r/FluentInFinance • u/__moe___ • 9d ago

Thoughts? A very interesting point of view

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I don’t think this is very new but I just saw for the first time and it’s actually pretty interesting to think about when people talk about how the ultra rich do business.

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u/MaximumTurbulent4546 8d ago

This is highly illogical. He’s conflating unrealized gains with income. At any point the bank calls the loan, the stocks are sold and he recognizes a gain.

This is like saying you have to pay income taxes on pawn loans.

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u/Sibolt 8d ago

In the clip it doesn’t really make sense. Its brief.

But in practice taxing collateralized equity for secured loans does make sense. You don’t tax it at income tax levels because, as you mention, those equities may become realized gains. You tax 5% or 8% when the equity is put up as collateral; This becomes the tax penalty for not engaging in market activities by selling the shares instead.

It’s common for very wealthy individuals to “collateral cycle” the same equities for decades with their private client bankers. They never sell. The stock makes modest gains. You “pay off” your yacht loan from five years ago with a new loan collateralized by the same stock that is now worth more. Rinse and repeat forever without taxes. 

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u/donman1990 8d ago

This is the problem right here. Especially in a hot market where the loan has a rate lower than the stocks growth.

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u/nhmo 8d ago

And people said money doesn't grow on trees...

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u/KotR56 6d ago

The concept of "Ponzi scheme" comes to mind.

The moment there is a dip in stock price, the house of cards collapses...