The Anatomy of a Ponzi scheme:
This is not the Holland Tulip Mania in the 1600’s
This is not the South Seas Bubble in the 1700’s
This is not the Railroad Boom and Bust of the 1800’s
and how about that Roaring twenties thing in the 1900’s? How did that pan out?
What happens when you combine Greed , a ton of speculation,crazy pyschology of the masses and a Federal and State Goverment that backs this philosophy? The answer is California Housing.
Prices in the 60’s – normal
80’s normal -except a couple bubble years at the end
90’s -normal after crashing for the late 80’s bubble- then started going nuts in 1999
2000- biggest bubble in modern times next to the tulips.
what has happened since the 90’s ?
Population- yes it has increased signifcantly.
Average family income- has actually DECREASED during this time.
Perception- keeping up with the Joneses explodes to all time levels.
unemployment- was 5-6% late 90’s now its over 12% but actually in the low 20% range including the underemployed.
Credit- was easy money in the 2000’s now its difficult to get a jumbo loan.
HMMM with these facts how is it that MANY upsacale coastal areas are immune again? they werent immune in the early 90’s.
Oh yeah I forgot:
they dont build beach property anymore
everyone wants to live there
Maybe I was wrong, Maybe its immune
So Cal is the epicenter of the global collapse .
Unlike in many other parts of the country, So Cal has a social lifestyle where typically they to try to keep up with the Jones’es mentality and spend to their hearts content to show that they belong in that lifestyle.
though many from that area are unaware or were against this- may be at first , after being around this lifestyle for awhile, they too succumbed to society and fell onto the path of destruction buying new fancy cars and McMansions that they could hardly afford. So Cal saw housing prices increase in 2002-2003 to above many previous lending guidelines. Banks and lenders needed new types of lending to deal with these new housing prices that were previously unseen before. Out comes the interest only, sub prime, and Alt A loan programs and then the bomb starts ticking……
1-Southern Californai Buyers and investors begin using these loan programs thereby exploding demand and pricing for their local product and giving many a lot of “equity”
2-with these new loan products,easy qualifying and new found wealth -they start thinking that real estate maybe “the money ticket” and begin looking for other options to target as their local market is getting a bit hectic for their taste
3-their first Target- “Las Vegas”. Previously for the last 30 to 40 years, Vegas had seemed immune to bubbles and recessions posting slow but steady pricing growth in all econmic conditions. The So Cals come to Vegas in 2003 and find a typical house to be 1/2 to 1/3 Value of their similar sized So Cal House. It looks like a great deal- they start buying and the buying speeds up. Others moving to Vegas from other parts of the country,world and the locals are now beginning to get caught up in this early frenzy- though shocking to most of them at first . If they want to buy a house- now is the time. Almost overnight it becomes national headlines- causing a new fuel of buying from around the nation and world. Stories of campouts for new home lotteries and quick flips of 100k and more are around everywhere by 2004.
4-Ok so Vegas is now becoming to crazy to buy -the So Cals look for a new target -and its Phoenix and after that its becomes Albuquerque and then Sunny Florida.
5-Before you can blink a eye -the loans that were first made because the So Cals needed a way to afford their lofty values become commonplace countrywide leading to all sorts buying , developing(Hi Rises,condo conversions), and investing that only prolong the madness .
6– in Early 2006 the Subprime bubble bursts in Las Vegas first as inventories rise to record levels and buying softens. The bursting then spreads to Phoenix ,So Cal and other first hit targets of the bubble.
7-This Causes the first stage that leads to the US Economic Crisis – which leads to the World Economic Crisis that we are currently experiancing to various degrees.
How Long can this game go on? Probably at least 3-5 years
With the Goverments continued interference in the housing crisis many areas continue to be stuck in a super bubble.
BUT WHAT HISTORY HAS SHOWN WITH ALL MAN MADE BUBBLES AND PONZI SCHEMES- IT IS A CERTAINTY THAT IT MUST COMPLETELY DEFLATE. THERE ARE NO EXCEPTIONS, THERE IS NO IMMUNITY