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This is blatantly just increasing debt load. What does a business do if they need forever growth, but can’t increase their prices further without losing net rev

This is blatantly just increasing debt load. What does a business do if they need forever growth, but can’t increase their prices further without losing net revenue? Raise prices anyway and push people to finance it. This is broadly not good for people. Financing things like your food or your rent (seriously - that’s a thing here) doesn’t help if they’re recurring. It’s not like people are gonna need to just finance one month’s rent payment and then they’re solvent and paying off the next 4 months normally plus installments. Really, what could structurally change in someone’s personal finances over a 6-8 week term? If you couldn’t afford a burrito or rent this week, what possible belief is there that next month you can afford that plus debt service. The loans are just gonna stack and stack. Which will drive people into more debt, and more need for continued financing. This isn’t a multi billion dollar business because people just need a temporary boost once every year or two because their paycheck timing is off. It’s a flywheel money extraction machine. Securitizing these debts doesn’t make them a good idea for the consumers. It makes it good for the industry so it can scale it up larger. Which means more people in more debt more of the time with “investors” extracting wealth from it. Plus then there’s the whole systemic risk of people not paying back. They bake into the rates some percentage of defaults, and the larger the pool size the safer that gets. This systemically is a bet that no more than X% of loans will default at once. Basically shorting loan defaults. Which is cute and all until any economic situation hits where a bunch more people suddenly can’t pay at the same time. In which case the whole thing unwinds brutally. And given that the play is to literally sell financial products that increase pressure on people’s ability to pay… this is probably super unwise. Combine that with any of the major structural economic issues we have ongoing and you’re poking a sleeping pressure cooker. The only real questions are how much can be extracted before it explodes, and who is the ultimate bag holder at the end? “If you thought 2008 was fun, well hold my beer…” - finance, probably

rybosome 1y ago
Thank you for clearly and concisely articulating why this is dangerous from the securities aspect. I think the immorality of it for consumers is obvious on the surface, but the backend financial stupidity of it is slightly less obvious. At least to me, I felt that it was risky but couldn’t clearly articulate why until reading this. The only difference may be how many people buy into these. I don’t imagine BNPL securities to have the reach of 2008 for a few reasons, but perhaps I’m being naive.
- nighthawk454 1y ago
  I certainly agree, I think the financial mechanisms are not very obvious. Presumably somewhat by design. And yet it also seems to be one of the main tricks in modern financial engineering - it just keeps turning up. See also: corporate buybacks, private equity, private credit, mortgage backed securities, etc. All are versions of this ‘shuffling of risk’ from debtors to “investors”. The middlemen take their cut along the way. Then if and when the bubble bursts debtors default and investors take a bath. Or the slow case, the debt inflates away and investors pay for it in lack of returns, ultimately losing money in real terms despite balances going up. While BNPL by itself may not be large enough to do the economy in, some of those other examples mentioned are. And I imagine there’s probably some joint risk from running so many instances of this scheme at once (i.e. one goes out they all go out).
geodel 1y ago
Nah, as per this substack dude think of Burrito Now Pay Later as Quantitative easing so that one can make critical investments in strategic hunger management. So now it is everyone's duty to use BNPL so as to keep economy efficient.

rybosome 1y ago

Thank you for clearly and concisely articulating why this is dangerous from the securities aspect. I think the immorality of it for consumers is obvious on the surface, but the backend financial stupidity of it is slightly less obvious. At least to me, I felt that it was risky but couldn’t clearly articulate why until reading this. The only difference may be how many people buy into these. I don’t imagine BNPL securities to have the reach of 2008 for a few reasons, but perhaps I’m being naive.

nighthawk454 1y ago
I certainly agree, I think the financial mechanisms are not very obvious. Presumably somewhat by design. And yet it also seems to be one of the main tricks in modern financial engineering - it just keeps turning up. See also: corporate buybacks, private equity, private credit, mortgage backed securities, etc. All are versions of this ‘shuffling of risk’ from debtors to “investors”. The middlemen take their cut along the way. Then if and when the bubble bursts debtors default and investors take a bath. Or the slow case, the debt inflates away and investors pay for it in lack of returns, ultimately losing money in real terms despite balances going up. While BNPL by itself may not be large enough to do the economy in, some of those other examples mentioned are. And I imagine there’s probably some joint risk from running so many instances of this scheme at once (i.e. one goes out they all go out).

geodel 1y ago

Nah, as per this substack dude think of Burrito Now Pay Later as Quantitative easing so that one can make critical investments in strategic hunger management. So now it is everyone's duty to use BNPL so as to keep economy efficient.