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by shmatt 52 days ago
Home owns are owned by people, not the home itself. If someone fails to pay a loan, their own credit score will be impacted

For these PE loans, its the new company that takes on the debt, not the buyer. Essentially any broke person can "afford" any trillion dollar company this way
4 comments
true_religion 52 days ago
Home loans are secured by the asset (the home). It's comparable to stock, but it's a less liquid asset.

Any broke person can afford a trillion dollar loan, if they can convince the bank that their house is worth 1.8 trillion dollars. But is that really possible?

Loan companies do due diligence so if GameStop is $A and eBay is worth $A + $B, then so long as $A/$B remains the same, the acquiring company owns two assets worth the full price of the loan.

It doesn't seem to be a scam to me. Am I missing something?

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TSiege 52 days ago
The difference is that when you buy a home the debt is in your name and you are required to pay it off. In a leveraged buy out wouldn't be to person taking out the loan, the debt is owned by the target of the purchase. If it were like a home loan and this deal goes south GameStop would go bankrupt and have to sell it's own assets to cover the losses. But in reality the debt from the deal would be owned by Ebay and if GameStop can't pay the loan back it'd force Ebay into bankruptcy and sell Ebay's assets. It's essentially a riskless move by GameStop and PE in general. Heads GameStop wins tails Ebay loses
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triceratops 52 days ago
There are other categories of real estate loans where the debt is against the property itself. The lender evaluates the property's income and expenses when underwriting the loan.
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seemaze 52 days ago
That sounds like buying a business that owns real estate as an asset.
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Ajedi32 52 days ago
Fair point, it's a corporation taking out the loan so there's nobody to go after if the company goes under the way there is if the value of your house tanks and you stop paying your mortgage. But doesn't the bank take that risk into account when deciding whether to issue the loan? Why should that be illegal?
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awakeasleep 52 days ago
The way I’m reading your question, it seems like you are looking for the law to follow philosophically consistent principles.

That is simply not the case and lawmakers can make any kind of law to shape the society how we wish. If leveraged buyouts are creating problems for the country, then it’s totally valid to make them illegal in certain cases.

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Ajedi32 52 days ago
The question I'm asking is: what problem? If a bank takes a risk and that risk doesn't pay off how exactly is that society's problem?

And yes, I do think laws should be based on consistent principles. I'm surprised you consider that a controversial point...

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TSiege 52 days ago
The problem is that people can take loans without financial liability (not how home purchases work) and drive profitable businesses (which are good for the economy) into the ground (bad for the economy and society).

No one is worried about the bank making the loan in this situation. They are concerned that PE is buying up large parts of the economy using debt they aren't responsible for, which makes them irresponsible owners because they do not face consequences when the moves fail

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Ajedi32 52 days ago
> which makes them irresponsible owners because they do not face consequences when the moves fail

Again, isn't that entirely the bank's problem? They're responsible for the debt if the company can't pay it, right? I agree on the surface this seems like a bad deal for the bank, but what makes you think you know better than the bank so much so that they shouldn't even be allowed to take that risk?

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floxy 51 days ago
>I do think laws should be based on consistent principles.

https://repository.law.wisc.edu/s/uwlaw/item/27617

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taeric 52 days ago
Leaving aside that the new company is the buyer; the point remains that home and car loans are leveraged loans. With the main asset in the leverage being that which is being bought. Defaulting on that loan results in the assets going to the lender.

If a lender builds a pattern of lending to people that can't make the payments, that lender will take a hit. If we think that isn't happening, why? And how could we return us to that?

Or, back to my question, how would you structure a legal framework where some loans can be done this way, but others could not? (I can think of a few ways, largely curious if I have a blind spot here.)

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