Herman: John L. Herman Jr., Author

Where Did All That Money Go?

During the late 1990’s when the Dotcom craze took over the stock market millions of people bought stock as prices went through the roof. Literally billions of dollars changed hands as the Average Joe borrowed money against his house to take part in the capital give-away as any stock you bought just kept going up. The experts said forget Earnings Per Share ratios…we were in a “New Economy” where math didn’t matter anymore. HUH? Who were they kidding?

They were kidding the Average Joe. Who ended up watching his stocks free fall and his investments become worthless. OK, so we know the Average Joe lost a lot of money, but where did it go? Judging by the size of homes in The Hamptons it looks like those smart guys spouting off about the New Economy were sellers, not buyers, and they got a lot of that money other people lost.

In recent years mortgage companies didn’t just make loans to people wanting to buy a house. They stuffed money down the throats of speculators worse than the way animals are fed to give us some of that fancy food restaurants sell for a hundred dollars a plate. Lenders came up with new schemes to let you borrow not eighty percent or ninety percent of the homes true value…hell…you could borrow one hundred and twenty five percent. The Average Joe had recovered from his stock losses of ten years ago and his memory didn’t pick up the cues that those smart fellows making the lending rules were some of the same guys who told them math didn’t matter in the Dotcom Era.

With all that money being given away a lot of Average Joe’s started making money flipping houses that went up so fast in price it made your head spin. But why were they going up so fast? Because as one Average Joe started boasting to his neighbor about the cash he was grabbing as he flipped houses more Average Joe’s lined up at the front window of the Hampton House guys window and said they would love a loan and would pay any price for a house so they could keep up with their neighbor. Forget the paperwork. Forget the math. Give the sucker the money and let him pay hundreds of thousands of dollars for a house he couldn’t afford. The Hampton House guy sold the loan the minute he made it and cashed out. His wife needed to add ten thousand more square feet to their Hampton House because their banker neighbor just did.

Pop goes the weasel. Kids might not get that phrase today. BOOM went the bubble. Young people might get BOOM because they seem to spend a lot of time playing video games where stuff is blown up. In any event…the housing bubble burst. The guy with the house in the Hamptons ran out of suckers buying the bad loans he was making.

Did you ever play musical chairs as a kid? Imagine the home buyers were running around as the music played looking for the next house to land on, like the chair you need when the music stops…but it starts up again and again until only one person is left with a chair. Listen, the guys in the Hamptons aren’t the last one in a chair. They are the ones playing the music. They never lose.

If you want to know where all that money went…twice now in the last ten years…just look at CNBC and watch shows like HIGH NET WORTH. Take a ride to see the President of Countrywide’s new digs. His tan alone must have cost ten million dollars. The Average Joe is sometimes a pig, trying to get ahead. The heads of the companies bilking the Average Joe’s are hogs and they should be slaughtered. We will be digging out of this mess for years, and the guy in the Hampton’s will be sitting on the beach, sipping a Mai Tai with his rich buddies laughing all the way to the bank.

• Posted: 15 May 2008
• Comments: 1
• Category: Business success

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