[quote=deadzone]I disagree that people with money don’t use leverage. In fact, people with money should be using leverage. If the bank is going to give you a 5% mortgage (or any other loan), a savy investor can easily make much more than 5% with other investments. Why should they pay cash for a house, that is stupid. I’ll gladly accept that 5% from the bank and turn it around into the stock market. I bet that in the long run I can make 10-15% easily with stocks or other investments. That is basically free money.
The problem we are in now is that lower middle class people are leverging themselves. In the past, these ARMs and interest only loans were only used by speculators who had plenty of money, they were just taking advantage of the system. What’s happened in the last 5 years is that loan standards have decreased so much that regular people are using these products. The difference is that they are using these out of necessity because they can’t qualify for conventional loans.
So bottom line, leveraging is smart for people who have money and know what they are doing. But today most of these loan products are being used by people who can’t afford a conventional loan, that is exactly what is going to cause the house of cards to fall (I agree with your 40-50% prediction in san diego).[/quote]
Post number 2
“I’ll gladly accept that 5% from the bank and turn it around into the stock market. I bet that in the long run I can make 10-15% easily with stocks or other investments. That is basically free money.”
Did not get 5% money from the bank, did not make 10-15% a year in the long run with stocks
“So bottom line, leveraging is smart for people who have money and know what they are doing.”
Hurray! You got one! Too bad you did not take your own advice. But we all did!
