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All these investments, of course, were highly risky. Higher returns almost always come with greater risk. But people — by “people,” I’m referring here to Mr. Greenspan, Mr. Bernanke, the top executives of almost every Wall Street firm and a majority of American homeowners — decided that the usual rules didn’t apply because home prices nationwide had never fallen before. Based on that idea, prices rose ever higher — so high, says Robert Barbera of ITG, an investment firm, that they were destined to fall. It was a self-defeating prophecy.
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I was just talking with my dad about this very thing right here. I don't understand how someone could think the rise in home prices was real value and not bullshit. If someone said to me, we bought this house for $75,000 and put $15,000 in renovations into and now we're selling it for $400,000, I would be saying 'I don't care how nice southern California is, you're out of your damn mind wanting nearly half a million dollars for a 900 sq ft. house on less than 1/10th of an acre." Especially one worth $75,000 three months ago. You really thought the housing prices would stay up?
Worse than that, you really thought you could afford that 400k house on 60k a year? Worse still, you found a bank to give you the loan for that? With no down payment? Are they that stupid too? Maybe it's worse than all this, maybe they knew something I don't, and it really wasn't a bad bet at all. Is that the part I don't understand? People say 'well house prices have never fallen before so they can't possibly ever fall!' and I'm the dumb one because I have some objections?
And to top it all off, it's not like we can say, well, let the dumbasses rot, they did it to themselves because this has happened to the scale where that would hurt us all. Which is the really frustrating part, the people making bad decisions dragging down people who made far more reasonable choices. My only real hope lies in a quote from an article I read at
Fortune.com:
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Originally Posted by Paul Krugman
What I don't know is how serious the real consequences of the financial-market stuff ends up being on Main Street. If all of the fancy financial instruments that have been so popular these past couple of decades sort of roll over, it's still not entirely clear to me how that ends up affecting the real economy. Will a lot of business investment just go on unaffected because companies can pay for it out of retained earnings or by borrowing with good old bank loans? How much in the end does the ability of consumers to keep spending get affected by what's going on in fairly abstruse financial markets? So I'm not quite sure how this works. Maybe that's a reason for hope. Maybe it'll turn out that all this Wall Street stuff is just less important than we think it is.
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Blah, I get so frustrated when I really don't understand something, I'm a terrible novice in general.