Let Rent-Seekers Fail

[Nomad]

Where did we get the insane notion that the taxpayers must rescue people who made dumb decisions while they tried to collect economic rent? Take a look at the latest sob story in the Wall Street Journal: https://www.wsj.com/amp/articles/a-bargain-with-the-devilbill-comes-due-for-overextended-airbnb-hosts-11588083336

 

The poor, poor AirBNB owners who thought they were hoteliers are now shocked - shocked - that they made a Faustian bargain and that rents and house prices don’t always go straight up. Predictably, political influence was brought to bear to ‘help’ them through these tough times:

 

Nearly one in five hosts that Airbnb recently surveyed said hosting on the platform helped them avoid eviction or foreclosure. The company presented these findings to U.S. Congressional leaders and successfully lobbied to have hosts covered under the Coronavirus Aid, Relief, and Economic Security Act—known as the Cares Act—making them potentially eligible for small-business loans and unemployment assistance, among other things.

 

In the past months alone we have bailed out - or have heard cries for bailouts - from:

 

• Management teams that bought back billions worth of stock at market highs, issuing themselves more options and telling shareholders that the dilution was a “non-cash expense”
   
  
• Private equity firms that scooped up marginal franchises to lever them up based on “adjusted” EBITDA
   
  
• Energy zombie companies whose breakeven cost of production make them unprofitable even with WTI at 3x the current price
   
  
• The piggish funds who bought the debt of those energy zombies in a reach for yield
   
  
• Universities that pay "diversity" and "student life" administrators $250k salaries while adjuncts starve
   
  
• States and local governments that offer $150k / yr defined benefit pensions to retired civil servants
   
  
• AirBNB owners who purchased property at 90%+ LTV in urban areas with artificially constrained supply
   
  
• NIMBYs in those urban areas who carry enormous HELOCs and who voted against housing development to ride the wave of house price appreciation
   
  
• Idiot VCs trying to dump their scooter companies on the public at 15x sales
  

 

It’s quite a show. All of the rentiers are steadily proceeding to the trough to claim that they are “systemically important” and that if you the taxpayer don’t help them RIGHT NOW, everything will collapse. This isn’t negotiation; it’s thuggery and extortion, plain and simple. If this continues, we in the West will have our own class of Russian-style oligarchs who attained their fortunes not through prudent risk taking or innovation, but political connections and bilking the citizenry.

 

It seems we don’t have capitalism anymore - we just have looting.

[Castanza]

Freedom to pursue happiness (and possibly fail)

 

Has morphed into

 

Freedom to pursue and pursue and pursue and pursue. Failure is now only the result of “interference” and a bailout is now apparently appropriate?

 

Edit: Epic post

 

[Cevian]

Nomad, great thread. I agree wholeheartedly.

 

I'm disgusted and disheartened by the latest actions and narrative from all areas of government and industry regarding bailouts. They pretend we're in a capitalist system yet, at the first sign of trouble, are willing to save everyone from failure. It's the same story every time, "this time is different", "it would create a much bigger problem if we didn't save...", etc.

 

Speculation is being encouraged in all areas but the downside is being protected.

[thowed]

Amen, brother.

 

MORAL HAZARD!

 

I'm sick of it.

 

As Munger would say, the incentives have gone very much in the wrong direction.

 

[TwoCitiesCapital]

Agreed. Airbnb hosts too a risk. Live with the outcome of that risk.

 

Airbnb can bail out the hosts if it wants to. American taxpayers should have no part it in it outside of the forebearance arrangements already in place for ALL homeowners/renters.

 

Disclosure - I used to be an Airbnb host in NYC from 2011 to 2017. I had thought plenty of times of getting multiple more units, but consciously made the decision to avoid the risk of not being able to cover the monthly payments with my salary. The rewards were not lucrative enough for the additional risks.

 

These others should not be rewarded for failing to adequately prepare for the risks they were taking - particularly since they were milking massive profits along the way and obviously didn't reinvest into safety nets.

[wisdom]

+!

[DooDiligence]

I'd be happy to bail out an individual AirBnB host with an assumable mortgage, if I like the property.

 

;)

[Guest cherzeca]

shit happens!  wipe the shit off your own shoe.

[stahleyp]

I'm a big fan of no bailouts for anyone - for everything and every time.

[scorpioncapital]

How else will we generate the much sought after and legendary hyperinflation if we don't bail everyone out?

 

[rb]

How else will we generate the much sought after and legendary hyperinflation if we don't bail everyone out?

Deposit 1,000 every month in their account for everyone who has a job and makes under 100k per year and watch that shit fly! Hell that's only about 2.3T of new money PER YEAR. At 2.3T you're a pussy these days and that may only get you inflation. You want high inflation better dial that baby up to 2k per month and index it to inflation. That's still just a paltry 5T or so. See? Easy

[SHDL]

My hunch is that this type of political outrage, rather than the market’s ability/willingness to absorb US government debt, will be what ultimately limits the government’s ability to keep the stimulus programs going forever. The day we reach that limit will likely be the “Lehman moment” of this cycle.

[scorpioncapital]

The problem is there is no political outrage when you bail out the regular people. They keep asking for more and more. The problem before was Wall Street was bailed out. But I don't think anyone is complaining Main Street is being bailed out. But this kind of populism ends when it becomes obvious to the people that the dollar in their pocket is now worth 25 cents.

[rb]

The thing is that it's not main street that is being bailed out. Main street is gonna take it in the ass. They won't understand all the financial mumbo jumbo but they'll feel a pain around the back and will have a pretty good idea where it came from.

[DooDiligence]

The problem is there is no political outrage when you bail out the regular people. They keep asking for more and more. The problem before was Wall Street was bailed out. But I don't think anyone is complaining Main Street is being bailed out. But this kind of populism ends when it becomes obvious to the people that the dollar in their pocket is now worth 25 cents.

 

I doubt the average individual will understand & will in fact be confused by the whole set up.

 

When I was working overseas, I'd go ashore & there were always crew members who'd get excited when they got 40 or 50 of the local currency in exchange for a dollar & they thought they were getting a deal.

 

TBF, sometimes we actually were getting a deal because food, drinks & touristy crap were super cheap whether you used local currency or USD (early 90's Venezuela comes to mind).

 

---

 

What do you get when you combine currency devaluation with decreasing cost of goods & services?

[Jurgis]

The thing is that it's not main street that is being bailed out. Main street is gonna take it in the ass.

 

Pretty much this.

[LC]

Oh the irony, this clip from back in 2001:

 

https://youtu.be/rtnF5gIfhYQ?t=91

[TwoCitiesCapital]

How else will we generate the much sought after and legendary hyperinflation if we don't bail everyone out?

Deposit 1,000 every month in their account for everyone who has a job and makes under 100k per year and watch that shit fly! Hell that's only about 2.3T of new money PER YEAR. At 2.3T you're a pussy these days and that may only get you inflation. You want high inflation better dial that baby up to 2k per month and index it to inflation. That's still just a paltry 5T or so. See? Easy

 

If this is funded by the Treasury, I'd argue it's still deflationary long-term. Debt is inflationary upon issuance and deflationary upon service/repayment. 

 

The only way this type of system successfully raises sustainable inflation would be a system that requires CONSTANT growth in the debt and CONSTANT acceleration in that growth. Otherwise as the debt stock grows, the inflationary impulse of the incremental debt add isn't enough to exceed the deflationary impulse of servicing the debt stock.

 

This system is ruined by a Fed EVER raising rates or by a gov't ever balancing its budget. Note that this environment is roughly approximate by the U.S. from 2008 - 2017. Massive deficits, on/off acceleration in that deficit growth rate, and a Fed keeping rates low for years on end. And even that was not enough to spur inflation - and as soon as the Fed hit a period of consistently rising rates (2017), the inflation trend dropped off a cliff in 2018 and kept dropping even after the Fed admitted the policy error and cut rates.

 

I just don't think it's politically or economically feasible for the Treasury to commit to massive deficit spending, massive acceleration in that deficit spending growth, and the Fed committing to keep rates at 0% while it happens. At some point, the deflationary impulse just becomes a black whole and you can't escape it.

[rb]

How else will we generate the much sought after and legendary hyperinflation if we don't bail everyone out?

Deposit 1,000 every month in their account for everyone who has a job and makes under 100k per year and watch that shit fly! Hell that's only about 2.3T of new money PER YEAR. At 2.3T you're a pussy these days and that may only get you inflation. You want high inflation better dial that baby up to 2k per month and index it to inflation. That's still just a paltry 5T or so. See? Easy

 

If this is funded by the Treasury, I'd argue it's still deflationary long-term. Debt is inflationary upon issuance and deflationary upon service/repayment. 

 

The only way this type of system successfully raises sustainable inflation would be a system that requires CONSTANT growth in the debt and CONSTANT acceleration in that growth. Otherwise as the debt stock grows, the inflationary impulse of the incremental debt add isn't enough to exceed the deflationary impulse of servicing the debt stock.

 

This system is ruined by a Fed EVER raising rates or by a gov't ever balancing its budget. Note that this environment is roughly approximate by the U.S. from 2008 - 2017. Massive deficits, on/off acceleration in that deficit growth rate, and a Fed keeping rates low for years on end. And even that was not enough to spur inflation - and as soon as the Fed hit a period of consistently rising rates (2017), the inflation trend dropped off a cliff in 2018 and kept dropping even after the Fed admitted the policy error and cut rates.

 

I just don't think it's politically or economically feasible for the Treasury to commit to massive deficit spending, massive acceleration in that deficit spending growth, and the Fed committing to keep rates at 0% while it happens. At some point, the deflationary impulse just becomes a black whole and you can't escape it.

Hey buddy, where did I ever talk about Fed raising rates or gov'ts balancing budgets. You can't do that while constantly depositing money into consumers' accounts. In fact I specifically mentioned an indexing of that amount to inflation. That's how you get yourself some nice inflation. A good 'ol wage-price spiral.

 

The fact was that we never did inflationary shit. What the fed did was mostly asset side balance sheet stuff. During 2008-2014/5 the fed gov't did run some deficits but that was to replace some consumer demand deficit during deleveraging. Smart, generally inadequate, and nothing too revolutionary. Boring textbook stuff. Once the Tremendous Trump comes in and we really run some deficits again that's on the asset side. Give money to rich folks that buy stocks/bonds, blah. Give lots of money to corporations that buy back stock. All asset side yawn.

 

Oh and while all this shit is going down the Fed is busy sanitizing all this supply via bank reserve requirements. Mopping all the slosh they generated all over the place. The fact is that the Fed has been very careful not to generate inflation. Which is very pertinent to this thread because rentiers hate inflation.

 

So you want real inflation? You need to engage the P&L baby. You need to have more money out there chasing so many goods that the economy cannot produce. You give money not to some stiff suit but some Duck Dynasty Arkansas hillbilly motherfuckers that don't know what a Robinhood is. Inflation index that shit and then watch the sparks fly.

[TwoCitiesCapital]

How else will we generate the much sought after and legendary hyperinflation if we don't bail everyone out?

Deposit 1,000 every month in their account for everyone who has a job and makes under 100k per year and watch that shit fly! Hell that's only about 2.3T of new money PER YEAR. At 2.3T you're a pussy these days and that may only get you inflation. You want high inflation better dial that baby up to 2k per month and index it to inflation. That's still just a paltry 5T or so. See? Easy

 

If this is funded by the Treasury, I'd argue it's still deflationary long-term. Debt is inflationary upon issuance and deflationary upon service/repayment. 

 

The only way this type of system successfully raises sustainable inflation would be a system that requires CONSTANT growth in the debt and CONSTANT acceleration in that growth. Otherwise as the debt stock grows, the inflationary impulse of the incremental debt add isn't enough to exceed the deflationary impulse of servicing the debt stock.

 

This system is ruined by a Fed EVER raising rates or by a gov't ever balancing its budget. Note that this environment is roughly approximate by the U.S. from 2008 - 2017. Massive deficits, on/off acceleration in that deficit growth rate, and a Fed keeping rates low for years on end. And even that was not enough to spur inflation - and as soon as the Fed hit a period of consistently rising rates (2017), the inflation trend dropped off a cliff in 2018 and kept dropping even after the Fed admitted the policy error and cut rates.

 

I just don't think it's politically or economically feasible for the Treasury to commit to massive deficit spending, massive acceleration in that deficit spending growth, and the Fed committing to keep rates at 0% while it happens. At some point, the deflationary impulse just becomes a black whole and you can't escape it.

Hey buddy, where did I ever talk about Fed raising rates or gov'ts balancing budgets. You can't do that while constantly depositing money into consumers' accounts. In fact I specifically mentioned an indexing of that amount to inflation. That's how you get yourself some nice inflation. A good 'ol wage-price spiral.

 

The fact was that we never did inflationary shit. What the fed did was mostly asset side balance sheet stuff. During 2008-2014/5 the fed gov't did run some deficits but that was to replace some consumer demand deficit during deleveraging. Smart, generally inadequate, and nothing too revolutionary. Boring textbook stuff. Once the Tremendous Trump comes in and we really run some deficits again that's on the asset side. Give money to rich folks that buy stocks/bonds, blah. Give lots of money to corporations that buy back stock. All asset side yawn.

 

Oh and while all this shit is going down the Fed is busy sanitizing all this supply via bank reserve requirements. Mopping all the slosh they generated all over the place. The fact is that the Fed has been very careful not to generate inflation. Which is very pertinent to this thread because rentiers hate inflation.

 

So you want real inflation? You need to engage the P&L baby. You need to have more money out there chasing so many goods that the economy cannot produce. You give money not to some stiff suit but some Duck Dynasty Arkansas hillbilly motherfuckers that don't know what a Robinhood is. Inflation index that shit and then watch the sparks fly.

 

Wasn't saying you did, but also don't think it's politically or economically feasible to do $2000/month without raising taxes or rising rates - both if which would reduce the inflationary impulse.

 

That was kind of the point. Not just enough to spend. Have to constantly spend , constantly increase spending, and prevent rising rates from slowing down the economy at the same time.

 

 

[mjs111]

The Airbnb problem these people are having seems like a miniature version of one of the key flaws of WeWork. The Airbnb'ers took on long term debt to fund an asset that had short term cash flows.

 

Mike

[petec]

How else will we generate the much sought after and legendary hyperinflation if we don't bail everyone out?

Deposit 1,000 every month in their account for everyone who has a job and makes under 100k per year and watch that shit fly! Hell that's only about 2.3T of new money PER YEAR. At 2.3T you're a pussy these days and that may only get you inflation. You want high inflation better dial that baby up to 2k per month and index it to inflation. That's still just a paltry 5T or so. See? Easy

 

If this is funded by the Treasury, I'd argue it's still deflationary long-term. Debt is inflationary upon issuance and deflationary upon service/repayment. 

 

The only way this type of system successfully raises sustainable inflation would be a system that requires CONSTANT growth in the debt and CONSTANT acceleration in that growth. Otherwise as the debt stock grows, the inflationary impulse of the incremental debt add isn't enough to exceed the deflationary impulse of servicing the debt stock.

 

This system is ruined by a Fed EVER raising rates or by a gov't ever balancing its budget. Note that this environment is roughly approximate by the U.S. from 2008 - 2017. Massive deficits, on/off acceleration in that deficit growth rate, and a Fed keeping rates low for years on end. And even that was not enough to spur inflation - and as soon as the Fed hit a period of consistently rising rates (2017), the inflation trend dropped off a cliff in 2018 and kept dropping even after the Fed admitted the policy error and cut rates.

 

I just don't think it's politically or economically feasible for the Treasury to commit to massive deficit spending, massive acceleration in that deficit spending growth, and the Fed committing to keep rates at 0% while it happens. At some point, the deflationary impulse just becomes a black whole and you can't escape it.

Hey buddy, where did I ever talk about Fed raising rates or gov'ts balancing budgets. You can't do that while constantly depositing money into consumers' accounts. In fact I specifically mentioned an indexing of that amount to inflation. That's how you get yourself some nice inflation. A good 'ol wage-price spiral.

 

The fact was that we never did inflationary shit. What the fed did was mostly asset side balance sheet stuff. During 2008-2014/5 the fed gov't did run some deficits but that was to replace some consumer demand deficit during deleveraging. Smart, generally inadequate, and nothing too revolutionary. Boring textbook stuff. Once the Tremendous Trump comes in and we really run some deficits again that's on the asset side. Give money to rich folks that buy stocks/bonds, blah. Give lots of money to corporations that buy back stock. All asset side yawn.

 

Oh and while all this shit is going down the Fed is busy sanitizing all this supply via bank reserve requirements. Mopping all the slosh they generated all over the place. The fact is that the Fed has been very careful not to generate inflation. Which is very pertinent to this thread because rentiers hate inflation.

 

So you want real inflation? You need to engage the P&L baby. You need to have more money out there chasing so many goods that the economy cannot produce. You give money not to some stiff suit but some Duck Dynasty Arkansas hillbilly motherfuckers that don't know what a Robinhood is. Inflation index that shit and then watch the sparks fly.

 

Wasn't saying you did, but also don't think it's politically or economically feasible to do $2000/month without raising taxes or rising rates - both if which would reduce the inflationary impulse.

 

That was kind of the point. Not just enough to spend. Have to constantly spend , constantly increase spending, and prevent rising rates from slowing down the economy at the same time.

 

It’s also not currently legally feasible. The Fed is not allowed to fund the treasury directly, which I think would be necessary for the kind of handouts we are discussing here. But if you change that, inflation becomes a lot more likely than deflation.

 

Rentiers love inflation if they have fixed debts!

[scorpioncapital]

The Airbnb problem these people are having seems like a miniature version of one of the key flaws of WeWork. The Airbnb'ers took on long term debt to fund an asset that had short term cash flows.

 

Mike

 

But what exacttly is the problem. Airbnb apartments are just standard apartments. For a long time they made what? 2x - 3x their mortgage? Now they can rent long term and cover the mortgage. It seems very pandemic related. If there is so much property in excess of demand then rental prices should go down. Last time I looked I see big rent inflation everywhere.

[mattee2264]

I think that it makes much more sense to allow them to postpone mortgage payments.

 

I can understand the argument for payroll grants to hotels because you are preserving jobs which makes a return to normalcy smoother and it is basically just a pass through.

 

But Airbnb for most people is a side gig rather than their sole source of income. Also people losing their homes is a regular occurrence in recessions and is why it is a good idea to have an emergency fund and any prudent landlord factors in vacancies and other unforeseen expenses.

 

I understand that this is unprecedented and the government does not have much time to think and is having to be reactionary. But there is a lot of social injustice.

 

The sensible thing would be for any funding to be on commercial terms. You get a loan to help you through these tough times. But the loan has a high interest rate so you do not enjoy as high profits when the economy recovers and learn your lesson and in future make sure you have rainy day funds and lots of debt capacity. Or you get to postpone your mortgage payments but get charged penalty interest that accrues and is added to your outstanding loan balance.

 

I still cannot quite see inflation on the horizon. Unemployment is going to remain elevated for some time so wage inflation is not on the cards. Monetary inflation only seems to get reflected in asset prices. We are service economies so less reliant on raw material inputs and in any case commodity prices remain muted.

 

I think we are just going to continue to see financial repression. Very low interest rates will remain for some time to allow governments and corporations to service huge debt loads.

 

 

 

 

[Jurgis]

I love how the thread title changed from "Let rentiers fail" to "Let renters fail".  ::)