How I Used Eve Online to Predict the Great Recession (2013)
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I had desired such a tool relative to speculation on the stock markets (and at the time postulated that requiring whoever 'owned' a future __must__ receive it when it comes due); however the idea of taxing that invested value while it is held seems to be an even cleaner way of handling the problem.
As a simple means the government could also act as the 'auction house' for properties and entertain prospective bids on a property. The median of those bids could be used to set the asking price if it's higher than the last public valuation of the property (this is mostly to discourage front companies down-bidding to cheat taxes).
For more fungible items the current market valuation seems much more obvious.
Optionally, add a provision that, if the town objects, the owner names a new price for the appraisal that the town can either accept as a valid appraisal or purchase the property for 111% of the owner's figure.
This way, people whose properties have skyrocketed in value relative to the rest of the city would have their taxes go up slightly, those whose values have gone up but gone up by a relatively lower amount would see a reduction in taxes, and the city still gets all its revenue for operations.
If everyone's value has doubled (as an example), it would seem better to raise everyone's assessments by 100% and cut the millage rate by 50% than to have some weird half-Prop13 situation where 123 Main St is assessed at half of 125 Main St because 123 last sold in 1984 and 125 sold last week for $1.4MM in cash.
> Can’t raise taxable values to be realistic, as a lot of older folk are sitting on fixed income in multi-million dollar homes.
In this situation, maybe we should allow retired/older folks to defer taxes until the sale of the property (kind of a government-based reverse mortgage). Would be messy to administer though.
Hah, it's kind of zen - if a house isn't being offered for sale, does it really have a selling-price?
As a hypothetical, you could mandate that people put a value on their house, and then say "you must accept offers more than Nx that price - so say, if N=2 and you value your house at $1million, then if someone offers $2mil, you automatically sell.
Then, charge them tax based on their own evaluation. If they value it way too low for the purposes of tax fraud, then someone will just buy their house for said stupidly-low price and sell it at market-price for a profit.
I mean, there are all sorts of social problems with it (that might well sink it), but it seems like a pretty nifty solution to the problem.
I have seen people argue for it still working for other forms of property (most notably houses; I don't want to be forced out of my home) with the argument that if people set a value e.g. 2x what the property is worth, that will deter forced selling and then the tax rate can be lowered slightly to be revenue neutral. I'm less convinced.
Regarding futures, I was under the impression that's how it works - if a contract expires on your hand, you have to take delivery. There are a few funny stories around of that happening accidentally to paper traders.
We have the former without the latter in the U.S. already.
Indeed, that is the basis of the One True Tax.
On the one hand, as a person with relatively few assets I'd say it would be clearly in my advantage that there are no assets and all value needs to be produced by labor.
But at the same time it is also a natural desire that you build up something that you can use when you are old and tired. And that shouldn't necessarily be a lot, lot worse than what you are used to in your prime time. So in some regards we also need assets.
Both sides have good reasons.
The people who become notable are those who predicted an economic crisis, for decades before circa 2008, and once they got notoriety for that, have continued to predict doom for the subsequent decade. Eventually they either die or are right again.
Unless he was wrote about it ahead of time, we have no way of knowing whether he also made a similar bet with another friend in a different conversation to say that housing prices were going to continue towards the moon. If he had also structured the bet in which he got his school payed for and seemingly no downside if he lost, then he could have guaranteed free school, and looked like Nostradamus either way.
So it's quite possible that this is selection bias at work, and he "flips coins" on a regular basis and only brags about the ones that come up heads.
IF s/he was confident about the prognosis, making really money in the marketplace would have given leverage x-fold higher than a bet between friends would allow.
There is nothing particularly special about housing bubbles and their correction. This happens all the time.
What he didn't predict was the effect that that correction in 2008 would have on the global financial system. That's because you'd need to include securitisation, how the big players were holding risk and the effect of perceived credit worthiness on short term liquidity.
A while ago, when I looked into this, I found just one paper, written prior to the crash, that could reasonably be considered to have predicted what occurred. Unfortunately, I can't find it, if I do I'll add the link.
"The coming crash in the housing market" by John Talbott
The author used a mountain of evidence and trends to back up the books premise, and going through it all it was hard to deny. Timing such an event though is always difficult, as exemplified by other books like 'The big short'.
Folks are constantly predicting gloom and doom. Some have even made successful careers out of it, their low probability of predicting such catastrophes not withstanding.
Relatedly there were several economists predicting bad things. https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp0827...
Its easier to say bad things will happen and be right eventually, the much much much harder part is to get the timing right.
It specifically said that banks were holding higher level tranches of CDOs. Because they're MTM accounted they could suddenly drop in value if default rates increase. This, in turn, could cause other banks to suspect their creditworthiness and pull their funding lines.
In other words, it was very specific about what it thought a collapse mechanism was and it turned out to be spot on.
I don't believe they were either lucky or prescient. I think that they were well informed and joined the dots in a way that few others had.
Videogames really offer a fun space to explore economic instruments-- treating the real world as a laboratory is a bit more dangerous.
Disclaimer: Its for my own use only. Didn't sell it or even make available to anyone.
Office Mate: We're making an offer on a $650K house.
Me: I know roughly what you make. Did a rich uncle die?
Office Mate: No but our lender said we can afford it.
Me: How much of your take home pay will go toward your mortgage?
Office Mate: About 60%
Me to my wife: Honey, we're cashing in our lottery ticket and leaving California.
My worry would be that once prices crash two challenges will appear:
1. Once the crash starts there will be tons of attempts to stall the inevitable. It could be months before prices hit a true low point.
2. Credit is going to dry up. Domestic banks will not have the balance sheets to allow for further lending. What loans will be available will be hard to get and more expensive than is "fair".
Which speaks to how difficult it is for consumers to benefit from conservative behavior in times of folly. Unless you save enough to buy discounted assets in cash out-right consumers buying at the bottom of the market are also buying in the context of restricted credit.
For my own situation, me and my wife are buying a house here in Japan. Over here bank's balance sheets are super-healthy and banks are extending large volumes of credit easier than they would in the past. My friends and co-workers got accepted for large home loans at reasonable rates. I have studied the bank balanace sheets as part of my stock investing so I am not worried of us being in a over-credited state. In fact japanese banks home loan load has been decreasing on a percentage basis over time as old bubble era loans get paid off.
Yet it appears to me that Japan is in a phase of expanding home credit. Or atleast expanding home credit to lower/younger quality borrowers in response to fewer traditional borrowers starting families and buying homes.
The net result in Japan is that buying a home is a massive good deal. We were careful with the location and builder but I needed to put no effort to get a loan at an insanely low interest rate.
Right now I can’t afford a house and would love to know the conditions that would increase interest rates.
That's because of negative-gearing. Basically, mortgage payments are tax-deductible. So if you have a house and rent it out, then you can take the tax, use it to pay off the mortgage on the house you're renting, and not pay any tax on it at all.
This, naturally, makes investment housing a much better deal than it should be, and discourages selling a house (thereby driving up housing prices, and therefore rent prices, thereby making investment housing more lucrative).
It's broken bullshit. Blame the (main right-wing party) Liberal party.
Sometimes I wonder whether the parties in Australia are named just to screw with Americans - the Liberal party is conservative, and the Labor Party is officially spelled with the American spelling, despite "labour" normally having a U in it, here.
Me to realtor: Is that a realistic price?
Realtor: I sold one just like it for that much last week.
Me to wife: Time to sell.
* - Along with a pile of other reading, it was the Robert Shiller 100 year graph of the relationship between house prices and income [0] that told me trouble was coming. Ultimately, most mortgages and rents are paid out of wage income, and there's only so much blood you can squeeze from a stone.
[0] https://archive.nytimes.com/www.nytimes.com/imagepages/2006/...
US Home Prices 1890-Present: http://www.econ.yale.edu/~shiller/data/Fig3-1.xls
I took his card and said “sure”. As I closed the door he said “wait”, ran to his car and grabbed a Miami-vice style aluminum briefcase. He opened it up and said “400 thousand dollars for house, see?”
Given that my folks paid like $18k for the house about 8 years earlier, that was pretty amazing. They didn’t take it and sold in the 90s for less. A few years ago it sold for $2.5M and was torn down. The replacement condos sold for about $12M
In retrospect, it's even stranger. I couldn't fathom cold-knocking at a random house and offering the owners a suitcase of money. Double++ bizarre making the pitch to a little boy. That said, we had alot of interesting stories from that house and neighborhood, this one isn't even the strangest!
Like I said, we had an interesting neighborhood... everything from a fugitive Nazi war criminal, to a crazy man with a rocket to mafia people.
There's just something when random people who have no particular interest in investing suddenly are preaching an investment that smells like a bubble - and one close to bursting. It still took a couple of years from there, though.
Maybe it's because the pyramid has nowhere else to go from there.
And of course me pointing to previous real estate downturns was dismissed - it was still viewed as fundamentally impossible for real estate to lose value.
I'm at about 30% and it's my only debt.
I've stayed closer to %20 and it's allowed me to support a family of four for 20 years on one income while riding through two employment layoffs during that time.
Also, rather than spending our proceeds from the sale of our home in 2005 I put it back into our new home once the market was near the bottom. The net of all of it was that I was basically able to cut about 18 years off our original 30 year fixed rate mortgage.
Started reading short seller message boards. Got deep into the weeds with credit default swaps. Found that you could actually see prices for credit default swaps on markit.com. watched priced for BBB- credit default swaps increase dramatically in early 2007. That was the signal that it was over.
Got back in in early 2012 when the loan rate resets from the housing bubble all tapered off.
Moral of the story: in every bubble the money is coming from somewhere. Figuring out where it is coming from will let you predict the big market turn. If you don't know where it's coming from then you probably shouldn't play with bubbles.
I would personally add Russia to the mix. The reason is simple: both China and Russia are sources of capital flux, where those with means are funneling funds outside their respective countries.
Because there are, or have been, capital controls in place, those who move money out of their countries are willing to pay a premium for it. Funnily enough, there is a name for the phenomenon where actors with money are willing to pay exorbitant transaction costs in order to move funds from one jurisdictional domain to another.
As far as the Bay Area goes it appears to be trickle down from FANG stocks buying up VC backed companies and the associated recycling of those proceeds into new ventures. There's also a bit of China money buying up single family homes, but China has been putting steady pressure on all that trying to plug those foreign exchange leaks, so if anything that's waning.
Where's the money for the stock market coming from? It used to be quantatative easing and FED reserve bond buying. I guess the yen carry trade in part and probably lately tax cuts a bit. It's harder to see where the money is coming from in the stock market though because buyers are largely anonymous.
[1].http://www.calculatedriskblog.com/2018/02/new-home-sales-dec...
http://graphics8.nytimes.com/images/2005/06/15/business/arm3...
Also discovered around this time that subprime mortgage didn't mean a mortgage with an interest rate below the prime rate.
Even if I had the money, I don't think I could bring myself to pay 2-3x a sale price from 5 years ago.
Interesting - there's not a way to develop something in the game that could cycle it back in?
Simply cycling it back in is certainly doable, and arguably already done (or approximated) - I'd argue it's more the local infrastructure deterioration/modeling that isn't (fully) simulated in EvE, for NPC infastructure. A couple of gamedev terms:
- Cash faucets - sources of currency generation / magically introduced into the economy, functionally equivalent to the bank printing currency in the real world.
- Cash sinks - places where currency is magically destroyed / taken out of the economy, functionally equivalent to the bank destroying old currency in the real world.
If your cash faucets and sinks exactly balance each other out, you could look at it as the bank simply reinvesting the currency instead of creating and destroying an exactly equal amount - externally, the net effect is identical. Of course, this is rarely the case - both in games and in real life. For the currency to be "healthy" and serve a purpose in a player economy, you want to avoid faucets outnumbering sinks to the point that you have extremely inflation. E.g. in Diablo 2, one would barter in known rare items - gold is effectively worthless, there are few effective sinks to sink it into.
(Games of course usually use an impossible number of magical faucets and sinks - the kind of centrally planned economy that would require a star trek style post-scarcity environment run by complete and utter LARPing fanatics to ever pull off, contrasted to our current real world where you maybe have a single state bank trying to carefully control inflation with a currency printing lever.)
Returning to EvE online: They still have a bunch of magical zero-maintenance infrastructure in "high security" space, but they've also added a lot of player buildable infrastructure that generally needs fueling and defense. If you don't pay for a road's upkeep in real life, it starts to get a few potholes. If you don't pay to maintain and defend your player owned stations in EvE online (be it through your money or your material and your time), someone's going to blow it up or take it from you - for amusement, profit, or both. This is a much stronger deterioration of infrastructure than you generally see in real life. (I forget how much of this player buildable infrastructure predates this article, if any.)
Taken from the monthly report: https://www.eveonline.com/article/p3j6gs/monthly-economic-re...
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