Comment by jdm2212 | Hacker News Reader

Comment by jdm2212 | Hacker News Reader

Parent Full thread

The whole banking system would collapse like in 2007-2008 because "everyone stops paying mortgages all at once" is basically what happened then.

Renters stop paying their rent so landlords go broke. Landlords stop paying their mortgages. Mortgage-backed securities go into default. Anyone with lots of exposure to mortgage-backed securities folds. Their counterparties in all sorts of financial arrangements can't collect (insurance, bonds, you name it). Credit markets dry up, and all the Main Street businesses that are rolling over some of their debt find they can't borrow, so they file for bankruptcy. Normally, they'd take out loans to make it through bankruptcy and restructure... but no loans are available, so they liquidate.

EDIT: worth noting that this is less likely now than in '07-'08 because the Federal Reserve has been buying up bonds like crazy (that basically means financial institutions, governments and businesses are often able to get unlimited cheap credit) but if they scaled that back or stopped doing it, things are already so bad there would've been a credit crisis in March or April without a national rent/mortgage freeze. So imagine how much worse it would be with one.

I would like to add to your comment and highlight that this isn't similar to 2007-2008 as those loans were made to people who should never have gotten them in the first place and had no hope to pay it off. Those loans were straight up losses, whereas here, the loans are still good and some companies are even earning interest by delaying mortgage payments. But if too many people stop paying at the same time, the system will collapse and we'll have a repeat of GFC.

Doesn't seem to be happening in the UK yet, where many mortgages are suspended.

Not many people ended up taking up these offers. Less than 10% I think.

Suspended, but interest keeps accumulating, and will eventually have to be paid? Because banks can handle a bit of that, if the bank is able to borrow from a central bank.

Or suspended and never paid?

In my country they just declared 1 year no mortgage payments for everyone who needs.

What country is that? Is everything government owned? Because how can a landlord possibly manage that? And why is the landlord the one asked to help the tenant, isn't that the job of government?

Suspension of mortgage would help the landlord not the renter. The owner/landlord pays the mortgage not the tenant, the tenant pays rent to the landlord.

> Renters stop paying their rent so landlords go broke. Landlords stop paying their mortgages

But I said in my question: "if we suspended mortgage repayments for N months and rental payments for N months"

Landlords are not paying their main cost (the mortgage) so why do landlords go broke? They have some fixed overheads but those are usually a few % of the mortgage.

That doesn't help the mortgage holders, though...

The normal way payment holidays work is the missing months are added at the end, and the interest (historically incredibly low at the moment) accrues as normal. So the mortgage holders are not really out of pocket here. Nor are the landlords since they can charge another tenant at the extended end of their mortgage term.

Your ignoring the flow of cash.

The mortgage lender was counting on receiving the mortgage payment in May 2020, not in May 2045.

I would disagree - everyone didn't just stopping paying their mortgages. The issue was that it was uncovered how inappropriate a portion of mortgages had been and how toxic the investment mixes were. This realisation led to banks valuations changing and led to a run on banks. The property behind these mortgages was worth less than the mortgages supplied on them.

While the default rate increased in some areas, it was in no way universal, or as high as we see today in the retail property market. Also (currently) the property backing the mortgage has retained its mortgaged value. So these are not that similar scenarios

What if everybody gets a loan, minimal/no interest with delayed repayment? Just pretend it's not a handout, but actual debt that will be repaid... someday? Just a thought

That's what the Federal Reserve is doing, in effect, by offering zero interest loans to every city, business, and bank.

What's the proportion of commercial landlords that have a mortgage to pay? Because when their building is already paid, interruption of rent isn't really impacting them.

All of them? The economy has been pushing everyone, including landlords, to lever up for decades.

Property tax on commercial property is huge and lasts forever. Interruption of rent may force them to sell their property or be unable to afford their taxes.

>The whole banking system would collapse like in 2007-2008 because "everyone stops paying mortgages all at once" is basically what happened then.

This obviously ignores the issue with massively leveraged firms making poor bets on housing bonds. But lets be real, they'll get bailed out if there's any problem.

It kind of sounds like we need a different money system?

and whose better at designing systems than you and me?

We may do better than the bankers who like to design fragile systems as long as they can make boatloads of money :)

Unless you're an expert at designing systems as complicated as the entire economy, maybe a lot of people.

because they're doing such a good job?

They don't have to be doing a perfect job for you to be able to do a worse one...

I like Holochain as they don't maintain a global ledger. Here is some reasoning why: https://www.wired.com/2014/07/document-coin/

Reply on news.ycombinator.com