OK, the people who ran the ad probably didn’t think of it that way, but to me the message was very clear: The next major recession or depression is coming along soon, so get ready.
Then, there was an article in the Boston Globe yesterday warning about the increase in lending to real estate projects in the greater Boston area by commercial banks. That clinched it.
The ad? It was from a company inviting members of the public to attend a free seminar about how to make big money in real estate by buying and then ‘flipping’ (reselling) houses to make a profit. The ‘free’ seminar is really a single evening where you go in and they sell you on paying good money to attend an entire weekend on how to buy property with borrowed money (with little or none of your own money as down payment), do some clever things to fix things up, and then sell for as much profit as you can get. You pay back the loan, and keep the profit. Simple, right?
Why is this an ad for a coming recession? Because I’ve heard these ads before and I know what happened soon after. It was in the mid 1980s. I attended one of their seminars and got the pitch. The principle was to use “OPM.” That stood for “other people’s money” to invest in your real estate scheme. I.e. money borrowed from banks & other lending institutions. I walked out, shaking my head and with a sick feeling in my stomach. No, I did not attend the weekend they were promoting. I knew the whole thing was headed for trouble, even though I had never been a real estate investor.
What happened then? Around 1989, the ‘bubble’ in real estate prices ‘burst’ and there was a crash. Buildings stood empty. Banks went bankrupt. People in condo units turned in their keys and walked away, or ‘camped out’ in the unit they ‘owned’ with the water and electricity shut off. So called ‘smart’ or ‘clever’ investors, who were flipping property got stuck with no buyers for the multiple buildings they then 'owned' and ended up in debt so huge they could never pay it off by actually working for a living.
If there hadn’t been an FDIC, I would have lost everything. Not because I was invested in such schemes, but because the two ordinary banks in which I had my checking and savings accounts went bankrupt in the process. The Arlington Five Cents Saving Bank and the Coolidge Bank & Trust Company. Both gone. The president of the Coolidge Bank even ended up in jail for using millions in bank assets to invest in his own commercial building that ended up with no tenants! He was sure he could return what he had embezzled without anyone noticing because of the huge profits he expected to make. Right.
What’s wrong with this picture? A whole bunch of things. For one, using a basic human need for speculative gain: In this case, shelter. For another, pretending that a hot market will only go up and never cool or collapse. Third, thinking that anyone can get rich by doing almost no work, as if the money will just come from nowhere. The fact that the richest people in the world made most of their money in real estate only fuels the fantasy that anyone can get rich the same way.
The money doesn’t come from nowhere. Other people, many of them innocent, will end up losing. People who need a legitimate place to live. People who pay taxes. People who put money in savings or conventional investments in hopes of using it for retirement or their kids education. They are stuck in a system that they must share with the most greedy and short sighted people trying to make big profits. Many of them will be wiped out.
This process of going into great debt to make lots of money without working is an evil act. I cannot describe it any other way. The people are not evil, but what they are doing is.
I cannot stop it from happening, alas. I can only do two things. Watch and prepare.
If this downturn is bad enough, then it will be time for us to get together in small groups (such as Time Trade Circles) where we provide what we can for each other without conventional money. Of course, a small band of villagers may not be able to provide all the food they need for each other, and certainly cannot make their own computers and smart phones on their basement workbenches (if they even have a workbench), or create fuel to put in their cars (unless they have their own solar panels and an all electric vehicle - then there is maybe a chance). But at least they can do some things for each other. They can start building an alternative economy that is truly the economy of the future. Once the money is gone.
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