Greed is Good

For the last ten months or so, the financial markets have been in turmoil. The credit mess is affecting everybody in one way or another.

Starting in 2002 the real-estate market was going through the roof and the prices became unrealistic to say the least; whatever house you might have bought a few years earlier for about 300,000 dollars was by the summer of 2007 way over 1,000,000. Most people could not afford to buy at such prices, but they were buying anyway. Financing was easy; in fact, it was so easy that anyone with a minimum of common sense should have wondered.

Banks were throwing money at people with less than decent credit and less than adequate income. It was a game and everyone got caught in it without concern for the future or the foreseeable consequences. The loans made to buyers were all adjustable and offered at an incredibly low initial price. Everybody knew one day the payments would go up, but for the moment nobody seemed to mind. More or less, everyone turned into a little scarlet and the “I will think about this tomorrow” philosophy swiped the country. The price of real-estate was growing so fast that the prospective of getting charged more tomorrow for the money borrowed today seemed to be distant.

Tomorrow came, all of a sudden, in the fall of 2007.

As the loans reached the adjustment point, most people could not keep up with the new payments and an avalanche of defaults started to hit the market. Regular people were in deep trouble and so were the banks.

Banks do not like to own property. Their business is to manipulate cash that could be turned into profits; the faster, the better.

The inevitable foreclosures could not be stopped by wishful thinking alone and thousands of “for sale” signs went up.

Many properties have been bought by developers and real-estate sharks just for speculation; they were the ones that drove the prices up to such unreasonable levels leaving many legitimate buyers in the dust.