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Thread: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

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    Default The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    http://www.salon.com/2014/09/29/the_...eoples_ethics/

    "The closest I ever came to acting like a rich person was two years ago when I short-sold my primary residence. I might have been able to keep it but strategic default made life easier. I owed about $400,000 on a house that short-sold for $150K. The bank lost more than a quarter of a million dollars, and I lost at least $80K in down payment and property improvements. In a short sale the bank agrees to settle debt for the lesser amount and the seller gets nothing but is “punished” by not being able to finance another house for at least two years (rules vary). My moment of acting rich was when I bought a second house before short-selling the first to skirt around the repercussions of my own bad luck."

    ...

    "I was taught growing up to “keep my word” and that your handshake “meant something.” Yet businessmen and individual wealthy people make decisions that are far less moral than a short sale. People “incorporate” so they can avoid legal responsibility for individual actions. It works great. You can stiff creditors, declare bankruptcy, pollute daily and raid pensions to enrich individual executives. If it all goes wrong, like it has so often for Donald Trump, you can keep your mansions and individual fortunes."

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    Also on that very same article:

    "When you examine it, you cannot blame the rich for the oligarchy we’ve become or for what looks more and more like the return of Dark Age feudalism. Rather, the blame lies with my fellow work-a-day slobs who vote for politicians and policies that favor investment and wealth over the work of regular people. Middle-class Americans are self-flagellating and dispirited over their own lack of wealth, as if it were a character flaw. At the same time, they fall for the deception that everyone can be rich when, of course, most people lack the connections, education and plain old luck to even get close."

    That paragraph couldn't be more true.





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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    you don't get wealthy by being a moral, kind, upstanding citizen. and i don't think being wealthy has a lot to do with education or hard work either..its luck ( good looks, family, connections, being at the right place at the right time), and being cutthroat as hell and willingness to take advantage of any situation or anybody you can. the middle class has all but been eradicated at this point too

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    Quote Originally Posted by simone87 View Post
    you don't get wealthy by being a moral, kind, upstanding citizen. and i don't think being wealthy has a lot to do with education or hard work either..its luck ( good looks, family, connections, being at the right place at the right time), and being cutthroat as hell and willingness to take advantage of any situation or anybody you can. the middle class has all but been eradicated at this point too
    I don't completely agree w/ this.

    I agree that 'education' in the sense of a high-lvl degree after yrs of study at a big-name university is overrated. It's much more abt common sense & being able to learn from life experience The problem that many ppl seem to have w/ a capitalist setup is that it doesn't promise equal results. It promises the CHANCE for wealth thru your own labour, but as the young'ins like to say, YMMV.

    My dad is only 2nd generation American. His grandfather emigrated as a child, following a typhoid epidemic that ruined his family, & worked hard his whole life to provide for himself & his wife & kids. He was illiterate, but intelligent, learnt English & assimilated. Admittedly he was very fortunate in that the factory he worked in remained open throughout the Great Depression, so even tho times were still very lean he was able to keep down a job. Along w/ his factory job they raised chickens (farmers in the old country) so they had eggs to barter, or also just to give when a starving neighbour came to them for help. There was sm ruthlessness & literal cutthroating if you believe the family story of him killing a Black Hander who attacked him on the way home from work one nite. This was also during a period where immigrants weren't exactly welcomed like they are today, so it wasn't in his family's interest for them to be stirring up trouble. It was back when the gov't had the balls to deport ppl for that shit. But he raised his kids w/ the same work ethic. My grandfather & father both worked hard their whole lives & earned a comfortable life for themselves. Trump status? Haha hell no, but solid, & it sure as hell didn't come by luck.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    Quote Originally Posted by Aniela View Post
    My grandfather & father both worked hard their whole lives & earned a comfortable life for themselves. Trump status? Haha hell no, but solid, & it sure as hell didn't come by luck.
    That was a completely different time. Many people (both immigrants and non immigrants) were able to get ahead solely on hard work; my maternal grandpa was able to retire before 40, for example, and he didn't even finish high school. I, OTOH, will probably work until I die no matter how hard I work or how many degrees I could attain. Simone's comment is more akin to today's world.





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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    ^^^ to provide some perspective, I would also comment that, while the 'rich' may employ bankruptcy law and other 'machinations' to legally maximize their after-tax profits and minimize their losses, the 'morality' issue is a whole 'nuther can of worms.

    Keep in mind that a large number of 'rich' General Motors bondholders, who were assured that as bondholders they would legally receive priority payments in exchange for 'loaning out' their money to GM at a comparatively low interest rate vs. actual risk, were told by the US gov't that they were being 'greedy' ... were told by the US gov't that existing contract law would be disregarded thus delivering them huge losses ... so that GM's 'middle class' autoworkers and the 'middle class' workers at GM's sub-suppliers could still have their jobs via a gov't bailout.

    I'm not trying to defend legal but 'immoral' actions taken by the 'rich'. However, in point of fact, they are not the only party acting 'immorally'. And, of course, 'morality' is in the 'eye of the beholder'... i.e. Apple, Google, GE, Tesla et al legally avoid billions in US corporate taxes through offshore tax shelters, receive targeted tax credits etc., while Burger King gets slammed for acquiring Tim Horton's with the intention of moving merged corporate operations ( and some future US corporate tax liabilities ) to Canada.

    Or, stated another way, Salon's perspective would appear to be 'less than objective'.


    In regard to other comments regarding future prospects for hard-working 'middle class' Americans, there's no denying the fact that we now live in a globalized economy. This means that US companies must directly compete with foreign companies, whose 'costs of doing business' may be significantly lower. This also means that all levels of American workers must increasingly complete with foreign workers at American companies, whose 'labor rates' may be significantly lower as well.

    And beyond that, the costs to American companies to employ human labor are increasing expensive, while at the same time the costs to American companies to automate away the need for some human labor are dropping. Thus, unfortunately, there is some accuracy to the analogy that today's 'rich' are similar to medieval 'lords' ( owning virtually all of society's 'capital goods' / means of production ), while todays non-professional workers are similar to medieval 'serfs' ( consuming virtually everything they earn, having zero 'leverage' in regard to their labor ).
    Last edited by Melonie; 10-14-2014 at 07:34 AM.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    oh yeah if you are smart, educated, and hardworking ( and getting on your feet before the recession hit wouldn't hurt either) you can definitely be comfortable. my dad owns his own business and although he isn't wealthy by any means, he isn't poor. i was talking about the top 1-10% of the wealthiest.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    It's who you know, not what you know.

    Social mobility in the US is terrible. You have something like a 95% chance of remaining in the same or lower socio-economic status as your parents. That's worse than societies like the UK where social class is built into their culture. The 5% who do manage to climb the socio-economic ladder rely on luck. Lucky to be smart and attractive as well as having a powerful mentor. If you look at all the kid geniuses that Silicon Valley produces, they all came from Ivy League schools. It would be pretty tough to get into M.I.T. if you have to dodge gangs, or take after school jobs to help feed your family. I don't care how smart you are, if you don't have the right kind of support at home, there is no way a person can reach their potential in the current social mobility climate.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    ^^^ there's also a major contributing success factor in the form of 'venture capital'. High risk financing is what actually separates the new ideas developed in garages that grow into successful business ventures from the new ideas developed in garages which stay in garages. Venture capital requires credibility ... and Ivy League schools bestow credibility.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    Welcome to the global economy folks, your formerly bright future is now being shared with India and China.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    As long as loan officers are paid on commission and have no responsibility for the performance of the loan, this will continue to happen. We saw this in '86, and nothing has changed.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    I happened to run across this follow-up piece to your original article .... from


    (snip) the [ original Salon - sic ] author discovers something important along the way:

    I always knew business was getting over on me, but I had no idea the extent until I started looking to short-sell. I first learned all I could about private home financing. I called up some shady investment groups around town and questioned them at length. I didn’t end up using them, but they were frank, informative and unashamed.

    “Who would pay 11 percent on a home loan?” I asked.

    “Rich people,” said “Bill” from the legal loan-sharking company. “The rich have terrible credit.”

    Rich people = bad credit: Just let that sink in.

    Bill told me in roundabout ways that rich people never pay a bill if there is any way around it. If something goes wrong in an investment or a business, they always preserve their own assets first.

    Rich people have terrible credit. They know that there’s a system and it has rules. And, for them, these rules can (and should) be optimized for their own benefit. So they do anything and everything that works to their advantage.

    There’s a reason and a logic to that which I can appreciate, but it makes me wonder where the rest of us obtained our deep-seeded beliefs about duty and responsibility towards debts.

    Similar to rich people, banks do not have any entangling moral restrictions on their behaviors. That absence allows them to get away with extraordinary misdeeds, none more obvious and damaging than those that the Federal Reserve has perpetrated on the nation, specifically, and the world, more broadly.

    To understand why, we first have to discuss something called Financial Repression.

    Financial Repression

    In my recent interview with Daniel Amerman, to whom I will credit much of the concise thinking and for unearthing the sources that I will weave throughout the remainder of this piece *** , the truly immoral intent of the Fed's policies really sank in.

    In response to the Fuzzy Numbers chapter of the Crash Course, reader JBarney pondered the following:

    Thanks for putting this update together. I think one of the problems is there are so many moving parts, so many manipulated numbers it is difficult to get a clear picture. The way it is organized here is helpful.

    However,I can't help but wonder about all of the implications of these numbers for the real economy and people's lives. One of the sections which really hits home was the impact inflation has on all of this. If these are the numbers now, what will it be like when things really start to change?


    The answer is that while inflation always steals from savers, it really does its dirty work when the central bank and government conspire to create a condition of pervasive and unavoidable negative real interest rates.

    This is the heart of Financial Repression: an environment in which you literally cannot save money without paying a penalty.

    The main takeaway of Chapter 18 on Fuzzy Numbers is not that the government fibs a little now and then (okay,all the time) merely because that's politically expedient, but it does so in service to a larger and more pernicious aim: forcing people to accept an inflation rate that is higher than either their income growth and/or the market's safe rate of return.

    As soon as you are locked into a negative interest rate regime, your capital is losing purchasing power. But simple accounting rules dictate that loss of wealth had to go somewhere. So where did it go? To somebody else.

    Negative real interest rates transfer money from every saver to every over-extended borrower. This is especially true with the government (largely because of its special revolving door relationship with the Fed, which both issues the money out of thin air and then buys government debt forcing rates into negative territory).

    It's really that simple. The Fed has openly and actively suppressed rates -- not to help the credit markets, as they claim, but to engineer a condition of Financial Repression. Because that's what the government needs to stealthily take your wealth to pay down the prior debts it accumulated.

    Thus 'negative real rates' are the essential component of transferring wealth from the many to the few, with the 'few' being defined as the government, Wall Street, and others who exploit leverage and liabilities at sufficient scale to be on the right side of that wealth transfer.

    This well-known phenomenon is a thoroughly accepted and well-described practice of governments and central banks everywhere. (snip)


    Welcome to the global economy folks, your formerly bright future is now being shared with India and China.
    This requires a 'qualification'. Generally speaking, Chinese and Indian workers aren't seeing their futures brighten significantly. The main beneficiaries of outsourcing related Chinese and Indian company profits flow to the 'owners' of those Chinese and Indian companies ( owners = stockholders ), as well as to the 'owners' of ( nominally ) American companies who incorporate lowest cost Chinese and Indian made components into their end product ( again owners = stockholders ).

    And outside of actual direct owners and managers, who comprises the lion's share of owners = stockholders ? Yup, you got it, the 'rich'. According to recent statistics, the top 1% of American earners own 51% of all stock shares, bonds etc. And while there isn't any detailed documentation available to prove it, simple logic dictates that the top 1% of American earners actually own an even higher percentage of those foreign company stock shares.
    Last edited by Melonie; 10-21-2014 at 07:49 AM.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    Now maybe a few more folks will see why Melonie and I have been harping about Fed Policy.

    As for the "rich" having lousy credit , I don't buy it. Then they aren't "rich" are they ? When they do these deals and make investments that get some people hot , bothered, huffy and puffy , they usually do it with OPM ; "Other People's Money " ; money borrowed to invest in or create a business.

    " 11 % " on a mortgage ? Who is paying that ? Nobody who is "rich" unless they are a total idiot.

    I don't even get the original author's point. He got out from under an onerous mortgage via a short sale. Lucky him. The bank got stiffed for a quarter million. He bought another house. What's his problem ?
    Last edited by Eric Stoner; 10-21-2014 at 08:38 AM.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    I don't even get the original author's point. He got out from under an onerous mortgage via a short sale. Lucky him. The bank got stiffed for a quarter million. He bought another house. What's his problem ?
    Arguably, he felt 'guilty' about stiffing the mortgage lender for the 1/4 mil. The attempted underlying 'narrative' seemed to be that working class people ( still ) have an inherent sense of financial ethics based on concepts of fairness and personal responsibility, as opposed to 'rich' people feeling comfortable utilizing every loophole available to minimize actual out-of-pocket expenditures ( even if that means stiffing 'someone else' ).


    But 'news bulletin' ... it's highly probable that the author may be facing a future 'deficiency judgement' filed by the mortgage lender in an attempt to recover some or all of that 1/4 mil 'deficiency'. From

    (snip)The 42-year-old is among the many homeowners being taken to court by their lenders long after their houses were taken in foreclosure. Lenders are filing new motions in old foreclosure lawsuits and hiring debt collectors to pursue leftover debt, plus court fees, attorneys’ fees and tens of thousands in interest that had been accruing for years.

    It’s an aftershock of the foreclosure crisis, and most homeowners don’t know it’s coming.(snip)

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    Quote Originally Posted by Melonie View Post
    I'm not trying to defend legal but 'immoral' actions taken by the 'rich'. However, in point of fact, they are not the only party acting 'immorally'. And, of course, 'morality' is in the 'eye of the beholder'... i.e. Apple, Google, GE, Tesla et al legally avoid billions in US corporate taxes through offshore tax shelters, receive targeted tax credits etc., while Burger King gets slammed for acquiring Tim Horton's with the intention of moving merged corporate operations ( and some future US corporate tax liabilities ) to Canada.
    The solution is not to let Burger King get away with ducking its fair share or taxes. The solution is to make Google, Apple, GE and Tesla pay.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    Quote Originally Posted by MrMike1952 View Post
    The solution is not to let Burger King get away with ducking its fair share or taxes. The solution is to make Google, Apple, GE and Tesla pay.
    You know who ultimately pays corporate taxes ? The employees ; the shareholders and arguably the customer. if corporations don't pay income taxes , where does that money go ? To the employees , to shareholders and to the customers. While not paying 35% in real terms U.S. corporations do spend a lot on tax lawyers , accountants and of course on LOBBYING to maintain their carve outs in the Tax Code. With a lower rate or better yet, no corporate income tax K Street would be littered with a lot of bodies from suddenly unemployed lawyers and lobbyists.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    Quote Originally Posted by Eric Stoner View Post
    You know who ultimately pays corporate taxes ? The employees ; the shareholders and arguably the customer. if corporations don't pay income taxes , where does that money go ?
    A lot of the money isn't going anywhere. American corporations are sitting on more than $1 trillion in cash.
    Last edited by eagle2; 10-24-2014 at 09:16 PM.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    ^^^ yes, but ... The vast majority of the cash that nominally American international corporations is cash earned from non-US operations, or cash earned from 'royalty' payments on intellectual property ( like software licenses ) which these companies have located in a foreign country. That cash is 'sitting' in Ireland or Hong Kong or Bermuda, and won't be brought back to the USA because of the comparatively high US corporate tax rates which would then apply. Thus a similar 'rich people's ethics' question arguably applies to these nominally American corporations.

    In fact, one of the latest tax 'gimmicks' is nominally American international corporations A. having their US divisions taking out large ( low interest ) loans using their offshore cash as 'collateral', B. having their US divisions deploy that 'borrowed' money to repurchase stock shares and/or pay higher dividends to stockholders, and C. having the US division write off the loan interest as a business expense, thus reducing US corporate tax liability even further. Arguably, this disproportionately benefits the predominantly 'rich' stockholders, at the 'expense' of US taxpayers.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    Quote Originally Posted by Melonie View Post
    ^^^ yes, but ... The vast majority of the cash that nominally American international corporations is cash earned from non-US operations, or cash earned from 'royalty' payments on intellectual property ( like software licenses ) which these companies have located in a foreign country. That cash is 'sitting' in Ireland or Hong Kong or Bermuda, and won't be brought back to the USA because of the comparatively high US corporate tax rates which would then apply. Thus a similar 'rich people's ethics' question arguably applies to these nominally American corporations.

    In fact, one of the latest tax 'gimmicks' is nominally American international corporations A. having their US divisions taking out large ( low interest ) loans using their offshore cash as 'collateral', B. having their US divisions deploy that 'borrowed' money to repurchase stock shares and/or pay higher dividends to stockholders, and C. having the US division write off the loan interest as a business expense, thus reducing US corporate tax liability even further. Arguably, this disproportionately benefits the predominantly 'rich' stockholders, at the 'expense' of US taxpayers.
    Yet another good argument for reforming the U.S. income tax code.

    Z

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    The game is rigged against the regular people.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    ^^^ arguably, the 'game' has ALWAYS been rigged against regular people. The only difference seems to be how 'brazen' the rigging has become, and the lack of concern by most regular people that said 'rigging' is negatively impacting their lives in indirect ways.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    Quote Originally Posted by eagle2 View Post
    A lot of the money isn't going anywhere. American corporations are sitting on more than $1 trillion in cash.
    True. The issue is WHY all that money is sitting offshore and HOW to incent those corporations to repatriate that money and invest in new plant and equipment ; INCREASE WAGES and benefits; increase dividends and reduce prices.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    Wow. I am sorry, but I am obviously sitting in the substantial minority here. I am not wealthy by most standards (though our president would beg to differ), but I am in far different circumstances than I was growing up. This is due solely to the open nature of our system, which rewards people for their ability to provide something that others value.

    It starts with the fact that almost anyone can pay for a decent college now, as long as one gets good grades in school. I financed college completely through a combination of loans and private school grants. Now yes it is true that I was more limited in my college choices by who would give me the right financial aid package, but a top of class GPA (or very high anyway) at a decent accredited university will get you in lot of doors.

    When I started my company a decade ago, after working for others for many years, it was after I spotted an opportunity to sell services that others valued. But even if I worked in-house somewhere, I would be collecting a mighty fat paycheck, with nice bonuses, fully paid benefits and various other perks, in an officer position with "Chief" in front of it, due to nothing more than years of climbing up the ladder and acquiring valuable knowledge. Net-net I moved several rungs up the socio-economic ladder, due to nothing other than hard work and a college financial aid system that allowed me to earn a needed degree. And I have seen others come from similar circumstances and go far higher than I did, all due to the open nature of our system.

    Now I will concede that I probably could have gone much farther if I started from a better spot, but to say that the game is somehow rigged is ludicrous. Now there were many valid points made about kids who start in circumstances so bad (druggie parents, gangs, desperate poverty, etc.) that it is difficult for them to even focus on school work at younger ages, but what can we realistically do about that? Parents have the ability to hurt their kids' future chances and some parents just make bad choices, or don't value schooling for their kids, or [fill in the blank here]. Short of taking kids away en masse from bad and/or stupid parents, I'm not sure what the solution to that particular dilemma really is.

    Anyway, just my

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    I have to agree that the system is rigged. If someone is smart enough or has a product or service that is needed it is possible to start a business. I am doing that myself and feel in many jobs that is the wave of the future. However, for others it isn't and there's the problem. It goes back to many factors and one of them is the myth that a degree=a good job. That was true many years ago and even true when I was in college to some extent but now it is a gamble. Add in outsourcing, visa workers and the idea that everyone should attend college and there lies the problem. The simple fact is that the competition is fierce. Also, it all boils down to who you know. If one is lucky to attend a top tier Ivy league school (or at least one with a strong reputation)and is able to make connections then they will have better luck. If you go to a lower tier college (especially for profit)this is less likely to occur. I know people with degrees from decent (though not top tier) colleges who work jobs that don't require degrees. That is occurring more and more. Most have gone into debt to achieve those degrees and it often affects them buying houses and things like that. Because less people can upfront afford a house has resulted with loans that were made to in essence make it difficult to afford the house. I know people with bad credit and don't make a lot who were offered huge loans. The reason? because they will default, the house will revert back to the bank (or the person who gave the loan)it will resell and the process will continue. Meanwhile the person is out the money.

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    Default Re: The big “middle class” rip-off: How a short sale taught me rich people’s ethics

    There is much that I agree with in Mr. Dugan's post except the college affordability part i.e. " almost anyone can pay for a decent college now... ". Really ? Not according to everything I've been reading AND a LOT of what we have been discussing here and in Dollar Den.

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