How thing work ( Economy,money,stocks,housing)

[PrecisionBoost]

I just want to touch base on how things work in western economies ( and most of the other world)

Many people have no idea how rich people make money.... and yes... by most people's standards I am wealthy.

That's not to brag... it's simply to state that I've made lots of money from using other peoples money so I know what I'm talking about.


Some of you may already know what I know..... but most people are clueless.

[PrecisionBoost]

So... lets just start by stating that the housing market and stock market are tied into our economies.

I'm in Canada but we feel the pinch due to the issues in the USA.

First off.... everything goes in a cycle..... stock markets..... housing.... world economies.

It's just a simple fact of life.

Everything in the western civilization is based upon supply and demand.

If the people of the United States of America don't wake up and smell the greed then your going to become a third world country.

What do I mean by that?

Simple.... the rich will have all the money and all the power.... the the poor will be ground down and turned into slaves.

Don't take that literally ... it's not like they will throw chains on you.... but they will make you so broke you will be in debt to them forever ( sounds like slavery to me )

[PrecisionBoost]

money is not something that comes from a magic fountain somewhere.... it's give and take.

When you make $20 doing something then someone else is giving up that money.

For example.... let's say you wash some guy's car and he pays you $20 for your time.

Where does the money flow?

Well.... most of you just see a guy giving you money..... but in reality it goes much deeper.

That guy was able to give you $20 because he works for GM

And GM was able to give him $20 because they sold a car.

Now here is the weird part.... if you bough a GM car... then technically a portion of the cost of that car went to paying the guy that paid you for washing his car.

So technically you paid yourself in a roundabout way.


Yes.... that is simplistic.... it's much more complex than that because the money is spread out over thousands of people along the way.... but in the end $0.00001 of your car ended up back in your pocket.

Another 2,000,000 GM car owners paid $0.00001 so that you could have your $20


So there is no such thing as making money.... your simply pulling money from other people.


A society or country gets into trouble when the money is pulled from the lower class and put into the pockets of the upper class.

In the end that grows exponentially until all the money is held by a few thousand "rich" guys and everyone else is "poor"

That is how class structures end up being created.... the lower class has to realize this and stop them funneling of money to the rich guys.

That is not easily done.... people need to make an effort to understand how rich guys get richer.

[PrecisionBoost]

The stock market....... one of the favorite play place of rich guys

People with money understand how the stock market works..... and they try their hardest to confuse everyone else and create situations where they can pull more money from lots of other people.

How do they pull this off?

The media.... your TV channels and radios and newspapers are owned by rich people..... they tell you only what they want you to hear.

Everyone thinks the media is "unbiased" but it's simply not true.

so..... let's get back to the fun of how to steal money from poor people.


Simply stated.... people with lots of money can make the stock market go up and down.

Lets say for example a very wealthy guy knew that one particular stock was a little bit undervalued.

Say the stock is selling for $10 but it's really worth about $12

He could inflate the stock's price by buying lots and lots of stock.

Not just a couple bucks here and there.... but millions or billions of dollars.

What happens? ... the stock starts to rise and people start to buy in thinking that they are going to make money.

The guy pushing the price up has a large interest in the company..... perhaps at some point he is able to get involved and help to inflate the value of the company temporarily to fool investors.

Many people haven't a clue..... they just dump in money without looking at the bottom line of what the company is worth.

Others are smarter... but because of certain circumstances ( such as a controlling interest making the company look better than it is ) they get pulled in with some level of caution.

Now.... the stock keeps rising and rising and rising..... the guy who dumped in say 1 billion dollars now has 3 billion dollars worth of stock.

He dumps the stock slowly at first and then increases the quantities of stock he's selling until he feels it has peaked..... then he dumps more and more stock selling if off as quick as possible.

He might know that the stock is only worth $12 per share.... but he's made people think it's worth $30 a share

For him he doesn't care that the stock price is dropping... that's what he wants.... the value of the company is not what it should be and that starts to come out when they post quarterly earnings.... so people start to panic and sell off their stocks.

By the time the stock hit's where it was prior to the gains the rich guy has made about 2 billion in profit

Where did he get that money?

Simple.... he stole it away from others who invested while the stock was rising.

He can push the stock further and further down because he's made shitloads of money.

Eventually the price drops so much that the stock is undervalued.

Then at a certain point the stock is say $8

Well the guy starts buying again..... he allready has $1 billion dollars worth of stock..... and he made $2 billion on the last go around.

So.... he dumps in all of the extra $2 billion.... making the stock rise again.... $10... $12.....$15....$18.....$22 and he sucks in a new group of investors.

By the time he's spent his $2 billion he owns the controlling interest in the company and quickly announces a merger or sale with another company.... or he splits things up and makes even more money.

In the end.... he might make $5 billion dollars off the deal.

That money doesn't come out of a magic hat.... it comes from lower class workers and pension funds.... it comes from smaller companies that were trying to make a couple bucks.

There are a number of very wealthy guys that do this all the time..... they screw around with smaller companies and move their stock value up and down.

So.... how do they get away with this?

Simply.... they do it through networks of companies so that it's impossible to trace the source of the movement.

If someone is found responsible.... then there are ways that the government can stop them.... but in most cases they have enough influence in the government that nobody really tries to hard to uncover whom is responsible.

[PrecisionBoost]

So what are networks of companies?

Simple.... these wealthy people (many times families ) sometimes own thousands of different businesses and funnel money back and fourth so that nothing can be traced back.

If one person goes in an buys $10 million dollars worth of stock everyone looks at them and says "hey what's he doing"

But if 1000 different companies buy $10,000 worth of stock each.... well... nobody pays attention because that's not a big transaction.

It's like having access to someone else's bank account..... if you take out $100 here $1000 there... someone will notice.

But if you take $20 one day.... then $20 a month later.... then $40 a week later... then $20 two months later the person who owns the account might not notice for a while.

Things get really complicated when you find out that each of these 1000 companies that bought $10,000 worth of stock happen to be publicly traded companies.

As it turns out some of them own parts of others and sometimes a larger one will own a majority share in some of the smaller ones.... then a group of smaller ones own majority shares of that same large one.

So things can get really really complicated..... sometimes you have to trace back 20 companies before you will see the name of someone you might recognize.

Just imagine your looking into some sort of suspicious stock market deals and you end up tracing back through a set of lines that end with someone who is high up in the government.

That government person might not be the one pulling the strings.... it just so happens that one of the companies he owns stock in might be partially owned by the guy who's screwing with this stock.

But in the end that government person profits off of the movement of the stocks and perhaps so do several hundred thousand investors.... many of whom know what was going on but simply don't say anything because they are making money off it as well.

The more people this "wealth bad guy" involves the more protection he gains.

[PrecisionBoost]

I'm not saying this is how the entire stock market works.... but there are craploads of wealthy families making money no matter what happens in the stock market.

They buy low and sell high.... sometimes they take a loss on purpose so that they can make more money elsewhere.

Again.... I say make money but I really mean pull money from other people.


Quite often investment in companies can purposely inflate things.... and the economy is much like a stock market.... and it can be fooled with in much the same way.

Drive up oil prices and the cost of living goes up.... as such the value of companies go up.... so does the cost of housing.

When oil prices are pushed to a maximum certain parts of the economy start to collapse...... GM stops selling big gas guzzling vehicles.... the cost of driving and hauling materials go up..... so wages go up and cost of goods go up.... and profits for certain companies go down.... many times driving them to bankruptcy.... then larger companies come in and buy up the smaller companies at a fraction of the cost.

And so on.... everything is tied in.

When housing prices get too high they are bound for a correction to bring them back to what their real value should be ( much like an overvalued stock will get dumped and crash the price )

Who makes money from this?

People with lots of cash in the bank.

When Joe Public walks away from his house loan the bank freaks out and sells the house cheap ( sort of like the stock in the previous example.... investors start to dump the stock for fear of loosing their shirt )

Who buys up these cheap undervalued houses?

People with lots of money in the bank.... people who are not affected by the economic downturn and see the drop in the economy as a chance to make some more money.

What do they do?

They buy the house and rent it out to people who walked away from their mortgage.

Eventually the housing prices will come up again as the economy rises again..... they just bide their time and wait to cash in on other peoples misfortune.

[PrecisionBoost]

So we hear about all these people and companies loosing money...... but if money is static then where does that money go?

Well... in some cases it goes into executives pockets... even as GM claims they are nearly bankrupt I'm sure there are hundreds if not thousands of guys pulling in big six digit salaries for doing practically nothing.

Some of that is going into the pocket of overpaid workers.... $1 here $2 there doesn't sound like much but when you have 300,000 people getting paid hourly that can mean a half million dollars an hour!

So if someone is overpaid say $5 an hour that is not to say that that worker is rich..... it just means that he's a little more comfortable and he's taking that money from someone else ( who might be worse off )

Just imagine that.... $5 an hour..... say you had 100,000 workers..... that's $500,000 per hour..... which might mean $4 million per day.... which might be $1 billion dollars a year!!!!!

$5 an hour doesn't sound like much until you put it into perspective.

Just think of all the guys that are being paid $30 an hour more than they should.... or even $100 an hour more.

In the end..... if a company can't control it's employee wages they won't be successful and they will go bankrupt.

Unions are good and their bad...... their good at fighting for rights of workers and making things fair..... but their also bad when they overstep their boundaries and ask for more money than a job is worth.

When that happens a $15,000 car needs to be sold for $20,000 which hurts us all and makes the car manufacturer non-competitive versus other companies.

In the end bankruptcy is actually a good thing... it allows outside parties to come in a trim off the fat to make the company viable again.

[PrecisionBoost]

It's getting late..... so one more quick post.

So how do wealthy people use other peoples money to make money?

Simple... the banks love giving money to wealthy people.


Lets pretend for example that a bank offers me a loan for $375,000 at 5% interest

I then invest it into something that makes more than 5%.

For example.... real estate was fairly hot.... on average houses were going up 10% to 20% per year due to economic conditions.

So... it's simple.... you take the $375,000 the bank gave out and use it to put down payments on five houses worth $300,000 each ( so you put down $75,000 on each house which is exactly 25% )

Now you have $1,500,000 worth of houses bought with the banks money.

Then you rent the houses out and have the tenants pay for most of the interest costs.

You now have 5% interest to pay on $1,500,000 worth of property which works out to be about $75,000 a year in interest.

Given you have 5 houses each paying say $1500 in rent per month your income from rental is $90,000

Not only did the rent pay for the interest on the houses it generated an additional $15,000 !

So.... lets say that for 3 years the average increase in price was 15% per year

That means that at the end of 3 years that initial $1,500,000 worth of houses is now worth $2,281,000

If you sell the 5 houses for that you will have made $781,000 plus $45,000 worth of rent..... so just over $800,000 thanks to a bank giving out a $375,000 loan.

What would I have paid out of my own pocket? Zero, nothing, nadda

At the end of 3yrs I pay back the $375,000 and walk away with a giant amount of money.

So.....who paid for that.... or should I say.... in this particular case whom did the money come from?

Simple.... Joe Public.

Yes... that's right.... the Banks are in the business of taking money from one person and giving it to another while taking a chunk of money for themselves.

How?

Simple.... at the end of each month you put your hard earned cheque into the bank.... for which they give you what 0.5% interest?

Well.... since that money is actually "virtual" and doesn't really exist anywhere but in a computer hard drive.... they can take that money and give it out to people on a loan.

You might say "I'm always broke..... so they can't be using my money" but that's not really true.

Let say you deposit $1,000 .... then you take out $100 immediately.... well guess what there is $900 sitting there.

Then you pay some bills the next day and your account goes to $400 then 2 days later another $200 comes out for insurance and other stuff.... then a week later you still have $200... at which time you take out another $100..... then your down to $100.... and just a few days before your next paycheck another bill comes due and you pull out the last $40 in the account to bring the balance to $0

So..... during that time there were still lots of times where your money was sitting there doing nothing..... just imagine now that you have 100,000 people doing the same thing.... the average amount of money in an account over the entire month might be $700.... so that's $700,000 of instant money they can use to give to someone else on a loan.

All the while they are giving you 0.5% and charging out 5% and making a tidy profit.


Again I'm using the word "they" but who are "they" who owns the bank?

Most are owned by financial groups or they are publicly traded.

So again a large portion of their money that they make go into the fingers of some wealthy guys who own large amounts of stock in the banks.

So... wealthy people profit by using your money when your not.... and then the also make money when the bank takes their cut.

In the end that money comes out of joe public's pocket... and it moves into the wealthy guys pocket.

[PrecisionBoost]

Last one and I have to head to bed.....

So.... at this point many people might be like "those rich bastards"

But can you really blame them for making money when the banks are begging them to use their money?

Some rich guys might even decrease their rent on the houses to help out the people renting..... which is a nice thing.... but they are still pulling money away from others.

The world needs rich people to start businesses, employ people, drive the economy of the country

Without rich people there would be very little movement towards new technologies.

Many invest hundreds of millions of dollars into projects in the hopes of seeing a return on their investment.

Some people..... like Bill Gates.... give away their money to charity and to fund things like cancer research.

Cancer research is not a "profit" driven industry.... millions and billions of dollars are spent with no perfect cure.

In the end the company that does come up with a cure will make billions..... if not trillions but many of the investors are not looking for a profit... they are simply giving money because they can.

In many ways the stock market, economy, housing market, research and development are like gambling.... it can be addictive to throw in $XXXX.xx and see how much you can get back out.

So it's not all doom and gloom with respect to the wealthy... if there were no billionaires to go out and put up 100 story buildings we'd all be sitting around in mud huts.

It's a fine balance between wealth and poverty..... some countries have a better grasp on controlling things.... and some are hands off and let the dice roll.

The key is that people need to be educated enough and pay attention to what is going on to ensure that their government does their job to keep the balance.

In the USA media is used as a tool to create fear and put pressure on particular issues..... which can lead people to simply roll over and say " what can I do, I'm not in control "

I bet that if there was no media coverage this economic trouble would be hardly noticeable..... because people in north carolina would have no idea that people in Arizona having a hard time selling their houses and that people are walking away from their mortgages.

Media causes panic..... which always creates a market reaction.

Hopefully a few people read this and say " I never thought of it that way "

Perhaps some may disagree... and that's fine.

In case some of you don't know me.... I like to argue..... even if I agree with you... sometimes I will argue something just to get points of interest out.

So.... if I argue with you over something..... don't take it personally.... I'm just trying to bring out all aspects of an issue.

To me there is no real right or wrong..... just shades of grey

[benzino]

Thankyou for writing this... It was a very interesting and comprehensive view of what's going on.
It's nice to have a fresh view that is informative and not drivel provided by the media.
Again, Thankyou

[PrecisionBoost]

The simple key thing that people with money understand is that there are always going to be market fluctuations.

If you are aggressive then you buy low and sell high

If your mild then you ride out the storm and invest over long term

Ideally you want a balanced portfolio of investments.... some aggressive.... some mild.... and some guaranteed


That is to say that people with money do not panic.... because they have the means to pay for things when things get tough.


Media= panic..... the media starts talking about how the prices of houses are going through the roof.... so people panic and try and buy a house while they can still afford it.... then when the media starts talking about how the housing market is crashing and the value of housing is dropping quick everyone panics again and tries to sell their house.

Does "buy high sell low" make sense to anyone? Sure doesn't to me

The key is to ride out your investments...... let the market drop.... who cares.... in 5 years the value will rebound and be higher than what you originally paid in the first place!

The worst thing you can do is dump the mortgage and let the bank sell it off ( driving the prices even lower )

The bank can't hold onto investments..... they are not in the house rental market.... they are in the money lending market.


All I'm saying is that if there was no media coverage then people would not know the market is in a correction phase and people would just ride out their mortgage and all would be fine.

But because of media people freak out and cause corrections in the market to become crashes.


So if you have a house that's worth 100,000 then 3 years later it's worth 175,000 that's a heck of a gain and odds are the house is overvalued.

So along comes a supply vs demand related correction and bang... the house drops to 125,000

All in all the house dropped by 50,000 very quickly ( usually happens over 6 months to a year ) but people miss the point that the house is worth $25,000 more than what they paid for it.

Problem comes when people panic and start selling... then that same house drops to $110,000 and then $100,000 and then $95,000 and people start freaking out and say "we have a $100,000 mortgage and the place is only worth $95,000" and they walk away... causing the prices to drop further to 80,000 and so on....... then it will level out because investors with money will come into the undervalued market and buy up property.

Next thing you know the prices pull up and after 4 or 5 years things become stable at $130,000 value.

Now..... if people didn't panic they would have profited ( 100,000 versus 130,000 ) but instead they end up loosing.

The bank doesn't loose money.... if it takes a loss on a house they just write it off


Oh ya.... did you know that people of wealth can write off interest they pay on houses?

Ya that's right..... they get a 5% loan and make major money.... and they get to write off the interest along the way.

And here is another kicker.... capital gains ( money made on selling property ) is taxed at a lower rate.

Here in Canada you only pay 50% of the tax.

So if I buy a house for $300,000 and flip it for $350,000 a year later I will have made $50,000

But thanks to capital gains tax rules I only pay taxes on $25,000 and the other half is completely tax free.

Talk about a system that rewards the guys with the money.

[PrecisionBoost]

Thankyou for writing this... It was a very interesting and comprehensive view of what's going on.
It's nice to have a fresh view that is informative and not drivel provided by the media.
Again, Thankyou

Glad you found it interesting.... I certainly don't care if people agree or disagree.... it's all about looking at things from ten different angles.

Like I said in another post..... watch the movies made by michael moore..... you may not agree with them.... but they are good for one thing.... looking at things in a different light.

When you find out that government is involved with other ultra rich people like the Saudi royalty it should make you go " Hmmmm I don't think that's such a great idea"

Sure Michael Moore has his own views.... and his movies are slanted that way..... but that is the way it is.... people will always tell it like they see it.

[daewoomofo]

i work with a guy that is playing in the stock market at the moment. EVERY day all i hear from him is "oh *such and such a* stock dropped 5 points" and "housing market ist gone to shit, i lost $15,000 this month on my house" i know he is paranoid, but i cant stand to hear him bitch about his investments. ive got a 401k, is doing shitty right now, im looseing money on it, but the way my works stock advisor said "all markets have ups and downs" "right now since the market is down you money is buying more for the same money, when the market goes back up you will come out way on top" i totaly agree, but it stil sucks seeing my 401k doing shitty, but i know it will bounce back one day. hell i wish i coud afford to put some side money into the market. right now would be a good time to get into it, with evey thing doing so bad i could get in cheap and when it comes back ill make a nice profit.

[PrecisionBoost]

If anything this is the time to dump more money into investments..... most people just don't get it..... they freak out and pull things out at a loss because they don't realize it will recover.

Definitly listen to your stock advisor and ride this out.... it might take a few years but eventually it will do well.

Right now everything is dropping....so removing it from an investment really does nothing.

Jumping from one investment to another does nothing but make your stock broker money..... and it only makes the investments drop in value.

No big deal if one or two people drop out of an investment.... but when 3 million dump their shares it has a huge impact..... again it comes to supply vs demand.

If there is no demand then prices drop..... the more people trying to sell.... the more prices drop.

Unfortunatly the more prices drop the more money wealthy people will invest.... and eventually they will keep the money you lost.


It's just that simply.... don't panic.... don't sell your investments..... the more people that sell.... the more money wealthy people will take away and claim for themselves.

If nobody is selling then there becomes a demand for investments..... which brings the prices up.


There are allways people looking to buy or sell..... the key is to keep the balance that makes the economy and investments grow.

Again I harp on the media.... they only focus on the bad and cause people to panic and stress out because they simply don't understand the system and the natural ups and downs.

Have you ever seen a news guy giving advice to "stay the course" and "don't worry about falling prices"

That doesn't sell..... it doesn't get people's attension..... their job is to get you to watch Channel 2 instead of Channel 5 so they can get a higher rating and charge more for advertisements ( commericals )

And who profits from high ratings???? You guessed it.... the wealthy media moguls with deep pockets.

Sex sells, violence sells, fear sells...... nobody is going to tune into a tv Channel talking about how nice the weather is.... everyone wants to hear how the occurances of tornadoes and hurricanes are up... and how often we can expect to have earth quakes and floods and drought.

The problem is the media.... but at the same time we are responsible for what we watch..... so a media guy might just say " we give them what they want.... that's our job "

Most people just want to hear that someone elses life is worse of than their own..... instead of making their life better they just sit back and say "at least I'm not that guy"


A good economy stems from the confidence of the nation..... if everyone thinks things are going to hell in a handbasket.... then that's the way they go.... it's just that simple.

[daewoomofo]

i have no thought of dumping my 401k, i would actually like to invest on my own too


i just dont want this guy
http://s25.photobucket.com/albums/c72/s ... 052005.flv