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Comment by mindslight | Hacker News Reader

The posted article doesn't have any relevant content ("Try unlimited access Only $1 for 4 weeks"), but based on the headline all I can think is please please pretty please maybe this time the government can perhaps let some defaulting actually happen? Of course we know the answer is always going to be more money printing to support the rigged heads-they-win tails-we-lose game, and the whole point of this article is part of the media push to make that happen. The main question is what related sector of the economy they'll ruin in the process.

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I understand the sentiment, and often feel this way too, but I think it's reductive to assume the answer is to let large companies/investors to fail.

Ideally, if we ensure adequate diversity in the market, then having companies default makes sense -- then one company going under won't trigger a string of defaults that can cripple a sector of the economy.

But when we let businesses concentrate effort or corner markets, then there can be catastrophic consequences to the economy when these large entities go belly up. Efforts should be put in place to mitigate these issues.

Ultimately, I think the pragmatic approach is to assess defaulting on debt on a case-by-case basis. I'd prefer if a panel of economists across the ideological spectrum came to a consensus for each case based on the latest understanding of the market, but I know it's more likely going to be politicians choosing the argument that best fits their worldview.

I do agree that limiting scopes ahead of time would be a better overall solution. The problem is that for the next part of the cycle, when the idea of regulation to limit the financialization is being debated, it will be rejected because the immediate crisis is over. So I'd say it's appropriate to argue against the scheme at each turn, even though only one aspect needs to be reformed to have just system.

Also, aiming for better outcomes would be more important for situations affecting resources in the real world. But commercial real estate has to be one of the most abstract setups there is. The buildings will still exist. The tenants will still exist, still carrying out their business, making rent payments, and for the most part keeping up the properties. The only thing that changes is the paper ownership moves to the senior debt holder, and the more leveraged investors get wiped out.

This condition was created by the government selecting winners and losers in the first place. The market has to decide who wins and who loses to achieve any normal distribution of resources, otherwise it will always be captured by politicians and/or corporations.

There can be no agreement among "economist across the ideological spectrum", there can only be agreement among economists who agree with bailouts, or agreement among economists who disagree with bailouts. We have directly opposing views on what makes something moral, on how value is created, even on what money is; there cant be any agreement when the differences in fundamental assumptions directly conflict. Naturally those against bailouts will be marginalized and called fringe kooks that can be safely ignored.

> based on the headline all I can think is

It's good that you're open about only having read the headline. Another user posted a link to the full article text: https://archive.is/VYBn9

I actually didn't even try that, because archive.is is so often broken. But surprisingly there were only two captcha-nags (not the usual infinite loop!) and it actually worked.

> let some defaulting actually happen

Do you realize the impact this would have on pension plans and mom and pop investment portfolios too? It isn’t just Bezos and other billionaires who would feel pain - it would be a lot of regular folk getting annihilated financially as well.

Doubt it. Most people are well diversified. I'd be surprised if anyone's retirement was more than 20% commercial real estate. Easy to stomach some moderate losses in the sector even at that absurdly high allocation.

Have you done the math, even at a ballpark level? Commercial Real Estate (CRE) is estimated to have ~$500B loss in 2023 and nearly the same in 2024 (different from debt repayment) [1]. Stock indices were fine. In general, there's way more private investment/ownership in CRE. The market can suffer a lot more in losses before it starts to meaningfully affect mom&pop. Even stocks like SLG and BX have done fine last year.

[1] https://finance.yahoo.com/news/commercial-real-estate-values...

Sure. "Investment" used to mean that what you invested was at risk, and if you (or whomever you delegated to) made bad investments you would lose. The answer to the current hazardous dynamic where everyone just dumps money into investment funds on autopilot is not to double down and bail them out so the Potemkin party can continue. Rather the negative possibilities of such investments need to be demonstrated so that people are appropriately leery of relying on them going forward.

Yes — in that case you can bail out mom and dad personally.

If the 0.1% owns a disproportional amount of wealth any financial bailout will disproportionately help them.

Relax. The largest US pension funds have only limited exposure to office real estate.

https://www.calpers.ca.gov/page/investments/about-investment...

A lot of those regular folks could have kept their money in US Government bond funds or in FDIC backed bank accounts as well. They invested in commercial real-estate paper because they wanted higher returns than those bonds funds would provide. Usually higher returns means accepting higher risk.

Maybe to level the playing field the government should publish a list of investments with high returns and implicit government guarantees so that we’d all know where to put or retirement money. It really screws with my retirement planning to only find out after the fact.

There are consequences for both courses of action, if you bail out the banks -you are diluting the wealth of primarily poor people who save instead of invest -real estate prices will scream upwards having barely paused for the fed rate hikes -you will distribute more of societies scarce resources into already failed investments, less of what people want and more of what people demonstrably dont.

Only one of these two options is actually moral; in the case of no bailout, investors who have provably acknowledged the risk of investing, and who still recklessly barrelled cash into an industry that everyone knows is a bubble, take a haircut based on the risk they themselves chose.

In the bailout reality (aka reality because we all know how this ends), you commit mass theft to bail out a failed investment. We can cut onions over how broken the stock market is for the average person, as I do on a daily basis, but that isnt justification to absolve people of the basic and predictable economic consequences of their choices, and certainly not to place those consequences on someone elses back.

You won't have fixed anything, investors wont get spooked, prices wont finally come down, they will see the blood in the water and continue doubling down on risky investments. They now know the government would sooner shake you down then let their investment fail, its all upside for them and all downsides fall to you, humble tax payer.

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