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HamdenRice (1000+ posts) Thu Feb-19-09 09:19 AMOriginal message Do you really want to know where all that money went? I'll tell you. Advertisements [?]Edited on Thu Feb-19-09 09:21 AM by HamdenRiceI've read a number of posts that ask the valid question of where all the money went. I don't mean the bailout money, but the mortgage loan money that got us into this mess in the first place. Some of it indeed went to inflated fees of real estate brokers who churned the market. A lot of it went to fees to Wall Street bankers who packaged the loans as mortgage backed securities.But step back and look at the big picture. The prior two items were largely in the scale of basis points on mortgages. They were vampires on a much larger set of transactions.When a family borrowed $300,000 for a house valued at $310,000 with assurances that it would soon be worth $350,000 (based on a history of the real estate market over the last few years that made that claim reasonable), and when that house instead declined in value to $250,000 or even $200,000, we ask ourselves, where did the money go that put this family "under water."The answer: It went to the family that sold the house. It wasn't the reckless borrowers who pocketed the money; it was the prudent sellers. Every bubble -- stock market, tulips, houses, whatever -- eventually gets to what is called on Wall Street, the "greater fool" stage. The "greater fool theory" is well known in finance and economics.It means that an investment that looks foolish -- paying, say $275,000 for a house that recently was selling for $150,000 -- isn't foolish, as long as there is a "greater fool" willing to pay $300,000. If you managed to make the seemingly foolish investment, but got out by selling to a "greater fool" then you weren't so foolish after all. The theory is also sometimes called the "bigger fool theory" and more descriptively, "survivor investing." It's basically musical chairs. The people in trouble are the people who purchased real estate and could not find a greater fool.Everyone who sold real estate before the bubble burst, sold it to a greater fool, and walked away from the market without buying even more inflated real estate, left the game with a small fortune. They are the survivor investors.They are the people who have the money that broke the system.
I honestly thought they were going to say that Karl Rove had it under a mattress.
That's a nice size thread. I'm sure it's filled with DUmb comments.
It gets worse. People that should not have been buying houses that the government thought should also:Not only increased property values, but increased rents which increased business expenses which increased the cost of all goods sold which increased incomes, which increased the cost of all good sold, which (here is the part the government liked) increased the taxes, which increased the cost of all goods sold...
Also increased the property taxes collected which increased the number of public employees,and added to the state retirement fund requirements....The list is long and only started to get sorted out.Wait until they come looking to make those pension fund balances whole again after the losses that have occurred.
Yup. And the public employees unions don't care about anything else other than getting paid. (I know--I'm in one. So are a few others here.)
In my county(Washington) every town and county employee was put into the state retirement fund back in the 90s.When the market dropped after the tech bubble burst we were hit with back to back 30-50% increases in property taxes because the fund balance was not at the level needed by law to meet the promises made to those enrolled.
Carl, that's statewide about the muni and county employees being put into the State retirement fund. My mother retired from the Saratoga County Real Property Office about two years ago. She's drawing from the fund.
I wasn`t sure if it was the whole state or if each county decided it for themselves.It wasn`t the sole cause for the tax hike here,the state health care (family and child plus) was also a major issue along with a loss of sales tax due to forcing business out of the county.We tried to spend like Saratoga but didn`t allow any business to develop.
Yeah, Saratoga County is in a rather unique position, with the track, the racino, and the possible AMD chip plant going in. I say "possible," because the company's shareholders still have to agree to the terms.
Well, if they did, that'll be a tremendous shot in the arm to the area. Quite possibly to Washington, Rensalaer, Albany, and Warren Counties, too.
http://www.poststar.com/articles/2009/02/19/news/local/14445287.txtHoping that it will extend over to my neck of the woods eventually.
