Comment by lotsofpulp
2 days ago
> I think is priming young or naive investors to believe investments never fail.
Investments fail, there are plenty in the news. Broad market indices, however, don’t fail. There have been numerous bailouts over the previous decades. Why would one assume any future government wouldn’t continue bailouts if all the previous ones did?
The act of a bailout couples the credit of the rescuing organization with that of the rescued. That's literally what a bailout is: the rescuer agrees to take on some of the losses and credit risk, usually in return for agreements for future payments and power over how the business is restructured and managed. In the process, the credit and assets of the rescuing organization are damaged, and the bailed out organization is saved. Purely financial transactions never affect the actual reality on the ground, only how risks, responsibilities, and rewards are apportioned.
When the organization is as big as the U.S. government and has as good credit as the U.S. did in 2008, you can save an awful lot of financial institutions. But if it gets to the point where everybody expects to be bailed out and people start acting accordingly, you can't. Eventually the government ends up falling, as people start realizing that the economy isn't actually working and everybody is just cooking the books with financial transactions.
Government policy makers know this, and their livelihood is dependent upon the continued existence of the government, and so at some point they declare "Nope, bailout is not going to happen this time. You're on your own." At that point, the last group of people who took stupid financial risks are left holding the bag. It's very much like a pyramid scheme: the going is good as long as you can find a greater fool to assume the risk from you, but at some point there are no greater fools, and you find out the greater fool was you.
>At that point, the last group of people who took stupid financial risks are left holding the bag.
Isn’t that all the policy makers, old voters, taxpayer funded DB pension funds, etc that depend on broad market equity index fund returns?
Obviously, the system breaks down when it breaks down (when the currency has no purchasing power left to lose), but until then, the entire political apparatus is incentivized to bail out asset prices.
And if that isn’t possible, then the status of your investments/brokerage/bank accounts is going to be the least of your worries, as you will have more immediate concerns about procuring food/energy/shelter/security.
We've never had an executive whose financial policy positions include eliminating FDIC and that much of the federal deficit is fraudulent so can safely be disregarded and left unpaid. Believing in continuity at this time is a poor bet.
Governments and nations collapse. Anyone who was bullish in 235 CE Rome would have died long before their investments would be back in the black.
235 CE Rome? The Western Roman Empire lasts another two centuries- Romulus Augustus is deposed in 476 CE. That's longer than the US Constitution has existed (ratified in 1788).
In many respects the deposing of the last Western Roman Emperor is a bad date to use for the "Fall of Rome", given that the general socioeconomic trends of the time are fairly continuous for that period and contemporary sources didn't place much value on the shift of politics.
The Crisis of the Third Century, which starts in 235, is where the inflection point between "broadly stable" and "broadly negative" sets in, and the shocks both of the Crisis of the Third Century and the Plague of Justinian are each larger than the shock of the deposing of the last Western Roman Emperor.
1 reply →
> The Western Roman Empire lasts another two centuries
How long to you have to live, to see a return?
235 to 285 were tumultuous times, civil war and all that goes with it
> Broad market indices, however, don’t fail.
Famous last words
Especially when you look at how it is distributed. At least market cap weighted... Makes me really question just how high can the line go.
Like many things but unlike other things, it will go up and up and up until it goes to zero.
All economic gains that don't come from real productive activity are Ponzi schemes. Some last orders of magnitude longer than others.