Fernando MonteiroBricks and Mortar and Paper Money
September 19th 2009 11:35
The expression “paper money” is everywhere when stock prices change abruptly. Values, as so often happen in the stock market, go up and down suddenly, which to the common mortal implies that nothing is secure and from where the expression paper money. Funnily enough, real money, except for coins, is printed on paper.
Bricks and mortar appeal to values associated with houses and their social role to house and protect people from the elements, from where the expression “safe as houses”. But are they really safe? Truly, the so said safety of houses depends totally in the breadwinner being able to earn an income and pay the mortgage loan. In times of recession as now, many can’t do so and will lose their safe houses.
In great part, the financial crisis of 2008 that started in the US was due to people who could not pay their mortgages – the sub-prime house owners – and which prevented securitised owners from receiving their income from mortgage repayments. In a way, this is how houses are safe.
Moreover, financial constructions around houses and building often lure people to think that there investor’s money would be better protected. But is it the case? WestPoint built a complex array of housing funds and went broke, just like any other trust would, leaving investors with incredible losses and total misery. So, was it safe as houses or was it paper money?
I’m convinced that it’s the inherent convertibility into cash of both houses and shares that determines that they hold financial value. That value is no more brick and no less paper than our imagination, because money is money.
I consider that no one investment is superior to any other except for its intrinsic qualities on a one-by-one analysis basis. Some share investments are as safe as the rock of the nearest mountain; some house investments are as unsafe as the rugged hi-seas.
On the other hand, it’s their liquidity or the ability to be converted quickly into cash that determines their aptitude for volatility. Were shares to take three months to transact, as houses do, the stock market would be a much quieter and respectable place and people would say, instead of safe as houses, safe as stock.
Bricks and mortar appeal to values associated with houses and their social role to house and protect people from the elements, from where the expression “safe as houses”. But are they really safe? Truly, the so said safety of houses depends totally in the breadwinner being able to earn an income and pay the mortgage loan. In times of recession as now, many can’t do so and will lose their safe houses.
In great part, the financial crisis of 2008 that started in the US was due to people who could not pay their mortgages – the sub-prime house owners – and which prevented securitised owners from receiving their income from mortgage repayments. In a way, this is how houses are safe.
Moreover, financial constructions around houses and building often lure people to think that there investor’s money would be better protected. But is it the case? WestPoint built a complex array of housing funds and went broke, just like any other trust would, leaving investors with incredible losses and total misery. So, was it safe as houses or was it paper money?
I’m convinced that it’s the inherent convertibility into cash of both houses and shares that determines that they hold financial value. That value is no more brick and no less paper than our imagination, because money is money.
I consider that no one investment is superior to any other except for its intrinsic qualities on a one-by-one analysis basis. Some share investments are as safe as the rock of the nearest mountain; some house investments are as unsafe as the rugged hi-seas.
On the other hand, it’s their liquidity or the ability to be converted quickly into cash that determines their aptitude for volatility. Were shares to take three months to transact, as houses do, the stock market would be a much quieter and respectable place and people would say, instead of safe as houses, safe as stock.
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