.
See if you can guess who does Okay.
.
Year 2004
|
Scenario: Starting Level in a far
suburb (like Stockton). Nice little community doing
fine for years.
|
||
Homes
|
Value
|
Property Taxes
|
City Income
|
80
|
$100,000
|
$80,000
|
$80,000
|
Year 2006
|
House prices double in
two years. Half the homes are sold or
refinanced to improve. 40 new homes
are built. City income comes up by
$120,000 – but city has to increase police / fire / schools / roads /
sanitation, etc.
|
||
40
|
$100,000
|
$40,000
|
|
40
|
$200,000
|
$80,000
|
|
New 40
|
$200,000
|
$80,000
|
$200,000
|
Year 2008
|
House prices double again
in the next two years. Half the homes
are sold or refinanced to improve agin.
40 newer homes are
built. City income comes up by
$200,000 –city has to increase police / fire / schools / roads / sanitation,
etc.
|
||
20
|
$100,000
|
$20,000
|
|
20
|
$200,000
|
$40,000
|
|
40
|
$300,000
|
$120,000
|
|
½ 2006 new 20
|
$200,000
|
$40,000
|
|
½ 2006 new 20
|
$300,000
|
$60,000
|
|
2008 new 40
|
$300,000
|
$120,000
|
$400,000
|
Year 2010
|
House prices crash. Homes are worth about $175,000. Therefore only about 20 homes are okay, and
40 more possibly ok. The majority are
underwater. City revenues fall by
$295,000 – but still has the infrastructure to support including abandoned
homes they must maintain.
|
||
Value = $175,000
|
|||
20
|
Houses OK
|
||
40
|
House border line
|
||
100
|
Houses Underwater
|
||
Homes
|
Value
|
Property Taxes
|
City Income
|
60
|
$175,000
|
$105,000
|
$105,000
|
.
Who pays?
.
The underwater homeowners are screwed. The bank said their house was worth $300,000. The "independent" appraisers said they were worth $300,000, and so they borrowed much of it on the experts opinions. They no longer have the homes.
.
The city is screwed. Based on the experts advice, the city approved housing and built infrastructure to support it. They hired police and teachers. They can't get rid of the teachers because the people are still there - maybe in foreclosure, maybe at shelters - but the children still need to go to school. They can't get rid of fire or police personnel because the homes are still there. No if the area isn't patrolled they will be a magnet for crime - so those costs aren't going down. But lots of politicians here blame the "unions", like if it wasn't for greedy teachers or police, then budgets would balance.
.
In a actual capitalist society, the lenders would also be screwed. They loaned too much money on an investment they over-valued. Just like people took out too much debt on over valued property. But we don't really like in a place where the rich pay their far share - do we? So the banks - the ones that did the actual overvaluing - they had their loses covered by taxpayers. Banks were bailed out by the government and supported in mergers. **1
.
People aren't too big to fail.
Cities aren't too big to fail.
Banks ARE too big to fail.
.
FYI - To be fair, the finance industry has paid handsomely for this (via lobbying - not taxes). In 2012 alone... (from http://www.opensecrets.org/industries/mems.php)
$28.5 Million Financial Securities Firms (investments)
$20.7 Million Insurance (think AIG)
$11.5 Million Misc. Finance (That is how it is listed)
$11.0 Million Commercial Banks
$ 9.9 Million Business Services
$ 8.2 Million Public Sector Unions
$ 3.9 Million Finance / Credit
**1 : Without getting on too big a rant here, some finance institutions rebundled homes loans, sold them as recommended investments - then shorted them (bet their customer's investments would fail). So they got a bailout AND to profit on their lies!