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As someone that worked at a hedge fund that was leveraged approximately 40:1 in 2008, I never wish to go through that again. 40B USD assets under management down to about 7B USD in a few weeks... Amazingly, we still had jobs at the end of that September.

Did you get that value back in the next years or was it a complete loss?

IIRC, it took between 18-24 months for the fund to earn it back, with a significantly reduced leveraged rate. AUM never reached 40B while I was still there due to redemptions, though. The following year was a wild ride, for sure.

it's also short-sightedly self-centered. the better solution is moving the economy toward being wage-oriented, with asset income being periphery, rather than our current asset-focused system.

make money by doing stuff rather than having stuff, the latter of which is the epitome of economic rents.

I guess you're advocating that people work until they drop dead?

Was there a period in humanity, or in the life of any living creature, where they just sort of stopped engaging in productive activity and it was a good thing? Maybe we need to create more meaningful and sustainable work that fits into people’s life cycles, but the idea of working your entire life is not a tragedy. FIRE is a scam.

> Was there a period in humanity, or in the life of any living creature, where they just sort of stopped engaging in productive activity and it was a good thing?

Humanity as a whole? I don't think anyone has advocated that here, just a certain segment of the population in their later years. As for any living creature, I didn't spend any time doing anything productive over the weekend, and I think it was a good thing. In fact, I've been doing that every weekend for a long time, and I plan to keep doing it!

So why not do it every day of the week instead?

Doing enough work to survive is a fundamental part of life. Technology and society function to either make that work easier or lower the amount of work that needs to be done. Take either of those away and you're going to be spending much less weekends doing "nothing productive".

meta point is that this is why nuanced conversations on the (texted based) internet are a waste of time. You and the person you're quoting are not really talking about the same thing. In a conversation you would go back and forth and figure that out; on the internet that's not required.

> You and the person you're quoting are not really talking about the same thing.

The reason I responded to the parent comment was that it seemed to me like they were misinterpreting the person they were responding to; the original comment that started this thread was that people who only have wage-based income instead of asset-based income would not be able to effectively retire and would have to work for their entire life. The response to this was to argue that if people didn't work, then humanity wouldn't progress. I don't see why "humanity needs productivity to progress" implies "every human needs to be productive for every moment of their entire life", which is why I responded with both a direct answer (i.e. arguing that people should be able to retire is not arguing that people shouldn't be productive _ever_ in their life) and a tongue-in-cheek response (nobody actually is productive every single moment in their life).

there's the story that pre-colonial Hawaiians lived in abundance and basically didn't work for 4 months of the year (see e.g. https://www.hawaii.edu/uhwo/clear/home/HawaiiLaborHistory.ht... ). So that was a system where everyone could stop engaging in productive activity because as a society they agreed that they had "enough" for the year and it would be more fun to have a vacation than to have "more".

Presumably if their population grew too much this would no longer be the case?

There are a huge number of activities which are "productive". Children need around 60 hours per week of attention between the ages of 1 and 5.

no.

Then what are you advocating for? If people can't parlay wages into assets that can at least perform in the same ballpark as wages then "work until you drop" or "crank out kids like a pre-industrial subsistence farmer" is what you'll get.

It takes roughly a career to amass enough assets to retire on and that's with a slightly reduced standard of living in retirement.

Unless you want to assume population growth forever (seems unwise IMO) you need one average career to generate enough surplus to pay for an average retirement. So far, buying assets (usually a mix of real estate and fractional ownership of financial instruments that are ultimately backed by companies and governments) is the most efficient way we know to accomplish this goal.

Let me run this wild idea by you real quick: What if we, as a society could somehow pool our excess wealth for distribution among the elderly and infirm who are unable to work productively. This would provide everyone with a sense of, you might say, security that benefits society as a whole.

To answer you first question/comment (because you are not as original as you think you are): That is why robust electorate, transparent public governance, and durable anti-corruption institutions are so important.

The obscene rents being in government coffers is somehow magically better than in some billionaire's bank account? You can make bullshit ideological arguments about the intrinsic goodness of one or the other all day but the fact of the matter is that any system of providing for retirement other than literally just saving up resources (which would be horrendously wasteful) and then spending them over retirement is going to necessitate contributions by currently productive members of society. Money has to flow from worker to grandma somehow. And there's always intermediaries. And they always take a cut. Maybe it's you that's not that original.

> retirement is going to necessitate contributions by currently productive members of society

That is the point.

> And there's always intermediaries. And they always take a cut.

Should they not be compensated for their productive work?

> Maybe it's you that's not that original.

That is the point.

When the Social Security trust fund runs out you're going to find out really quickly that this "wild idea" doesn't work for the same reason Marxist Communism fails in the real world: you can't get the majority of a population to genuinely and altruistically operate within that system, especially when unexpected or abnormal events occur, like the baby boom or periodic market crashes.

no. must everything be taken to an extreme, made tribal and ideological?

note the phrase "asset income being periphery", which implies an optimum. the ability to own one appreciating asset is great. owning two is probably ok in most cases. 90 is highly unlikely to provide a net social good.

Ever heard of a pension?

Edit: sorry that was a bit snarky. The point is that there are other ways to ensure people have a reasonable lifestyle once their 'working days' are over. Those schemes are probably best to be tied in some way to contributions, but they certainly don't need to be simply a savings plan, they can be a means to provide social support for those that cannot contribute to the same degree as others.

edit: oops, wasn’t talking to me but will leave the below unedited for posterity (and to show my posterior).

again, that’s a logical leap that i was careful not to make. small-time investing can have positive externalities on an economic system; industrial, mechanized investing, not so much. if we didn’t try to turn everything related to money into a get-rich-quick gambling scheme instead of the (imperfect) accounting mechanism it was originated to be, we’d be much better off, pensions and 401(k)’s included.

Kids aren't the only system of elder care capable of avoiding the "side effect" of generating bonker rents for billionares.

With economic rents the dilemma is not simply between doing stuff and having stuff. It's between having something which others can have as well (through reciprocal property rights) vs. claiming to own things which actually belongs to someone else (surplus labor resulting from enclosure of the commons) and then pledging what you don't own as collateral for loans.

you seem to be describing the tragedy of the commons, not economic rents.

The author of the original "Tragedy of the Commons" paper lamented that he did not title it "Tragedy of the Unmanaged Commons", later writing a follow-up by that name: https://pubmed.ncbi.nlm.nih.gov/21236819/

And Elinor Ostrom won the Nobel in economics for her work describing the mechanisms used by real-world communities to effectively self-manage Commons: https://www.onthecommons.org/magazine/elinor-ostroms-8-princ...

i guess there's one situational intersection, alluded to by @randbox, between the tragedy of the commons and economic rents, which is when someone (illegally) takes control of the commons and literally charging rents for assets they don't actually own.

offhand, i can't think of a practical and contemporary example of this though.

"making money by having stuff" is the basic move of capitalism. The stuff you have is called capital, and our economic system is at its core the "ism" of "having stuff".

I'm not disagreeing with you re. what I'd rather see us move towards, but there's a whole lot of existing money and power entrenched in the idea that having money is a great way to continue having money.

sure, but in the long arc of history, we're past the peak of capitalism, groping for the next iteration to move us forward. to overcome the ossification you describe, it's time to take our positive learnings (assets are ok, wealth concentration not so much) and apply it to a new -ism. the current beneficiaries can come along, stay behind, or we can fight over it, just as in the past. that does mean that this progress likely happens in a different part of the world than "the west".

Spoken like someone that wasn't around for the 2008 crash, but not the 1980, 1982, 1990, or 2001 once.

Iron Law: During recessions capital always takes care of it's own and foists the losses onto the working class.

If you remember just one thing, it's that no asset class goes up forever. Some assets tend to trend up overtime more than others, but they all have times where they go down too. Make sure you can survive that.

People buying homes in places that have only gone up in the last 40 years need to consider that that might keep going up for another decade, or they might be cresting the hill before correcting.

Housing has risen some 40% over the last two years, while this is certainly insane. If the trend continues the downside risk either becomes massive - or a mere 30% correction becomes inconsequential to the principal balance.

My house almost tripled in 8 years. I made $2 million profit from selling my house last year.

And you did what, moved into a van down by the river or moved into another overpriced house immediately after?

If they owned multiple properties, then they needn’t move down to the river to liquidate the 2 million.

Good to see Adam Smith commenting on hacker news

Homes have been going up in price for far longer than 40 years. The only time they have dropped is the Great Depression and the Great Recession. Otherwise there isn't an asset class that is more reliable over the long haul than real estate.

>Homes have been going up in price for far longer than 40 years.

Homes going up is not the problem though. Yes, they've been going up for longer than 40 years, but back in the 1950's their growth was basically tracking inflation and wage growth, or even going down in value since they were seen an any other depreciable asset, just a place to live in till you die.

It's in the last 40 years that housing massively outgrown wages, as it became a speculatory investment vehicle instead of just being a place to live, plus the introduction of NIMBYISM regulations to restrict supply, and that's where the issue is.

I strongly disagree with this. First off homes fell sharply in value just as recently as 2009. Secondly over time, globally, real estate barely keeps ahead of inflation. About 3% per year. For much of the last century you did about as well parking your money in a savings account. Finally, equities in globally have returned about 6.5% per year. That's much better. Better still in the US where they did more like 10.5%. Real estate as an appreciating asset is a lousy investment. If it's a place to live that's sometimes a different matter. If it's a rental property that's also different.

I think 2009 counts as part of the Great Recession.

Not sure what your point is though.

This is how you end up a wage slave

> Using leverage to buy as much real estate

How does one leverage to buy more real estate? Refinance one house to pay down the next one? I just went through a home loan process and this would never work because they look at total LTV and credit reports...

https://www.biggerpockets.com/guides/brrrr-method

GSEs (Fannie, Freddie) let you lever up with a lot of real estate borrowing (~10 mortgages per person, with some wiggle room with creativity) before you have to go to a commercial bank to wrap the portfolio with a commercial loan or similar product.

Trading on margin is one thing, but leverage is the only way to make significant money. That’s why people who traded options or even crypto made massive amounts of money. 2% return on 10x leverage is 20% return at 1x risk.

>That’s why people who traded options or even crypto made massive amounts of money

All the money "made" from crypto was at the expense of other players(I refuse to call them "investors") who were left holding the bags, or at the expense of the environment (most of the large scale mining operations was done in areas of the world with cheap and dirty energy like China, Russia, Iran, etc.)

I used those examples because they’re easy to understand. But how do you think angel investors like YC make money? An angel investment is also using leverage, banking on either future earnings or fundraising rounds to magnify your initial investment with a convertible note.

That's not how it works. Angel investors and VC firms almost always purchase equity. It's not really possible to purchase pre-IPO stock on margin (although some wealthy investors can take out loans collateralized by their other assets, and then use that cash to invest in other opportunities).

Really? I thought it’s better to defer valuation as late as possible, due to the regulatory burden and cost.

There's no regulatory burden. Pre-IPO equity funding rounds always involve some kind of valuation process and negotiation. The investor is purchasing a certain percentage of the company for a certain number of dollars.

That's also how the stock market works. For someone to win someone else has to lose.

That's not really the same. Investing in some companies adds value to society while "investing" (more like gambling) in crypto does not.

For example, some tech and semiconductor companies, because the whole world benefits from better compute (research for vaccines can be done faster; imaging for medical equipment results in better diagnostics; cars, engines and batteries can be simulated better and made safer and more efficient etc.) The whole world benefits.

"Investing" in crypto on the other hand, added zero value to society, or actually added negative value through the environmental damage being done.

I'm not really an advocate of proof of work crypto like bitcoin. Proof of stake crypto like Algorand have no environmental damage. There are however way more companies that have caused and will continue to cause environmental damage than bitcoin can ever do in a thousand years.

That's not really what is at question here though. It's the concept of a pyramid scheme. The reason the stock market over long periods of time generally trends upwards is because new money keeps being added to it. It's as much of a pyramid as crypto is. That's just how the whole economy is though. Every generation so far has had more people than the last. It will be rather devastating to the stock market and economy whenever that stops being true.

False. Over the long run, successful companies return capital to investors through dividends or stock buy-backs. No one else loses in those transactions. For example, if you purchase shares in an S&P 500 index fund then you'll receive approximately 1.5% dividend yield.

Over the long run dividends would be a very small percentage of the added value by new investment money coming in and increasing the share price.

No that's completely wrong. You seem to have misunderstood the basics of DCF valuation. That is literally Finance 101. Irrational investors can create temporary bubbles in the short to medium term, but ultimately over the long term stock values always revert to cash flow.

Completely false

Crypto is just being used as an example here, the point of the comment is not to debate whether people buying crypto or not are "legitimate" investors.

10x leverage is never 1x risk.

This is true if the market has it's normal up and down swings. However it's entirely plausible that we no longer live in such an environment.

Saving money is a smart idea unless you live in a communist state or a dictatorship, then your best bet is to spend as fast as you can or secure assets resistant to confiscation.

Maintaining liquidity is a smart idea unless you live in a world where the government decrees asset prices can never fall. In which case throwing everything you have into leverage is the best bet.

It's not an irrational bet that the Fed's hands will be permanently tied to a low interest rate environment. The more people who make that bet the more true it will be.

> This is true if the market has it's normal up and down swings. However it's entirely plausible that we no longer live in such an environment.

How is it plausible? I would say given the historical data, it is extremely unlikely. Not impossible, but near negligible probability.

People saying, “it’s different this time,” right before a economic crash is a cliche for a reason. I suspect that you could use the frequency of utterances to predict impending recessions / asset class corrections with extremely high accuracy.

If we’ve transitioned into a different socioeconomic system from capitalism, then it really could be different this time. It just means that certain assets are no longer traditional “assets” but should be viewed as an annuity etc.

Housing can return 20% per year until the end of time if the Fed wishes it to.

You're certainly not alone in thinking along these lines, but it is another case of "it's right until it isn't." The Fed has said they're going to tighten until inflation eases. Maybe they're wrong about that, but in the past they've been willing to crash the economy to hold down inflation.

Will they this time? Who knows, but it generally pays to hedge a bit.

Think this way at any time in the last 40 years and you ended up with nothing. No reason to think the current bump in the road is any different.