> How is it a ponzi scheme?

Because it’s credit built on credit. It’s not an intentional Ponzi scheme (maybe).

> The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential.

It’ll be prohibitively expensive for most properties to convert them to residential. They might as well be demolished for their land value.

That still doesn’t make it a Ponzi scheme. Don’t just throw the word around.

Ponzi scheme is when the price collapses for something that I don't like, and the more that I don't like it the Ponzi-er it is

That is not what a ponzi scheme is

high demand, limited inventory, fifteen years of near zero interest rates mean prices have been set in a market environment of extreme distortion

Sure, but the word to describe it may be "bubble", not "ponzi scheme".

E.g. you can't say a failed startup is a ponzi scheme because it loses a bunch of money. A ponzi scheme is a very specific type of fraud.

There is an element of ponzi because none of the actors have an interest to break the cycle. Mutual hallucination might be a better term though.

Like you would think the asset buyers would have an incentive to stop holding the loans and the whole thing would collapse, but because the buyer are investing with other peoples money they are also incentivized to keep the cycle going. The people whose money is eventually going to be lost have no way to stop this because the money is either in a pension fund or they aren’t knowledgeable enough to understand the issue

> none of the actors have an interest to break the cycle

This is collective behaviour. If you discover you’re in a Ponzi scheme, it’s in your interest to get your money out first.

Yeah but here it’s never actually your money and if the cycle breaks you are screwed anyway. If you fail with everyone else then you can say that nobody could have ever predicted this.

> If you discover you’re in a Ponzi scheme, it’s in your interest to get your money out first.

You can either cut your losses and not get your money back (if you're an ethical operator), of you can actively or passively allow other people topit in their money so you can get yours out first. There are similarities where rational vested actors want the charade to continue for a little while longer - the more money you put in, the longer your commitment to the mirage is.

Can we call it ponzi pyramid? Or speculative pyramid?

I agree this isn't a scheme, as it wasn't done out of maliciousness, but it share so much property with it (including who will have to hold the bag) that I kinda like the image.

maybe the latter?

the Ponzi in Ponzi scheme refers to a specific person, and the scheme in Ponzi scheme refers to the specific scheme that specific person executed

The transaction volume is near zero. So price discovery can’t happen. Similar to how during the the last crisis there was almost no market for cdo and all sorts of other shit paper so holders could pretend the asset was worth more dispite not being able to sell it.

> The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential.

That would be very expensive. To be able to afford that, the prices need to crash seriously hard.

It would be expensive but so would a banking and general financial crisis caused by empty office buildings and CMBS turning into toilet paper. The government will pay for it either way and the currency will be inflated either way. God forbid the money be used for housing instead of never ending wars.

I mean I agree, but I can also predict the screaming at politicians if the government starts giving handouts to developers (particularly from the people with vested interest in keeping residential real estate inflated).

Who benefits from lack of inventory vs conversion condos? I can't think of anyone but residential REITs and home builders. The average SFH owner in some neighborhood doesn't see new condos downtown as a threat.

But every other vested interest is aligned with the developer handouts. Eg, construction, government for more taxes, unions, office REITs that want less competition, big finance who want the CMBS problem to go away. Even the mortgage industry would profit more from selling tons of new condos vs fewer more expensive resales.