4 ms·

If that's what was happening you'd be right but it isn't. Credit cards have high rates and low limits for a reason: they are unsecured credit. Loans with collat

by creato 2y ago

If that's what was happening you'd be right but it isn't. Credit cards have high rates and low limits for a reason: they are unsecured credit. Loans with collateral are secured by the collateral, and it makes some sense that should be considered a realized gain for that collateral (or loss for that matter).

deleted 2y ago
[deleted]
__turbobrew__ 2y ago
My bank will give me a 6 figure line of credit at prime+0.5% because they see all the assets I have (savings, cash, investments, mortgage). The line of credit is indirectly secured against all of the assets my bank can see. Should I be taxed when I use the line of credit my bank extends to me?
- JumpCrisscross 2y ago
  What OP is missing is the role of collateral. It becomes more important the more perilous the borrower is or might be. Apple borrows for 20 years unsecured at 31 bps above the U.S. [1][2]. That wouldn't contract much if they offered collateral, because the difference in relative risk is modest to the point of immateriality. Similarly, someone with a century of living expenses in marketable securities really only needs to be restricted from blowing their stockpile--other risks are absorbed by that wealth. TL; DR The rich don't need collateral as much as the middle class and poor. Penalise the use of collateralised loans like that, and you just make collaterised lending go away or become much more expensive. [1] https://www.bondsupermart.com/bsm/bond-factsheet/US037833AT77 https://www.bondsupermart.com/bsm/bond-factsheet/US037833AT7... [2] https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202410 https://home.treasury.gov/resource-center/data-chart-center/...
  - bdangubic 2y ago
    > TL; DR The rich don't need collateral as much as the middle class and poor. You really buy this? Elon could just go fetch $44bn from a bank to buy Twitter without anything to back it?
    - JumpCrisscross 2y ago
      > Elon could just go fetch $44bn from a bank to buy Twitter without anything to back it? Collateral "becomes more important the more perilous the borrower is or might be." It's immaterial to "someone with a century of living expenses." Elon Musk could probably have borrowed even $100mm unsecured on terms damn close if not identical to that which he could get on a secured loan, ceteris paribus. But Elon is uniquely leveraged. That makes him a more perilous borrower. And $44bn isn't lifestyle borrowing, either. Nevertheless, he could still probably get a hundred million lent unsecured on terms quite close to his secured rates--there are groups who would do that for relationship building alone.
    - consteval 2y ago
      Yes, I would imagine it would be much easier for Elon to get 44bn as opposed to someone who is homeless.
1123581321 2y ago
No difference if secured. You could add to my list of examples a home equity loan. Should that be taxed as a partial sale of the house? No. Ask your credit union about the variety of loans they offer to regular people.
gpderetta 2y ago
It gets more complicated. If you remortgage an house, should you pay CGT on any unrealized increase in value?

by creato 2y ago

deleted 2y ago

[deleted]

__turbobrew__ 2y ago

My bank will give me a 6 figure line of credit at prime+0.5% because they see all the assets I have (savings, cash, investments, mortgage). The line of credit is indirectly secured against all of the assets my bank can see. Should I be taxed when I use the line of credit my bank extends to me?

JumpCrisscross 2y ago
What OP is missing is the role of collateral. It becomes more important the more perilous the borrower is or might be. Apple borrows for 20 years unsecured at 31 bps above the U.S. [1][2]. That wouldn't contract much if they offered collateral, because the difference in relative risk is modest to the point of immateriality. Similarly, someone with a century of living expenses in marketable securities really only needs to be restricted from blowing their stockpile--other risks are absorbed by that wealth. TL; DR The rich don't need collateral as much as the middle class and poor. Penalise the use of collateralised loans like that, and you just make collaterised lending go away or become much more expensive. [1] https://www.bondsupermart.com/bsm/bond-factsheet/US037833AT77 https://www.bondsupermart.com/bsm/bond-factsheet/US037833AT7... [2] https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202410 https://home.treasury.gov/resource-center/data-chart-center/...
- bdangubic 2y ago
  > TL; DR The rich don't need collateral as much as the middle class and poor. You really buy this? Elon could just go fetch $44bn from a bank to buy Twitter without anything to back it?
  - JumpCrisscross 2y ago
    > Elon could just go fetch $44bn from a bank to buy Twitter without anything to back it? Collateral "becomes more important the more perilous the borrower is or might be." It's immaterial to "someone with a century of living expenses." Elon Musk could probably have borrowed even $100mm unsecured on terms damn close if not identical to that which he could get on a secured loan, ceteris paribus. But Elon is uniquely leveraged. That makes him a more perilous borrower. And $44bn isn't lifestyle borrowing, either. Nevertheless, he could still probably get a hundred million lent unsecured on terms quite close to his secured rates--there are groups who would do that for relationship building alone.
  - consteval 2y ago
    Yes, I would imagine it would be much easier for Elon to get 44bn as opposed to someone who is homeless.

1123581321 2y ago

No difference if secured. You could add to my list of examples a home equity loan. Should that be taxed as a partial sale of the house? No. Ask your credit union about the variety of loans they offer to regular people.

gpderetta 2y ago

It gets more complicated. If you remortgage an house, should you pay CGT on any unrealized increase in value?