Foreclosure for dummies

The face of the real estate industry has changed radically since the subprime crisis, as it is called, and the result has enabled a major slide toward a very subtle form of socialism. Home ownership and gradual, sustained appreciation was once the foundation of the American Dream and the path to prosperity here in the United States, but those days are behind us. Some 25% of the homes “owned” in America are worth less than the amount of money that is owed on them. In Las Vegas, 81% of homeowners are underwater.

“Experts” and pundits with an agenda to support the industry over-complicate the issue, but I would like to make a simple point here, and you can do with it what you will. Let’s take Las Vegas as an example. There was a construction boom underway during the height of the loose lending. Say you were an electrician there. You buy a house based on your ability to pay the mortgage in light of your current earnings. The “system,” as it were, created the bubble that fueled your income. That bubble bursts. Your work dries up. You are the same person with the same skills and work ethic that you had when all was well; you were simply laid off and you find yourself unable to pay your mortgage.

Let’s say you put down $20,000 and paid $2000 a month for three years prior to being paid off. That would be $92,000 that you paid the bank. This bank that you owe took your down payment and subsequent monthly payments, bundled them with those of others, and bet that money in the markets. They lost it all. This caused the situation that cost you your job. They are actually much more insolvent that you are, but they foreclose on you while the government bails them out (so in essence, the government is the bank now–socialism) with free money created out of thin air. So they own the house and you are out $92,000 and you are living with your wife and kids in your parents’ basement in Peoria. Astonishingly, via the practice of fractional reserve banking, the bank never actually had the money that they lent you in the first place.

Meanwhile, our kids are overseas fighting to keep this arrangement in place. Do you see something wrong with this picture?

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