For the first time in this Credit Cycle more money is leaving private credit than is going in.
In Q1 2026, $7 billion left non-publicly traded BDCs (business development companies, ie. private credit shops) while they only raised about $5 billion. Total redemption requests from investors to private credit shops topped $15 billion.
Okay class, a little math. If $7 billion was cashed out, only $5 billion was raised then $8 billion of redemption demands were denied investors. That means investors were denied 53% of their redemption requests. (One might call that a run on the bank.)
Systemic Deterioration
We’re talking about the entire private credit industry, here. Not just a bad loan or failing borrower. It’s becoming systemic.
“If there were no war,” as Herr Tarman at Deutschbank said, “in the Persian Gulf this would be dominating the news cycle.”
What makes this very, very bad is when more money leaves the private credit system, sales are forced.
These are not voluntary sales or trades. They are forced, essentially they are margin calls, except, as Bloomberg pointed out, some sales sell for .98¢ on the $1, others sell for .90¢, but one forced sale went real bad for the private credit firm. They got .65¢ on the $1.
That’s a 35% loss. I can recover from a 15% loss but losing 35%? Nope. That’s a busted investment I’m never getting my principal back on. This activity has a name, one rarely uttered on Wall Street, as it is the market equivalent of screaming, “Voldemort,” on the floor of the NYSE.
This is what we in the business call “Accelerating Downside Price Discovery.” (Honestly, last time this happened was in 2008 and I got giddy. I love seeing fools lose boatloads of money. The schadenfreude works like an aphrodisiac on me!)
Accelerating downside price discovery creates a vicious downward cycle in credit markets and later in equity markets. Assets devalue. Private credit shops announce bankruptcy. Lots of people lose jobs.
Then equities decline, soon the investment (Morgan Stanley and Goldman Sachs) and commercial (JPM Morgan Chase, BoA and Wells Fargo) banks crater. In February 2009 I bought an enormous amount of Bank of America at $6 a share. A month later it was trading at $3.50-ish. I was biting my fingernails for sure. But, ten years later I sold it for almost $30 a share. But for ten years the stock traded sideways. So did the equity markets. The Fed’s QE–quantitative easing–made money virtually free and no one paid a price for the sub-prime fiasco.
This time will be different. No one understands what private credit does, except buy up empty houses and make the housing crisis worse.
Petroleum And Economywide Demand Destruction
Another consequence: This credit cycle is ending and oil futures are flashing a clear deflationary spiral. This is why I keep pointing out the long end of the WTI Oil futures price contracts going out a year. Here is why oil matters:
In Mid-August US petroleum reserves (non SPR) will fall to 390 million barrels. Today that number is 440mln barrels.
For refineries, pipelines, storage tanks, and terminals to function the system needs a minimum of 380mln barrels in reserve. If reserves fall below that level getting petrol from point A to B is like pushing a string, instead of pumping a viscous liquid.
Let’s do some simple math. We export 5mln barrels a week, plus or minus a million. The US uses 120million barrels a week. Subtract our exports over the next ten weeks. That’s 5×10=50 mln barrels pulled out of the reserve. Subtract 50 mln barrels from present reservers (non SPR) gets us within the margin of error at 390mln barrels. At this rate US petroleum and gasoline reserves will be at crisis levels in mid-August.
And herein lies the big rub, the dilemma of dilemmas, caught between Scylla and Charybdis: how can the Fed backstop a credit crisis with easy credit (because only easy credit solves a credit crisis) when its fighting phantom inflation with high rates, ie. tight credit? It cannot do both. Picture clearing up now?
I’ve been explaining the imminent unraveling of this credit crisis here at Ian’s for at least two months now. Today we’re closer to the end of Phase Two of the Credit Cycle now than we are to its start. When Phase Two unravels fully, that’s when the AI bubble goes pop.
When will that be?
Sooner than we want, but not as quickly as we fear.
“Cowboy up,” folks, as we say down here in Texas, “you’re going to need a raincoat.”
spud
“There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.”
the rats are deserting the sinking ship, Peter Thiel is seeking a looneytarian utopia to help shield him from civil society, which is itself slowly imploding, Argentina.
https://www.youtube.com/watch?v=o9HuDyhxSSU
Why Did Peter Thiel Just Move His Family to Argentina?
spud
none of this will ever be reversed till the inevitable implosion hits, when the bailouts fail spectacularly to paper over the disastrous polices of the clinton administration.
clearly the democrats should have come clean about clinton when they lost in 2008. instead, election after election, they are doubling down, creating even more enormous pressure, to keep the lid on tight on out of control capitalism.
the blowout this time will be ever so spectacular, kinda like a amazon rocket being tested, but that it will engulf the entire western world.
Bill Clinton’s Economic Policies and Their Impact
Deregulation and Financial Crisis
Bill Clinton’s administration is often criticized for its deregulation policies, particularly the repeal of the Glass-Steagall Act. This act had previously separated commercial banking from investment banking, and its repeal through the Graham-Leach-Bliley Act in 1999 is viewed as a significant factor contributing to the financial instability that led to the 2008 financial crisis.
Key Factors of the Financial Crisis
The following table outlines the major elements of Clinton’s economic policies that are linked to the private credit meltdowns:
Policy Description Impact
Repeal of Glass-Steagall Allowed commercial banks to engage in investment banking activities. Increased risk-taking and interconnectedness among financial institutions.
Graham-Leach-Bliley Act (1999) Legislation that dismantled the barriers between different types of financial institutions. Contributed to the creation of “too big to fail” banks, leading to systemic risk in the economy.
Deregulation of Financial Markets Emphasis on free-market principles and reduced oversight of financial institutions. Resulted in a lack of regulatory safeguards, which played a role in the financial crisis.
Conclusion
Clinton’s economic policies, particularly the deregulation of the financial sector, are widely regarded as contributing factors to the private credit meltdowns and the subsequent financial crisis. The decisions made during his presidency have had lasting implications for the stability of the financial system.
Wikipedia demos.org
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this time more than in 2008, all asset classes will be suspect, when that happens, no amount of paper can hide those facts.
WATCH OUT BELOW!
elkern
Ha, “Accelerating Downside Price Discovery”, a wonderfully obfuscatory euphemism. Translates into FAA/NTSB as “Controlled Flight into Terrain”, I think.
I can laugh at this impending disaster because I’m old enough that I’ll probably of something medical, rather than hunger. But my son – and the next generation or three in the USA – is going to have a rough time, so that schadenfreudeboner doesn’t last long.
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Why Did Peter Thiel Just Move His Family to Argentina?
To be closer to his peeps considering Argentina’s history with the Nazis? I mean, of all the places he could have fled, he chooses Argentina. Considering what we know about him, it’s perfectly fitting. Maybe he can fix up Mengele’s old home or build a replica and proudly reside it in, day-dreaming about all the wonderful experiments Josef conducted in the name of scientific progress.
bruce wilder
spud: “. . . clearly the democrats should have come clean about clinton when they lost in 2008 . . .”
I feel like a familiar, complex narrative imploded into an unfamiliar shorthand to produce this confusing utterance. I am not sure I need clarification, since my own feeble brain wants so much to fill in the blanks left behind.
Those of us who lived through the political and economic events of 2005-9 no doubt have varying memories of how things went down. When so many big things go wrong or turn out badly in a short time, the coming of dark times can paradoxically give one hope. Surely, catastrophic failure of ideas, institutions and policies can change minds?
I love the movie, The Big Short. Our array of heroes enjoy a moment of knowing themselves to be right when “everyone else” is wrong and prepare to cash in by betting against the markets in mortgage-backed securities. The dramatic crisis comes as they discover that the market is so inconceivably corrupt that their bets may fail, backfiring on them. Our heroes manage after some moments of near-desperation to salvage profits from the debacle, but in the dramatic process discover the failure of the system and mourn the system’s failure.
the movie proposes some wonderfully ironic reasons revolutions happen but nevertheless fail
i know myself as an idealist, so when I blame corruption for political ills, I surprise no one, persuade only those who already agree. Somebody, somewhere loves corruption, favors corruption, believes in the benefits and indeed the necessity of corruption.
I felt hope circa 2005-2006 that crisis and change were coming. Things were going wrong, the consequences of clearly unwise policy choices.
By late 2009, the idiots who didn’t see “it” coming were sure nobody could have foreseen the crisis and argued that “efficient markets” mean that “no one” can objectively know there is a bubble or be sure of winning a bet against the market.
I wish I had the stomach to steelman the “efficient markets” arguments for why nobody coodenode nuthin’. Noone will make an entertaining movie from that drama, but that epilogue followed. Stupid came thru in the end and ruled the world as it has nearly always done, made dozens of billionaire oligarchs out of years of quantitative easing and brought us to the present crisis.
To me, the most remarkable thing about the present crisis is how long the collapse or crash is taking to manifest. It seems to me that we blew past the Minsky Moment quite a long time ago. Wily E Coyote ran past the cliff into thin air miles back.
spud
bruce wilder:
if you look at the economic history of the era from 1933-1993, pre WWII and after wards was a clean up era of free market capitalism. the laws, regulations and rules that came out of that era meant that capitalism was under control from mild socialism.
we had no major recessions, nor any depressions. but look at the era from the founding of the nation, till 1933.
its riddled with severe recessions and depressions.
https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
the imbeciles carter and reagan era, you can see that even minor undoing of the new deal, caused recessions to become more severe and lasting.
but if you look at the era from 1993, till today. we got lucky with the one that came at the end of clintons rein of terror, 911 happened, and bush dropped helicopter money, and that recession was short because of that. if he had not, it was going to be long and deep.
but it only put it off till 2008-today.
steve keen has a new one, where he proves there has been “0” wage growth in america since 1993.
bill clinton almost completely wiped away the guard rails of the american economy, he gutted the new deal/fair deal/ GATT/ and the great society.
clinton returned us to the robber baron era, and the evidence is right out in the open, and in plain site.
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Bill Clinton’s presidency marked a shift in Democratic policies, moving away from the traditional New Deal principles by emphasizing neoliberalism and focusing on market-driven solutions, which marginalized the working-class base that had been central to the New Deal coalition. This change was part of a broader strategy to appeal to suburban voters and reshape the party’s identity.
Jacobin Wikipedia
Shift from New Deal Principles
Bill Clinton’s presidency represented a significant departure from the traditional New Deal principles that had previously defined the Democratic Party. His administration embraced neoliberalism, which emphasized market-driven solutions over government intervention.
Key Changes Under Clinton
Focus on Market Solutions: Clinton’s policies prioritized economic growth through market mechanisms, which often sidelined the working-class interests that were central to the New Deal.
Appeal to Suburban Voters: The Democratic Party under Clinton aimed to attract suburban voters, leading to a redefinition of its identity and a shift away from its historical base among labor unions and urban minorities.
Marginalization of Core Constituencies: The emphasis on neoliberal policies resulted in the diminishing influence of traditional Democratic supporters, such as labor unions and minority groups.
Impact on Democratic Party
The changes initiated during Clinton’s presidency have had lasting effects on the Democratic Party’s approach to economic and social issues. This shift has been characterized by:
Abandonment of Redistributive Policies: The focus moved away from egalitarian redistribution, which had been a hallmark of the New Deal, towards policies that favored economic growth and efficiency.
Emergence of New Democrats: A new faction within the party, often referred to as “New Democrats,” emerged, advocating for a blend of progressive and market-oriented policies.
This transformation has led to ongoing debates about the Democratic Party’s direction and its ability to address the needs of its traditional base.
Wikipedia Jacobin
Bill Clinton’s policies diverged from New Deal principles primarily through his support for free trade agreements like NAFTA and welfare reform that emphasized personal responsibility over government assistance. Additionally, his administration focused on fiscal discipline and reducing the budget deficit, which marked a shift from the expansive government role typical of New Deal policies.
Wikipedia Miller Center
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no national democrat will say the truth and come clean about what clinton did. but a lot of average americans know for sure.
to this day, nafta and glass steagle are brought up all of the time.
https://www.academia.edu/164825471/How_Triangulation_Rewired_the_Democratic_Party_and_Ended_the_New_Deal_The_Clinton_Transformation_That_Made_Neoliberalism_Hegemonic
“This article examines Bill Clinton’s presidency as the crucial moment when American center-left politics embraced neoliberalism. Through analysis of the “triangulation” strategy developed by Dick Morris (code-named “Charlie” at the White House), the study demonstrates how Clinton systematically dismantled New Deal principles while maintaining progressive rhetorical frameworks.
The analysis explores three key transformations: the creation of permanent campaign politics through the “War Room,” the adoption of conservative policy positions through triangulation, and the implementation of a triple deregulation system spanning labor, credit, and finance.
Significantly, the research reveals that neoliberal economics faced substantial opposition even within conservative parties-George H.W. Bush’s “voodoo economics” critique of Reagan and Harold Macmillan’s “selling off the family silver” attack on Thatcher demonstrate that Clinton embraced policies rejected by moderate Republicans and Conservative Party traditionalists.
Drawing on archival sources, leaked communications, and contemporary scholarship, the study argues that Clinton’s transformation created institutional mechanisms for progressive sabotage from Blue Dog Democrats undermining Obama’s presidency to DNC officials rigging the 2016 primary against Bernie Sanders.
The consequences include working-class abandonment, financialization, mass incarceration expansion, and the structural conditions that enabled both the 2008 financial crisis and Trump’s electoral success.
Clinton’s model subsequently spread worldwide, establishing “progressive neoliberalism” as the dominant center-left governing philosophy while creating a template for personal enrichment through post-political corporate consulting-a pattern followed by Tony Blair, Gerhard Schröder, and other Third Way leaders.’
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carter and reagan were idiots. clinton was and still is, a high functioning psychopath who knew exactly what he was doing.
bubbles can go on forever, what pops them is when people can no longer pay their bills. the massive job losses from clintons free trade polices, hit a lot of high paying union jobs, in the millions, plus his unleashing of the financial parasites onto us, created a major debt crisis. it all came to a head, and could no longer be papered over, and boom, we collapsed.
quantitative easing is simply a stock market bailout. plus there is no longer anyway to inject money into the real economy except through war and the stock market. bill clinton wiped any ability of the government to get R&D money, and stimulus money into the real economy.
the stock market bubble is the longest lasting bubble in world history. its from 1993 till today, and all government polices from that day till today, has been to extend that bubble. that’s where the rich hide a lot of their money.
we are in a long depression that started in 1993, and cannot recover till clintons disastrous policies have been reversed. no democrat will admit this, that’s why trump won twice.
bruce wilder
spud:
excellent summary
if I could surgically choose interventions, I would lead with confiscatory marginal income taxes on high incomes
Next to removing the rivalry of the Soviet Union from the domestic political calculus of the capitalist rich, one of the most consequential political choices of the 1970s was the decision of capitalists to make common cause with the professional managers in the C-suite, particularly the CEOs. Reagan slashing the top marginal income tax rates — rationalized by Laffer and his scribbled-on-a-napkin curve — should have set off alarm bells. It shouldn’t take a genius to see how dangerous to labor and the general public giving license to unlimited greed in supreme executive power in business would rapidly become a cancer on the national economy
The left, though willing to preach against greed on general principle, was not willing or able to focus on making the case against letting capitalists escape taxation altogether while hiring talented sociopaths to manage and stripmine vast sectors through bureaucratic enterprise of unlimited size and scope
The left neoliberals will still talk airily about “market-oriented” solutions and the magic of “free market competition” and no one challenges them on the basic analysis.
The assembly of vast conglomerates in banking and finance, in media, in the military-industrial complex and many other areas, with sociopathic executives in charge who can “earn” vast fortunes by the clever exercise of bureaucratic power because of low marginal personal income tax rates on high incomes and no appreciable corporate income tax rate — this is crazy policy!
I really wish I could wave a magic wand and stop every populist and leftist from unthinkingly talking about the “market economy” This is such an indelible trope of neoliberalism! And, as soon as you say it, you’ve lost the argument. You say “market economy” and you’ve joined Milton Friedman in his alternate reality. On Earth Prime, the economy is organized by bureaucratic enterprise and you have to think about the mechanics of that, if you are to reform the real economy. Break up not just the “monopolies” but the media conglomerates and universal banks.
Another neoliberal trope I hate is “redistribution”. The presupposition is that “the market” is choosing the natural, efficient distribution of income. Like the CEO isn’t negotiating his “compensation” with a board of wealthy buddies based on what he can extract from the organization applying his administrative power.
Academic economists invented the redistribution trope to lead leftish policy wonks into the blind end of a dark alley where the likes of Ezra Klein or Noah Smith can stick in a shiv.
spud
bruce wilder:
Reagan was a moron, as was Carter. but as you saw, poppa bush rejected reaganomics, but clinton not only embraced it, he ran with it and expanded it till here we are today.
remember when schumer said for every blue collar worker we lose, we will pick up two republican voters in the outer suburbs? well there is bill clintons strategy right there.
schumer still leads. this should tell who still controls the democrats.
i agree with you on the tax thing, but, that’s not where the rich hide their money. that’s why clinton was so clever saying he raised taxes on the rich, when in fact, he gave them massive corporate, capital gains, and estate tax breaks.
plus he helped to engineer the ever going real estate bubble.
the rich hide their money in stocks, bonds, real estate, and a tiny estate tax these days. all brought to us by bill clinton.
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Bill Clinton’s administration contributed to a real estate bubble through deregulation and policies that encouraged risky lending practices, particularly with the Community Reinvestment Act and the actions of Fannie Mae and Freddie Mac. These policies ultimately led to the housing market crash in 2008.
CNBC Dissent
Bill Clinton’s Role in the Real Estate Bubble
Deregulation and Lending Practices
During Bill Clinton’s presidency, several policies contributed to the creation of a real estate bubble. Key factors included:
Deregulation: The Clinton administration embraced deregulation, which allowed financial institutions to engage in riskier lending practices.
Community Reinvestment Act: Under Clinton, the act was enforced in a way that encouraged banks to issue loans to borrowers in “credit-deprived” areas, often without sound underwriting standards.
Fannie Mae and Freddie Mac: These government-sponsored enterprises were directed to increase their quotas of risky loans, which led to a significant rise in subprime lending.
Consequences of the Policies
The combination of these factors had severe repercussions:
Lower Down Payments: The policies reduced down payments from the traditional 20% to as low as 3% and even zero by 2000, making homeownership accessible to many who could not afford it.
Increased Foreclosures: When the housing market collapsed in 2008, many borrowers who had received these risky loans faced foreclosure, leading to widespread financial distress.
Summary of Impact
The actions taken during Clinton’s presidency are often cited as significant contributors to the housing market crash. The push for homeownership, while well-intentioned, resulted in a bubble that ultimately harmed many lower-income families who were unable to sustain their mortgages.
CNBC Wikipedia
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bill clintons hedge funds,
Bill Clinton’s policies, particularly his focus on deregulation and free trade, contributed to an environment that allowed hedge funds to flourish, including in the real estate sector. His administration’s financial deregulation, such as the repeal of the Glass-Steagall Act, enabled greater risk-taking and investment in various markets, including real estate.
Dissent William J. Clinton Presidential Library and Museum
The long-term effects of the real estate bubble have led to increased scrutiny and proposed regulations on hedge funds, particularly regarding their ability to purchase single-family homes. Proposed legislation aims to limit large institutional investors from dominating the housing market, as their activities are seen as contributing to housing affordability issues.
Brookings realtor.com
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even the offshoring of profits to escape american taxation, was all done by bill clinton.
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Bill Clinton’s administration supported free trade agreements, such as NAFTA, which facilitated the offshoring of jobs and allowed corporations to move profits to countries with lower tax rates. This approach aimed to boost exports and economic growth but also led to significant job losses in the U.S.
Wikipedia americanyawp.com
Bill Clinton’s Trade Policies
Support for Free Trade Agreements
During his presidency, Bill Clinton championed free trade agreements, most notably the North American Free Trade Agreement (NAFTA). This agreement aimed to eliminate trade barriers between the United States, Canada, and Mexico. The intention was to boost exports and stimulate economic growth.
Impact on Corporate Profits
Clinton’s policies facilitated the offshoring of jobs and allowed corporations to relocate profits to countries with lower tax rates. This practice enabled companies to reduce their tax burdens significantly. While the administration argued that free trade would enhance the U.S. economy, it also resulted in substantial job losses domestically.
Consequences of Offshoring
The offshoring of jobs and profits under Clinton’s trade policies contributed to a shift in the labor market. Many American workers faced increased competition from lower-wage labor in other countries, leading to wage stagnation and job displacement. Critics argue that these policies prioritized corporate interests over the welfare of American workers.
Aspect Details
Trade Agreement NAFTA
Goal Boost exports and economic growth
Resulting Issues Job losses and offshoring of corporate profits
Economic Impact Increased competition and wage stagnation
Wikipedia americanyawp.com
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FDR on corporate taxes,
Franklin D. Roosevelt raised the top corporate tax rate significantly during his presidency, particularly with the Revenue Act of 1935, which aimed to increase federal income tax on higher income levels. This act was part of his broader New Deal policies to generate revenue and address economic challenges during the Great Depression.
Wikipedia Cato Institute
Franklin D. Roosevelt’s Tax Policies
Overview of Tax Increases
Franklin D. Roosevelt implemented significant tax increases during his presidency, particularly targeting higher income levels and corporate profits. His approach was part of the New Deal, aimed at generating revenue to combat the economic challenges of the Great Depression.
Key Legislation: Revenue Act of 1935
The Revenue Act of 1935 was a pivotal piece of legislation that raised federal income tax rates on higher incomes, including corporate profits. Here are the main features of the act:
Tax Type Details
Top Income Tax Rate Increased to 75% for incomes over $1 million
Corporate Tax Rate Significantly raised to increase revenue
Surtax on Rich Estimated to generate $45 million annually
Estate Tax Projected to raise $80 million annually
Total Predicted Revenue Approximately $250 million increase annually
Impact and Reception
The act faced considerable opposition from business interests and wealthy individuals, who criticized it as a “Soak the Rich” tax. Despite this, Roosevelt believed that higher taxes on corporations and the wealthy were necessary to fund government programs and stimulate economic recovery.
Conclusion
Roosevelt’s tax policies, particularly through the Revenue Act of 1935, marked a significant shift in federal taxation, focusing on higher earners and corporate profits to address the economic crisis of the time.
Wikipedia concordcoalition.org
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Truman,
President Truman sought higher taxes on corporate profits to generate additional revenue for government expenditures, particularly for national defense. He believed that maintaining existing tax rates was necessary to ensure a sound fiscal policy during times of economic growth.
UC Santa Barbara Wikipedia
Truman’s Tax Policy Objectives
Focus on Corporate Profits
President Truman aimed to increase taxes on corporate profits as a means to generate additional revenue for government expenditures. This approach was particularly focused on funding national defense initiatives during a time of economic growth.
Rationale for Higher Taxes
Revenue Generation: Higher corporate taxes were seen as essential for meeting government spending needs, especially in defense.
Fiscal Responsibility: Truman believed that maintaining existing tax rates was crucial for a sound fiscal policy, ensuring that the government could manage its budget effectively.
Economic Context
Truman’s tax policy was shaped by the economic conditions of the time, where he recognized the importance of balancing revenue needs with the potential impacts on business and economic activity. He advocated for a tax system that would support government functions while promoting economic stability.
Wikipedia UC Santa Barbara
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today no democrat will admit to what bill clinton did and come clean. and here we are, and its all downhill from here.
and don’t be suckered by the carnival barking and braying over states getting rid of the real estate taxes, hedge funds, private equity and the banks, own a lot of empty houses, that are kept empty to drive up the costs of housing.
they have to pay real estate taxes on those empty homes. and it looks like that’s why the barking and braying over getting rid of the real estate tax. another tax break for parasites, and a way to keep that housing bubble afloat. all brought to us by bill clinton.
so what is going to replace the revenue lost by eliminating real estate taxes you say, more revenue enhancing techniques, like whats done with so called law enforcement(cops), fee’s, increased taxes on just about everything you do, or use.
eventually we will get a VAT TAX which is fascism!