I bought my condo in 2004. I didn't know a thing about real estate, and never bought before, but just looking at the runnups in the previous years, I don't know how anyone could avoid noticing it might be a bubble price. I remember thinking that my condo could lose a lot of value. I also remember thinking that prices might continued to rise, and I might be priced out of the market, and I was a bit panicked and eager to buy, for that reason. So--one novice (me) was worried about the bubble, but bought anyway. (For whoever is curious--condos like mine continued to rise in price until 2007, but I have no idea how far they might fall when this is finally over--if at all.)
Where I got burned is the stock market. I invested about 35,000 last summer when we reached 12,000 and held steady (or seemed to be inching back up). I remember reading Paul Krugman, who warned about a coming depression and 'banana republic economy' and I remember thinking--Paul Krugman has scared me for too long! I'm losing money keeping my money in cash! (inflation). But he was right.
It was the real estate securities that pumped the stocks up (why this is relevant on this page) and brought them crashing down.
Here is what I didn't realize, and I don't know how I could been expected to realize: big banks made bad mortgages--but then sold those as toxic real estate products to other banks. I didn't know that. I think that knowledge was available, but I didn't now about it. I read a lot, but I don't remember reading about it. So when it happened, and I lost a lot of money--I was taken off guard.
I didn't invest in financials (per se--I bought Vanguard large cap and mid cap, and some TransAmerica stock plus bonds) but I understand that it is these toxic mortgage products that brought everyone down.
I believe that bankers knew what they were doing, but were hoping to cash out before the roof caved. I think that strategy might work for them. As for me--I'm trying to rebudget without that 35,000. (I'm preparing for worst case--stocks plummet to zero. Haven't sold yet, not gonna sell.)
As far as my 401 K, I don't feel so bad--I feel like finally I'm buying every month at a fair price--for the first time! I feel bad for my father, though, --but then again--his gains in the last eight years were not real--so , it's okay.
Long post!
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