3 ms·

> Oof, HN and its armchair finance. I am a past CFA charterholder and spent a number of years doing deep fundamental analysis of public equities so not exactly

by voisin 2y ago

> Oof, HN and its armchair finance. I am a past CFA charterholder and spent a number of years doing deep fundamental analysis of public equities so not exactly armchair finance. I think the disconnect in our discussion is the use of the word agnostic and that capital stack “isn’t particularly relevant”. “All else equal” more debt decreases solvency and less debt increases solvency. It isn’t guaranteed in either direction, but to state that it is agnostic massively downplays the relevancy of debt in the capital stack to solvency. The fact that other variables (productivity of the assets, non-debt liabilities, etc) can also impact solvency doesn’t translate to “capital stack isn’t relevant”. These are directly related and incredibly important to assessing solvency.

JumpCrisscross 2y ago
> not exactly armchair finance Sorry, I should not have said that. > the use of the word agnostic and that capital stack “isn’t particularly relevant” Consider metrics conventionally considered capital-structure agnostic. All of them are affected to some degree, in practice, by borrowing more or less. (Whether through interest expense or risk perceptions by investors, employees and customers.) Within the context of commercial real estate's size in our economy, whether it's financed with debt or equity is irrelevant to its value drawdown. The root of the problem, as OP suggests, is not in debt. There is a separate problem in our banking system tied to CRE valuations. That's a debt problem. But that's a derivative of the fundamental problem of the properties' values going down. Those values would have gone down irrespective of how much was borrowed because the properties are being used less. (Nobody is choosing WFH because their office landlord is leveraged.)

3 ms·

> Oof, HN and its armchair finance. I am a past CFA charterholder and spent a number of years doing deep fundamental analysis of public equities so not exactly

by voisin 2y ago

JumpCrisscross 2y ago
> not exactly armchair finance Sorry, I should not have said that. > the use of the word agnostic and that capital stack “isn’t particularly relevant” Consider metrics conventionally considered capital-structure agnostic. All of them are affected to some degree, in practice, by borrowing more or less. (Whether through interest expense or risk perceptions by investors, employees and customers.) Within the context of commercial real estate's size in our economy, whether it's financed with debt or equity is irrelevant to its value drawdown. The root of the problem, as OP suggests, is not in debt. There is a separate problem in our banking system tied to CRE valuations. That's a debt problem. But that's a derivative of the fundamental problem of the properties' values going down. Those values would have gone down irrespective of how much was borrowed because the properties are being used less. (Nobody is choosing WFH because their office landlord is leveraged.)