Quote:
Originally Posted by Vegas69
I have a new book that lays out all the stock market crashes. I just finished the 2008 segment. This 30 year old kid had his horse blinders on and should've been investing MORE. Of course the real estate market sucked and I had too many shiny new parts to buy for an old beater. The Dow got down to 7 or 8k just 10 years ago. WOW
What led to that crash:
In 1981, Option Arms were approved by the government. That meant a homeowner could pay less than the minimum and add to the mortgage balance EVERY MONTH vs. paying it down.
In the early 90's, lending became much more flexible with little to NO down payments which led to ever increasing subprime loans. This was to help BROKE people buy houses. How could that go wrong?
About this time, banks figured out a way to keep less assets on the shelf buying insurance against losses letting them lend more. GREED AIG was the biggest insurer.
Next, banks started assembling caches of mortgages and selling them to big investment companies like Lehman and Bear Sterns and creating stock funds. Most of them subprime with a high likelihood of default. Nobody thought houses would go down in value.
Pension funds had stayed away from risky investments until banks found a way to rate these caches of mortgages favorably. Then the pensions bought these toxic assets.
Lastly, Greenspan kept the interest rates low for way to long as he didn't see much inflation in the market. He missed the HUGE INFLATION in the housing market.
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I made a small fortune buying apartments in Scottsdale right after the Savings and Loan crash.... you could buy them for 50 cents on the dollar. It was instant equity.
For the people that lost money on the house flipping craziness -- there's a ton of people that have made a killing buying those losses and holding them. One side was a fad driven by cheap money and non-existent credit scores -- the other side is brilliance.
Personally -- I think the FED has completely missed the inflation rate once again. I hope it doesn't end badly. I was in business in the late 70's and early 80's when interest rates rose to 15 and 18%.... and you couldn't print a price list fast enough to keep ahead. It was ugly.
I used to make huge money almost daily flipping Microsoft - Cisco - Intel - Dell.... and the only thing that saved my bacon (day trading 3 million dollars) was that I decided to pay all cash for a new house (2 million) and then gut and remodel it (600K). Right when we were in the midst of the remodel -- the DOT.COM bust happened --- and I'd stopped flipping stocks because I was too busy with the house remodel. My favorite saying --- Better lucky, than smart.
Check the PRICE and TAX history section for that house! Lucky me!
https://www.zillow.com/homes/for_sal...59_rect/17_zm/
Having been an investor thru most of what you describe in the crash scenarios is what led me to believe in the dividend stocks. I've lived thru or been involved in many of those episodes you describe in the book. Making CASH is KING.... and when others are wringing their hands or frozen out --- it's the cash that allows you to take advantage of their mistakes.