Comment by hualapais | Hacker News Reader

Comment by hualapais | Hacker News Reader

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I suggest looking into “EQL”, or better yet, just replicating its index by taking a position in the 11 XL* sector funds from SPDR, allocating equal weighting to each. One will end up with one’s equities equal weighted by sector and with plenty of large cap exposure, as opposed to the pronounced mid-cap tilt found in whole market equal-weight strategies.

Personally, I drop the financial sector entirely (Thomistic prohibitions on usury) which leaves an even 10 funds which is easy to allocate mentally and in practice. For example, assuming a 60/40 allocation where one is holding the lion’s share in equities and the remainder in bonds (I substitute with a combination of gold, crypto, cash, and Swiss Franc here), one would allocate as follows:

XLC 6% XLY 6% XLP 6% XLE 6% XLV 6% XLI 6% XLB 6% XLK 6% XLU 6% XLRE 6%

(Note that XLF is consciously not taken as a position here, decide if it’s right for you. The Mortgate REITs which would make XLRE problematic are in XLF per the sector selection rules)

The remaining 40% is bonded debt if you are fine with usury, or some sort of asset negatively or neutrally correlated to equities.

The problem is that this strategy is only feasible in a tax-advantaged account. Otherwise the drag of taxes during rebalancing dramatically lowers the returns.

BrokerageLink should let you do this with your 401k

Why do you consider bonds usury?

In many historical societies, religious prohibitions on usury meant the charging of interest of any kind.

Jump in a time machine to 1515 and ask Martin Luther, or to 1260 and ask Thomas Aquinas, they'd tell you it's sinful.

And in the present age, a fair number of Islamic folk consider interest against their religion's rules. So there's a Halal finance industry where, for example, you can get a "murabahah contract" where the bank buys a house, then sells the house to you at a higher price, while allowing you to pay them in monthly instalments.

Older than any of those:

"Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of any thing that is lent upon interest" (Deut 23.20 JPS Tanakh).

the letter but not the spirit, like Amish workers using batteries

It's concretely different. If the house becomes worthless, the "borrower" can walk away from the contract, owe nothing, and the bank keeps the house. The bank had better consider the value of the house, not just the ability of the "borrowed" to pay, when issuing this contract.

I love when religions have rule lawyers like this. It readily discredits the religion. As if their all powerful god can be fooled by fancy paperwork or legal loopholes.

They’re not trying to fool God, they’re trying to fool you into going along with it. They don’t care what God thinks and may not even believe in Him at all, but unless they can convince you of the loophole they’re stuck with the rules themselves.

Do you love it when people use religion to create rules like this as though people can be fooled into thinking they /know/ the mind of god?

The bit that isn't rules-lawyered away is that the risk is shared. For the deal to be compliant with the religious law, the lender must accept the same risk as the borrower, equally.

So I guess in this case if the house burns down and the insurance only pays 50% of the agreed value then the lender only receives 50% of their agreed repayment.

Isn’t there still risk for a lender in a typical interest-bearing loan? That the borrower will default?

Usually an interest-paying loan is backed by a guarantee, so the lender can pursue the borrower for repayment by claims on other assets.

Because bonds involve interest. Per Summa Theologica:

> To take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality which is contrary to justice.

https://www.newadvent.org/summa/3078.htm

…Aquinas expands the analysis but it is relatively straightforward: all interest is usury.

Personally, I find it helpful to imagine two hypothetical persons representing the entire economy, one the creditor who is lending and two the borrower who is taking on the loan. In this ultra simple closed model with a fixed quantity of money, the former is in effect asking for more units of money than actually exist in the whole system. When the loan comes due the borrower owes a sum that cannot be paid in full from the circulating medium itself. Settlement then requires either default, the creditor forgiving the excess, or the transfer of real goods and property to make up the difference. Scaled up, that same pressure (the continuous generation of monetary claims that exceed the existing stock of money) is what I suspect drives a good deal of the subtle and overt strain on families and communities that people so often complain of in the West and in modern growth-oriented capital societies.

This definition of usury differs from the modern loophole-definition: that interest bearing loans are only usury when the rates cross some nebulous abusive threshold. In the above Thomistic interpretation, all interest is socially problematic and disfavored. Judaism holds to a similar prohibition on interest when loans are made between Jews. Islam likewise prohibit usury even more broadly. Despite the injunction against usury in the Middle Ages Christendom and the enduring prohibitions of usury in other faiths, there are many modern Catholics and Protestants who will favor the modern interpretation over Thomas’ understanding; I’m just not one of them.

>in effect asking for more units of money than actually exist in the whole system.

Depends on how you define the 'whole system'. If I borrow $100 and make $110, the latter didn't appear out of nowhere. The lender, too, could have turned that $100 into $110.

Why shouldn't they be compensated for that opportunity cost?

The opportunity cost point is fair enough if one is thinking in terms of two concrete individuals. The illustration I offered was meant at a more abstract level, the two persons standing in for the creditor side and the debtor side of a closed economy taken as wholes. In that framing the issue is not whether a particular borrower can put the money to productive use (clearly he can), but that the system as a whole is being asked to generate more units of the circulating medium than currently exist within it. Even when real value is created, the monetary claim still exceeds the monetary stock. Settlement then requires continuous expansion of the money supply, continuous transfer of existing assets toward creditors, or periodic default. That structural pressure is what I was trying to get at.

I suspect the deeper difficulty is the “bond” in bonds themselves, the ongoing compulsion that interest introduces. Once interest is attached the debtor is under continuous obligation to produce additional claims simply to keep the accounts from breaking. Traditional writers on the Christian and Islamic sides generally preferred arrangements that avoided this continuous pressure. A pure discount (as with discounted Treasury bills and similar instruments) prices the time element once, up front: the creditor advances a smaller sum and later receives the larger face amount. The cost is paid at the beginning rather than levied as a recurring claim that must be met out of future circulation. In that sense the time value is acknowledged without the mechanism that forces the system to keep generating more monetary units than presently exist.

[edit:] Clarified the discount language.

Can you recommend a book to learn more about this concept?

This still seems off to me. If I were a potential creditor in such a closed loop system, and I was told I absolutely could not charge interest due to these monetary supply constraints, I would either just stop lending entirely or I would demand something that isn't strictly denominated in money to make the risk I'm taking on, etc worth my capital outlay.

But then eventually, if the system were sufficiently complex, I'd probably tire of whatever complicated barter system we have already going on, and then it's likely some third party would step in offering something that's totally not money, dude, trust me, it's just like a handy clearinghouse of IOUs for people engaged in the trade of these non-monetary favors for favors...

Some people who hold or offer such IOUs might then take the bold step of calling them non-exclusive, as in I will mow the lawn of whoever happens to have my "one lawn mowed" voucher, I just happened to originally give it to this first guy, I have no idea what he did with it after that... Other people realize this "non exclusivity" deal actually makes the voucher strictly more valuable, you can do more things with it than you could otherwise... You see where I'm going with this. It's not passing my sniff test.

Buying a bond at a discount is no different than buying at face value and paying back with interest.

Any claims that there is any important difference is sophistry.

If I understand right, it is allowed to invest like a partnership, where you make $110 together out of your $100 and your partner's effort. But you must be exposed to the downside of failure just like your partner.

But, there is no fixed quantity of money in modern finance. It's created every someone or some business takes out a loan from a bank, and every time the government spends money. It's destroyed when the loans are repaid or taxes are paid.

Infinite money is worthless. modern finance is bunk and infinite currency chasing finite energy is all there is.

Sounds like a religious aversion to all lending?

Usury usually means ruinously high interest rates, not all lending.

Unless you’re Muslim, generally.

The borrower is buying time. I’m glad I can buy something that I value now, rather than wait. That is useful to me, and I’m happy to pay for it

Greetings, fellow Thomist. You are correct that usury is any amount of interest, and attempts to pretend otherwise are sophistical, but I suggest you may want to look again at corporate bonds and other non-recourse loans -- that is, loan where collateral is limited to specified asset(s). Look at Zippy Catholic's writing on the subject -- he was a finance dude, and a very rich self-made man. A non-recourse loan is more like taking an ownership share in something, and then renting it back. It's unfortunate that we use the same words (loan, interest, debt) for both full-recourse and non-recourse contracts, because they're entirely different things.

I agree that charging interest on a full-recourse loan is a wicked and disgusting thing to do to one's fellow man, and I'd say it's in the same genus as slavery. Usury is to fraud what robbery is to larceny. It's also interesting that the markets where usury is most prevalent (housing, college fees) are the ones that have seen the most insane price increases.

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