From: "FrediFizzx" 
Newsgroups: misc.invest.stocks misc.consumers.frugal-living misc.invest.real-estate
Subject: Re: Where did the 400 billion USD in subprime mortgage losses go
Date: Tue, 20 Nov 2007 12:10:22 -0800
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"Shaun Eli"  wrote in message 
news:00b8ce53-93d1-4559-a800-a5f190dada63@b36g2000hsa.googlegroups.com...
> An example:
>
> Pedro bought a house ten years ago for $100,000.  Last year it was
> worth $500,000 ('worth' because someone was willing to pay that much).
>
> Pedro takes his $400,000 gain by selling the house to Joe.
>
> Now-- Joe wasn't actually qualified for his mortgage, and defaults,
> owing, let's say, $490,000.
>
> Because there are a lot of these circumstances, and more sellers than
> buyers, the house is now worth only $300,000.
>
> Joe defaults on his mortgage, loses his $10,000 down payment.  The
> bank sells the house for $300,000, losing $190,000.
>
> Where'd the money go?  Into Pedro's new house, or his bank account, or
> whatever.  But it's not Pedro's fault that someone was willing to pay
> $500,000 for his house last year.  It's also not Joe's fault that the
> house is worth only $300,000 today.  Of course if Joe hadn't defaulted
> it wouldn't have mattered, because he'd still be living in the house
> and making payments on it, regardless of what it's actually worth at
> any random point in time.  And you could say that it's maybe Joe's
> fault that he took a mortgage he couldn't really afford, as well as
> maybe the bank's (and/or mortgage broker's) fault for lending him the
> money.  There's plenty of blame to go around but the one who may have
> ended up with the money isn't necessarily the culprit, if there is any
> in any particular case.

Good example.  The money is still out there.  The people that sold at 
the top have the money.

Fred