If a company goes under, debt is generally higher in the asset recovery waterfall. If you own equity, you're last in line to recuperate losses. Of course not all debt is equal, but it does enable people and businesses to attempt things without needing all the cash up front.
They're particularly awful. Borrowers are counting on overlapping Ω and /. Heads they win, tails you lose. Lender agents instantly repackage them into CMOs which then get laundered by a 1-10 layer onion of balance sheets that appear decreasingly exposed. Owning these as a stockholder principal is almost unknowable until it's too late. See 2008 crisis.
They could be replaced with equity. Every month the resident purchases 1/360 of the house at current prices plus the co-investor's profit and rent portion. The unsold asset portion stays on the latter's balance sheet. The resident doesn't steal the upside, the co-investor's agent doesn't camouflage away the downside from the principal. Foreclosure no longer exists.
The political economy of housing also changes for the better.
> How about retirement assets later in life?
If the elderly investor is wealthy stocks are just fine, all risk goes to inheritors anyway. Otherwise they should be insuring their life expectancy rather than minimizing return variability. This is either done through the government or through a private pension fund. If the pension fund goes under the government should step in. In no case is debt better.
And in any case, in a debt-less world stocks are way less risky. There's no financial leverage in the chain.
> If a company goes under, debt is generally higher in the asset recovery waterfall.
You can have recovery categories of stock too. For example, they can kick in in investor fraud and catastrophic losses.
> enable people and businesses to attempt things without needing all the cash up front
You can do this with equity too.