving to cities for jobs. Even if construction kept up, if people moved to the cities where its harder and more expensive to build, you would see wages lagging behind property prices, since the competition for both gets more fiercely concentrated. 3) There is a global effect of chinese money. Cities like vancouver and London are very aware that the influx of asian funds have fueled their local RE markets. Also, the era of cheap credit is ending, and the fed is slowing increasing the rates. They might be risking a crisis if they just jumped the credit a few points up, so this process can also take quite a while. > Where I live, there is a housing trust that bars people from buying its houses to rent them, and protects houses from bubbles. When people want to sell the houses, they have to sell them through the trust, where the amount they could lose or gain from market fluctuations alone is capped at 25%. If they made improvements on the house, they able to sell it at a higher value. The houses are significantly less than market value. And are much higher quality than rental properties. Any restriction of use of a commodity will reduce its value. Naturally, if you only allowed a housing unit to be rented out, it will also be of less value that one that doesn't have that restriction. In terms of housing, that is an equivalent to a price control, so those measures will tend to lower investment and availability, to, finally, in the end, cause higher prices than they would otherwise. Rent control is one classic case of this effect. Moreover, its not a scalable solution, and I'm fairly confident that it will show all the problems of trying to avoid market behavior: it might be hard to get in to the fund, it might end up causing a run in the case of a big down-turn where many people need to sell but the fund has overpromised, etc etc.
ztjio 9y ago
These people are going to work and pay a fee to live in a place every month, and rarely is the rent for the same size house better than the mortgage. You're overthinking this. To most people, the debt is just a magical number on a paper and means nothing to them so long as their daily activities remain unhindered. And indeed, if things go wrong what then? Same thing as rent vs. buying, you lose your place you file bankruptcy whatever. Makes no difference to the buyer. The only conceivable alternative that you might like is not having to pay for your basic needs, but, that's not going to happen ever in a capitalist society. So good luck with that fantasy.
- infosample 9y ago
  Mortgages cause real estate to be more expensive than if everyone had to pay cash. So yes, mortgages payments are cheaper than rent. But rent would be much cheaper in a would without mortgages.
- macawfish 9y ago
  That's my point. It's an opaque magic that is exploited by very wealthy individuals and organizations to capture the supply. This has long term, multi generational consequences.
pg314 9y ago
> When someone "buys" something using debt, it must be paid for many times over. You are comparing amounts of money at different points in time without discounting them to their NPV. That is nonsensical. Ironically, if you go to get a mortgage at a bank, they sometimes use the same arguments to steer you to their preferred mortgage (look how much more you would pay in total at the end of the ride for option A vs option B, without take the time value of money into account).
- macawfish 9y ago
  I don't just mean that it must be paid many times over because the loan appreciates. I mean it in the sense that the values of the stuff being purchased with debt get skewed higher, so that people have to take more debt just to afford that stuff. I also mean it in the sense that people having nothing to do with the debt are coerced into paying interest on debts that others incurred. With homes, it turns our places of respite into worrisome baggage.
drawkbox 9y ago
Poor people pay interest, rich people collect it. This creates a situation where the same $1 has less value to a poor person because it has interest paid attached, and $1 to a rich person will have interest/investment gained attached. It is that difference, as well as starting funds/wealth for investment, that creates the exponential growth for wealth and the enormous advantage wealth gives to market actors when inequality is high. Wealth grows at like O(n log n) or better, while poor wealth shrinks sometimes at less than O(1) Combine that with rich people on average spending less of their overall wealth into the consumer economy (not just investments or hoarding it during down markets -- a problem that exacerbates crashes) and you have a system that will get much worse. Policy is failing currently at getting money to move to all parts of the economy and the velocity of money has fallen off a cliff and is in a freefall due to the hoarding/inequality that has grown since 2000 intensely [1]. [1] https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
- averagewall 9y ago
  Poor people don't even try to invest money or to get richer. That's probably mostly why they're poor in the first place. They spend money on gambling where the expected profit is negative but not on real life "gambling" with positive expected profit. The minimum investment amount isn't really that strong a barrier. There are online brokerages that let you buy shares cheaply. I think it's more that they lack the skills or motivation, not lack the money. Why weren't the world's poor flocking to bitcoin when it started? No minimum investment at all! It's because they weren't interested in investing and didn't do the research.
  - drawkbox 9y ago
    True there is a financial education problem but many poor/middle level people just don't have as much money for investment, typically they are in needs based spending mode. Investment is the most important thing to growing wealth but also we can't just have an economy of only investment, someone needs to actually buy things in the economy. Typically the lower/middle end spending keep the consumer economy afloat with larger spending on consumer products that make those investments worth it because there is demand. You have to have people buying for demand, to then invest in supply, demand always comes first or else wealth doesn't invest. Further, wealth simply cannot buy enough to keep the whole economy afloat and wealthy people invest to retain more wealth not necessarily return it to the economy, whereas poor/middle range players spend to survive. When there is a market crash, wealth stops investing, poor/middle keeps on buying which is key. When there is inequality and only investment, downturns get harsher and harsher eradicating demand and thus eradicating investment opportunities.
roenxi 9y ago
Quick disclaimer; I'm pretty close to being a hard money advocate. I agree, and sympathise profoundly with the 'like I'm crazy' part. I sometimes feel like a madman for not holding personal and mortgage debts. We have a system that is set up based on exponential functions; and we know that most people will intuit linear. It is very frustrating watching friends people take up a position on the wrong side of an exponential function because they live in the here and now. Doubly so trying that they don't realise how big a financial gap they are creating to where they could be. I flat out don't believe that most (ordinary, no maths training) people taking on debt understand whether they are making a good or bad decision. If they make a good call, it is luck.

cycrutchfield 9y ago

> And lot of people who take debt because it's so "smart" couldn't come up with an original exponential function if their life depended in it. What does this even mean?

macawfish 9y ago
I mean that a lot of people don't understand how to write down an exponential function intuitively. A lot of people can write down the formula for compounding interest, but don't understand what it means or how to come up with it from scratch. People rely on math that they vaguely understand to govern their financial and economic relationships.

conanbatt 9y ago

I dont think you understand the economics of debt related to mortgages. If there were no morts, you would have to amass wealth for a long time to be able to purchase a home, which means ur capital becomes tied and you cant invest. Mortgages increase the amount of circulating money enormously. Everything is exponential in finance, both debts and house values. Also income and investment returns. The exponential nature of debt is not an argument against anything. Rental also has an exponential opportunity cost.

macawfish 9y ago
Just because I understand it differently from you doesn't mean I don't understand it. And I should be clear that I'm really lamenting about something bigger, which is the tendency for "always defect" strategies to get normalized as "smart" in our collective economy's various prisoners' dilemmas. We suffer collectively because of it. More concretely: right now because of how cheap, bad quality mortgages artificially inflated housing prices around 2008, and again today, and because of the stagnancy of wages, most people I know cannot afford to buy or rent without compromising their well-being significantly. If "cheap" mortgages weren't so rampant, how would property values even have been able to inflate like they did? They wouldn't... it'd be a totally different market. I think home values would be much closer to their physical value, reflecting the state that they're in rather than some abstract, speculative potential value. There would be less incentive for speculators to hold on to them for the sake of "investing" and more reason for people to hold on to them for the sake of living in them. Just where does that money circulate back to? Right now it circulates back to the most wealthy, those who this article is talking about, those who are usurping their feudal lordships right now. Where I live, there is a housing trust that bars people from buying its houses to rent them, and protects houses from bubbles. When people want to sell the houses, they have to sell them through the trust, where the amount they could lose or gain from market fluctuations alone is capped at 25%. If they made improvements on the house, they are able to sell it at a higher value. The houses are significantly less than market value. And are much higher quality than rental properties.
- conanbatt 9y ago
  > right now because of how cheap, bad quality mortgages artificially inflated housing prices around 2008, and again today, and because of the stagnancy of wages, most people I know cannot afford to buy or rent without compromising their well-being significantly. If "cheap" mortgages weren't so rampant, how would property values even have been able to inflate like they did? They wouldn't... it'd be a totally different market. I think home values would be much closer to their physical value, reflecting the state that they're in rather than some abstract speculative. There would be less incentive for speculators to hold on to them for the sake of "investing" and more reason for people to hold on to them for the sake of living in them. There are several explanations to housing values being high today besides (and probably along) cheap credit. 1) 2008 crisis was devastating to construction and development rates in the U.S. and it hasn't caught up to demographic growth. That alone could cause a mid-long term increase in housing prices that can only subside if development outstrips demo-growth 2) There is a global effect of people moving to cities for jobs. Even if construction kept up, if people moved to the cities where its harder and more expensive to build, you would see wages lagging behind property prices, since the competition for both gets more fiercely concentrated. 3) There is a global effect of chinese money. Cities like vancouver and London are very aware that the influx of asian funds have fueled their local RE markets. Also, the era of cheap credit is ending, and the fed is slowing increasing the rates. They might be risking a crisis if they just jumped the credit a few points up, so this process can also take quite a while. > Where I live, there is a housing trust that bars people from buying its houses to rent them, and protects houses from bubbles. When people want to sell the houses, they have to sell them through the trust, where the amount they could lose or gain from market fluctuations alone is capped at 25%. If they made improvements on the house, they able to sell it at a higher value. The houses are significantly less than market value. And are much higher quality than rental properties. Any restriction of use of a commodity will reduce its value. Naturally, if you only allowed a housing unit to be rented out, it will also be of less value that one that doesn't have that restriction. In terms of housing, that is an equivalent to a price control, so those measures will tend to lower investment and availability, to, finally, in the end, cause higher prices than they would otherwise. Rent control is one classic case of this effect. Moreover, its not a scalable solution, and I'm fairly confident that it will show all the problems of trying to avoid market behavior: it might be hard to get in to the fund, it might end up causing a run in the case of a big down-turn where many people need to sell but the fund has overpromised, etc etc.

ztjio 9y ago

These people are going to work and pay a fee to live in a place every month, and rarely is the rent for the same size house better than the mortgage. You're overthinking this. To most people, the debt is just a magical number on a paper and means nothing to them so long as their daily activities remain unhindered. And indeed, if things go wrong what then? Same thing as rent vs. buying, you lose your place you file bankruptcy whatever. Makes no difference to the buyer. The only conceivable alternative that you might like is not having to pay for your basic needs, but, that's not going to happen ever in a capitalist society. So good luck with that fantasy.

infosample 9y ago
Mortgages cause real estate to be more expensive than if everyone had to pay cash. So yes, mortgages payments are cheaper than rent. But rent would be much cheaper in a would without mortgages.
macawfish 9y ago
That's my point. It's an opaque magic that is exploited by very wealthy individuals and organizations to capture the supply. This has long term, multi generational consequences.

pg314 9y ago

> When someone "buys" something using debt, it must be paid for many times over. You are comparing amounts of money at different points in time without discounting them to their NPV. That is nonsensical. Ironically, if you go to get a mortgage at a bank, they sometimes use the same arguments to steer you to their preferred mortgage (look how much more you would pay in total at the end of the ride for option A vs option B, without take the time value of money into account).

macawfish 9y ago
I don't just mean that it must be paid many times over because the loan appreciates. I mean it in the sense that the values of the stuff being purchased with debt get skewed higher, so that people have to take more debt just to afford that stuff. I also mean it in the sense that people having nothing to do with the debt are coerced into paying interest on debts that others incurred. With homes, it turns our places of respite into worrisome baggage.

drawkbox 9y ago

Poor people pay interest, rich people collect it. This creates a situation where the same $1 has less value to a poor person because it has interest paid attached, and $1 to a rich person will have interest/investment gained attached. It is that difference, as well as starting funds/wealth for investment, that creates the exponential growth for wealth and the enormous advantage wealth gives to market actors when inequality is high. Wealth grows at like O(n log n) or better, while poor wealth shrinks sometimes at less than O(1) Combine that with rich people on average spending less of their overall wealth into the consumer economy (not just investments or hoarding it during down markets -- a problem that exacerbates crashes) and you have a system that will get much worse. Policy is failing currently at getting money to move to all parts of the economy and the velocity of money has fallen off a cliff and is in a freefall due to the hoarding/inequality that has grown since 2000 intensely [1]. [1] https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V

averagewall 9y ago
Poor people don't even try to invest money or to get richer. That's probably mostly why they're poor in the first place. They spend money on gambling where the expected profit is negative but not on real life "gambling" with positive expected profit. The minimum investment amount isn't really that strong a barrier. There are online brokerages that let you buy shares cheaply. I think it's more that they lack the skills or motivation, not lack the money. Why weren't the world's poor flocking to bitcoin when it started? No minimum investment at all! It's because they weren't interested in investing and didn't do the research.
- drawkbox 9y ago
  True there is a financial education problem but many poor/middle level people just don't have as much money for investment, typically they are in needs based spending mode. Investment is the most important thing to growing wealth but also we can't just have an economy of only investment, someone needs to actually buy things in the economy. Typically the lower/middle end spending keep the consumer economy afloat with larger spending on consumer products that make those investments worth it because there is demand. You have to have people buying for demand, to then invest in supply, demand always comes first or else wealth doesn't invest. Further, wealth simply cannot buy enough to keep the whole economy afloat and wealthy people invest to retain more wealth not necessarily return it to the economy, whereas poor/middle range players spend to survive. When there is a market crash, wealth stops investing, poor/middle keeps on buying which is key. When there is inequality and only investment, downturns get harsher and harsher eradicating demand and thus eradicating investment opportunities.

roenxi 9y ago

Quick disclaimer; I'm pretty close to being a hard money advocate. I agree, and sympathise profoundly with the 'like I'm crazy' part. I sometimes feel like a madman for not holding personal and mortgage debts. We have a system that is set up based on exponential functions; and we know that most people will intuit linear. It is very frustrating watching friends people take up a position on the wrong side of an exponential function because they live in the here and now. Doubly so trying that they don't realise how big a financial gap they are creating to where they could be. I flat out don't believe that most (ordinary, no maths training) people taking on debt understand whether they are making a good or bad decision. If they make a good call, it is luck.