Where did the money go?

Let’s say it’s 1986, you’re in your mid-twenties and you and your spouse decide to buy a home for you and your two young children. You live in a medium-large city and you both have good jobs. With a little help from your parents and in-laws you manage to get a modest 3 bedroom tract home for $100,000, most of which you finance with a 30 year mortgage.

About fifteen years later you borrow against your home’s equity to put your kids through college. You support them and pay their tuitions at a nice (but not great) university. This costs you approximately $100,000 but you don’t mind.

In 2006 both your kids have finished school and are starting new careers. You and your spouse have a house bigger than your needs and you’ve grown tired of the rat race. You want to move to a smaller community with a slower pace of life.

A realtor tells you your home is now worth $300,000. If you sell it you can pay off your first and second mortgages along with your credit card debts and have enough left over to buy a small home in the rural community where you grew up nearly free and clear.

You sell the house and move. You’re not retired, but your financial situation allows you and your spouse to take lower-paying jobs without reducing your standard of living. You’re both in your early fifties and looking forward to early retirement.

One problem. You sold your old house at the peak of the housing bubble. Now that the bubble has popped the house is worth $100,000 again, and the new buyer walked away from it leaving the bank holding the note.

Are you going to give back your $200,000 ill-gotten gain?

There is a lot of anger at the housing crash and bankers are an easy target. While they certainly deserve their fair share of blame, they weren’t the only ones who cashed in during the boom.

Realtors, appraisers, inspectors, construction contractors, building supply stores, painters, roofers, and landscapers are just some of the people who profited from the housing boom. It was all good for years, then the music stopped.

People bought books and paid to go to seminars on how to “flip this house” and get rich quick. It was like a nation-wide Ponzi scheme. The people who got out before the bubble popped made out like bandits. Everyone else got left holding the bag.

Lots of people walked away from underwater mortgages. Lots of others tried or are trying to hold on to properties they can’t afford. What are we supposed to do about it?

Some people think the government should step in and fix things so they can keep their homes and have some or all of their debt forgiven. “I can’t pay my $2,000 month mortgage but I want to keep my house anyway!

The “show the note” defense to foreclosure is based on the fact that sloppy recording practices make it hard for some banks to prove they hold the note to a property. But the hard fact is that in most of those cases the buyers really are in default and will never be able to catch up.

The banks didn’t hold a gun on anybody and tell them to borrow money. They didn’t force anyone to run up thousands of dollars in credit card debt. They didn’t make anyone take out student loans for a degree in interpretive dance.

I have no problem with investigating the housing crash and jailing those who deserve it. But a lot of what took place was legal, and the constitution prohibits ex post facto laws. We can and should make those practices illegal in the future, and we should also break up any bank that is “too big to fail.”

Banks will not change the way they do business no matter how many protesters march up and down Wall Street. They will change their ways when the law is changed. Law making takes place in Washington D.C., not New York City.

BTW – No investigation will take place while the candidate from Wall Street sits in the Oval Office.

This entry was posted in Barack Obama, Financial Meltdown, Housing Bubble, Occupy Wall Street, OWS, Uncategorized, Wall Street Banks and tagged , . Bookmark the permalink.

39 Responses to Where did the money go?

  1. Jeffhas says:

    More provacotive than normal – I like it.

    It seems like some laws might have been broken, and it certainly seems like there have been few if any quality investigations. Start there – maybe get some perp walks and restitution, that would make people feel better that we had an actual system in place.

    But I guess we could only do that if the administration and it’s Justice Department were inclined to do this…. now if only we could get a group of self righteous, committed, people to protest the administration that is not investigating what happened? …. Golly, they could ‘occupy’ a park nearby in DC until the administration paid attention…

    I know, it’s a crackpot idea, I mean if you really got that many ‘committed’ people together, you’d have to rob more than a few asylums, and who knows what they’d do then?! – heck they might mistake DC for NYC or something….

    • dm says:

      I haven’t seen or heard any pictures, videos, statements, etc condemning this administration or it’s justice department or this congress for allowing this crap to continue. It was our elected officials who played ball with the greedy ones to put all of this in motion. I see, read, and hear a lot about the bankers, wall street being the cause of all of our ills. Not, in my opinion, the real people, institutions, entities that should be targeted. Yes, they benefitted and they were most appreciative to those who helped them…again, OUR ELECTED OFFICIALS.

      Sorry, I don’t see the point in demonstrating at a Koch Brothers event…Obummer is right down the road…take it to the top…take it to the source…imho.

  2. yttik says:

    There’s some predatory lending that happened. That should have been regulated to protect consumers. People got loan offers in their mail boxes and even door to door salesmen. I was pulling my hair out for a decade because people were being sold mortgages they couldn’t afford (and credit cards, loans, etc.) When you have a bunch of so called financial experts telling you you can afford something, it’s real easy to believe them. I remember trying to talk to friends who just thought I was a stick in the mud. What do you mean all I can afford is a trailer and a used car? That’s not what people wanted to hear.

    • myiq2xu says:

      I used to get pre-approved credit card offers in the mail.

    • DeniseVB says:

      I think those Interest Only mortgages should be criminal. It allowed people to buy more house than they could afford during the bubble by only having to pay interest for 5 years. The trick was to convince these buyers the house is appreciating, so you’re still building equity. Then the bubble burst, which is what is causing all the foreclosures and short sales now.

      Now the banks are preying on seniors with the Reverse Mortgage shell game. We’re the only ones left with equity and/or our homes are paid off.

    • Karma says:

      Our bank became predatory after our house finally increased in equity. Our county was among the last in CA that the housing boom hit. Prior to that, they were a normal bank, even responsible.

      In 2007 they started messing with our cash flow. The would place holds on checks that they had cashed no problem for years. In fact the first time they did it, the guy looked at the accounts, knew it was a bogus hold, and released the funds immediately over the phone.

      It went downhill from there and that was the last time a phone call from home would resolve it. Everyone I spoke to in authority, on the phone, or in person would suggest a bunch of other hoops to jump through and then land on the two more accounts suggestion to possibly resolve it.

      A credit card/overdraft protection for an account we don’t write checks on. Obviously a lame suggestion to resolve a hold. And the real goal – they were trying to force us to open an equity line to pay our bills so they could still hold our funds. They even told us the equity line wouldn’t stop them from placing holds on the funds but we could still pay our bills while they ‘protected us’ from our cash. Yes, they called it protecting us….lol. My husband finally let me threaten them and it stopped.

      It was his account from prior to our relationship so it was his call. He was still caught up in that normal line of thinking, a long term account means they would treat you better.

      • Karma says:

        Gee now I sound like a brute. I threatened to move our money to the bank the check was drawn on if they had any more problems accepting it.

        However, the change in their tactics, and trying to repeatedly create situations in which they suggested a home equity line as a solution, was predatory.

        Being stupid isn’t a defense but I see how people could get fooled. Not sure how you sort that out, which is why I thought Hillary’s plans were more realistic. Which she pointed out made money for the govt the first time around and kept people in their homes.

  3. votermom says:

    It makes my head hurt, to be honest.
    Wall St did drive the bubble by creating the housing market derivatives. That’s what should be investigated.

    A lot of people who didn’t flip houses where the ones who just wanted a house as a home. They got burned the most.

    The govt should have figured out a way to come in between the banks & the homeowners and kept homeowners in their homes while making the banks eat some of the losses that were based on the derivatives crash. That would have kept the economy in better shape.

    Instead they threw money at the banks while letting banks foreclose which didn’t let the banks recoup the money because the foreclosed houses don’t sell anyway.

  4. votermom says:

    OT: My Joe Frazier tweet. I liked him, he was like an icon for the “never-give-up” underdogs.

    • Karma says:

      RIP Smokin Joe Frazier.

      That HBO sport documentary on the Thrilla in Manila fight was an interesting view of the whole thing. Ali really tossed him under the bus every chance he got. I remember watching that fight with my dad and all the pre-fight drama.

      Looking forward to the Pac-Man’s fight in a few days. He is one of the greatest fighters as well.

        • Karma says:

          Pacquiao is an honorable boxer as well. Always looking out for the fans to see a good fight but with respect for the other boxer.

          Often he will look at the ref if he thinks the fight might be stopped. But if the ref doesn’t stop it, Pacquiao will pull back on the other boxer rather than go for their injuries and force an ending. He doesn’t hold other fighters, cheat, throw elbows like Mayweather, if anything you see him trying to make sure the fans get a full 12 rounds.

          Each fight he has improved and worked hard to resolve anything they felt needed fixing. Which was always minor with his raw talent for the sport. Truly one of the greatest.

  5. elliesmom says:

    My husband and I bought our house 22 years ago. It’s in a modest neighborhood. We brought two kids up in it, and it felt a little cramped, but after they moved out, we did some remodeling, and now it’s a very comfortable place for the two of us. We’ve only refinanced once, and the money went right back into the house for the remodel. The only debt we have is 8 years left on our mortgage. No car loans, no credit card debt. We’re easing into retirement gradually. We’ve planned for this for a long time. We could have bought a McMansion, but we chose to live well within our means. We paid for our kids to go to college so neither of them started out in their adult lives with any school loans hanging over them. While we are here to help, and we have, we expect them to live within their means, too. Is my house worth more than I paid for it? Well, after 22 years and major updates to it, I would expect so. But until one of us can’t handle stairs (we have lots of stairs), this is where we live. Not where we bank.

  6. yttik says:

    I think the reality is that people, banks, wall street, have to take their knocks and move on. We never should have bailed out anybody. You can’t retroactively try to fix a mistake. Like it or not, bankruptcy, foreclosure, is how you discover your financial limits and learn from your mistakes.

    I don’t mean this cruelly, I have some friends who lost their home and filed for bankruptcy. They say it was the best thing that ever happened to them. They now have a double wide over looking the water, no bills, and they both work part time, so rather then the stress of working high powered jobs trying to pay for everything, they’re semi retired and enjoying their lives.

    • myiq2xu says:

      One of my law school professors (a retired appellate justice) said the worst thing that can happen to a young lawyer is for them to get hired as an associate at a firm and start making good money then acquiring a lifestyle to match, then discovering they really don’t like their job.

      They can’t stand their job but can’t afford to quit. So they drink, use drugs, develop ulcers, have affairs, treat their spouses and kids like shit, have nervous breakdowns and/or commit suicide.

      • Jadzia says:

        And what is sad and/or disgusting, in my experience (as a big-firm alum) is that all too often the partners *pressure* the associates to engage in lifestyle inflation. Like the approximately 300 times I was told to go out and buy a BMW because my well-maintained used Saab (paid for in full) was “an embarrassment to the firm.” I’ve seen the same kind of crap pulled about people’s clothes (this at a firm where you’re not even allowed in the same room as a client until the 5th year or so) and, again in my case, the neighborhood where I lived.

        Golden handcuffs. Would it have been fun to buy a cute house in Santa Monica and cruise around in a shiny new convertible? Maybe. But the people who succumbed to that pressure were not able to say F-U and get out when the getting was good.

        (But I still need to find a job once this kid is born.)

        • votermom says:

          Hey, there you are. I thought were busy having a baby. 😀

        • Jadzia says:

          maybe tonight, maybe not. aargh.

        • votermom says:

          So is French news covering the Sarkozy – Obama hot mic incident where they were trash-talking Netanyahu?

        • Jadzia says:

          I don’t think so, but haven’t been paying THAT much attention. I have to admit that I do looove a good “hot mike” story, though. And that one was pretty funny. Busted!!!

        • Jadzia says:

          myiq–a quick delivery is the LAST thing I need! The last 2 kids I had, the doctor didn’t even make it on time, I delivered so fast. (For Kid #3, my husband didn’t make it, either.) And now we are living an hour from the nearest hospital. I am actually pretty freaked out about that.

          I’ll take the fast recovery, though. : )

          • Rocky Hussein Squirrel says:

            I took a class in advanced first aid that included a section on emergency childbirth.

            They said the first thing to ask the woman in labor is “Have you given birth before?”

            The instructor said “If she says ‘no’ then don’t worry, you have plenty of time. If she says this is her fourth kid then get your catcher’s mitt ready.

        • votermom says:

          My second kid we drove to the birth center and I barely had time to waddle into the room and plop onto the bed before the kid popped out. Then we both had a nice nap.

        • Karma says:

          At least the weather is finally giving you a break over there.

          Here is hoping you make it to 11/11/11 and your hubby gives good back rubs.

    • DeniseVB says:

      We have friends who by choice, never owned a home because they didn’t want to be house poor. They’re the happiest people I know.:)

      With the mortgage interest deduction on the chopping block, it may just be cheaper to rent in the future afterall.

  7. votermom says:

    It’s from Pathetico, but brava to Alveda King:

    Martin Luther King Jr.’s niece says the Rev. Jesse Jackson should stop comparing the Occupy Wall Street protests to the civil rights movement, arguing that her uncle would not have condoned the movement.

    “I believe that Rev. Jackson is doing a disservice,” Alveda King said on Fox News Monday morning. “My uncle, the whole [civil rights] movement, was founded in prayer, in crying out to God in a peaceful movement. And this [Occupy] movement is not peaceful.”

    Read more: http://www.politico.com/news/stories/1111/67747.html#ixzz1d7uSfSmk

  8. deminexile says:

    Unfortunately, the foreclosure crisis has gotten a lot bigger than people buying homes they couldn’t afford or buying homes to flip. Now there are all the people who have been unemployed forever losing their homes. Considering the fact that the banks and the government were directly responsible for the crisis in the first place and next to nothing is being done to help the economy, I don’t think it would be at all out of line to offer some kind of help to homeowners.

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