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Housing Market Ponzi Scheme Explained
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Housing Market Ponzi Scheme Explained
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| Housing Market Ponzi Scheme Explained |
But the main reason is, that economists don't understand, how bank credits work and the same seems to be true for bankers.
The money created by credit is not needed to buy the house. This is a complete misunderstanding of how credit works. The money is needed by the seller of the house to buy from the debtor. Which is the only reason, why the bank wants the debtor to return the money, the bank creates without efforts.
This forces the debtors to create a supply which must fit the demand of those, they gave the money to. And there is one thing, the seller of the house will definitely not demand: the house.
This is why the house cannot be a security for the debt. This will only work as a rare exception. The only security is the ability of the debtor to create the required and fitting supply for the demand of the sellers.
But this is what the bankers did not care about. Raising house prices seem to be an increase of security to them which is why the gave credit to people who could not afford a house. No loss, when they fail but a win, if they do.
When the housing bubble did burst, they found out, that their debtors were the only people who did have a demand for their securities. Which also means: banks are only solvent when their debtors are.
So the idea of "securities" is the main problem. It displays a lack of understanding what credit is all about.