Where did the MONEY GO......where?

[Cat Man Du]

As some of you know...I'm a real estate broker and I have been reviewing the past sales on the deeds in my farm area. This is what I've found listed time and again on the deeds. Home purchased 2004 for $120,000 sold 2007 for $212,000 many many of these houses show a $100,000 profit made by the owners before the crash. These are blue-collar workers. My question is.......what happened to the $100,000 these sellers made on the sale. I mean, I see this muptiplied time after time. What did these lower middle-class do with that money??? Anybody have any ideas?? :huh2:

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Jonleehacker]

they rolled it into larger, more expensive homes that are now under water

 

[andviv]

I have had the same question and still don't have a satisfactory answer, IMO.

If they rolled that up to a larger home, somebody sold them that larger, more expensive home and pocketed the profits.

There is some money 'lost', in my opinion.

Probably it went to the auto makers, the flat panel HD tv makers, etc. But this was not a good answer as it seems these were bought with a loan or credit cards.

This money is out there, somewhere... I can't seem to find it either.

 

[MJ DeMarco]

Yup, that money went to the automakers, home furnishing, Sony, Toshiba -- all lifestyle stuff.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Red]

What did these lower middle-class do with that money??? Anybody have any ideas?? :huh2:

I once showed a house going into foreclosure (sub $150K price range), the family living there had a boat in the backyard (a nice large one that had all the water-skiing fixtures -I don't know boats, lol) and 2 quads in the side yard. In the house, a LARGE pool table, 4 flat-panel min of 52" televisions mounted, air hocked table, foosball table, etc. In the garage: 3 sport bikes (I couldn't blame them there), gym equipment, a go-cart and, outside in the driveway (cuz it woudn't fit in the garage), a lifted Dodge Ram truck with 24in+ chrome wheels & all the bells and whistles. Because, c'mon, you may not have a home soon, but you've gotta tow that boat in style.

But I agree w/ Johnlee -most of them rolled it all into bigger, better homes. I just happened to find one foolishly exceptional household.


:smx4::shruggie:

 

[andviv]

But I agree w/ Johnlee -most of them rolled it all into bigger, better homes.

But even then, the people that sold them that bigger home probably made some $$$. Where is that money?

 

[bflbob]

Sounds a lot like this old thread I had started...

http://www.thefastlanetomillions.com/general-business-discussion/17639-where-has-all-money-gone.html

Never got a great answer there either.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[rcardin]

In our case we just sold one of our rentals. We put 12k into rehabbing it and pocketed a check for 28k at closing. Ours went to paying off old debt. credit card consolodation loan and 2 credit cards. One of the cards was used for rehabb purchases. freed up 1k a month in disposable income. Oh and had to buy a 19" LCD for our bedroom. Radio shack had it on sale for 135.00

 

[hakrjak]

I know a guy who made $400k plus from a house he sold in California.... And he paid cash for a $350k home in Des Moines Iowa, and blew the other $50k on coke and whores, most likely.

Cheers,

- Hakrjak

 

[CommonCents]

An acquaintence who bought 40+ homes and was pulling cash out at close. He was bragging how he was good at real estate. I said, moron, you are good at BORROWING easy money. All his "profits" as he called them, was borrowed money by shenanigans with appraisals etc.. He handed all the properties back and I hope he gets nailed for fraud. His mortgage guy got nailed and is doing 8 yrs in the federal pen.

A lot of money went to larger homes, especially new construction. I suppose that money went to exec bonuses and leveraging more property/subdivisions until they went poof.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Cat Man Du]

One story I know about is:

Had a school teacher call us to sell her townhome in 2007. She paid $98,500 ....we sold it for $206,000. She rented/shared a home with girlfriend for 2 years. Called us to find her another property in the same complex....REO’s there were selling for about $100,000.....showed her a few and THEN her old townhome came up as a REO. Long story short she bought it for $97,000. She timed the market....JUST RIGHT!

 

[andviv]

Sounds a lot like this old thread I had started...

http://www.thefastlanetomillions.com/general-business-discussion/17639-where-has-all-money-gone.html

Never got a great answer there either.

YES, this is the one I was talking about the other day... thanks for finding it.

 

[Kung Fu Steve]

I saw a GM commercial recently that stated they paid back all the money from the government with interest and are now making a strong come back blah blah blah...

Any way to really tell if they have actually paid back the money? ... and if so, when do I get my check? :smxB:

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Red]

I saw a GM commercial recently that stated they paid back all the money from the government with interest and are now making a strong come back blah blah blah...

Any way to really tell if they have actually paid back the money? ... and if so, when do I get my check? :smxB:

ask and you shall receive:

GM's Phony Bailout Payback - Reason Magazine

 

[eloise]

We sold our home before the market crash. I had just been diagnosed with a rare medical condition so we were forced to sell. Our excess sadly went into paying medical bills and just trying to stay afloat as we learned how to downsize. Thank God we are on our way back up. So never get discouraged when life has you down, I am here to tell you it's only temporary!! And we also learn alot about how life works and how important it is to try and have your own successful business instead of making $10 an hour. Because when times fall flat for you, you are going under at $10 an hour. And definately have no resources to back you up. Just a boss that says see ya later, your medical restrictions are too much and we can't find a job for you here. However, we used this as our tool to make our own lives successful for us and not some other company.

 

[WestCoast]

I was always taught that real estate gains weren't 'real' money.

Unlike manufacturing, where a product is made and sold at a profit, or providing a service and charging for it, real estate gains don't - produce anything - for the profit gained.


If an individual bought a house for $100,000 and sold it for $200,000, then yes, they might have an extra $90,000 after closing costs.

But, they didn't 'do' anything. And the only reason they realized that gain was some bank was willing to fund more debt to another person who was hoping for the same result.

The owner that fixes up a house and builds equity by upgrading can claim otherwise, as they did work to increase the home value.

--
When a large profit is produced out of speculation of higher profits in flipping homes, eventually the pyramid scheme ends. Now all those individual and family 'profits' are being written off by banks who funded the debt. It was a paper gain that had no underlying asset. There isn't any produced good or service rendered to back up the profits.

--
Anyway, I decided not to invest in residential real estate a few years ago, so I have no skin in the game. I did my research and did the maths and just couldn't find a way that it made any sense to invest money there instead of another business.

Maybe just a fiscally conservative upbringing sheltered me from some huge potential jackpot by flipping homes.... but I don't believe any of the gains created by home appreciate have contributed at all to the greater economy.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[andviv]

If an individual bought a house for $100,000 and sold it for $200,000, then yes, they might have an extra $90,000 after closing costs.

Westcoast, I almost agree with you... however... in this example, this person has $90,000. Real money. Where is that money? Where did this money go?

Part of our previous conversation was that probably most people spend it, but there has to be many that put it in savings accounts or CDs or something like that and have some ability to invest or buy a property again.

 

[Russ H]

I have had the same question and still don't have a satisfactory answer, IMO.

If they rolled that up to a larger home, somebody sold them that larger, more expensive home and pocketed the profits.

There is some money 'lost', in my opinion.

Probably it went to the auto makers, the flat panel HD tv makers, etc. But this was not a good answer as it seems these were bought with a loan or credit cards.

This money is out there, somewhere... I can't seem to find it either.

I think it went to 4 main spots:

1. Rolled into newer, bigger, or just more expensive house.

2. Paid off tens of thousands of dollars in CC and other debts

3. Bought new toys.

4. Went into the markets, as retirement savings.

For #4: I think when some folks sold their homes, they told themselves this was the extra money they needed for retirement, and they "invested" it in things like stocks/Mutual funds, etc.

These were, for the most part, inexperienced investors who then "stuck with the market", riding it down, as the more experienced/larger investors took their money out.

I think tens or hundreds of billions went that way (#4).

I'm not a market guy-- but what is the total $$$ amount of loss when the Dow goes from 13,930 to 7,062 in a matter of days? Gotta be giganourmous.

-Russ H.

 

[Cat Man Du]

ask and you shall receive:

AMEN...AMEN I can't tell how many, many miracles I’ve seen happen from this short prayer. I did a mono on this, but can't find it...prolly for the best as it would be too religious for this forum. The bottom line is: it puts you in an expectant stage...you look for the answer and when you LOOK for the answer...it shows up! :urock2:

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[bflbob]

I think it went to 4 main spots:

1. Rolled into newer, bigger, or just more expensive house.

2. Paid off tens of thousands of dollars in CC and other debts

3. Bought new toys.

4. Went into the markets, as retirement savings.

I'm still at a loss on this stuff:

1. Guy who sold that house gets the money.

2. Credit card company gets the money.

3. Electronics store gets the money.

4. Guy who sold him the shares gets the money.

In no case did money disappear. It might have been a crappy investment for the poor sap who did items #1 to #4, but the money just went to someone else. It isn't like the credit card company cashed his check and then burned the cash.

The only way I can see for money to change in value is destruction (which should actually increase the value, since there is less of it) or rampant printing (which would decrease the value, since there is now more of it). But in my mind, the net value would remain unchanged.

I look at it in the same way as a stock split. A 2 for 1 stock split creates twice as many shares, but since the value of the company doesn't change, each share is now worth 1/2 as much.

If the government doubled the amount of cash in the country, it wouldn't make the country twice as rich. Nor would it make it half as rich. It would remain the same in total net value.

Still very confusing to me.

 

[Russ H]

I'm still at a loss on this stuff:

1. Guy who sold that house gets the money.

2. Credit card company gets the money.

3. Electronics store gets the money.

4. Guy who sold him the shares gets the money.

In no case did money disappear. It might have been a crappy investment for the poor sap who did items #1 to #4, but the money just went to someone else. It isn't like the credit card company cashed his check and then burned the cash.

The only way I can see for money to change in value is destruction (which should actually increase the value, since there is less of it) or rampant printing (which would decrease the value, since there is now more of it). But in my mind, the net value would remain unchanged.

I look at it in the same way as a stock split. A 2 for 1 stock split creates twice as many shares, but since the value of the company doesn't change, each share is now worth 1/2 as much.

If the government doubled the amount of cash in the country, it wouldn't make the country twice as rich. Nor would it make it half as rich. It would remain the same in total net value.

Still very confusing to me.

Aha-- NOW I get what you're asking/talking about.

The answer is, YES, MUCH OF THE MONEY DID DISAPPEAR.

Here's how:

Let's say there is a company, ABC Inc.

ABC Inc has 40 million outstanding shares.

These shares trade at $100 each.

So, ABC is "worth" $100 x 40 million = $4,000,000,000.00

4 billion dollars.

Got that?

OK.

Let's say you own 100 shares of ABC.

It's worth: $100/share x 100 shares = $10, 000 total (if you sold).

NOW, something scary happens to the markets.

There is a RUSH to sell-- everything.

No one wants to buy-- everyone is SELL SELL SELL!!!

Yesterday, you could have sold your ABC shares for $100 each.

At the market's open, folks are only willing to pay $90 for a share of ABC.

By the end of the day, they're only trading at $50 per share.

*********

Here's the thing:

NOTHING changed at ABC.

Nobody got caught doing drugs, or stealing money, or making bad products.

But the entire world got scared, and sold off their stuff, for whatever they could get for it.

So now, a day later, ABC is worth HALF of what it was the day before.

Your 100 shares are ALSO worth only half of what they were yesterday.

Where did the money go?

It didn't go anywhere.

It was never there to begin with.

Your shares were VALUED at whatever the selling price is/was for ABC.

So if the world is smiling/happy/confident about the future, AND they have lots of expendable $$, then markets go UP.

But if the world gets scared/depressed/pessimistic about the present, or the future-- all of a sudden, there is less $$$-- BECAUSE EVERYTHING IS NOW WORTH LESS--- people are less likely to buy something, b/c they are not as confident as they were before.

And they have less money, since the worth of pretty much EVERYTHING went down.

So their house is worth less.

Their retirement plan is worth less.

Even their CAR is worth less, b/c people are not buying, so prices go down!

*******

So the answer is:

When consumer confidence goes down in a big way,

MONEY DISAPPEARS.

Some of it also changes hands-- but NOT ALL OF IT.

********

How did I do?

Does it make more sense?

-Russ H.

 

[hakrjak]

I see what you're saying Russ.... But when a stock goes down in price, I thought that the money you lose goes directly into the pocket of someone who is selling short? It never really dissapears, right?

Cheers,

- Hakrjak

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[CommonCents]

That's true of unrealized gains. The wealth effect of people having tons of equity in their homes and then losing that unrealized equity is phantom. However, it is real in that the wealth effect makes people confident to go out and spend. The problems is that many people didn't sell their homes, they just refinanced and took on more debt which contributed to more consumerism. We have lived beyond our means and our homes and easy credit was the piggy bank. After the vacations, fancy meals, and gadgets are gone, we are left with our CC bills and higher mortgages to pay.

The only money to track to see where it went is the money/gains that were generated in real sales, in addition to all the refinancing.

Looks like APPLE got a big chunk! As well as Wall Street execs/hedge funds. Concentration of wealth is not good on a macro basis. The few largest banks controlling the majority % of assets and GDP is not good.

 

[Russ H]

I see what you're saying Russ.... But when a stock goes down in price, I thought that the money you lose goes directly into the pocket of someone who is selling short? It never really dissapears, right?

This would only be true if every single share was covered by shorters.

I don't know the actual numbers, but total shorts are only a small percentage of the total shares in existance-- most folks w/shares are not interested in entering into this kind of wager.

(Randallg, and other traders, please correct me if I'm wrong here-- I could not find estimates of the percentage of shorted shares to total shares)

Thanks,

-Russ

 

[Guest3722A]

This would only be true if every single share was covered by shorters.

I don't know the actual numbers, but total shorts are only a small percentage of the total shares in existance-- most folks w/shares are not interested in entering into this kind of wager.

(Randallg, and other traders, please correct me if I'm wrong here-- I could not find estimates of the percentage of shorted shares to total shares)

Thanks,

-Russ

Gentlemen, the stock market is a zero sum game, meaning, when someone loses, someone wins. A second consideration here is the specialist, if it's a NYSE traded stock or the market makers if Nasdaq. Specialists and market makers are the folks who provide the liquidity and constantly play both the long and short sides of the trading day. Many times after a company does a stock split, the stock will move back up to the pre-split price. At one time, Microsoft was splitting every single year and made a lot of people rich. Hope this helps. -Chris

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Russ H]

Gentlemen, the stock market is a zero sum game, meaning, when someone loses, someone wins . . . Hope this helps. -Chris

Actually, Chris, it does NOT help.

So a stock closes at 100.

You have 1000 shares. There are 20 million shares that have been issued.

A bunch of them are closely held. And the employees who own them? Most of 'em are not shorting.

The CEO dies in a plane crash.

The stock opens at 20.

Where did the $80/share go? Who got it?

Are you telling me that $1.6 BILLION DOLLARS were shorted?

-Russ H.

 

[AroundTheWorld]

The markets are one factor in the disappearing money. The banks "drying up" is another factor. If the banks don't have it, they can't multiply it, and the "exponential growth" goes away...

... the money supply shrinks.

 

[imirza]

The stock market(equities) is NOT a zero sum game. Russ is correct.

The option market and future markets however are zero sum games since they are always parties on the other side.

Russ - Short positions are usually no more than 10-15% of total shares outstanding. And even this is a pretty high number. In most big caps its barely 5%.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[CommonCents]

Gentlemen, the stock market is a zero sum game, meaning, when someone loses, someone wins. A second consideration here is the specialist, if it's a NYSE traded stock or the market makers if Nasdaq. Specialists and market makers are the folks who provide the liquidity and constantly play both the long and short sides of the trading day. Many times after a company does a stock split, the stock will move back up to the pre-split price. At one time, Microsoft was splitting every single year and made a lot of people rich. Hope this helps. -Chris

zero sum on actual transactions but as others stated, does not apply to unrealized gains/losses.

At the macro level, the fed and treasury increases/decreases money supply. They let us play with, oops, mean rent their money for awhile.

 

[Russ H]

The stock market(equities) is NOT a zero sum game. Russ is correct.

The option market and future markets however are zero sum games since they are always parties on the other side.

Russ - Short positions are usually no more than 10-15% of total shares outstanding. And even this is a pretty high number. In most big caps its barely 5%.

Many thanks. As you all know, I'm not into paper assets, so my knowledge here is weak.

Chris/Tophera-- can you explain your comment:

Gentlemen, the stock market is a zero sum game, meaning, when someone loses, someone wins . . . Hope this helps. -Chris

What did you mean?

-Russ H.