The Biggest Winners of the Real Estate Crash
By Steve Binge

The Biggest Winners of the Real Estate Crash

On a small scale, the crash represented anopportunity for first time buyers to get their foot on the property ladder – so to a limited extent these individuals can be viewed as among the ‘winners’ of the real estate crash. However, those that benefited the most from the crash were – as one would expect – those who suspected that a crisis was on its way. And as Gary Karzobserves those that saw the warning signs had one of two options: to advise others of the impending financial disaster or to remain silent and attempt top rofit from the coming period of fiscal upheaval. Certainly while economists such as Steve Keen, Nouriel Roubini and Dean Baker were attempting to warn the world of trouble ahead – and later won awards for their efforts – other individuals undoubtedly would have heeded their words of caution and acted accordingly to either profit or at the very least try to limit the damage that would be caused by such a crisis.

Hedge fund managers were also among the‘winners’ of the crisis: by betting upon the idea that house prices could sharply decline and that ‘investment-grade mortgage bonds would be subject to default in record numbers’, such individuals were able to make a great deal of money out of the real estate crash. Following the crash, the Financial Crisis Inquiry Commission (FCIC) launched an investigation into the financial activities of hedge funds which could have exposed individual ‘winners’; however, the survey was conducted confidentially and therefore uncovered no profiteers publicly.

Yet, undoubtedly the biggest winners of the real estate crash had to be the banks themselves. As the FCIC found during their investigations, by making loans that they ‘knew borrowers could not afford and could cause massive losses to investors in mortgage securities’, unscrupulous money-lenders were feathering their nests ahead of the fiscal crisis that they knew was imminent. In the years following the crash Goldman Sachs emerged as one such corporation that benefited heavily by laying substantial financial groundwork before the global financial crisis hit. In 2009 allegations were made against Goldman Sachs claiming that the company had placed bets against the housing market in the years preceding the crisis and that they had peddled more than $40 billion in securities backed by risky US loans. Confirmation of this was given in 2010 when Lloyd Blankfein, the CEO of Goldman Sachs admitted to the firm’s ‘improper behaviour’ in the years preceding the housing crash. And such ‘improper behaviour’ seems to have made the company one of the biggest ‘winners’ of the real estate crash: the firm made ‘tens of billions’ of dollars in 2009 and Goldman Sachs’ executives were given bonuses of a reported $20million in early 2010.

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