17 December 2007 4 Comments Print This Post  Email This Post

Foreclosures are at record highs. The stock market is extremely volatile. The government is stepping in. It’s almost the end of the year and everyone from consumers to retailers and investors are jittery about what lies ahead. Apparently the sub prime mess affected more than just lenders and home owners. Its amazing that we didn’t foresee this. As a real estate agent two years ago I didn’t find the stories of people buying $500k+ homes with 0% down strange. I didn’t think it was weird that I was able to get a loan on an investment property given my short credit history at the time. So what can we learn from the sub prime mess? Who’s to blame? There is much debate about that and I don’t think its a question of who to blame, it’s a question of what to blame. That culprit is none other than pure greed at it’s finest. Everyone got greedy, period.

Greedy Banks
This one’s a given. Some people in charge decided that it was worth the gamble to lend to people who either had bad credit, couldn’t truly afford the loan, or both. Underwriters got greedy to meet their numbers. Brokers got greedy and started lying to get their commission. The greed had an incredible trickle-down effect in the lending industry.
Greedy Homeowners
Homeowners and sellers got greedy as well. Some wanted to upgrade to a larger home so they took out bigger loans. Some wanted a new car, or a new kitchen and therefore took out second or third loans. They assumed they could buy whatever they want just by borrowing against their home since they thought the appreciation would never stop. Now a lot of people owe more than the value of their homes.

Greedy Builders
Builders got greedy and started building everywhere imaginable without thinking about whether or not there will be true demand. The ‘build it and they will come’ mentality is evident in many builders. Now they’ll throw in all sorts of wacky incentives to get rid of their inventory.

Greedy Buyers
Buyers got greedy too. Some wanted a bigger and nicer house so they simply took out bigger loans. Renters jumped into homeownership after hearing stories of appreciation and making quick bucks. They didn’t realize that all the expenses associated with home ownership is guaranteed to be a lot more than what they were used to while appreciation is not. Real estate agents like myself at the time didn’t care either, we wanted the commission check.

Greedy Investors
Yes, investors got really greedy too. The concept of leverage was stretced to the max and people bought properties with little or no down payment. Some cashed out imaginary equity in their own homes to buy a second or third home in hopes of an easy flip. I’m also in this category as well. I gambled on a speculative property with a small down payment and I lost big.

The take home message here is to always strive for success in everything you do, but never cross that line where it becomes greed. Greed possesses a blinding force. At the time, no one cared to think of the consequences. Everyone looked at the short term profits. Greed blinded us at the time. The only thing we can do now is learn from it. Because I learned my lesson early in my life, I look at investing very differently now. I hope that everyone impacted by this is also learning a valuable life lesson. While success may lead to greed, greed will never lead you to success.