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Comment by flotzam | Hacker News Reader

How come this obvious workaround isn't used much more often:

>> If the system allows you to pretend that the vacancy is temporary, why doesn’t it allow you to lower rents on the pretense that lower rents are also temporary?

> This does happen sometimes: it’s packaged as “incentive offers,” like 50% off the first 12 or 24 months rent, or 6 months without rent, etc, that lower the average rent over the life of the lease without lowering the “list price.” That’s common in residential leases, and I know it happens sometimes in commercial leases, but I don’t know how prevalent it is.

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It is worth noting that the reason they are pretending is almost certainly because of regulatory demands - if it were just between the bank and the owner they'd agree to do what is in both of their best interests - rent the space out at market rates. If there is a market-based 3rd party involved they will figure out that the bank is playing games and start acting whether or not the bank officially recognises the losses. Surely only a regulator or other similar heavily law-bound body would tolerate this sort of sillyness.

So as a blind guess, it probably depends on how legal incentive offers are. The axis being optimised here will be what the regulatory bodies can tolerate before they start handing out fines and punishments.

Ah. That makes sense. Maybe the polite fiction would clash too obviously with accounting standards once the (de facto) lowered rent payments roll in: https://news.ycombinator.com/item?id=48567769

Could the situation be improved then if financial regulators started treating both versions ("temporary" vacancy / "temporarily" lowered rent) equally? Tolerate both or crack down on both.

Banks maintain the capital/liquidity ratio’s they’re told they have too.

People are actually advocating for looser lending requirements, which I’m perfectly fine with but the result might not be what they expect either.

I agree. I see a lot of comments alluding to the 'regulations' being bad. They are there for a reason. To keep errant bankers from loaning out too much money and creating an even more fragile system.

People have to realize that banking as a business is inherently broken. It is about lending long and borrowing short, which is very risky. Deposits are used to provide funds to lend long, but deposits can be 'called' at any time. The loans cannot.

But banking is also critical for a properly functioning society. It is in the government's (the people's) best interest to have a robust banking system in place. How to reconcile the risk with the benefit? By heavily regulating it.

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