DEBUNKING SOCIALISM PROPAGANDA
The housing crash was caused by the real estate bubble. The abnormal rise is what created the abnormal fall. It's a balancing act, and so the only way it can fall is by rising too fast. It's like the only way a jack-in-the-box can spring out of the box is by coiling the spring. The only way the housing market can crash is by rising exponentially/abnormally, which coils the spring. This was done by the middle class, who went into a house-buying frenzy, bidding every house up by 5-10%. They figured the housing market was rising that fast anyway, so why not jump on the bandwagon. Everybody was doing it, so everybody wanted to get in on it. People were making more money in real estate than any other type of investment, so a lot of them pulled all their money out of other investments and poured it into buying second and third houses. People were also borrowing against the equity in their home, and even borrowing against credit cards to buy even more houses. It seemed like a sure-thing because housing prices had never fallen in their lifetimes. It was a buying frenzy that was feeding on itself, because people kept agreeing to mark the values up a little higher each time, which was paid for by the next person marking it up even higher. But the houses weren't really more valuable. The behavior was just following itself, following assumptions of value created by its own momentum. There is only one way to stop that kind of behavioral spiral from happening, and that is by taxing it. When the housing prices formed an exponential rise on the graph (a curve shaped like a bicycle ramp), that was the signal that buying was out of control and had gone into a frenzy. A 1% transaction tax on any real estate that is marked up would have taken some of the fun out of marking it up. Or it could be a 20% tax on the markup above the tax assessment.value. It's like "Oh, you have an extra 10% cash to bid the house up that much higher than the market, and 20% above the assessment? How about sharing 20% of the difference with the government since you have so much extra money lying around." Since overbidding a house is a useless luxury anyway, that only leads to problems down the road, we might as well tax it whenever it gets out of hand. That would have taken the fun out of marking up the prices in a bidding-frenzy, and people would have calmed back down and gone back to their normal routine of just buying a house to live in.
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Posted by Nicole Bourbaki