From: "Rod Speed" 
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: Wed, 21 Nov 2007 07:28:18 +1100
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FrediFizzx  wrote:
> "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.

No they dont when the whole market drops significantly due to the large
oversupply of houses that are the result of mortgage defaults with those
who should never have been given that mortgage in the first place.