Reply #26: The market became full of instututional investors and speculators

[Go2Peace]

Previously it was not profitable for companies to buy and sell already developed homes. It was primarily a consumer driven market. When only consumers are the mass purchasers the prices are not able to get out of reach, because consumers can only pay up to a certain price for housing based on current wages. So the building industry was always forced to build homes that were priced into a certain range of options.

Once institutional investors and corporations we able to come in (and much of that had to do with the lowering of capital gains reductions, the primary tax when buying and selling real eastate), that balance was destroyed. Instead of having to sell houses to people who would live in them, their was a new stream of people to compete that were willing to drive the prices of homes up and speculate on them.

Once that happened you had a "stock market" kind of effect, where the prices of houses did not reflect the reality of their worth. That is really what screwed the home market and is causing most of what we see today. It brought about unnaturally high prices and way too much inventory. It will happen again, bubble after bubble as long as we do not correct the problem and increase capital gains to drive instututional speculation (gambling) out of the market.

Having said all this, that effect would never have caused the banking crises. It was not enough on it's own to sink the banks. What happened there was they looted all the worth of the loans. I can't prove it but I suspect the money is offshore. Like what happened in Russia our Oligarch class basically stole the wealth our of our system, TRILLIONS, and hid the money. That is the story that history will tell, Not what we hear on the news.