Wealth Created by the Financially Ignorant; Transferred to the Financially Savvy

Over the weekend, I had a moment to visit the CNN website where I saw a video describing the Dekalb County, GA foreclosure auction process.  It was describing the “tragedy” of people losing their homes and subsequently hordes of investors looking to profit from the foreclosure process.

The media tends to focus on the “tragedy” of such events.  Despite their best efforts, the truth, however ugly, always comes out. 

The truth is that the large masses of new people (new homebuyers) were primarily responsible for the upward surge of property values, along with amateur property flippers.  The masses fell prey to the “scarcity” of homes for sale and the herd mentality.  And so, they did the only thing they know how to do, they bid property upwards at any cost to own a piece of the American dream.  On top of paying ridiculously inflated prices for homes and subjecting themselves to the newly adjusted and inflated property tax rates, many people were financially ignorant of the homebuying process and mortgage loans.  And so, in their desperaation, they make the situation worse by signing on loans that had dangerous and outrageous terms such as adjustable-rate mortgages.

Financially intelligent and capable people refuse and curtail their actions in such areas because it doesn’t make sense and it is financially suicidal!  Not only that, people who previously rented their homes or apartments stupidly assumed that their mortgage payments was the replacement to their rent payments!  The truth is there are much more expenses to owning a home than the mortgage payment.

And here it is less than two years later, the bottom has fallen out.  The bottom fell out because the very people who so desperately wanted to buy a new home are the ones losing them in droves and causing an insane lender tightening hurting everyone including traditionally qualified buyers.  This means that buying has become more difficult than ever and sellers will suffer.  The people who were marginal to begin with have just signed their financial death warrants.  They are relegated to renting for the next 5 to 10 years because they will be untouchable and will become a financial pariah…. until people forget this subprime mess, which they will eventually do.

No one wants to hear the truth.  Many people who have bad credit are financially ignorant and have financial habits that keep them that way.  They cannot reign in their emotions and raise their financial intellect so they pay the ultimate price.  They will become financially crippled because they had to learn the hard way.

Some people say that many lost their jobs which caused a lack of income.  Actually, there are tons of jobs.  People lack the creativity and entrepreneurial skills to hustle and get the jobs or to find new opportunities.  They just keep mailing resumes and hope someone will call and hire them.

The old-style “middle-class” mindset will become the new “poor mindset” in the years to come.  And people who currently have the “poor mindset” will become the new “poverty mindset”.  Changes are happening so rapidly and yet people are unable to cope with change.  They lack emotional and developmental training to gain those skills to cope.

Everyone thinks taking the next “hard core” technical class or book will save them.  Sure.  Right.  I am a provider of these materials because I give what the customers want but I also sprinkle in material I think people need to hear.  And so, young college students keep doing what they are “supposed” to do until the day they graduate.  Then they will get slammed by the real world.  Most will not be able to support themselves and most will have to settle for an entry level job.

At the end of the day, what we are going through is simply reinforcement to what I have said the last few years to my students and readers.  Wealth that was created by the masses is being LEGALLY taken from them and transferred to the financially savvy, making them even more wealthier.  Life isn’t fair.  Choosing to stay in the dark and be ignorant doesn’t help. 

And many will have learned some tough life lessons the hard way.

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