Here is another good
video from YoungTurks [explaining why the rich got richer after the housing market collapse]
These guys are a hardcore version of the John stewart show.
I don't get how some people find it so difficult.
I usually explain it in terms of Larry and George, the neighbours. Larry is a Spender, George is a saver. Both work at the same place. One year, times are good and both get a $50,000. Larry spends it on a boat, a Car and a vacation for the family. George splurges on a pizza night and saves the rest.
5 years later, the firm they work for makes some cut backs. Both have to "Tighten their belts" at home. Larry has to sell the $20,000 car to go down to a one car family. He sells it to George for $2,500 because George never buys new cars (They are just too expensive.) and that $2,500 is the interest on his $50K he squirreled away.
Another 2 years goes by, and the firm goes bankrupt. Larry has to sell his $20,000 boat. George buys it from him for $2,000 because, again, he has the money in his savings while Larry pissed all his away on luxury purchases.
The bank act like George. They know the world is full of Larrys; people who spend more than they can afford, don't save for a rainy day, and make impulse decisions when the market is often inflated. Given that the banks KNOW about the "Ups and Downs" of inflation and recession in the marketplace as far as the value of commodities goes, they wait until the low points in the market to buy stuff because they can get it at a cheap price.
For the housing market, this is beyond profitable. First off, they ALWAYS make interest off the mortgage, and when housing values get inflated, the amount of interest on your mortgage gets bigger because the principle is bigger. Since they have REALIZED that so many people are willing to live WAY out on the margins of their incomes and spend far more than they can afford to pay back, why not give that questionable mortgage? When they default and are crushed by the interest payments, you get the house and whatever money they have paid you in interest.
Mortgage loans is like running a casino. Even when you lose, you still win because at the end of the day, the games are all rigged in your favour. From an individual's perspective, there is a lot of risk there, but the institutions themselves have to be either supremely negligent or supremely stupid to lose money on mortgages, and if you're that negligent and/or incompetent, that's natural selection voting you off the island made of Gold. (Gold that may be the broken dreams of the every day person, but thems the breaks. All dollars look the same on a bank statement.)
My bank loves me because I never over-extend my finances and when they ask me "What are your long term financial goals", my answer screams "GEORGE!" (IE I'm going to keep my savings in a high interest savings account until the housing market crashes and I can buy a house at a dirt-cheap price with the hopes of converting it into a rental property. The only thing better than paying a mortgage is getting other people to pay it for you. :P)
Anyhow, I'm sure most of you know this already, but the "Larry and George" story is a great way to explain the ups and downs of the market as well as how banks not only make money, but profit from your misfortunes in a way that any idiot can understand. (Keep in mind, idiots will get mad and curse and swear about how unfair it is, but life isn't fair and as I said previously; no one wants to stop playing Monopoly when they are winning. Be George and the game won't seem as unfair as it is if you act like Larry. After all, if the banks know you're gonna live outside your means, they are going to allow you to do so and charge you out the ass for that privilege. Just because they offer you a $25,000 credit card doesn't mean you should take it; especially if you can't resist the urge to spend money you don't have.)
