Submarined by the Subprime Frenzy
September 2, 2007
The Way We Live Now
By ROGER LOWENSTEIN
We are no longer shocked when the Dow Jones industrial average plunges 10 percent — as it did this summer — or when a single hedge fund, this one run by Goldman Sachs, drops 30 percent in a week. But real estate, we thought, was different. Hedge funds execute hundreds of trades a day, often according to the whims of a computer; people buy their homes one at a time and usually retain them for years. But last month’s market turmoil revealed a doleful transition for real estate. Formerly the most prosaic and dependable of investments, homes over the last 30 years had been turned into trading chips for Wall Street. And now, even at a time when the economy is still growing apace, two million Americans are suddenly said to be at risk of losing their homes to foreclosure. How did real estate become an industry with the vulnerabilities of esoteric financial instruments?