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In order to make this claim that Crowdfunding can really prevent a future GFC one needs to first understand what exactly happened in the last GFC. The origins of what Australians call as the Global Financial Crisis lie in the US housing market. Btw in America we don’t call it the GFC, for the longest time after coming here I was wondering if GFC was an Aussie variant of my beloved KFC but I eventually caught on.

The basics of any financial problem are when you peel it to its very core very simple. People buy things which they cannot afford to pay for, for a while the “make believe” world holds up. Then the music eventually stops bringing everything crashing down.

Spurred by low interest rates and loose financial regulations lenders in the US started encouraging people to borrow and invest in a home. And what can be safer than investing in a house? After all it is the great American dream to own a home. House prices historically had generally never fallen. The population keeps increasing, land stays the same, price of a home will always go up, that was the general theory. And it did seem to hold up.

The supply of money for lending for a safe asset such as a home just was boundless. And the government was in on it. In order to promote the dream of home ownership, the US federal govt essentially backed the home loan applications of people who were considered not worthy to purchase and support a large home loan. Once the full might and splendour of the state was behind these applications suddenly these so called “sub-prime” mortgages were rich pickings.

They offered strong interest rates, and were backed by a safe asset and a government guarantee. Most ratings agencies gave them great ratings. Those who did not risked loosing their clients as the financiers threatened to refrain from using their services. Interesting how that works, an analogy would be if your test scores in college were low you can threaten to stop going to college thus reducing tuition fee intake for the college and threatening the professors pay. The professor ends up giving everyone an A.

I wish I was this smart in my college.

What followed was even more fun, bundlers started pooling together these mortgages and then chopping them into small units that could be traded and on sold to further financiers. And then people like AIG got on the game. They basically said if it is good enough for the government, it is good enough for us. They insured these contracts against a risk of failure. It was easy money and a big game of pass the parcel, the parcel here being the seemingly safe and always rising in value houses. These were the now infamous sub prime mortgage backed securities.

At one point things got so out of hand that people could get a house with no money down, defer paying mortgage for a few months and then sellout and pocket the increased value of the home. In Economics 101 there is a saying, “There is no such thing as a free lunch”. This for those who were in on the game was as close to getting a free lunch.

People with no possibility or hope of being ever able to repay a loan were getting loans to buy homes which were way out of their league. The great free market had concocted a system where pieces of garbage were chopped, and then bundled together and repackaged and then sold to others who then onsold it to others. The parcel kept changing hands, the only question was when would someone open the whole thing up and find that behind all this great packaging, all that was in there was pieces of rotten garbage.

The assumption in this title is that a property bubble exists. Or atleast in Sydney and parts of Melbourne. Having moved here from the US I can say that housing in Australia is most certainly expensive.

And we are not even talking about my old hometown Chicago where I could get a nice lake facing apartment in Downtown on the 33rd floor for 400K (and this was in 2012 when the Aussie Dollar was actually stronger).

Yet the relentless rise of property valuations in Sydney and Melbourne continues. Every week brings new data about how auctions in Sydney have almost 85% and above clearance rate. Spruikers are having a field day. Everyone seems to be on the property bandwagon.

Yet there are dark clouds on the horizon. Biggest among them is China.

The Chinese stock market is in an unprecedented rally right now, novice people are borrowing to invest. There is an old story about JFKs father, he sold off all his stock right before the great crash of 1929 when his shoeshine boy started giving him tips about which stock to invest in.

The Chinese demand for Australian ore is receding. And there is tidal wave of apartment stock that will become available 10 to 12 months from now in both Sydney and Melbourne based on the constructions in the pipeline. Expect apartment prices to depress in the next year or so and lower rents. Which is all good news for the young migrant like me searching for his first home close to the city.

However it also has to be recognized that property absolutely underpins Australian wealth. Australians are heavily invested in property and are 3 times more likely to be invested in property than an American. When the slowdown starts as it will invariably will I don’t expect the sky to fall. However you will definitely find bank lending to project developers tighten. And a lot of honest hardworking Australians will find their property based notional wealth seem suddenly shaky.

This is where crowdfunding platforms like estatebaron.com will come in play. We are ideally positioned to fill in the gap left by the receding bank lending and provide the necessary funding for much needed development projects to proceed. And by investing small amounts in various projects of their choice an investor can achieve diversification instead of having all his eggs in one basket. An investor on estatebaron.com can invest amounts as low as $2000 AUD in one project unlike the hundreds of thousands which are needed to start investing in property.

estatebaron.com dis-intermediates the process of property investments by giving small investors direct access to property investments of their choice. And by focusing on local developments in Melbourne for Melbourne investor we want investors to have the ability to visit the projects they are invested in.

A property bubble bursting wont be a pretty affair. I was in Boston when the whole subprime Mortgage saga went down in 2008. But one of the key reasons was the many layers of middle men moving monies around. Platforms like estatebaron.com are the key to change the way finance works.

In the old Mayan tales Apocalypse is not just about destruction of the old, but also the beginning of something new. Something better.

Lets hope on the other side of this great sea we are about to cross a new and beautiful land awaits.