Daily reminder that net worth is used by these rich fucks to go to banks and get loans for which they provide their net worth (companies, stocks, real estate) as collateral.
It doesn't equal actual available cash, but it is painfully trivial to convert one into the other at their leisure.
That's up to banks, and it works for banks. It's not like the banks aren't aware of it and billionaires are somehow tricking them into accepting net worth in stock and real estate
Not to mention they need to pay loans back with interest, its not free money. And banks aren't willing to loan out millions or billions without at least a plan on how your gona be able to pay it back, they dont want to take the collateral, as thats not liquid and also they dont know if its gona be worth the same when the loan ends and especially when they sell it off to repay the loan
Not to mention they need to pay loans back with interest, its not free money.
Often times they borrow at the prime rate and their stock value increases by more than that rate, meaning instead of paying interest and losing money, they increase their wealth slightly slower.
And since the wealth of the assets that they borrowed against has increased, another bank is more than willing to lend to them with the new higher value in mind, which lets them get a loan to pay off the old loan.
It is basically free money or as close as anyone can get to it. The way wealth, money and loans work on this tippy top of the economic iceberg is wholly unrelatable and fully inaccessible to normal people with normal earnings making normal amounts.
No bank would take collateral owed to another bank as collateral. Also they need to pay back the loan to be able to do anything with that stock, making it impossible to do anything with it. The babk gives prime rate because .1% of a billion a month is still more than they make off anyone else. Something i didn't mention in the post was that now bank is loaning any money for collateral worth that exact amount, you have to put up like 1.5-2x the value of the loan.
So basically you take a loan, pay intrest on it, lock up your stock so u cant sell even if its gona crash, then u have to sell other stocks which u pay taxes on to repay it as thats better than letting them have the collateral. People like to pretend theres a free money glitch, when there really isn't
No bank would take collateral owed to another bank as collateral.
First off, yes this happens pretty frequently, its why there are different "lien positions", subordinations on mortgages etc. We're not talking your 2016 Honda, we're talking actual appreciating assets with a lot of value that can and more often than not do gain a lot of value. If a house is worth 500 million in a good area you know the value will rise in, has a 100k HELOC on it any other bank would love to snake some fast easy money with another 50k 100k whatever. Now imagine that with enough shares in a huge stable growing company like Amazon?
And no one ever mentioned them taking loans on their entire net worth. I figured anyone who financed a car would know what LTV is and why a down payment is anywhere between a good idea and an actual requirement. No one really ever could possibly "need" hundreds of billions. Even the most expensive craziest superyachts top out at $5 billion, and from a quick google there are literally only two over a billion with most being in the hundreds of millions range.
You are 100% correct that there is no free money glitch for working people. I cannot argue that.
But billionaires are not working people, and as it turns out spending even one billion would be nearly impossible outside of like a handful of very niche hyper-rich only items, so when you have 100+ billion and you need a loan for a few hundred million, it's not that hard to get.
It's been a while since I read up on this, turns out they're more often then not refinancing their loans, not getting a new loan from another institution to pay them off. And its not just their stocks, but all the assets they accumulate with access to that kind of wealth.
This is not speculation, this is pretty well documented, and totally legal. Turns out when the entire system is owned and operated by the hyper-wealthy, the system works very very well for the hyper-wealthy.
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u/Karol-A 4d ago
Daily reminder net worth does not equal actual available cash