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 – soto a limited extent these individuals can be viewed as among the ‘winners’ ofthe real estate crash. [1] However, those that benefited the most from the crash were – as one wouldexpect – 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 adviseothers of the impending financial disaster or to remain silent and attempt toprofit from the coming period of fiscal upheaval. [2] Certainly while economists such as Steve Keen, Nouriel Roubini and Dean Bakerwere attempting to warn the world of trouble ahead – and later won awards fortheir efforts – other individuals undoubtedly would have heeded their words ofcaution and acted accordingly to either profit or at the very least try tolimit the damage that would be caused by such a crisis. [3]

Hedge fund managers were also among the‘winners’ of the crisis: by betting upon the idea that house prices could sharplydecline and that ‘investment-grademortgage bonds would be subject to defaultin record numbers’, such individuals were able to make a great deal of moneyout of the real estate crash. [4] Following the crash, the Financial Crisis Inquiry Commission (FCIC)launched an investigation into the financial activities of hedge funds whichcould have exposed individual ‘winners’; however, the survey was conductedconfidentially and therefore uncovered no profiteers publicly. [5]

Yet, undoubtedly the biggest winners of thereal estate crash had to be the banks themselves. As the FCIC found duringtheir investigations, by making loans that they ‘knew borrowers could notafford and could cause massive losses to investors in mortgage securities’,unscrupulous money-lenders were feathering their nests ahead of the fiscalcrisis that they knew was imminent. [6] In the years following the crash Goldman Sachs emerged as one such corporationthat benefited heavily by laying substantial financial groundwork before theglobal financial crisis hit. In 2009 allegations were made against Goldman Sachsclaiming that the company had placed bets against the housing market in theyears preceding the crisis and that they had peddled more than $40 billion in securitiesbacked by risky US loans. [7] Confirmation of this was given in 2010 when Lloyd Blankfein, the CEO of GoldmanSachs admitted to the firm’s ‘improper behaviour’ in the years preceding thehousing crash. [8] 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 dollarsin 2009 and Goldman Sachs’ executives were given bonuses of a reported $20million in early 2010. [9]

 

[1] Peter Jackson (2 nd October 2008) ‘First-Time BuyersWelcome Crash’ BBC News <http://news.bbc.co.uk/1/hi/uk/7646880.stm>[accessed 16 th August 2013].

[2] Gary Karz (16 th December 2012) ‘Who Predicted the GlobalFinancial Crisis?’, InvestorHome <http://www.investorhome.com/predicted.htm>[accessed 16 th August 2013].  

[3] Karz

[4] Svea Herbst-Bayliss (7 th April 2008) ‘Hedge FundManagers Make a Mint on Housing Crisis’, Reuters <http://www.reuters.com/article/2008/04/07/us-hedgefunds-salaries-idUSN0346019020080407>[accessed 16 th August 2013].

[5] Karz

[6] Phil Angelides et al. (January 2011)‘The Financial Crisis: InquiryReport, FCIC & US Government <http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf>[accessed 16 th August 2013].

[7] Michael Snyder (15 th January 2010) ‘Goldman Sachs Admitsto Engaging in Improper Behaviour During the Housing Crash – But They Aren’tAbout to Give the Money Back’, TheEconomic Collapse <http://theeconomiccollapseblog.com/archives/goldman-sachs-admits-to-engaging-in-improper-behavior-during-the-housing-crash-but-they-arent-about-to-give-the-money-back>[accessed 16 th August 2013]. 

[8] Snyder

[9] Snyder

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