Comment by nocoiner | Hacker News Reader

Comment by nocoiner | Hacker News Reader

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I 100% agree with this take, and I say this as someone who has great respect for the use of debt (and, full disclosure, has a pretty fair bit of it to my name). It seems completely obvious that this strategy is predicated on never having lived through a fully seized-up financial system for longer than 72 hours in March 2020 or the Weekend of SVB in March of ‘23. The use of leverage probably feels pretty great right now, but what happens when there’s another Great Financial Crisis and every credit card issuer cancels accounts or cuts credit limits all at once? Sure, there’s plenty on the asset side of the ledger, but how good is it going to feel liquidating those stocks that were worth $75k a few weeks ago for $35k? It’s gonna hurt, and all those people who were eager to provide cheap liquidity will have turned off the taps.

Even big corporations that have contractually committed credit facilities have had banks shut those down during times of crisis (basically saying “sue us” to the borrower) so no matter how solid the ability to borrow may appear, that kind of thing has a tendency to evaporate in a moment, just when it’s needed most.

I have credit cards with a ridiculous aggregate credit limit, but in another 2008 scenario, anyone want to take bets on how long those credit limits stay high while unemployment is on its way to 14%? I would prefer not to.

And regardless of earning potential or useful skills, the owners and managers of for-profit enterprises are going to be belt-tightening at the same time (out of necessity or caution or simply by never letting a crisis go to waste) and their appetite for bringing on a new entry level employee will be limited - just at the time the rest of the system is grinding to a halt.

Someone in their 20s without significant financial or familial obligations is generally going to be well situated to make it through one of those crunches, but it doesn’t take a whole lot to bring the edifice crashing down.

It’s really hard to continue reading it after “a lot saved in stocks” as if that value is fixed and won’t just disappear completely in a market crash or downturn.

This text is a pretty good example of the “smooth seas don’t make skillful sailors”.

It’s like how there’s literally a whole generation of financial professionals who had never been through a rate hike. Gather round, VPs, time to learn about the real world.

At various times I’ve seen a whole lot of people arguing for taking out HELOCs and buying stock with it. Which works sometimes until it doesn’t.

I've a friend that did that and got completely fucked because he was stock picking on Robinhood with the HELOC money. It worked for 2020 and 2021, once 2022 rolled around he learned he wasn't smart, just lucky.

> I have credit cards with a ridiculous aggregate credit limit, but in another 2008 scenario, anyone want to take bets on how long those credit limits stay high while unemployment is on its way to 14%? I would prefer not to.

My credit card limits were reduced like 90% during the 2008 crash.

The thing to always remember about debt - is that someone who is much more financially astute than you (the bank) would much rather loan you the money to do whatever it is you're going to do with it than do that thing themselves.

That's not a good argument, because it proves too much [1]. You could use the same reasoning to argue against pretty much any transaction:

* Don't buy bread, because someone who knows much more about bread (the baker) would much rather sell you the bread than eat it themselves.

* Don't buy a car, because someone who's much more familiar with the car's design (the manufacturer) would much rather sell you the car than drive it themselves.

* Don't buy the book, because someone who knows its content (the author) would much rather sell you the book than put it into their own shelf.

Specialization exists in all but the most primitive of economies, so while not every loan is a good idea (obviously), many loans benefit both sides. A bank doesn't make a profit from money just sitting in accounts, that's why they loan it out to someone who can use it to make profit – like a company that wants to buy a new machine to work more efficiently. The bank could buy such a machine as well, but it wouldn't be able to use it in a profitable way.

[1] https://en.wikipedia.org/wiki/Proving_too_much

It's a rule of thumb and I should have specified that it most particularly applies to borrowing to invest - you should be able to identify the secret sauce that you have (and others do NOT) that allows you to make money where others can't.

A bank won't use a machine to manufacture something, and perhaps you have the skills needed to do so.

But deceiving yourself that you can "borrow cheap, invest it in the stock market, and always come out ahead" - if it was always or even for the most part, why would anyone lend money and not do it themselves?

Because you're missing risk.

> why would anyone lend money and not do it themselves?

Because there are regulations that limit how banks can invest deposits.

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