Tuesday, October 07, 2008
Marcus Marketor, a Greek Tragedy
How much is your house worth? Even in normal times it’s a difficult question to answer, and people looking to sell pay hefty commissions to real estate professionals to help set the sale price. You bought yours a few years before the peak for $200k, so you figure it’s probably dropped 15%, to $170k. But the reality is, although it would be interesting to know, you don’t really care how much your house is worth, because you can afford the payments and plan on living there a long time raising a family.
Your neighbor, however, is in a different situation. He desperately needs to move out of state for personal reasons and must sell his house now. Unfortunately for him, everyone else is too scared to buy houses right now, and the best he can do is find a savvy investor to take it off his hands for $100k, even though it’s very similar to your house and probably will be worth a lot more when the market recovers.
The situation is lousy, but hardly the end of the world. Until the government got involved.
You see, a few years back some bad dude energy traders from Houston lied about some things. And instead of just punishing those guys, the government went bananas passing new rules on the entire world.
So now when your neighbor sells his house, his price automatically becomes the value of your own house. Not only that, but in order to “protect” your kids from being thrown out onto the street, the government says that you have to put up new collateral on your loan to make sure you have a reasonable cushion and aren’t over-extended.
Bottom line: you now have to raise $100k of cash money, and just keep it in your bank account, because the government is protecting your kids by making sure you don’t owe more than you have.
You argue that it’s ridiculous, because you have a good job and can afford to pay your bills, and the value of your house is not really important because you live there. But the helpful guy from Washington says “Too bad, so sad. Sell everything you have that isn’t bolted down to come up with the $100k.”
As if by magic, you’ve gone from being in pretty good financial shape to completely buggered.
But you stay up all night working out a plan, selling your cars and your stamp collection, and getting money from your aunt. You think you might just make it! You tell your kids that everything is going to be all right.
Unfortunately your neighbor on the other side doesn’t have a rich aunt, and now he has to sell his house. But this time, even the savvy investors are too scared, because the government has another plan to “help.” The government announced a plan to compete with savvy investors, buying the exact houses that they were in the process of scooping up.
So the government buys your neighbor’s house for $50k. And now guess what they want you to do?
[Six months later]
You have no house. Unfortunately, you told your kids everything would be OK - by EMAIL! You are the lowest of the low. Lying to your kids when you knew things were not going to be fine. You are informed that the government will provide you with a new house (a big one). It’s very secure, you have a nice roommate, and they provide you with three meals a day.
* This story is fictional. Any resemblance to real events and/or persons is purely coincidental.
How much is your house worth? Even in normal times it’s a difficult question to answer, and people looking to sell pay hefty commissions to real estate professionals to help set the sale price. You bought yours a few years before the peak for $200k, so you figure it’s probably dropped 15%, to $170k. But the reality is, although it would be interesting to know, you don’t really care how much your house is worth, because you can afford the payments and plan on living there a long time raising a family.
Your neighbor, however, is in a different situation. He desperately needs to move out of state for personal reasons and must sell his house now. Unfortunately for him, everyone else is too scared to buy houses right now, and the best he can do is find a savvy investor to take it off his hands for $100k, even though it’s very similar to your house and probably will be worth a lot more when the market recovers.
The situation is lousy, but hardly the end of the world. Until the government got involved.
You see, a few years back some bad dude energy traders from Houston lied about some things. And instead of just punishing those guys, the government went bananas passing new rules on the entire world.
So now when your neighbor sells his house, his price automatically becomes the value of your own house. Not only that, but in order to “protect” your kids from being thrown out onto the street, the government says that you have to put up new collateral on your loan to make sure you have a reasonable cushion and aren’t over-extended.
Bottom line: you now have to raise $100k of cash money, and just keep it in your bank account, because the government is protecting your kids by making sure you don’t owe more than you have.
You argue that it’s ridiculous, because you have a good job and can afford to pay your bills, and the value of your house is not really important because you live there. But the helpful guy from Washington says “Too bad, so sad. Sell everything you have that isn’t bolted down to come up with the $100k.”
As if by magic, you’ve gone from being in pretty good financial shape to completely buggered.
But you stay up all night working out a plan, selling your cars and your stamp collection, and getting money from your aunt. You think you might just make it! You tell your kids that everything is going to be all right.
Unfortunately your neighbor on the other side doesn’t have a rich aunt, and now he has to sell his house. But this time, even the savvy investors are too scared, because the government has another plan to “help.” The government announced a plan to compete with savvy investors, buying the exact houses that they were in the process of scooping up.
So the government buys your neighbor’s house for $50k. And now guess what they want you to do?
[Six months later]
You have no house. Unfortunately, you told your kids everything would be OK - by EMAIL! You are the lowest of the low. Lying to your kids when you knew things were not going to be fine. You are informed that the government will provide you with a new house (a big one). It’s very secure, you have a nice roommate, and they provide you with three meals a day.
* This story is fictional. Any resemblance to real events and/or persons is purely coincidental.
