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I want to settle something concerning the real estate collapse. Was the followup to this collapse a Ponzi Scheme or a bubble?
I'm trying to make this poll as neutral as possible to help settle a debate. I've even switched the order of the options in the title a couple of times as pollsters suggest . Not that the OP will concede if the majority side with my opinion, but it will undoubtedly provide a little extra satisfaction to one of us.
Update: I am speaking specifically about the more recent run-up in real estate following dot bomb and 9/11, not the entire timeline of the industry.
Last edited by ViewFromThePeak; 12-19-2008 at 09:19 AM..
I was also thinking this might make a great sticky for a little while, to keep the poll fresh. If there's an admin who would consider doing this for a couple of weeks/a month/whatever, it would be greatly appreciated. Might produce some nice results.
That's a really interesting question. I think the last five years has been a perfect fit for a ponzi scheme - people bought starter homes, made mony, bought more homes, made more money, and bought more homes. (The other option is they rolled their profits into more and more expensive homes). As long as more people were coming into the housing market, people did quite well. More and more people could come into the market because of a combination of low interest rates and loose lending standards.
Finally, the prymiad collapsed when an insufficent number of new people were coming into the market and inventory increased.
Hmm...yes, I think that fits a Ponzi scheme quite well.
In a Ponzi scheme, someone would be arrested... as it is now, nobody is arresting the Federal government for conceiving this scheme... therefore, it is a bubble (albeit there is little difference between them)....
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Mr. Ponzi was arrested for accepting new investment money and paying off early investors with those funds, just like Mr. Madoff. I hardly think one could characterize the real estate market as a Ponzi scheme.
Markets of all kinds fluctuate (some wildly) and they will do so as long as human beings embrace capitalism, are free to make individual decisions and continue to cling to fear and greed as motivators.
Mr. Ponzi was arrested for accepting new investment money and paying off early investors with those funds, just like Mr. Madoff. I hardly think one could characterize the real estate market as a Ponzi scheme.
Markets of all kinds fluctuate (some wildly) and they will do so as long as human beings embrace capitalism, are free to make individual decisions and continue to cling to fear and greed as motivators.
The option of "Ponzi Scheme" also applies to something that is in the same spirit, not necessarily requiring one person to orchestrate.
Since some successfully argue that Social Security is a Ponzi Scheme (with Ira Fuller SS #1 being the biggest beneficiary on a percentage scale), the "system" is scheme's organizer, not an individual.
No scheme. Prices in many markets were unsupportable, just like tulips, dot com companies, any number of periods in stocks.
Real assets were purchased, people got real use of them. No need for their to have been ridiculous cycles of moving up and getting further debt. In fact, areas where the ability to expand the supply with out limit are in much worse shape than desirable, though geographically constrained areas.
People chasing a market.
Other people relaxing rules so more people could chase the market.
People wanting to get rich chasing a market after they see others getting rich.
I don't believe it was a Ponzi scheme. The real estate run up was driven by the overnight increase in 'qualified' buyers who were not previously qualified. They became qualified by the relaxing/changing of lending qualifications through sub-prime loans, alt-a loans, and option arm loans. This temporary increase in 'qualified' buyers created an 'overnight' demand for housing that exceeded the supply norm. When these 'qualified' buyers started defaulting on their loans when the loans reset the market was hit with the reality of what was going on and these "snake oil loan products"(sub-prime, alt-a, option arm) started disappearing. What was left was a significant reduction in qualified buyers because lenders started going back to the more traditional way of qualifying buyers through conventional loans. The current housing situation can most simply be summarized by the manipulation or ignoring of risk in the housing market. Although the intent to make home ownership available to more people might be laudatory, the politicians making the rules failed to factor in the impact of increasing risk by doing this. In summary, it's fairly straightforward. The "snake oil" loan products pushed for and allowed by politicians created a huge increase in demand over supply from about 2000-2006. This caused house prices to rise faster and higher than could be supported long term by wages earned by the buyer. With the "snake oil" loan products now gone the buyer pool has been decreased dramatically. Thus, a complete flip with supply now far exceeding demand. What we are going through now is basically a correction to bring house prices in line with income. All of this is basic supply and demand economics and not a Ponzi scheme.
Fannie Mae/Freddie Mac able to leverage much more than the free market would normally allow.
Community Reinvestment Act tying lenders' hands on whom they may be allowed to mortgage to.
Bundling bad securities into good ones, rating them AAA (CDOs). Rating agencies looking the other way.
The Federal Reserve enabling easy credit with 1% rates.
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. Not that the OP will concede if the majority side with my opinion, but it will undoubtedly provide a little extra satisfaction to one of us. 
