"Where did the money go?"

Topics: society, politics, crime, money, business, current events

Asked by boatman 17 months ago

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Fannie Mae, Freddie Mac, Lehman Brothers, AIG, et.al. lost terabucks. Who got the money? Or was it all just ink?
I understand that the oil prices sent a lot of money offshore. But who got the investment money?

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"A lot of it was just ink."

by Pales on Sep 17 2008 (17 months ago)

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Some of it went into the pockets of overpaid executives. Some were legitimate business expenses.

Borrowers that would have been deemed credit unworthy were getting loans, in some cases these were the first loans they had ever qualified. Early in the Clinton adm, it was decided that home ownership should increase from 60% of the population to 80%. I don't remember exactly when this occurred. Before or after the 1994 Republican majority in the Congress. Either way, both parties had enough suporters to make this a biparisan effort. Bubba obviously did not veto it.

Unscrupulous lenders created new loans, basically a pipe dream. People borrowed money with no downpayment & minimum payments for 5 years. When the balloon payment came due in 5 years, the lenders told them they could make an equity loan on the house. This would work because housing values were rapidly climbing. This worked for the 1st few years. The economic slowdown that began in early 2000 & compounded by 9-11 marked the end of get rich quick scheme.

In summary:

Huge salaries

Unscrupulous lenders

Greedy homeowners & a get rich quick idea.

People bought houses they could not afford, which means that money was never there.

But buying a house with no money down.

Bankers & Investment brokers made some bad investments & took chances & risked more than was smart. They invested in businesses that had a risk factor beyond common sense, greed again.

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I think you may have over simplified that answer.

"we still have the equity of the houses" Yes but it is much lower than it was three years ago. I know my house has dropped 30% since 2005. Unfortunately that was when I bought it so I have lost 30% of my investment.

"We have lost the money we put into foreign oil, except for the American owned/affiliated companies." It doesn't really matter which companies you are using for gas. We import about 70% of our oil. So that means that Standard Oil would supply 30% from domestic drilling and that money would flow back into our economy. The other 70% goes directly to foreign countries and does absolutely nothing for us. It is the same as flushing it down the toilet.

"The mortgagors have lost money that they never had." Not quite accurate. The mortgage companies actually put up the cash for you to buy that house. When you paid $100,000 for the home, the seller actually got $100,000 from the mortgage company. Real cash. When you default, they must foreclose and try to get that money back. Since the market value is less, the foreclosure cost is high, and the selling price of a foreclosure is always below market value, they will lose money. They may recover $60,000 or less from the sale (I'm being generous here) which means they lost $40,000 in real money. Or almost half thier investment.

Anyway I hope this clarifies the point.