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My knowledge of the American tax system is limited to "I know it exists", so I hope someone can enlighten me on this: If it's possible to use your investments
by Scandiravian 5y ago
My knowledge of the American tax system is limited to "I know it exists", so I hope someone can enlighten me on this:
If it's possible to use your investments as collateral for a loan, is there anything stopping you from reinvesting that into the stock market which (if your investment is large enough) will push up stock prices? This would increase the value of your position and allow you to take out additional loans, rinse repeat
I'm not suggesting "targeted" market manipulation or even malicious intent, but with enough wealth accumulated by a small group, it seems that as long as everyone has diversified their investments broadly, everytime someone invests with borrowed money it enables someone else to do the same
Am I missing something here?
Edit: the relation to the American tax system wasn't clear in the original post. My thinking is that this could create a unsustainable loop, where tax-free wealth increases are created by a circle of debt accumulation
- kristjansson 5y ago> reinvesting that into the stock market Yes! Certain classes of loans against securities (e.g. pledged asset line[0]) cannot be used to buy more securities. Margin loans, on the other hand, can be reinvested to add leverage, but come with higher interest, more regulations, limits on borrowing relative to equity, etc. Of course, like many things, the Very Rich can get around some of those limits viz. Bill Hwang doing (apparently) very much what you describe. [0]: https://www.schwab.com/pledged-asset-line https://www.schwab.com/pledged-asset-line