5 ms·

How is it a ponzi scheme? There is actual real estate being bought, sold and rented. What has happened is that demand for office space has dropped dramatically

How is it a ponzi scheme? There is actual real estate being bought, sold and rented. What has happened is that demand for office space has dropped dramatically. The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential. Then these properties will more likely find tenants.

breckenedge 3y ago
> How is it a ponzi scheme? Because it’s credit built on credit. It’s not an intentional Ponzi scheme (maybe). > The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential. It’ll be prohibitively expensive for most properties to convert them to residential. They might as well be demolished for their land value.
- deleted 3y ago
  [deleted]
- Jabrov 3y ago
  That still doesn’t make it a Ponzi scheme. Don’t just throw the word around.
  - capitalsigma 3y ago
    Ponzi scheme is when the price collapses for something that I don't like, and the more that I don't like it the Ponzi-er it is
    - dmoy 3y ago
      That is not what a ponzi scheme is
m0llusk 3y ago
high demand, limited inventory, fifteen years of near zero interest rates mean prices have been set in a market environment of extreme distortion
- dmoy 3y ago
  Sure, but the word to describe it may be "bubble", not "ponzi scheme". E.g. you can't say a failed startup is a ponzi scheme because it loses a bunch of money. A ponzi scheme is a very specific type of fraud.
  - throw9away6 3y ago
    There is an element of ponzi because none of the actors have an interest to break the cycle. Mutual hallucination might be a better term though. Like you would think the asset buyers would have an incentive to stop holding the loans and the whole thing would collapse, but because the buyer are investing with other peoples money they are also incentivized to keep the cycle going. The people whose money is eventually going to be lost have no way to stop this because the money is either in a pension fund or they aren’t knowledgeable enough to understand the issue
    - JumpCrisscross 3y ago
      > none of the actors have an interest to break the cycle This is collective behaviour. If you discover you’re in a Ponzi scheme, it’s in your interest to get your money out first.
      - throw9away6 3y ago
        Yeah but here it’s never actually your money and if the cycle breaks you are screwed anyway. If you fail with everyone else then you can say that nobody could have ever predicted this.
      - sangnoir 3y ago
        > If you discover you’re in a Ponzi scheme, it’s in your interest to get your money out first. You can either cut your losses and not get your money back (if you're an ethical operator), of you can actively or passively allow other people topit in their money so you can get yours out first. There are similarities where rational vested actors want the charade to continue for a little while longer - the more money you put in, the longer your commitment to the mirage is.
throw9away6 3y ago
The transaction volume is near zero. So price discovery can’t happen. Similar to how during the the last crisis there was almost no market for cdo and all sorts of other shit paper so holders could pretend the asset was worth more dispite not being able to sell it.
lamontcg 3y ago
> The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential. That would be very expensive. To be able to afford that, the prices need to crash seriously hard.
- htss2013 3y ago
  It would be expensive but so would a banking and general financial crisis caused by empty office buildings and CMBS turning into toilet paper. The government will pay for it either way and the currency will be inflated either way. God forbid the money be used for housing instead of never ending wars.
  - lamontcg 3y ago
    I mean I agree, but I can also predict the screaming at politicians if the government starts giving handouts to developers (particularly from the people with vested interest in keeping residential real estate inflated).
    - htss2013 3y ago
      Who benefits from lack of inventory vs conversion condos? I can't think of anyone but residential REITs and home builders. The average SFH owner in some neighborhood doesn't see new condos downtown as a threat. But every other vested interest is aligned with the developer handouts. Eg, construction, government for more taxes, unions, office REITs that want less competition, big finance who want the CMBS problem to go away. Even the mortgage industry would profit more from selling tons of new condos vs fewer more expensive resales.

breckenedge 3y ago

> How is it a ponzi scheme? Because it’s credit built on credit. It’s not an intentional Ponzi scheme (maybe). > The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential. It’ll be prohibitively expensive for most properties to convert them to residential. They might as well be demolished for their land value.

deleted 3y ago
[deleted]
Jabrov 3y ago
That still doesn’t make it a Ponzi scheme. Don’t just throw the word around.
- capitalsigma 3y ago
  Ponzi scheme is when the price collapses for something that I don't like, and the more that I don't like it the Ponzi-er it is
  - dmoy 3y ago
    That is not what a ponzi scheme is

m0llusk 3y ago

high demand, limited inventory, fifteen years of near zero interest rates mean prices have been set in a market environment of extreme distortion

dmoy 3y ago
Sure, but the word to describe it may be "bubble", not "ponzi scheme". E.g. you can't say a failed startup is a ponzi scheme because it loses a bunch of money. A ponzi scheme is a very specific type of fraud.
- throw9away6 3y ago
  There is an element of ponzi because none of the actors have an interest to break the cycle. Mutual hallucination might be a better term though. Like you would think the asset buyers would have an incentive to stop holding the loans and the whole thing would collapse, but because the buyer are investing with other peoples money they are also incentivized to keep the cycle going. The people whose money is eventually going to be lost have no way to stop this because the money is either in a pension fund or they aren’t knowledgeable enough to understand the issue
  - JumpCrisscross 3y ago
    > none of the actors have an interest to break the cycle This is collective behaviour. If you discover you’re in a Ponzi scheme, it’s in your interest to get your money out first.
    - throw9away6 3y ago
      Yeah but here it’s never actually your money and if the cycle breaks you are screwed anyway. If you fail with everyone else then you can say that nobody could have ever predicted this.
    - sangnoir 3y ago
      > If you discover you’re in a Ponzi scheme, it’s in your interest to get your money out first. You can either cut your losses and not get your money back (if you're an ethical operator), of you can actively or passively allow other people topit in their money so you can get yours out first. There are similarities where rational vested actors want the charade to continue for a little while longer - the more money you put in, the longer your commitment to the mirage is.

throw9away6 3y ago

The transaction volume is near zero. So price discovery can’t happen. Similar to how during the the last crisis there was almost no market for cdo and all sorts of other shit paper so holders could pretend the asset was worth more dispite not being able to sell it.

lamontcg 3y ago

> The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential. That would be very expensive. To be able to afford that, the prices need to crash seriously hard.

htss2013 3y ago
It would be expensive but so would a banking and general financial crisis caused by empty office buildings and CMBS turning into toilet paper. The government will pay for it either way and the currency will be inflated either way. God forbid the money be used for housing instead of never ending wars.
- lamontcg 3y ago
  I mean I agree, but I can also predict the screaming at politicians if the government starts giving handouts to developers (particularly from the people with vested interest in keeping residential real estate inflated).
  - htss2013 3y ago
    Who benefits from lack of inventory vs conversion condos? I can't think of anyone but residential REITs and home builders. The average SFH owner in some neighborhood doesn't see new condos downtown as a threat. But every other vested interest is aligned with the developer handouts. Eg, construction, government for more taxes, unions, office REITs that want less competition, big finance who want the CMBS problem to go away. Even the mortgage industry would profit more from selling tons of new condos vs fewer more expensive resales.