Wednesday, September 17, 2008

They Still Don't Get It

Yet another of many articles on why the housing market is the cause of today's financial market crisis appeared on Yahoo Finance, as supplied by

Let's understand that there are two markets. The housing market is where the sellers and buyers of houses get together to negotiate the transfer real property from one person to another. The financial market is where lenders and borrowers get together to negotiate a loan of money.

The real crisis in the housing market has been caused by financial market. The headlines that blame the housing market, without looking at the real source of the problem are making it difficult, if not impossible for sellers and buyers to get together.

This may seems rather naive. But, as long as a mortgagor, the real estate buyer and borrower, makes the monthly payments on their loan, regardless of the value of the property,there should not be a crisis in the housing market or the financial market.

From what I see, the crisis in the financial market is occurring because of two factors: 1) Loans were made that never should have been. (Have you heard of ninja loans? No Income, No Job, No Assets) So now loans are not being repaid, and 2) the Gamblers who bet on the future increase of value of those loans, have lost their bet.

The loans were made in the financial market, not the real estate market. The bets were placed on Wall Street, not Main Street. Now, we're all losing.

Hm..I remember, not too long ago, when the banks wanted to get into the real estate business and sell houses. The only real opposition they had was from the Realtor (R) Association. This one article in BNET Business Network, from April 2001, is one of many that talk about this issue. Now it looks as though the banks have their wish fulfilled. The banks have a lot of houses to sell.

If this problem is going to be fixed, someone will have to be gutsy enough to fix the way loans are made, and limit the gambling to those who can afford to lose without asking the rest of us to pay.

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