Monday, February 11

Steal Money, No Jail

If you could steal a whole lot of money without risk of going to jail, would you? What if you could borrow the money, and if things didn't work out the way you planned, you just walk away? What if you were to borrower the money KNOWING that if it didn't work out the way you planned, you'd just walk away? What if you bought a house with this money, and things didn't work out the way you planned and the value of the house dropped. Why not just give the house back to the people that you borrowed the money from? Okay, so its not worth what you owe, but hey, at least you're giving it back, right? After all, its not like your going to jail!

This is exactly what millions of people are doing right now, today, with your money! But wait you say, nobody took any money from me! Well, consider this...

You get money, you put it in the bank. The bank pays you interest. To do so, they lend it to others, charge them more than what they pay you. Your money, and the other depositors money, is used to fund loans. Many of them mortgages. Many of those have gone bad. Very bad.

Banks financed loans without verifying income (ability to repay) or giving much concern to the current value of the property that they were taking as collateral. The lender and the borrower were playing a game, speculating on the the rising value of the housing market, with your money!

Now, those deals have gone bad. Instead of paying you a decent interest rate for your deposit, instead of getting paid back money for the loan, the bank is getting a house that was never worth what they loaned for it to begin with.

So, how is this like stealing and not going to jail? I borrow $800,000 from you, promise to pay you back, even give you collateral to back the deal. After a while, I find that I made a poor investment with the money that you loaned me. Now, instead of you getting paid back the $800,000 plus interest, I give you the collateral that was pledged, which is now worth seventy-five cents on the dollar. My bad investment has caused you to lose over $200,000 plus interest! You get left with the loss, and a piece of real estate to try and sell in a terrible market. I walk away without consequence. Now, don't you feel like you were just robbed?

Read this article on about how people are sending lenders the keys to their homes.

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Becky @ FamilyandFinances said...

Hmmm...I never thought of it that way before!

Colonel Cash said...

Thanks for commenting Becky. After I had thought about it for a while, I began to wonder where all of the money came from that funded this subprime mortgage problem, and soon realized that it was our money! Yes, I feel robbed!