As far as I can tell, our system of home financing is the biggest govt wealth redistribution system in the world, taking wealth from savers and giving it to people who borrow to buy homes, in truly mind-boggling amounts.
I totally agree with you PC. Most of the investors are so far removed from what they are actually investing in that they have no idea what is about to hit them. The mortgage on this Solana Beach condo is probably packaged into some AAA-rated CDO that was purchased by a bond fund. The bond fund manager is using money from some private investor who is probably close to retirement and has been told that bonds are ‘safer’ than stocks. The private investor has no idea that he has really bought a mortgage backed up by an asset that is probably as risky as Internet stocks were during the bubble.
Over the next 10 years, I think we’re going to see a lot of would-be retirees who are shocked at how much their retirement funds have shrunk. Some of them won’t ever be able to retire because of this. Meanwhile, the condo speculator on the front-end will get off with just a minor hit to their credit score.
At least the Internet-stock buyers knew they were taking some risks. The bond investors have no idea what they are in for.
