In L.A. there are a lot of holding company/partnerships buying up the rental properties. So they may be pooling resources.
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Do they have Winnebagos and Walmart parking lots in China?
We’re currently deep into property bubble territory here in Australia, but just try telling anyone and they’ll look at you like you’re crazy.
Every month or so an economist from overseas will fail to pick up on the taboo and speak their mind, and Aussie politicians just fall over themselves getting into defensive patriotism mode and reassuring us that it’s different here.
I guess one of the rules of Bubble Club is you don’t talk about Bubble Club. It’d be even worse in China, where they’ve literally locked people up for reporting on stock market crashes in the last couple of years.
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Off the top of my head, the government write off the debt- my guess is that they value higher homeownership rates more than another drop in the debt bucket.
I suppose it would depend on how they go about it, but we shall see. We’ve been hearing about ghost cities for so long that it’s rather refreshing to read about the opposite.
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Australia and China are tied together. What happens to Australian exports if/when China’s building boom slows dramatically and a bunch of people lose a lot of money and a bunch of banks are left holding bad loans against properties that have dropped in value? Demand drops. A lot. And demand for the raw materials for the factories that fed the demand drops.
If prices collapse, the Chinese government can bail out their banks and their provinces and make sure the system stays solvent, but that doesn’t change the fact that the loans still exist and are tied to the properties. If people can’t pay, they lose the collateral, which then gets sold to recoup some of the losses. Writing off the loans doesn’t mean the borrower gets a free house. In the example in article, Mai loses both flats and all his savings, his parents lose all their savings, the friends who loaned him money don’t get it back and the finance company that loaned him 200,000 supposedly for a car doesn’t get paid AND has no car to repossess. Now multiply that web of loss by a million or however many people are doing this sort of thing.
I think that people’s actions are not always informed by their rational knowledge - because they recognise that, as Keynes observed; “The market can remain irrational longer than you can remain solvent”.
It depends how you define “rational”. For instance, it was reported that in the Albanian bubble many people knew they were investing in Ponzi schemes - but, not knowing just how many of them there were, they thought that the government would step in and bail them out and they would get to keep their profits.
Much financial trouble is caused by asymmetric information like this.
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That compounding loss just makes me think it’d be so much cheaper long term for the government to bail the borrowers out. Yeah they’d need to figure out how to stop new loans and deflate the bubble after that, but surely thats easier than losing a fucking decade (at least) of economic growth like the US did. After all, the middle class is too big to fail right?
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I don’t know about China but in the U.S., well…
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So, sorry, are you describing investing in Ponzi schemes as rational or irrational?
In irrational markets with strong government supervision, investing in a Ponzi scheme may actually be rational given the available information (remember that rational just means “able to reason”, it does not mean “in full possession of the facts.”
The bankers in 2007 thought if anything went wrong they would be bailed out; they just had no idea of how much had been invested in junk mortgage bonds.
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Heck, we can’t even do that for ourselves. Look who got into office here.
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