Bob O'Brien
Head Instructor
bobrien@mywealth.com
With another “mini” ponzi scheme popping up in the news lately and all the talk about steroids, I could not help but notice the similarities between the two. Two great American past times, Wall Street and Baseball have been pumped up for too long and are now bursting before our very eyes.
I really believe that Bernie Madoff has done for Finance, exactly what Jose Canseco has done for steroids. It is taking a lot of people out of denial about something we sort of knew was going on, but would rather just sweep under the rug.
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The whole “steroid scandal” really started with Jose Conseco’s book (Juiced), where he made seemingly outrageous claims that “over half the baseball players are doing steroids” which later turned out to be fairly accurate.
In a similar fashion, Bernie Madoff showed everyone what a ponzi scheme really looks like...while our economy, and the real estate market, and the stock market were crumbling just like a ponzi scheme.
It’s really important that people are crystal clear about the fact that the Social Security System and Medicare Systems are ponzis as well. I am not saying that they will fail in the near future but let’s not be in denial here. They too will only survive with new money!
When you step back and look at the leading economy of the world (the US economy), you can’t help but think that we have come to one “MAJOR FORK IN THE ROAD”.
Government over-encourages the purchase of real estate!
The real estate market is at the forefront of this economic mess (a quasi-ponzi in its own right). In fact for the last 50 years or more, we may as well have said “In Real Estate We Trust” on the US currency as opposed in “In God We Trust”.
Washington’s polices for the last 50 + years have always favored real estate. The tax deductions are amazing for real estate! The key to understanding the tax code is to understand what Washington thinks is good for people, regardless of whether it really is or not.
If they think something is good for the masses, there will be tons of tax deductions, credits etc… The top three right now are: real estate, retirement, and education. They make up about 1/2 of the deductions and tax breaks alone.
As a financial planner, this has always bothered me because I have had clients that really never wanted to buy a home. Yet they did so because of the tax breaks and the pressure of the real estate culture that has been created.
Sometimes the overall tax breaks are not even that real, due to the huge increases in real estate taxes!
There are a lot of people that would really rather rent and build wealth another way. The purchase of a home can be like a ball and chain that prevents people from reaching their full potential in some cases.
It will be interesting to watch the President, the Fed and Treasury’s strategy at this interesting “economic juncture”. Will they continue to look to artificially inflate the prices of homes/real estate in order stabilize the economy, or will they let the free market price them where they fall?
They definitely have to get away from policies that encourage people to buy homes and then go to sleep financially. If 2008 is not a wakeup call to understand finance better, then the future of the U.S. economy is in for even further long term challenges. Check out our courses!
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Sincerely,
Bob O’Brien
Sr. Instructor
bobrien@mywealth.com
