American Housing Bubble: Biggest Financial Scam of the Century

American Housing Bubble: Biggest Financial Scam of the Century

Many Economists around the believe that American Housing Bubble is the biggest Financial scam of the century and not the Maddoff Scam. Maddoff Scam was just US $ 50 Billion but American Housing Bubble is a Trillions of Dollars of Financial Scam.

So Why Economists call it the Financial Scam? Well, this is because the government knew that the bubble is creating in the housing sector and still it kept its mouth shut. In the year 2002, The President George Bush told publically that, “US Citizens should buy Houses and this is good for nation. So keep buying houses”.

Since last several decades, US Federal Reserve has liberalized the banking rules for the housing sector mortgages. The government offered the tax breaks on the mortgage loans. Not only this but banks have structured several complex financial and derivatives products from housing mortgages whish they sold to the banks of other nations.

Everyone at the top level knew that buying a house on 30 years mortgage loan is a Fool’s plan but still the government motivated people to do so telling them that, Your House is your Biggest Asset and we are giving you a tax break on the loan you take.

By telling this to the people, they have created a false mindset in the Americans that the Real Estate price can go only in the one direction and that is UP.

Now, Just think logically that, How can a House be your Asset if you have to pay a mortgage loan for 30 years? Asset is something which gives you Financial Security. Once you acquire the asset, You don’t have to work hard, but the asset works hard for you to make money.

However, many smart real estate investors have managed to turn the House as an Asset in true sense. What they do is, they invest in real estate and put it on rental basis and after that the tenant pays all of those mortgage payments and other maintenance charges of that property. And still after this, that property provides its investors the positive cashflow.

However, not the real estate properties provide you a positive cashflow. Most of them turn into a negative cashflow properties (Liabilities) after deducting Mortgage payments and maintenance costs.

The Federal Government was knowing all of these things and still it motivated people to buy houses on 15-30 years of mortgage so that US Citizens have to work hard in the economy until they repay that mortgage loan.

So understand the basics of Assets and Liabilities. If your Government is telling you that something is an asset and giving you a tax break for it than it doesn’t mean that it really is an asset. Always remember that an Asset is something which puts money into your pocket. So if your rental property puts money into your pocket at the end of deducting all of the expenses such as Insurance, Mortgage Loan payments and Maintenance than and only it’s an Asset. If you have to do expense from your pocket to keep that property than the same property is your Liability and not your asset…!!!