Author Topic: Let Rent-Seekers Fail  (Read 5247 times)

mjs111

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Re: Let Rentiers Fail
« Reply #20 on: April 28, 2020, 11:04:51 PM »
The Airbnb problem these people are having seems like a miniature version of one of the key flaws of WeWork. The Airbnb'ers took on long term debt to fund an asset that had short term cash flows.

Mike


petec

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Re: Let Rentiers Fail
« Reply #21 on: April 29, 2020, 01:07:49 AM »
How else will we generate the much sought after and legendary hyperinflation if we don't bail everyone out?
Deposit 1,000 every month in their account for everyone who has a job and makes under 100k per year and watch that shit fly! Hell that's only about 2.3T of new money PER YEAR. At 2.3T you're a pussy these days and that may only get you inflation. You want high inflation better dial that baby up to 2k per month and index it to inflation. That's still just a paltry 5T or so. See? Easy

If this is funded by the Treasury, I'd argue it's still deflationary long-term. Debt is inflationary upon issuance and deflationary upon service/repayment. 

The only way this type of system successfully raises sustainable inflation would be a system that requires CONSTANT growth in the debt and CONSTANT acceleration in that growth. Otherwise as the debt stock grows, the inflationary impulse of the incremental debt add isn't enough to exceed the deflationary impulse of servicing the debt stock.

This system is ruined by a Fed EVER raising rates or by a gov't ever balancing its budget. Note that this environment is roughly approximate by the U.S. from 2008 - 2017. Massive deficits, on/off acceleration in that deficit growth rate, and a Fed keeping rates low for years on end. And even that was not enough to spur inflation - and as soon as the Fed hit a period of consistently rising rates (2017), the inflation trend dropped off a cliff in 2018 and kept dropping even after the Fed admitted the policy error and cut rates.

I just don't think it's politically or economically feasible for the Treasury to commit to massive deficit spending, massive acceleration in that deficit spending growth, and the Fed committing to keep rates at 0% while it happens. At some point, the deflationary impulse just becomes a black whole and you can't escape it.
Hey buddy, where did I ever talk about Fed raising rates or gov'ts balancing budgets. You can't do that while constantly depositing money into consumers' accounts. In fact I specifically mentioned an indexing of that amount to inflation. That's how you get yourself some nice inflation. A good 'ol wage-price spiral.

The fact was that we never did inflationary shit. What the fed did was mostly asset side balance sheet stuff. During 2008-2014/5 the fed gov't did run some deficits but that was to replace some consumer demand deficit during deleveraging. Smart, generally inadequate, and nothing too revolutionary. Boring textbook stuff. Once the Tremendous Trump comes in and we really run some deficits again that's on the asset side. Give money to rich folks that buy stocks/bonds, blah. Give lots of money to corporations that buy back stock. All asset side yawn.

Oh and while all this shit is going down the Fed is busy sanitizing all this supply via bank reserve requirements. Mopping all the slosh they generated all over the place. The fact is that the Fed has been very careful not to generate inflation. Which is very pertinent to this thread because rentiers hate inflation.

So you want real inflation? You need to engage the P&L baby. You need to have more money out there chasing so many goods that the economy cannot produce. You give money not to some stiff suit but some Duck Dynasty Arkansas hillbilly motherfuckers that don't know what a Robinhood is. Inflation index that shit and then watch the sparks fly.

Wasn't saying you did, but also don't think it's politically or economically feasible to do $2000/month without raising taxes or rising rates - both if which would reduce the inflationary impulse.

That was kind of the point. Not just enough to spend. Have to constantly spend , constantly increase spending, and prevent rising rates from slowing down the economy at the same time.

Itís also not currently legally feasible. The Fed is not allowed to fund the treasury directly, which I think would be necessary for the kind of handouts we are discussing here. But if you change that, inflation becomes a lot more likely than deflation.

Rentiers love inflation if they have fixed debts!
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scorpioncapital

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Re: Let Rentiers Fail
« Reply #22 on: April 29, 2020, 02:30:12 AM »
The Airbnb problem these people are having seems like a miniature version of one of the key flaws of WeWork. The Airbnb'ers took on long term debt to fund an asset that had short term cash flows.

Mike

But what exacttly is the problem. Airbnb apartments are just standard apartments. For a long time they made what? 2x - 3x their mortgage? Now they can rent long term and cover the mortgage. It seems very pandemic related. If there is so much property in excess of demand then rental prices should go down. Last time I looked I see big rent inflation everywhere.

mattee2264

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Re: Let Renters Fail
« Reply #23 on: April 29, 2020, 02:47:33 AM »
 I think that it makes much more sense to allow them to postpone mortgage payments.

 I can understand the argument for payroll grants to hotels because you are preserving jobs which makes a return to normalcy smoother and it is basically just a pass through.

 But Airbnb for most people is a side gig rather than their sole source of income. Also people losing their homes is a regular occurrence in recessions and is why it is a good idea to have an emergency fund and any prudent landlord factors in vacancies and other unforeseen expenses.

 I understand that this is unprecedented and the government does not have much time to think and is having to be reactionary. But there is a lot of social injustice.

 The sensible thing would be for any funding to be on commercial terms. You get a loan to help you through these tough times. But the loan has a high interest rate so you do not enjoy as high profits when the economy recovers and learn your lesson and in future make sure you have rainy day funds and lots of debt capacity. Or you get to postpone your mortgage payments but get charged penalty interest that accrues and is added to your outstanding loan balance.

 I still cannot quite see inflation on the horizon. Unemployment is going to remain elevated for some time so wage inflation is not on the cards. Monetary inflation only seems to get reflected in asset prices. We are service economies so less reliant on raw material inputs and in any case commodity prices remain muted.

 I think we are just going to continue to see financial repression. Very low interest rates will remain for some time to allow governments and corporations to service huge debt loads.

 

 

Jurgis

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Re: Let Renters Fail
« Reply #24 on: April 29, 2020, 06:07:53 AM »
I love how the thread title changed from "Let rentiers fail" to "Let renters fail".  ::)
« Last Edit: April 29, 2020, 06:11:15 AM by Jurgis »
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petec

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Re: Let Renters Fail
« Reply #25 on: April 29, 2020, 06:11:03 AM »
I love how the topic of the thread changed from "Let rentiers fail" to "Let renters fail".  ::)

Ha!
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meiroy

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Re: Let Rentiers Fail
« Reply #26 on: April 29, 2020, 06:29:21 AM »

So you want real inflation? You need to engage the P&L baby. You need to have more money out there chasing so many goods that the economy cannot produce. You give money not to some stiff suit but some Duck Dynasty Arkansas hillbilly motherfuckers that don't know what a Robinhood is. Inflation index that shit and then watch the sparks fly.

Wouldn't it be siphoned by external economies that lack their own local demand?

DTEJD1997

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Re: Let Rentiers Fail
« Reply #27 on: April 29, 2020, 06:35:28 AM »
The Airbnb problem these people are having seems like a miniature version of one of the key flaws of WeWork. The Airbnb'ers took on long term debt to fund an asset that had short term cash flows.

Mike

I don't think that is quite correct.  "WeWork" simply had a flawed business model right from the get go.  They didn't make a profit, not even close.  I seem to remember that at it's height, WeWork was losing $1 for every $1 of revenue they brought in.  WeWork wasn't making money, wasn't ever going to make money.

Contrast that to a typical Airb&b host.  They would make money when people were staying in their properties.

The problem with the Airb&b folks was that they:

1). Did not keep enough of a cash buffer.  This is common in America today. I know people making $100k a year, who live paycheck to paycheck.

2). The Airb&b people have too much debt, not enough of an equity cushion.

The end result is the same, both are going out of business....but WeWork wouldn't have made it, even if Covid-19 hadn't come along. 

SharperDingaan

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Re: Let Rentiers Fail
« Reply #28 on: April 29, 2020, 06:42:57 AM »
The Airbnb problem these people are having seems like a miniature version of one of the key flaws of WeWork. The Airbnb'ers took on long term debt to fund an asset that had short term cash flows.

Mike

But what exacttly is the problem. Airbnb apartments are just standard apartments. For a long time they made what? 2x - 3x their mortgage? Now they can rent long term and cover the mortgage. It seems very pandemic related. If there is so much property in excess of demand then rental prices should go down. Last time I looked I see big rent inflation everywhere.

Just to throw some things out ....

In the US, Airbnb ownership  is a very smart thing to do.
Put bluntly, it is an asymmetric bet against the US banking system, with very little downside

US HELOCS/mortgages are for the most part non-recourse.
Both the ALM mismatch risk, and cash flow mismatch risk, are borne by the bank - not the unit owner.
And the more units the owner has - the more effective the risk transfer is.

A SMART unit owner, may initially finance with 20% down.
When times are good, apps do the marketing, cash flow is at 2-3x plus, and SMART owners repay themselves as fast as possible.
The dumb, and the greedy, just plough the surplus cash flow into more units - with a little 'empire building' help from social media.
In the short-term. More demand for the same supply, raises price, raises equity, raises more demand.
In the medium-term. High unit values fuel new-build construction, and the good times roll.

Great thing with 80% is that as cash flow shortfalls have to be financed and unit values collapse, 80% quickly becomes 90-95%.
THE SMART SIMPLY WALK AWAY. They've already got their money back, and this is now the banks problem - not theirs.
Non recourse lending is great!

At the extreme, we get a condo market collapse, and the new builds become public housing.
Owned by the smart money, and guaranteed by the public purse.
Circle of life.

Takeaway?
Risk is your friend. But only play with house money, a keep taking as many $ off the table as soon as you can.
Otherwise known as asset striping.

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meiroy

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Re: Let Renters Fail
« Reply #29 on: April 29, 2020, 06:46:18 AM »

FICO scores.