ERE-sourced loan experiment

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Mister Imperceptible
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ERE-sourced loan experiment

Post by Mister Imperceptible » Mon Nov 25, 2019 10:48 pm

Henry Hazlitt wrote:Now as a matter of fact this is what happens every day under the institution of private credit. If a man wishes to buy a farm, and has, let us say, only half or a third as much money as the farm costs, a neighbor or a savings bank will lend him the rest in the form of a mortgage on the farm.

If he wishes to buy a tractor, the tractor company itself, or a finance company, will allow him to buy it for one-third of the purchase price with the rest to be paid off in installments out of earnings that the tractor itself will help to provide.

But there is a decisive difference between the loans supplied by private lenders and the loans supplied by a government agency. Each private lender risks his own funds. (A banker, it is true, risks the funds of others that have been entrusted to him; but if money is lost he must either make good out of his own funds or be forced out of business.) When people risk their own funds they are usually careful in their investigations to determine the adequacy of the assets pledged and the business acumen and honesty of the borrower.

If the government operated by the same strict standards, there would be no good argument for its entering the field at all. Why do precisely what private agencies already do? But the government almost invariably operates by different standards. The whole argument for its entering the lending business, in fact, is that it will make loans to people who could not get them from private lenders. This is only another way of saying that the government lenders will take risks with other people's money (the taxpayers') that private lenders will not take with their own money. Sometimes, in fact, apologists will freely acknowledge that the percentage of losses will be higher on these government loans than on private loans. But they contend that this will be more than offset by the added production brought into existence by the borrowers who pay back, and even by most of the borrowers who do not pay back.

This argument will seem plausible only as long as we concentrate our attention on the particular borrowers whom the government supplies with funds, and overlook the people whom its plan deprives of funds. For what is really being lent is not money, which is merely the medium of exchange, but capital. (I have already put the reader on notice that we shall postpone to a later point the complications introduced by an inflationary expansion of credit.) What is really being lent, say, is the farm or the tractor itself. Now the number of farms in existence is limited, and so is the production of tractors (assuming, especially, that an economic surplus of tractors is not produced simply at the expense of other things). The farm or tractor that is lent to A cannot be lent to B. The real question is, therefore, whether A or B shall get the farm.

This brings us to the respective merits of A and B, and what each contributes, or is capable of contributing, to production. A, let us say, is the man who would get the farm if the government did not intervene. The local banker or his neighbors know him and know his record. They want to find employment for their funds. They know that he is a good farmer and an honest man who keeps his word. They consider him a good risk. He has already, perhaps, through industry, frugality and foresight, accumulated enough cash to pay a fourth of the price of the farm. They lend him the other three-fourths; and he gets the farm.

There is a strange idea abroad, held by all monetary cranks, that credit is something a banker gives to a man. Credit, on the contrary, is something a man already has. He has it, perhaps, because he already has marketable assets of a greater cash value than the loan for which he is asking. Or he has it because his character and past record have earned it. He brings it into the bank with him. That is why the banker makes him the loan. The banker is not giving something for nothing. He feels assured of repayment. He is merely exchanging a more liquid form of asset or credit for a less liquid form. Sometimes he makes a mistake, and then it is not only the banker who suffers, but the whole community; for values which were supposed to be produced by the lender are not produced and resources are wasted.

Economics in One Lesson, Chapter VI: Credit Diverts Production
Mister Imperceptible wrote:
Mon Nov 25, 2019 8:58 pm
I need $50,000 before December 31.

Would Lending Club be the best avenue for this?

My credit score is over 800 and I make bank.



.....Would the forumites be interested in crowd-sourcing a short term loan? This is not charity, I have identified a time-sensitive investment and I do not want to incur the cost of liquidating my current investments. Is anyone in search of yield that is better than cash?
The banks and credit unions are moving too slow.

The current Treasury Yield curve, all maturities yielding less than 3%. CDs are not yielding much better.

https://www.treasury.gov/resource-cente ... &year=2019

Any capital I raise here is less I must raise elsewhere.

I offer 6% per year, roughly calculated at 1% of the money lent payable at the end of every 2 months.

No bullshit paperwork. Honor system. Honor is a gift man gives to himself.

PM me if interested.

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C40
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Re: ERE-sourced loan experiment

Post by C40 » Tue Nov 26, 2019 2:14 am

I'm not interested myself, but I expect if anyone is, they will wonder:

How do you guarantee the loan? What collateral are you putting up?

Do the lenders own their stake of your investment? (that they can take if you fail to pay them)

Do you have a contract written up?

Mister Imperceptible
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Re: ERE-sourced loan experiment

Post by Mister Imperceptible » Tue Nov 26, 2019 6:55 am

C40 wrote:
Tue Nov 26, 2019 2:14 am
How do you guarantee the loan?
There are no guarantees in life, but I would consider this a better bet than rolling the dice on Lending Club.

I make six figures.

I paid off over $150,000 in student loans and never missed a payment.

I have paid the mortgage on my property for 3 years and have never missed a payment.

I paid off my first 2 car loans without ever missing a payment and paid for my current vehicle in cash. I wrote a check for $23,000 to buy it back in 2017.

I have never missed a credit card payment. I avoided credit cards categorically until age 27, when a travel assignment for work forced me into getting one. The car rental agency would not accept a debit card or cash for a deposit.

My credit score is over 800. I have no debt currently besides the mortgage, having paid cash for my car and having paid my student loans in full. I pay the balance on my credit cards in full before the end of each month.
C40 wrote:
Tue Nov 26, 2019 2:14 am
What collateral are you putting up?
-My track record
-Retirement accounts
-Physical gold and silver
-My car and my RV
-Hoard of US nickels
-Old EE savings bond gifts that are still maturing
-Arsenal of arms and munitions

None of which I want to liquidate at this time. I am refinancing my property, which will provide ample capital, however the lenders are moving at glacial speed and at this point I cannot be sure that the funds will be deposited into my account before December 31.
C40 wrote:
Tue Nov 26, 2019 2:14 am
Do the lenders own their stake of your investment? (that they can take if you fail to pay them)
No. The investment is capital-intensive ($50,000 minimum) and ownership shares are non-divisible and non-transferable.
C40 wrote:
Tue Nov 26, 2019 2:14 am
Do you have a contract written up?
No. Word of honor. Tho I can produce one if there is sufficient demand or someone willing to lend a more significant amount.

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Bankai
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Re: ERE-sourced loan experiment

Post by Bankai » Tue Nov 26, 2019 7:49 am

I wish you good luck although I'm not sure you picked the right audience.

bigato
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Re: ERE-sourced loan experiment

Post by bigato » Tue Nov 26, 2019 1:37 pm

This would require such a high level of confidence that I'd be surprised that you get any takers given the way you treat people around here sometimes.

2Birds1Stone
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Re: ERE-sourced loan experiment

Post by 2Birds1Stone » Tue Nov 26, 2019 2:29 pm

Are you buying oil rights in Nigeria?

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unemployable
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Re: ERE-sourced loan experiment

Post by unemployable » Tue Nov 26, 2019 3:13 pm

I'm already loaning the federal government money at 5½% and they're a much lower default risk, so no.

Augustus
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Re: ERE-sourced loan experiment

Post by Augustus » Tue Nov 26, 2019 3:16 pm

Not interested in loaning someone I don't know 50k.
unemployable wrote:
Tue Nov 26, 2019 3:13 pm
I'm already loaning the federal government money at 5½% and they're a much lower default risk, so no.
5.5% to the federal government?! Where'd you find that deal?

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unemployable
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Re: ERE-sourced loan experiment

Post by unemployable » Tue Nov 26, 2019 3:26 pm

Augustus wrote:
Tue Nov 26, 2019 3:16 pm
5.5% to the federal government?! Where'd you find that deal?
I-bonds I bought in 2001. Pay CPI + 3%. Some even went up to CPI + 3.6. They're only marginally behind stocks since then, like a 2.8x instead of 3.1x.

Seppia
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Re: ERE-sourced loan experiment

Post by Seppia » Tue Nov 26, 2019 4:00 pm

I think the issue is that $50k is a lot of money.
MI, I am certain you paying back is a reasonably* safe bet, but the amounts I’d be willing to invest are incapable of making a dent in your needs.

I think you should be looking at a higher net worth audience.

*due to you being a relative internet stranger and your latest posts in the investments threads.

Paula
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Re: ERE-sourced loan experiment

Post by Paula » Tue Nov 26, 2019 4:43 pm

Did I miss the post where you explained the reason for the rush to get the cash and what you plan to do with it?

Lucky C
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Re: ERE-sourced loan experiment

Post by Lucky C » Tue Nov 26, 2019 4:48 pm

If I understand correctly, you are looking to take out a $50k loan to continue an already leveraged trade that's been significantly losing money, and you need it so urgently that if your refi takes over a month to go through it will be too late?

By saying you would have "ample capital" if the refi went through before the end of the year, but still wanting to take out a long term loan, you're implying that the $50k will go into your investment but you won't pay back the lender with the impending refi? Meaning you will be throwing that money into your investment too rather than deleveraging?

Is this you? https://www.youtube.com/watch?v=A-tNkuYV4_Q

But seriously get some gambling addiction help if you need it.

Mister Imperceptible
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Re: ERE-sourced loan experiment

Post by Mister Imperceptible » Tue Nov 26, 2019 5:13 pm

It is a natural resources hedge fund that is accepting initial contributions before January 1st. Once I am in, I can make smaller contributions during the year, but I have to get in first.

If I had assurances the mortgage lenders could complete the refi before December 31, I would only use that. I only want leverage at the margins of my overall portfolio (30-year-fixed mortgage or options/derivatives, at each end, respectively) but in between I prefer to remain primarily unlevered, to the point of being off-the-grid-unlevered.

The incompetence of the mortgage lenders is leading to this loan request which I consider sub-optimal. The alternative is to liquidate physical gold which I would prefer not to do.

Augustus
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Re: ERE-sourced loan experiment

Post by Augustus » Tue Nov 26, 2019 6:53 pm

I've seen over leveraging near the end of a cycle cause a lot of bankruptcies, those people made bank too.

Mister Imperceptible
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Re: ERE-sourced loan experiment

Post by Mister Imperceptible » Tue Nov 26, 2019 7:05 pm

The long precious metals/short equities/long natural resources suite is actually an anti-prosperity bet. I’ve been bleeding as the stock market hits all-time highs.
jacob wrote:
Mon Oct 28, 2019 10:35 am
S&P500 finally reaching new heights surpassing the last record from 20190726.
Total market cap to US GDP now at 144%. Highest point during tech bubble was 148%.
On 20191126 we are just about back at 148%.

Hold.

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unemployable
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Re: ERE-sourced loan experiment

Post by unemployable » Tue Nov 26, 2019 8:35 pm

Mister Imperceptible wrote:
Tue Nov 26, 2019 7:05 pm
The long precious metals/short equities/long natural resources suite is actually an anti-prosperity bet.
Well if we ever have 1979 again you're all set.

Jason
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Re: ERE-sourced loan experiment

Post by Jason » Tue Nov 26, 2019 8:51 pm

Mister Imperceptible wrote:
Tue Nov 26, 2019 6:55 am
gold
Does this include the May-December thread because that shit is priceless.

Lucky C
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Re: ERE-sourced loan experiment

Post by Lucky C » Wed Nov 27, 2019 6:22 am

I agree that the trade you describe has a good probability of outperforming the US equities market over the next year or two. But...

In theory you will become richer by investing in something with an expected return >6% vs. paying down a 6% loan or a 4% mortgage. However in reality it is obviously not prudent behavior to refinance your home or take out loans in order to invest more, especially when the investment relies on a regime change which you may think you can predict but which all the best investors in the world are also competing to predict!

On this forum I think you will find people who would rather do the opposite - buy a house in cash or pay down their mortgage rather than keep the debt and invest in hedge funds.

But everyone has a price so here's mine:
* $10k loan @ 20.00%
* I take possession of $10k worth of your physical precious metals as collateral and will give them back as you pay back the loan, either gradually or all at once when the loan is fully paid
* 2 forms of ID which I will get copies of when we meet to exchange precious metals and sign documents
* You pay for all travel to meet at my location
* $100 signing fee
* Contract authored by me

Now I know you will never accept those terms but I don't think anyone would be willing to accept anything close to what you want either. I don't know if you'll be able to get any financial institution to give you a loan for speculative investing, which is what you will have to give as a reason if you want to avoid the risk of a fraudulent loan application. So it looks like more realistic options are liquidating other assets or using credit cards.

Seppia
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Re: ERE-sourced loan experiment

Post by Seppia » Wed Nov 27, 2019 6:40 am

Lucky C wrote:
Wed Nov 27, 2019 6:22 am
Now I know you will never accept those terms but I don't think anyone would be willing to accept anything close to what you want either.
Here's the real issue with this.
I would Imagine lendingclub to be MI's best option.
Since he has an 800 credit score, he'll most probably be in the top tier in terms of credit worthiness, and get much better conditions than asking here

Lucky C
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Re: ERE-sourced loan experiment

Post by Lucky C » Wed Nov 27, 2019 9:32 am

I was thinking LendingClub might be strict about the reason for the personal loan, but I checked and you can actually select "not listed here" when selecting a reason for the loan and they might not ask you to explain further. Also "buy something special" is an option so they're pretty lax when it comes to reasons for a personal loan. So that does seem like the best option and might get a rate more like 10% or even lower. Personal loan limit is $40k.

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