Why are we expected to be smarter than the banks? [View all]
"A lot of stupid people bought more house than they could afford."
Let's examine that common explanation of the housing bubble.
People (meaning someone other than myself, as typically used) are stupid, and thus deserve no assistance or even sympathy.
A person observed that everyone was making big profits in real estate. Ownership was "smarter" than it had ever been since it carried a huge asset-appreciation premium that renting did not. That person said, "Can I afford to buy this property?"
Well, if the price of the property continues to appreciate a person with no money at all can afford to buy the property. If he finds he cannot make the payments he just sells the house at a profit. It's like buying stocks on margin... if they always go up more than the interest on the margin then you can't fail.
So Wells Fargo says to the person, "Here yo go. You don't have much money but we will lend you $300,000 to buy this property."
Who is the stupid party here? The under-capitalized purchase makes no sense unless houses are guaranteed to always go up. But giving the mortgage is also predicated on the assumption that housing always goes up.
Why is the average person a stupid moron who deserves what he gets because he is so stupid that he has the same view of the housing market as the biggest mortgage-issuing banks in the world?
If Wells Fargo is willing to give you $300,000 against this property then Wells Fargo must think it is a viable purchase! And who knows more about mortgages and real estate than Wells-fucking-Fargo?
People branded irresponsible scum for accepting the financial advice of huge financial institutions while the huge financial institutions are treated like God.
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