TL;DR: Commercial Mortgage-Backed Securities are when banks sell groups of loans to investors. The valuation of a location is usually 12-14 times the annual rent paid, and directly tied to it.
What this means is if people do the shit where they use the building itself as collateral for the loan (why is this allowed?), and the rent goes down because it was already too expensive and people won’t rent out a location, the person who took the loan is now responsible to pick up the difference to the collateral, and because people won’t do that, it’s a game of chicken where shit stays expensive because the value must be kept high or else they default on the loan, and all other sorts of bullshit.
NYC’s property taxes make up almost a third of its annual budget, and if the value of buildings goes down, the budget for NYC goes down because property taxes are based on the value. Basically NYC’s bubble is going to crash hard.
They also get to defer payment while the buildings stay empty, so there is no incentive to do anything at all to get a tenant. An empty building is preferable to cutting a single dollar off the rent.
Commercial Mortgage-Backed Securities are when banks sell groups of loans to investors. The valuation of a location is usually 12-14 times the annual rent paid, and directly tied to it.
Sort of, 12-14's doesn't necessarily make much sense because it depends on how the loan is constructed. Fundamentally, what's happening is that a lendee wants to buy a property. A Mortgage Broker (or retailer, or lending company, or whatever) will create a loan product for them that they can pay off with interest. That Broker/Retailer/Lender/Whatever can then combine these mortgages into a MBS and sell on the stock market. The investors buy these MBS's in order to get your interest payments as a form of profit or dividends on the MBS.
The sale price of the MBS fundamentally depends on the price of the price of all the mortgages in it, and NOT the theoretical rental price of it.
What this means is if people do the shit where they use the building itself as collateral for the loan (why is this allowed?)
Because that's an obvious thing to do. The lender gets the asset, to which they can sell to recoup any losses on the lendee defaulting on the loan.
The real problem here is that the government... all governments... have created the largest bubble in all of human history, based on the over-financialization of the economy through bonds, mortgages, and pensions.
To be honest, the investors aren't the problem here. They just want what amounts to a passive income (to keep up with the damage from inflation). The banks and lenders are partly responsible because they know that this is a game of musical chairs where someone get their asshole prolapsed when the music stops. The borrowers and lendees are partly to blame for thinking that they should spend their money in this absolute disaster, and they to, are playing this game of musical chairs.
The real problem here is the government. They are the ones playing the music. The chairs get removed because the music plays, so everyone keeps going around and around in circles until there's no more chairs.
Bad News: we ran out of chairs decades ago. Everyone's walking around in circles praying to God that the government's fiddle doesn't stop playing or we're all screwed. Up and down the city road; in and out the Eagle; that's the way the money goes... Pop goes the weasel.
There is no money.
The Perennial Gale of Creative Destruction will not be denied.
Those mortgages are funding said corruption, and while Louis didn’t mention that in this video, he has mentioned that in several of his other videos about the topic, as again, NYC property tax (a third of the total budget of NYC, and 20% of that third is “office space”) is based on the value of the property, which is kept up because of the game of chicken I described in the other comment I have.
Edit: Also Louis already moved to Austin, the breaking point being him getting politically targeted for an audit.
TL;DR: Commercial Mortgage-Backed Securities are when banks sell groups of loans to investors. The valuation of a location is usually 12-14 times the annual rent paid, and directly tied to it.
What this means is if people do the shit where they use the building itself as collateral for the loan (why is this allowed?), and the rent goes down because it was already too expensive and people won’t rent out a location, the person who took the loan is now responsible to pick up the difference to the collateral, and because people won’t do that, it’s a game of chicken where shit stays expensive because the value must be kept high or else they default on the loan, and all other sorts of bullshit.
NYC’s property taxes make up almost a third of its annual budget, and if the value of buildings goes down, the budget for NYC goes down because property taxes are based on the value. Basically NYC’s bubble is going to crash hard.
They also get to defer payment while the buildings stay empty, so there is no incentive to do anything at all to get a tenant. An empty building is preferable to cutting a single dollar off the rent.
Sort of, 12-14's doesn't necessarily make much sense because it depends on how the loan is constructed. Fundamentally, what's happening is that a lendee wants to buy a property. A Mortgage Broker (or retailer, or lending company, or whatever) will create a loan product for them that they can pay off with interest. That Broker/Retailer/Lender/Whatever can then combine these mortgages into a MBS and sell on the stock market. The investors buy these MBS's in order to get your interest payments as a form of profit or dividends on the MBS.
The sale price of the MBS fundamentally depends on the price of the price of all the mortgages in it, and NOT the theoretical rental price of it.
Because that's an obvious thing to do. The lender gets the asset, to which they can sell to recoup any losses on the lendee defaulting on the loan.
The real problem here is that the government... all governments... have created the largest bubble in all of human history, based on the over-financialization of the economy through bonds, mortgages, and pensions.
To be honest, the investors aren't the problem here. They just want what amounts to a passive income (to keep up with the damage from inflation). The banks and lenders are partly responsible because they know that this is a game of musical chairs where someone get their asshole prolapsed when the music stops. The borrowers and lendees are partly to blame for thinking that they should spend their money in this absolute disaster, and they to, are playing this game of musical chairs.
The real problem here is the government. They are the ones playing the music. The chairs get removed because the music plays, so everyone keeps going around and around in circles until there's no more chairs.
Bad News: we ran out of chairs decades ago. Everyone's walking around in circles praying to God that the government's fiddle doesn't stop playing or we're all screwed. Up and down the city road; in and out the Eagle; that's the way the money goes... Pop goes the weasel.
There is no money.
The Perennial Gale of Creative Destruction will not be denied.
The Great Collapse will continue.
Be The Pinecone.
When the NY bubble bursts, its going to be fucking epic.
It can't come fast enough.
Yeah it has nothing to do with more than a century of corrupt governance that was only broken for a decade by Giuliani. It's those pesky mortgages.
Lots of love to NY pedes, but it's time to abandon ship.
Those mortgages are funding said corruption, and while Louis didn’t mention that in this video, he has mentioned that in several of his other videos about the topic, as again, NYC property tax (a third of the total budget of NYC, and 20% of that third is “office space”) is based on the value of the property, which is kept up because of the game of chicken I described in the other comment I have.
Edit: Also Louis already moved to Austin, the breaking point being him getting politically targeted for an audit.
https://youtu.be/qqBCurSwK3k
Saved for later.