Quote:
Originally Posted by WTF
You hear that folks....all those home loans that were made on folks rising housing prices that you can not sell for half of what you borrowed on it, well its not a loss....it is a "potential loss''! 
And here all along I thought there was a housing bubble, turns out it was just a potential bubble  |
Again, this does not equate to loss of wealth.
You described the housing bubble as exactly what it was: a bubble. That is, the price of homes was bid up well beyond their intrinsic worth.
Some people jumped on the bandwagon, seeing a home as an investment rather than as a place to live; and expected the price would only go up, up, up -- even in the short-term.
Because they dealt with it as an investment (where all of your money may be at risk), they see the decline in values as a loss.
But I look at it quite differently.
I bought a fixer-upper that was even missing foundation during the "bubble." Right now, it is valued at about $10k less than I paid for it; in spite of the improvements.
HOWEVER, in that time I turned it into a working organic farm. I supply about 10k annually of my own food from that property, plus I sell stuff that I grow on it.
The fact that it is valued less today than it was when I bought it doesn't change the fact that I have had the use of that property not only as a place to sleep, but as the center of a number of businesses that have made me far more than the value differential. I have also used it to save me money in myriad ways; ranging from cutting my own firewood to having a space where I could do some of my own auto-repairs.
When you add it all up, I have come out WAY ahead.
I DO realize that not everyone looks at even a simple residential property the way I do. Most people look at it as a hotel and place to sleep, plus an automatic retirement investment that can only go up in value.
On the other hand, I look at anywhere I live and ask myself: how can I use this to make income or save income? How can I make this place self-liquidating?
Of course, if you look at home prices over the past 30 years and adjust them for Walter Williams' calculation of REAL inflation (8% annually), you'll discover that it isn't homes that have increased in value so much as the dollar having lost purchasing power. Unlike TVs, mp3 players and horseshoes that can be outsourced overseas for cheaper labor in order to offset the price increases that would otherwise reflect true inflation; you can't outsource land to India or China.
You will find the same phenomenon in the pricing of any good or service that cannot be outsourced overseas or have its labor supplied by illegal aliens. Examples include medical care, college tuition, housing, etc. These are not generally increasing in price at multiple the rate of inflation, but actually represent TRUE inflation or something that can't be outsourced overseas.
The housing bubble represented prices that had increased even beyond what true inflation would predict; and they did not represent the real value of the properties.
BUT -- let me give you another angle on this housing bubble.
In the beginning, there was essentially no such thing as buying property with a mortgage in this country. If you bought property, you worked hard, saved your money, and paid cash.
If a house is valued at $30,000; a certain number of people can work and save up that much money. That represents your demand.
Now, let's let mortgages enter the picture where you can buy a property for 20% down. NOW, if you have $30k in your pocket, that's enough to buy a house for $150k! But, also, that means that the demand for the house at $30,000 expands too because now anyone with only $6k in his pocket can buy that house.
The very EXISTENCE of mortgages serves to artificially increase both demand and price of housing above what it would be sans mortgages.
Okay, I used the example of 20% down. But the same thing happens, only worse, when you go to 10% down, 5% down, 0% down.
Of course, the existence of mortgages serves to move the price and demand for houses up such that what was once quite widely practical -- saving up to buy a house in cash -- is almost unimaginable for most. And as down payment requirements went from 20% down to 0%, prices increased even more.
Certainly, it could be argued, that to a certain extent this was the bankers' "fault." Hey -- I'm no friend of bankers. I'd love to utterly abolish the fed; bust up our commercial banks, etc. But let's be realistic here.
Nobody put a gun to anybody's head and forced him to take a mortgage on piece of over-valued property. The fact that he acted like a herd animal instead of thinking independently is sad, but ultimately nobody's responsibility but his own.
But -- also, the same applies to the banks. Nobody forced them to give those mortgages either; except in cases where federal guidelines for being an equal housing lender might have forced it. Either way, those loans were their responsibility. Just like the home buyer; they were taking a calculated risk. That should be entirely their own responsibility.
Yes, I agree with you -- Finance, Insurance and Real Estate sectors have tremendous influence over our Congress. Just look at campaign contributions. And I'm quite certain this played a substantial role in their being extended ungodly amounts of taxpayer money to liquidate their losses.
Were it me, I would have let them all fail.
But then again, I would never have been elected because unless you are firmly in the pockets of various special interests, you'll never have the funding to be elected.
Either way, I am quite certain that AIG, with their nearly $200B in bailout money could easily afford lots of High Dollar Hotties.
I would not be at all shocked to discover huge gobs of money originating with taxpayers finds its way into the hobby.
After all, the federal government is the ONLY growth "industry" in this country right now outside of providing. LOL
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