well for a long time prior to the 2008 collapse - because of declining interest rates you needed to leverage to make more money which ultimately led to the collapse. There are also the blackpools and front running by all the superfast software trading that sees someone trying to by a certain stock and goes out there and buys it before you and suddenly the price is up (Michael Lewis’ Flash Boys)
And of course Silicon Valley has been funding all sorts of Unicorns (nowadays you need a billion dollar IPO to be taken seriously) but given the history I’d stay away from these with a bargepole - consider Juicero where you needed to have a $600 juicer with 4 tons of pressure or whatever, to squeeze proprietary bags of fruits - until some Bloomberg reporters found out they could squeeze more out by hand than the juicer instantly blowing up that company.
Then Theranos, turned out to be a scam, and remember how Segway was supposed revolutionize the tranportation industry - but then once people saw a picture of someone standing on a segway with a helmet looking like a giant dick, everyone said forget that. Now it’s maybe some tourists or mall cops using them.
But there are money making investments out there, remember Picketty’s book that long run r > g ie that asset growth is bigger than growth of the economy (and given that wages are still stagnant) that’s why a lot of investors are putting their money into real estate (for instance why properties in Vancouver and coastal cities have been growing far faster than any other investments)
All good points, although I would rush to point out that the well-known Silicon Valley investments are generally the ones that are trying to attract capital from the general public, not from the inner circle of savvy investors. The IPOs somehow always manage to give huge amounts of prime stock to the very wealthy at initial pricing, who then get to go and re-sell it at tremendous markup once the feeding frenzy begins. Odd, that.
There are plenty of solid, non-sexy-but-tremendously-useful companies that are popping up like mushrooms in the Valley, but they’re all fully funded and not looking to be billion-dollar corporations, because the insiders all got in on these guys on day one through their incubators and so on. Support companies, primarily, that do all those odd jobs that are really highly valuable to the tech ecosystem as a whole - like maybe a company that’ll be worth $50m in 5 years with like 30 staff, was funded for $5m, and will be paying dividends to the 2-3 people that funded it to the total tune of maybe $40m when it’s finally replaced by the next thing, and so on and so on. Cheap investment, great return, but only available to a tiny few.
That’s the silent gold rush going on the Valley at the moment, but it’s already been locked up tight by the insiders, and it’s massively frustrating to the other wealthy folks on the outside of that group, and that’s a lot of the reason why scammers like Uber are still managing to secure funding by jumping from one overheated market (ride-sharing) to the next (self-driving cars) but not making any money for anyone except themselves along the way.
That last is a bit of an exageration, but the overall trend is there. If things continue this way America is headed for something like the scenario Richard Reeves lays out*: 80% of the country unnecessariat or precariat, 20% being fortunate enough to hold down one full-time or no more than two part-time jobs, and within that 20% various gradiants of what we currently understand as middle-class, affluent, HNWI, UHNWI and “emigrating to Mars”. Since only the 20% will count to TPTB, the merely middle-class and affluent will indeed become “the poor.”
[* using links to The Atlantic again until Goldberg decides to hire another Cannibal Witch]
I recall asking my money manager what he thought of Netflix (at the time it was like $8 a share) he said it’s not on our radar, or reading some bit of investment projection by Canaccord Capital placing all bets on the Blackberry while denigrating the Iphone as a toy. Just goes to show that few of them really know what they’re talking about.
Re, the investment being available to the tiny few - same thing with real estate assets, which I neglected to mention.
I read the whole thread and the discussion is very interesting, but I still fail to see how it makes sense to lend money to people who cannot repay it to buy objects which one cannot sell at a profit when repossessed.
I understand the housing credit crash. Repossessed houses could be sold at a profit for a long time.
I understand personal credit crunch, as long as the debtors were believing that they could break even in the event of credit failure, which is what credit rating is about.
I don’t understand this. Or is the plan to get another government bailout?
The ‘appeal’ of car loans from a lender’s perspective is that the people who borrow money to buy/lease cars generally absolutely need a vehicle.
They can generally be relied on to shortchange everything else, borrow money at even more crazy interest rates, cadge money from friends, neighbours and relatives, etc. to ensure that the vehicle doesn’t get loaded on a truck and driven away.
Hence one reason for concern when car-lenders are losing out on loans to this extent. If people are so poor that they are allowing vehicles to be repossessed in such numbers, they are generally truly desperate.
You are right. In the meantime, I watched the John Oliver video that one gets from the second link and I understand the situation better.
One of the examples was a 2000$ car that one gets for 200$ a month with a 7 years contract. Basically, a 2000$ car for 15000$. The trick is that the “lender” expects a default after a year: when one defaults after 10 months, the car is already paid. The lender repossesses the car, its book value may be about 1700$ and it can be resold to another person for 170$ a month, etc… The buyers can be brought to court to fullfill the contractual obligation, that is the extra gain.
This is not a business of lending money. There is no actual money let out from the lender account to the car owner account (the same person), it is just numbers. It is a business of renting cars with predatory contracts, quite a different thing. And that is why this “bubble” will not burst, there is no actual bubble. The John Oliver video is dated 2016 and they expected a burst then. It did not happen.
TAAS already exists, it is called public transport…
But if you are thinking about short-term car rent, as already exists in large cities, there are several problems:
it is quite expensive, because the car owner usually uses the manufacturer’s maintenance plans, etc… while I can chose to maintain my car myself or in a cheaper garage.
people with bad credit ratings are not accepted in these systems. Who is going to take the liability to rent car to them?
