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The Great Property Swindle

In the past, owning property was a good way to collect rent, both the "normal," income kind, and so-called economic rents, that accrue to holders of scarce factors of production. The recent property boom was an exception to the rule. There were economic rents to be had, but these did not accrue to the property owners that borrowed heavily to buy overpriced housing units. Instead, they went to FINANCIERS of such purchases. In financing such borrowing, the banks captured such returns for themselves, thereby swindling them from their "rightful" owners.

This happened for two reasons. The first was that the banks "flooded the market" for home loans. An otherwise good market is spoiled when it is "flooded" by overeager purcchasers, who bid prices so high that rents are less than mortgages. Then, they do not garner the "economic rent." Instead, this belongs to the bankers who provide the mortgages.

The other reason is that in making home loans for as much as the houses were were worth, the banks essentially "asset stripped" them. Home owners had ZERO equity, and therefore did not capture the (economic) rents. Instead, they went to the bankers who could write "paper" for more than the houses were worth, and sell them to investors at "face value" or something very close to. Both homeowners and investors were left holding the bag while the banks--"went laughing all the way to the bank."