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Comment by zxcvbn4038 | Hacker News Reader

This is probably the worst time to be paying off old debts. I think that very shortly the courts are going to be so overwhelmed with debt cases that it’s going to take years to clear the backlog. For people living paycheck to paycheck your basically judgement-proof anyway. As long as you pay your income tax you have noting to worry about. If you owe tax then it’s completely different story.

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Exactly. It’s a great time to be in debt, as inflation is gonna happen.

Banks know it — Citi and Chase pretty much stopped cheap balance transfers in April for most customers.

Inflation had almost stopped for several years. We’re still below the fed mandate. Inflation encourages people to work as opposed to living off assets they already own.

looks at the stock market, sees people thriving off of assets they already own during the pandemic Are you sure these people will be going back to work soon?

Right. We need a lot more inflation. We need to devalue the dollar to make exports more competitive and rebuild the working class. Push the people making money off the stock market back into the workforce.

Since for moderate levels of inflation (ie low double digits), stocks are inflation proof, if this actually improved competitiveness of American firms, moderate inflation would be a boon for stockholders. Big losers would be wage employers, who’d see their pay not catch up with growth of prices: this is in fact one of the core reasons we even target positive inflation in the first place, to counteract the effect of sticky wages that do not go down when necessary.

Low double digits is not considered moderate levels of inflation, if you're talking annually. In the 1970s in the US there were years of double digit inflation and real returns were negative.

https://www.multpl.com/s-p-500-historical-prices/table/by-ye...

The Fed has been fudging the inflation numbers since Moses was in short pants. Here's an explanation on how it's done.

https://youtu.be/oP8nCMKJ3nI

Long story short by making inflation appear lower then it is, the tax brackets have stayed lower then they otherwise would, costing tax payers an extra 130 billion over 10 years

> The Fed has been fudging the inflation numbers since Moses was in short pants

The Fed hasn’t been around that long, and isn’t even involved in inflation numbers, which come from the Bureau of Economic Analysis in the Department of Commerce.

The Fed mandate doesn’t matter. They need to keep pumping to stave off depression.

Inflation or no, the banks are going to go bust without infusions of cash as retail folds up and securitized leases and leveraged commercial developers implode.

I live in upstate NY, not exactly a boomtown... the economy is stabilized by government workers whose wage growth is 0-2% annually. The apartment that I rented in a nice suburban development for $550 in 2000 is $1150 in 2020 — well ahead of inflation. I see that pattern in many categories.

Not only that, but with insane amounts of new government debt, inflation is the only way for government to bring it back under control.

For some reason people[1] are willing to lock in 0.56% yield for 10 years currently, so people can't be expecting a huge amount of inflation.

1. of which a slight majority are private investors https://fiscal.treasury.gov/reports-statements/treasury-bull...

I wonder what the red flag is for "pull out your cash out of the bank and buy something tangible with it".

> We’re still below the fed mandate.

The Fed doesn't have a specific mandate for inflation levels, so it is impossible to be below it. The Fed mandate is to “promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates”.

Those with a lot of assets tend to be able to find yields to offset inflation. Stocks and real estate tend to adjust with inflation regardless of yield.

Inflation mostly encourages lower/middle class people to consume every dollar instead of saving for the future.

It was similar during the last recession. I was underwater on my house and two other houses. With everyone else walking away it way the perfect time to do strategic defaults...

1. Rental property one - walked away. The bank sold it for $70K less than was owed. I payed $0

2. Rental property two - owed $130K. Did a short sale for $30K. I paid $1K

3. My own house. Walked away. It was sold for $70K less than I owed. They threaten to sue me. I told them that they could either sue me and I would file for bankruptcy or I could get 1/4 of what I owed from my 401K. They couldn’t touch my 401K in a lawsuit.

3 years to the day after the foreclosure, I got an FHA loan for 3.5% loan for a new house.

This seems...morally questionable?

Was it morally questionable when the same banks did predatory lending that went bad and got bail outs from the taxpayers?

It’s a business transaction. Businesses default on loans and go bankrupt all of the time and it’s just part of doing business.

Startups fail all of the time and lose investor money and can come right back to the trough.

That’s like businesses that say “we are family and we are in this together and we need to make a shared sacrifice” while they walk away with golden parachutes and leave the employees with nothing.

Heck we elected a president that filed for bankruptcy 4 times.

Businesses love to talk about morality as long as it benefits them. My last company had a budget shortfall because of Covid and trotted out the “we are family” schtick along with a 10% pay cut. The same day of the announcement I was looking for another job.

3 years later when I did get another loan, the banks saw my foreclosures and short sales and were more than happy to give me a mortgage that was 50% more than my prior one. It was just business to them too.

>...3 years later when I did get another loan, the banks saw my foreclosures and short sales and were more than happy to give me a mortgage that was 50% more than my prior one. It was just business to them too.

FHA loans are guaranteed by the the federal government. During the next recession if you default on this loan because you no longer want to pay the loan, it will be the rest of us taking the loss, not the bank. So, not very surprising that the bank was willing to give you the loan.

That’s not the way insurance should work. You pay private mortgage insurance. The entire idea of insurance is that it should be priced to take losses into account and break even.

Btw, none of the other loans were “conforming” ie government backed. Especially the investment property. The banks should also take risk into account when deciding interest rates. The government had no reason to be on the hook for non conforming loans.

> The entire idea of insurance is that it should be priced to take losses into account and break even.

insurance needs to make a profit or there is no incentive for investors to risk the loss of capital or assume the opportunity cost (meaning they could invest elsewhere). The person selling the insurance exchanges gives up a known regular amount to protect themselves against an unpredictable potential loss. The insurer accepts the risk of paying the unpredictable future cost in order to receive known predictable regular income. If the expected value of the transaction is zero then the insurer is essentially risking their capital for nothing.

The FHA is a government backed program. PMI goes to the government.

> FHA loans are guaranteed by the the federal government. During the next recession if you default on this loan because you no longer want to pay the loan, it will be the rest of us taking the loss, not the bank.

everyone likes socialism when they get paid, no one likes socialism when they have to pay for other people's stuff. This is probably a failure mode.

Taxpayers shouldn’t have to pay for foreclosures backed by the FHA. That’s what private mortgage insurance is for. The problem was the banks weren’t following the guidelines.

The taxpayers definitely shouldn’t have had to bail out the banks for loans that the government didn’t back.

> Was it morally questionable when the same banks did predatory lending that went bad and got bail outs from the taxpayers?

Yes.

Capital is amoral, don't require individuals to follow a standard that is applied nowhere else.

Wikipedia has a more-substantive bit on the ethics:

https://en.wikipedia.org/wiki/Strategic_default#Ethical_issu...

"More substantive" technically, but really it's just a few short sentences that boil down to "some people think strategic default is morally questionable, others do not." I would be interested in a more substantive exploration of the issues though. In my perspective as someone who hasn't thought about it too much: Morally because strategic defaults (which contain an intent element) end up being paid for by other people not parties to the transactions, it brings it into a morally questionable area.

Breaking a contract by itself isn't morally questionable, but if you perhaps contract to provide PPE for hospitals in a pandemic, and then choose to not provide that PPE for no reason other than you don't want to (or it's more profitable to just not fulfill the contract) causing people not a party to the contract to be harmed, that's morally questionable. It's a very fact specific inquiry.

It's a contract between the bank and lender. The bank can take your house if you default - that's the agreement both parties sign. When you put 20% down the bank puts down the other 80%, making them a co-investor, but as a trustee in the first position.

Depending on context it can be a sweet deal for both parties. When times are tough it's time to play the game.

A business only job is to make money for its share holders. You should act accordingly when dealing with them.

A business’s job is to serve the common joint interests of it's owners (proprietor, partners, shareholders, members, etc., depending on business form); the more widely it is held, the more likely that reduces to making money, but that's by no means the only function businesses serve.

You think the banks would have learned a lesson or two from that era. I remember they were foreclosing like crazy in parts of California, new buyers weren’t materializing, and then the cities started cracking down and making the banks do lawn care, basic maintenance, normal homeowner stuff and banks had to eat the costs for all of it. There is only so much you can pass through to the next buyer.

Friend of mine bought a house in late 2009. She said the foreclosed houses you could actually buy were hot garbage. All the decent properties were being sold as quid pro quo deals between insiders. Point: Businesses and stockholders don't have agency, employees and executives do.

I was a small fry. But every investor had their mortgage broker and real estate agent on deck to help them make deals.

Walking away is a great strategy. Especially if you don't care too much about your credit score. And especially if you don't have much collateral in the asset, e.g. 3.5%.

> very shortly the courts are going to be so overwhelmed with debt cases that it’s going to take years to clear the backlog.

In Santa Clara county 40K+ of possible evictions are coming.

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