How hysteria killed America

Did it all begin with the un-Holy Trinity of Real Estate agents, Financial Advisers and pseudo-science consultants?

Part 1, Banks and Real Estate

A house was no longer a home, a place to live and eventually own, it had become a real estate investment. Real Estate agents insisted that a family or an individual should be able to live there and make money at the same time through the unlimited appreciation in the value of the house. In fact, you should probably sell that “investment” every year and take out the profit so you can buy a bigger, more “profitable” place. Guess who also benefited from all this movement in real estate?

People who bought houses grew to expect big payoffs and soon hysteria was rampant in the real estate market. People bought houses and condos and sold them weeks later at a profit. No one actually lived in these places, at least not for long. Few people thought this was odd or that it might not continue forever. People who bought houses and stayed in them were chastised by their smarter friends for not turning a profit.

People who had been kept from homeownership by the prejudicial practices of the banks got regulatory relief at the same time mortgage sales became a matter of commissions and not the prevue of a salaried bank loan officer. The hysteria, to make commissions and peddle mortgages from back alleys, took off and again no one seemed to notice the danger. People who clearly could not continue to pay a certain monthly bill were assured that they could so the mortgage broker would make a commission and disappear. Others were sold mortgages at one price only to learn that bill would increase beyond their reach shortly. No one cared.

When this buying and selling for an instant profit stopped being possible and houses went back to being places you paid for to shelter you and your family from the elements, real estate people declared it a “collapse” because housing prices were no longer expanding exponentially. As the price of houses returned to a less hysterical level, the banks promptly blamed big government for that adjustment, certainly not their practices, or the wild over building and demanded that everyone be saved by the taxpayers. The home owners who were sold a bill of goods could just go to hell as far as they were concerned. After all, those home owners took a risk, which they were assured wasn’t a risk at all, and they lost. The realtors and their banks were too big to lose anything.

Next, hysterical people were told that they must immediately abandon their homes if some appraiser declared the property to be worth less than they had paid for it. Why? At the time they bought it they thought the price was fine. If they continue to live there and pay for it, might it not someday in the future be worth what they paid for it? Even if the value never makes it all the way back to what they paid for it, what about deducting the cost of living in the place all those years? Isn’t shelter worth something? But that’s different than an investment. My car was worth less than I paid for it the moment I drove it off the dealer’s lot but I didn’t stop making the payments.

Of course, folks who had to sell and move for other reasons were screwed. They had to take a loss and move on or abandon the property.