[appreciatorBus]

Not necessarily. The ppl and firms making the capital expenditures can go bankrupt for instance. The world will carry on without them, while the infrastructure they built with those expenditures continues to provide value, just to someone else, and now at a dramatically lower capital cost.

We could compare it to the railroad boom, and the telecom boom - in both cases vast sums capital expenditures were made, and reasonable people might have concluded that eventually these expenses would have to be reimbursed through higher prices. However, in both cases, many firms simply went bankrupt and all that excess infrastructure went time to serve humanity for decades at lower cost.

[hiAndrewQuinn]

I am so, so glad you brought up what should be the obvious conclusion here. "B-but they spent all that money, how do they get it back!?" "That's the fun part, they don't."

Creative destruction is a woefully underappreciated force in capitalism. Shareholders can lose everything. Debt can be restructured or sold for pennies on the dollar. Debt can go unsold and unpaid, and the creditors can lose everything.

I think here it has to be mentioned that bankruptcy in the United States actually works very differently to bankruptcy in the European Union, where creditors have a lot more legal means at their disposal to haunt you if you try risky plays like taking on more debt to moonshot your way out of your current debt. In a funny way, a country's bankruptcy laws are their most important ones when it comes to wealth transfer.

[appreciatorBus]

It's also a common misconception in housing debates!

"B-but the developer always has to make the money back so rents & prices can never go down!" "That's the fun part, they don't!"

The builder/buyer/lender/landlord/etc can go bankrupt but as long as the building actually got built, it will carry on and benefit the rest of us, regardless of what happened to the ppl who paid for it to be built.

Also fun when landlords claim to be "housing providers" "No actually, the housing will still be there, even if you sell, even if you lose your shirt and get foreclosed on"

[bandrami]

IDK, there are whole developments in FL that are just going to be bulldozed. Same thing happened in TX after the S&L crash 35 years ago.

[appreciatorBus]

I’m not familiar with either, but feel free to share a link.

If the buildings, I assume single family houses, were built in places that few people want to live, or places people are simply forced to live because they can’t live where they want to live, then it wouldn’t shock me if someone chose the bulldozer as the best option. I’d argue that the root cause is bad land use law that doesn’t allow construction in the places people really want to live, but that’s a whole other topic of course :)

My argument, both for AI, railroads, telecom and construction, is that if you built something tangible and useful, it can outlive your financial arrangements, and go on to serve humanity, even if you go belly up.

But for residential construction, location is everything, you could build a theoretically useful building, but in a location that few people want to voluntarily live in, far from jobs services, shops, friends, and family, etc. Ofc, you could build a railroad between two unpopular destinations, or run a fibre optic line between two places with little demand, and those would probably not outlive your finances and might be torn up or abandoned too.

[csh0]

I looked it up since I was also curious. There’s this story making the rounds right now in FL: https://youtu.be/ia1qP1DmJdg

It seems as if these are developments which didn’t get completed.

[bdelmas]

“The world will carry on without them”. Sure but at the end of the day it’s not because companies can go bankrupt that debts etc magically disappear. It still impact other companies.

[appreciatorBus]

Not directly, no.

The impact of firms and people going bankrupt that other people making investment and lending decisions will see risk more clearly and may (for a time) be less greedy and stupid when they make capital allocation decisions.

Debts can & do magically disappear. To be clear someone paid for the lost money, but at that stage it's far too late for them to be able to do anything about it, let alone raise prices.

Here's an example: Founder A founds a startup with equity funding from B & C. Later they take loans from D & E. They spend all the money but never become profitable. None of the original investors or lenders is interested in pumping in good money after bad. They voluntarily declare bankruptcy or they default on a loan and D or E forces them into bankruptcy. Either way, whatever is left of the company's assets are sold to reimburse, in part, the loan D & E made. A, B & C got nothing.

A, B, C, D, and E, all lost real money.

But by the time this loss is crystalized, there is no way any of them can go back in time to raise prices to pay for it. It's gone and so is the company. The only thing they can do is act differently in the future.

[bdelmas]

“Debts can & do magically disappear. To be clear someone paid for the lost money,” you contradict yourself.

So no it doesn’t magically disappear. A bankruptcy somewhere is a loss for others somewhere else. Even cutting dept to pennies on the dollar means lenders are losing money. Bankruptcy is not a magic trick…