The reputation of investment firms continued to nose dive as these revelations poured out of the popular press. Of course the prosecution authorities have tried to reassure the public by sending the culprits to prison. However this does not negate the trauma that has been caused.

Who Bears Responsibility ?
The first port of call has to be the criminals who set up the shady deals. They by their actions deprived millions of people of their lawfully earned money in an effort to make their own plans. They were able to manipulate the system and the people within the system to ensure that they were believed and the money was handed over to them. Of course many have paid by way of going to prison but some others are not yet being held to account for their actions.

Governments and regulatory authority have some questions to answer because they were specifically tasked with ensuring that there was transparency and effectiveness within the financial markets but then many of these authorities descended into bureaucratic incompetence to the extent that they were never allowed to do their job properly. Some conspiracy theorists even started speculating that some of these authorities were in on the act. This has not been proved and I am sure if it were proved, the responsible parties would be held accountable.

Some people took the precaution of hiring financial advisers who were responsible for guiding them into the business world. Some of these advisers gave the impression that they knew a lot more than they actually knew. They over stated the investment potential of certain projects while at the same time under estimating the risks associated with such investments. They neglected to update their clients when they discovered some of the irregularities that were becoming a feature of many of these schemes. In other words they failed to undertake their professional duties to an acceptable standard. Despite losing their jobs, many of them did not have to pay for their incompetence.

This is a very painful and sensitive thing to say but it must be noted that some of the investors themselves were rather too trusting or too ambitious. Being victims, it was understandable that they would not be fully conversant with the workings of the financial systems and did not have enough experience to spot potential investment traps when they came to make an investment decision.

However some of the proposals that were put forward to them were quite frankly ludicrous and it was quite surprising that a large number of people fell for them. For instance, in the United States of America there is a case of the notorious investment leader who defrauded the public of millions of dollars. He offered unrealistically high returns on investment. That should have set of some mental alarms for the people involved.

Credit became even scarcer than it had ever been and banks were already prepared with their refusal letters even before the loan applications were received. Real estate investment became a dirty word and investors were very reluctant to venture again in that business. Houses in Spain were being bought and sold at extraordinarily low prices.

What Went Wrong ?
Investor confidence was one of the key issues that drove the unsustainable levels of household debts. For some reason people began to believe that they could spend money without earning. That somehow there was a line of credit that never ended and would never end. The believed that they had the ability to ignore sound advice from the experts about not over extending their bank balance. The end result was that most households could not sustain their expenditure, let alone the debt. Bankruptcies were dully declared and the real estate investment sector became a no go area.

The people who managed the real estate business themselves had a role to play in the collapse of the market. Of particular interest was the fact they did not hesitate to buy houses at way above market levels in the anticipation that the market would always improve. Of course the prices they paid for the houses bore no relationship whatsoever to the real market value. Thus when the market collapsed and they started to sell, the losses were legendary.

The buy to let market was particularly hit by the downturn. In the late 80s and early 90s many property investors made plenty of money by simply buying houses and then letting them at exorbitant rates. The waterside development was particularly liked. This caused the market to overheat. There were no price controls, no rules and no obstacles preventing people from making the most outlandish investment decisions. When the collapse arrived, all those houses had no one to rent them and even those who wanted to sell could not find buyers.

Homeowners were also busy extending their mortgages to extraordinary rates. Credit cards were being tied to the equity in the houses. Sometimes the homeowner would have made such big strides in creating equity after a long period of saving and scraping. However when the boom in credit services arrived, most homeowners decided that it was time to take the equity out of their homes and use it in other ways.

The term “mortgaged to the hilt” acquired a new sinister connotation. Of course the houses were now stripped of their equity and all that remained was the final humiliation of repossession and bankruptcy. Such was the ignominy that many swore never to enter the real estate investment business again. The process of investment within the real estate sector will take decades to rebuild after the disaster.