Let’s look at one of these “Duh!” economics that happened before so you can see how these problems can happen, and how like me, you can see the next one that is almost here.
Most of you remember the housing bubble of 2007/2008. Problem was, everyone seemed to be part of the problem. If you have ever watched the NBC documentary called “House of Cards” it has a good overview to the problems and who caused them, but it is important to note that greed and foolishness prevailed among all parties:
⦁ Federal reserve: Due to the collapse of the 2001 dotcom bubble, the federal reserve/govt decided that instead of letting it pop, they would instead make cheap loans to let homeowners afford houses better (as a way to rescue the crashing economy).
⦁ Homeowners: they bought houses they couldnt afford and didnt need.
⦁ Banks: they sold these homeowners excessively risky loans either to make money, stay in business, or both.
⦁ Wall street bankers: they took these bank loans and packaged them together and sold them to investors (called CDO’s).
⦁ Credit rating agencies: they incorrectly told investors these were safer investments than they were, and feared to label them “risky”
⦁ Institutional investors: like insurance companies and colleges bought these complex investments that they simply did not understand; they just were making money and that looked good enough.
Overall, the underlying problem that allowed this bubble was that the masses could NOT grasp the simple concept that:
- Housing prices wont go up forever even though everyone believed that.
- More importantly, Debt vs income. You know, when people get into way more debt than they are making on their jobs, then you can be sure they are drinking the Koolaid, which means one thing: “bubble”
Here is a picture I found, in a hurry, that shows how much debt Americans had compared to how much they were making. You’ll notice that this chart also includes Canada; well their bubble may have just started to pop after 15 years of mega-bubbles–ouch. Looks like even some of our biggest metros n the USA are starting to come down as well–thank you fake Chinese black market money and other weird things.
A few contrarian investors (hedge funds) like Kyle Bass, Kevin Paulson saw this grand deception and invested against it, making billions in the process, all because 99% of Americans, from the average homeowner, to the best professional investors, were basically hiding themselves from the facts.