Thursday, September 25, 2008

Hypothetical Money

Okay, so I know absolutely nothing about finance.

But here's my crazy idea, just for laughs.

Hypothesis:
Houses were overpriced to begin with.

Rationale:
If houses were more affordable, people wouldn't need such enormous mortgages, when there was no hope of ever paying them back.

Background:
How many people do you know in construction or contracting? The ones I know have made a fortune and worked only part time. What does that say about how much they're charging?

Nobody can afford a house. So back when Bill Clinton was President, they decided it would be good to get 70% of people owning their homes.

The companies that were going to be lending had plenty of money (and the government had a surplus in case anybody needed to be bailed out).

But fast forward a bit, and look where we are.

It seems to me that this is yet another game of everyone thinking it's fine if they do it, without realizing that if everyone does it at the same time, everyone is fucked.

Materials and Methods:
Everyone assumed that if they needed to, they could just sell their houses and make the money back that way.

But we all know that there are actually more houses than people who can afford them, or in other words, more houses than we, the people, actually need.

So when everyone went to sell at the same time, there was no demand.

Discussion:
From this, it follows that real estate is dependent on artificial demand.

I never realized this before.

If real estate depends on artificial demand, then, housing should be a lot cheaper.

And then we wouldn't be in this mess.

Basically, the way I understand it, imaginary money was lent out, or maybe it wasn't imaginary at the time, but once it's lent it becomes imaginary.

Because the banks don't actually want to reclaim all these houses they financed, because the houses aren't worth anything. What's a bank going to do with a house? Nothing, if they can't sell it.

So I'm totally, competely against the bailout plan. I think it makes no sense.

Why don't we come up with a few alternatives? Why is no one discussing them? Why is everyone so quick to assume that bailing out these companies is the only option?

1. Give everyone a check. Bush has does this before and claimed that it stimulated the economy. Why not do it again now? Even if we gave everyone in the country a $600 check, that still wouldn't add up to $700 billion.

2. Put a cap on housing prices. Anyone who has lived somewhere with rent control can see how having even just a fraction of the places capped can actually improve the economics of the whole place, because now people can afford to live there, eat out, and buy stuff. So why don't we do this for some fraction of houses?

And one final question that I'll never understand: how can it be a "free market" when we're essentially planning to give out corporate welfare?

Makes no sense to me.

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3 Comments:

At 9:57 AM, Blogger C Rader said...

Thank you. This is the power of rational, logical thought. It is also clear and I was thinking, that's it, the entire time I was reading. You just made my day!

 
At 10:09 AM, Anonymous Anonymous said...

i'm against the bailout. keeping the very companies who got us into this mess is a way of rewarding them.

 
At 8:27 AM, Anonymous Anonymous said...

I do not understand why you are claiming that the housing market was a free market. Housing is artificially limited due to government regulation through zoning ordinances. This artificially decreases supply of housing, making it more expensive. While zoning has many benefits, it does increase the price for housing and makes the real estate market be something other than a free market.

 

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