[marcus_holmes]

We had this experience with a local town centre where the high street basically died. Retailers priced out by high rents, which was fine when the economy was good and people were spending, but as soon as it took a dip there was nowhere to go and they had to shut up shop.

And this mechanism was why; almost all the real estate was owned by funds and leveraged. Property values based on a multiplier of rent. They could weather a long spell of zero rental income because that effectively cost them nothing, but if the rent went down then the value went down and they had to come up with the difference.

[salynchnew]

That seems like a rather inefficient use of resources. How long will a fund typically keep that on the books before they have to offload the asset or declare bankruptcy? At a certain point, that smells like a scam with a real estate business attached to it.

[ThrustVectoring]

Commercial real estate lending typically has a clause that allows pausing of payments during a vacancy and letting the interest accrue into the balance of the loan - effectively, the banks are giving the property owners a free option to try and get the vacancy cleared without affecting long-term incomes and asset prices.

[BrenBarn]

That still sounds like a scam.

[imglorp]

Money laundering? https://financialcrimeacademy.org/real-estate-aml-red-flags

Seems there's ALWAYS some from each column...

[ceejayoz]

Yeah, it's a big high-stakes game of musical chairs.

[MichaelZuo]

Ironically, this is one of the strongest proofs that American society is very un-capitalistic.

Shareholders, who would have received the dividends from rent payments otherwise, simply go pound sand when this happens.

Even though there should be plenty of shareholders willing to accept lower asset values in exchange for continued, reduced, dividend payouts.

[pstuart]

America has a long history of privatizing profits and socializing costs.

Market economies are clearly preferable over demand economies (like, no question about it), but Late Stage Capitalism is bad for everybody except the oligarchs.

John Steinbeck once said that socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.

With AI and Robotics looming over us, we would be very well served to re-examine our economic systems while we still have a chance.

[Projectiboga]

More like a game of Hot Potato.

[choilive]

More like poorly structured loans and incentives.

[gizajob]

I think that about nails it for most commercial real estate.

[mschuster91]

> That seems like a rather inefficient use of resources.

Inefficient for society? Yes. But for the capital providers aka investment (and let's be clear: retirement) funds and banks? Definitely not.

The fundamental problem at the root of all of it is how the US does pensions. In contrast to most European countries that operate in a redistribution system, aka the current workers pay the pensions of the current pensioners in exchange for "IOU tokens", the US has everyone responsible for themselves... which leads to a constant influx of cash into all kinds of asset markets, no matter the market conditions.

And that is bad, for multiple reasons.

- it ties general economic downturns to people's pensions. That in turn factually prevents politics from doing what is right (e.g. restrict climate gas emissions), because a lot of companies make a lot of money by abusing the environment and cracking down on that would lead to them losing value.

- it creates a lot of perverse incentives. When you got almost 50 trillion dollars in total retirement funds [1] with hundreds of billions of dollars in new savings each year... that money has to go somewhere where it is backed by a physical asset or a consumption in the end. A lot of that money ends up in government bonds, which "allows" the US to cut taxes for the ultra-rich without limitations and balloon the national debt without consequences because guess what, the US can "always" borrow money. It's just as bad as Japan, only less openly exposed. What does not end up in bonds ends up primarily on the real estate market, driving the nonsense we're discussing here, and what remains goes into crap like Yo [2].

- it disincentivizes the forces of the free market from holding bad actors accountable. Under "normal" conditions, the AI bubble or Tesla would simply have run out of cash years ago because no one would give them more money, but when the scam is so large it ends up in the S&P 500, cash will flow in automatically from all the dumb money that is going into ETFs and other pension investment vehicles. Once you are in, you stay in.

- To make it worse, people are increasingly going from "moderate" managed funds to the extremes: either purely tracking funds that have virtually no fees deducting profits (and, in exchange, do not exercise voting rights) or into high-yield "activist investor" funds that love to do exploitative shit like forcing companies to redistribute their liquidity reserves as dividends (robbing the company of resilience against economic downturns) or engage in LBOs, buy-and-break-apart schemes and the likes. These almost always offload the consequences of making money for investors onto society at large... like, for example, malls falling apart because anchor stores fell victim to the vultures. Toys'R'Us is one particularly nasty example.

> At a certain point, that smells like a scam with a real estate business attached to it.

The entire pension based economy in the US is the true scam - in the end, it's all IOUs just like our "pension points" in Europe. If there is no economy around due to demographic collapse or whatever, the IOUs become just as worthless.

Normally I wouldn't even care, but unfortunately, the US pension market is so large that a lot of dollars flow out elsewhere, including our healthcare system, and I'm sick and tired of American vultures buying up everything in Europe Just Because They Can.

[1] https://www.ici.org/statistical-report/ret_25_q4

[2] https://en.wikipedia.org/wiki/Yo_(app)

[CPLX]

This is broadly accurate, but it can be a little easier to point the finger at the actual culprits, which is Wall Street.

The problem is the financialization of everything, and the insistence on ensuring high rates of return above all other goals. Which is highly related to the dynamics that you mentioned here, so we're agreeing.

But other countries don't do this because the government stops them. In this country, the financial sector is more powerful and can override democracy through a couple of obvious means that we've all seen.

The result is effectively the plundering of a previously strong economy for the benefit of a couple of people.

Ask yourself why General Motors is taking the many billions of dollars in cash that they generate from their business operations and literally sending it directly to Wall Street bankers through the form of stock buybacks rather than investing in the next generation of electric cars. It's an obvious mistake, and eventually the bill will come, but maybe not in the lifetimes of the people who profit from it. Certainly not before they have a chance to buy another summer home.

China doesn't do this. They keep savings rates high and returns low, which means the money goes into building factories and infrastructure and lots of other things that ultimately make the country much, much wealthier.

[Terr_]

> Ask yourself why General Motors is taking the many billions of dollars in cash that they generate from their business operations and literally sending it directly to Wall Street bankers through the form of stock buybacks rather than investing in the next generation of electric cars.

Hmm, putting aside others issues (e.g. stock-manipulation to make quarterly numbers) stock-buybacks might be viewed similar to repaying a loan and reclaiming the stock that was put up as collateral...

Although I suppose if the loan is zero-interest, why would one want to do that? Even if somehow all spending options are terrible today (but might improve tomorrow) one could just sit on the cash.

[CPLX]

All spending options are not terrible today. That's the point. Without reinvestment, the companies will fall behind and die.

The decisions by major companies to prioritize stock buybacks over capital investment in the next generation of products and innovation is the absolute core of why the financialization of everything threatens to destroy us as an industrial economy and, by extension, our prosperity and way of life.

[alextp]

The flip side is redistributive pensions require an ever growing population and most European pension systems will go bankrupt within a couple of decades given current birth and immigration rates.

[mschuster91]

> The flip side is redistributive pensions require an ever growing population

Stonk market based pensions require that as well! Someone has to work in the future and earn dollars so that he can give me these dollars for my stonks. And that falls apart when the working population drops - either due to demographics or because the world splinters apart and the age of global trading ends. Stonks are just as much IOUs as "pension points" are.

And no, automation isn't a panacea either, because an economy not just requires workers to do work, but also people having money to buy things - that's already setting our time's economy on fire as more and more people have to expend more and more money just to make rent.

[triceratops]

> And no, automation isn't a panacea either, because an economy not just requires workers to do work, but also people having money to buy things

Automation is the whole reason people have money to buy things. Before we had automation everyone lived on farms and sewed their own clothes. Only noblemen could afford to pay for clothes. Your intuition is plain wrong, I'm sorry.

AI may take away purpose if it takes away literally everyone's jobs. The wealth and productivity of the economy doesn't go away. It becomes more concentrated. De-concentrating it is a political problem.

[mschuster91]

> Automation is the whole reason people have money to buy things. Before we had automation everyone lived on farms and sewed their own clothes. Only noblemen could afford to pay for clothes. Your intuition is plain wrong, I'm sorry.

Every industrial revolution to this day produced insane amounts of job losses and suffering. In fact, that's how we got the labor rights almost a century ago. Affected workers literally got shot up over labor action.

And I'm sick and tired of that cycle always repeating and governments not giving a single shit about helping affected people and redistributing the wealth gain.

[milesskorpen]

Americans save at a much lower rate than Europeans (5% US vs. 15% EU), which I think makes your whole thesis backwards. Maybe Americans SHOULD be saving more for retirement, but they aren't!

[CamperBob2]

I think the idea is, why should they save more, if they can save a smaller fraction of their income and let the market amplify it for them?

Seems like one of those plans that works great right up until it doesn't.

[triceratops]

> most European countries that operate in a redistribution system

The Netherlands does not. [1] It is also considered one of the best-run pension systems in the world.

> the current workers pay the pensions of the current pensioners in exchange for "IOU tokens", the US has everyone responsible for themselves

US Social Security works in the manner you described - current workers pay for current pensioners. This doesn't work great as we already know.

Making assets instead of workers pay for pensions isn't a bad idea per se. It makes no sense to load workers down with taxes to pay for seniors. The math only works as long as the population of workers grows or if you tax workers more and more.

Workers' labor produces ever-increasing surpluses every year. Use those surpluses aka higher productivity to support seniors.

1. https://ec.europa.eu/finance/docs/policy/191216-insurers-pen...

[Tanoc]

One could feasibly make their debate topic that the U.S. is not actually a functioning country but instead has morphed into an extensive financialization scheme, and they could win that debate.

[kevin_thibedeau]

There was a lot of anxiety in the US over Japanese buying everything up in the 80s. Just wait it out. The US will collapse its economy like Japan.

[watersb]

Japanese bought Rockefeller Center in New York City in the 1980s.

That was when it felt like we were "Turning Japanese". It was great and scary and crazy and we wrote cyberpunk stories.

[NickC25]

> and I'm sick and tired of American vultures buying up everything in Europe Just Because They Can.

Here in America, we're also sick and tired of vultures buying up everything just because they can.

[hdgvhicv]

Who’s that we? Because that’s exactly who America put in power time and time again.

[mech998877]

The argument that letting people invest their own money leads to a distortion of asset markets is the most amusing thing I've read today.

[IAmBroom]

Pensions are not investment funds (for the individual employee/retiree). They are distinct from 401ks and their ilk. GP explicitly spoke about "pensions", which have almost no requirement to diversify - at least one I know of was discovered to be "invested" in luxury rugs and furniture for the CEO (Their value will go up!!! /s).

[carlosjobim]

> In contrast to most European countries...

The entire industrialized world has the exact same problems with commercial real estate and rents for small businesses and people.

The common denominator across continents and political systems and economic factors and social factors: all the ownership is in the hand of the olds. Whether directly or indirectly through any kind of bank-and-funds-and-government schemes that can be dreamed up.