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And yet the government actively encourages people to lever themselves up to 33x to buy a house (a very non-liquid asset). Or, you can start an LLC and leverage

by MR4D 6y ago

And yet the government actively encourages people to lever themselves up to 33x to buy a house (a very non-liquid asset). Or, you can start an LLC and leverage it with credit card debt. Both are risky, and not regulated. Even worse, the latter example is effectively the same as crowdfunding but with a population of 1. Given that most business fail in the first few years, I’d argue that the government’s “protection of the investor” is basically irrelevant. [1] - https://mymortgageinsider.com/three-percent-down-no-mortgage-insurance-loan/ https://mymortgageinsider.com/three-percent-down-no-mortgage...

JumpCrisscross 6y ago
> Both are risky, and not regulated Mortgages and credit cards are unregulated?
- MR4D 6y ago
  * sorry, typed on a phone... The consumer side is fairly unregulated. Consider that a home mortgage at 3% down is 33x levered, but I as an investor cannot invest in something that is 33x levered unless I’m accredited - actually, more likely a qualified purchaser - according to the SEC. So I’m arguing the protections are really there to protect the borrower (debt) but they limit the investor (equity). In effect this is an imbalance because of the disparity in upside/downside balance.
icedchai 6y ago
Many "business" credit cards are actually secured personally. If the business fails to pay the debt, it falls back to the person issued the card. I know folks who found this out and had to pay off their business debts with their own funds. Credit cards companies aren't dumb. Mortgages are secured by the property itself. Lenders use property valuations to determine the fair value of a property. If you take out 500K mortgage with 15K down, and fail to pay after a few years, odds are the bank can recoup most of the cost (barring a massive event like the 2008 financial crisis.) The risk is well understood. If you invest in an early-stage, private company, it is secured by essentially nothing, except hopes and dreams. Often early business forecasts are so out of whack, they may as well be fictional. Private investments are completely non-liquid. There is generally no market.
- MR4D 6y ago
  You’re actually arguing my case for me. In effect, the government is protecting the lender not the investor. So why are we limiting investors’ options then? After all, a business owner can max out personal credit cards and go bankrupt. And “secured” doesn’t mean anything unless there is property or equipment behind it. Source: I’ve worked in finance for over a decade and I run a business as an owner.

by MR4D 6y ago

JumpCrisscross 6y ago

> Both are risky, and not regulated Mortgages and credit cards are unregulated?

MR4D 6y ago
* sorry, typed on a phone... The consumer side is fairly unregulated. Consider that a home mortgage at 3% down is 33x levered, but I as an investor cannot invest in something that is 33x levered unless I’m accredited - actually, more likely a qualified purchaser - according to the SEC. So I’m arguing the protections are really there to protect the borrower (debt) but they limit the investor (equity). In effect this is an imbalance because of the disparity in upside/downside balance.

icedchai 6y ago

Many "business" credit cards are actually secured personally. If the business fails to pay the debt, it falls back to the person issued the card. I know folks who found this out and had to pay off their business debts with their own funds. Credit cards companies aren't dumb. Mortgages are secured by the property itself. Lenders use property valuations to determine the fair value of a property. If you take out 500K mortgage with 15K down, and fail to pay after a few years, odds are the bank can recoup most of the cost (barring a massive event like the 2008 financial crisis.) The risk is well understood. If you invest in an early-stage, private company, it is secured by essentially nothing, except hopes and dreams. Often early business forecasts are so out of whack, they may as well be fictional. Private investments are completely non-liquid. There is generally no market.

MR4D 6y ago
You’re actually arguing my case for me. In effect, the government is protecting the lender not the investor. So why are we limiting investors’ options then? After all, a business owner can max out personal credit cards and go bankrupt. And “secured” doesn’t mean anything unless there is property or equipment behind it. Source: I’ve worked in finance for over a decade and I run a business as an owner.