Discover How The $700B Bailout Kills Three Birds With One Stone

Posted by Joe Manausa on Wednesday, October 1st, 2008 at 10:15am.

$700B Bailout PictureThe past two days have seen more visitors to the Tallahassee Real Estate Blog than any two-day period of time in our real estate blog's short life. I suspect that since we are facing the largest financial crisis this country has seen since the Great Depression, people want to know what is really going on, and in simple, non-political terms.

Today's blog is the third part of our investigation into the $700B bailout that our Federal Government has been exploring. Just as a review, we have already covered

So today, we'll try to understand why nothing has been passed and what the current edition of the new plan is trying to accomplish.

If you recall from the initial blog in this series, Bailing Out The Banks? Actually Bailing Out America!, the Tallahassee Real Estate Blog headed down this road as a result of reading a great letter written by Jay Hill - Tallahassee Commercial Mortgage Lender, just 4 days ago. Well, Jay is at it again and has written a follow-up letter due to his frustration with the entire mess. And for those of you who missed the first blog written on the $700B Bailout, I want to reiterate that I respect Jay’s intellect and insight in the money markets and I think our readers have much to gain from his view.

Political Posturing Is Slowing The $700B Bailout

Political Posturing Slows US EconomyThe first thing that I sensed when reading Jay's most recent letter was his frustration at the political posturing that is occurring. He feels that we are in dire need for a solution and too many politicians are more focused on their careers than on fixing the problem. Jay's recommendation for the name of the new plan should be the "I Have to Get Re-Elected and I Am Not Going To Stick My Neck Out Plan."

The Original $700B Bailout Plan

The original plan was devised by Hank Paulsen (Federal Reserve Chairman). Mr. Paulsen estimated that $700B was the right amount of infusion (it would take a few PhD holders to write a series of blogs to explain how the exact figure was determined) to offset the new estimate of loan defaults that will be plaguing our financial markets over the next few years.

The $700B Bailout Was Designed to Kill 3 Birds With 1 Stone

  1. Save - But Not Reward - The Wall Street Buzzard The $700B bailout would provide liquidity to the credit markets which would provide cash to cover/issue lines of credit for payroll, thus saving many of the Wall Street Giants that have been going under. This would not be "giving them" anything, rather the government would be buying these pools of loans for forty cents (or less) on the dollar. This infusion keeps the Wall Street Buzzards alive, but punishes them will huge losses for playing the Subprime game.
  2. Establish A Floor - The Real Estate Penguin The problem with the penguin is that no matter how hard he tries, he just can't get off the ground. This part of the plan would have brought a floor to the "fire sale" mode in which the banks are currently operating in an effort to move these properties off their balance sheets. Remember, if the Federal Government owns the pool of loans, it can set the sales price of the foreclosed ones to a point that helps stabilize the market.
  3. Assist In A Work-Out Plan - The Homeowner Turkey All of the homeowners who are currently in the process of foreclosure would be given time (freeze the foreclosure) to establish a work-out plan. While it is certain that some of the loans in foreclosure might be due to ill-advised loans, there are still many more that can be modified under a different, but fair structure, that would allow the homeowner to save their home.

$700B Bailout Plan Can WorkThe $700B Bailout Is For John Q. Citizen

This is an important time in our country's history. Our politicians have to take a "commercial time out" from their routine of posturing and picture taking and actually sit down and work together to straighten this whole thing out.

$700B Bailout Works Buy Buying LoansThe media calls the whole mess a "Bailout for Wall Street," but we are soon to find that this is fact is a "Bailout for the U.S. Economy." When people start to lose their jobs because no credit is available for payroll, it will be too late to save them. John Q. Citizen needs this bailout way more than a few fat-cats on Wall Street. Remember, a billionaire who loses millions of dollars can still buy groceries tomorrow, but is the same true for our average American who loses his or her job?

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Joe Manausa is a real estate investor and the Broker and Co-Owner of Joe Manausa Real Estate. He can be reached via e-mail through the Tallahassee Real Estate Website or catch his latest writings on the Tallahassee Florida Real Estate Blog , or by calling (850) 386-2001.
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Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.

5 Responses to "Discover How The $700B Bailout Kills Three Birds With One Stone"

Norman wrote: Thanks, for the clear explanation. I think the CEOs of Fannie Mae and Freddie Mac ought to give back the multi million dollar salaries and go to jail like the men over at ENRON and Arthur Anderson did.

Posted on Wednesday, October 1st, 2008 at 1:12pm.

Joe Manausa wrote: Thanks Norman. I don't know the whole details of what they did, but if they did illegal actions like the Enron and AA CEOs, then I agree. The real problem is that the government (through Carter Era and Clinton Era housing reform) mandated that the GSEs (Fannie and Freddie) create opportunities for people with poor credit histories.
When the government mandates something that Capitalism does not favor, it throws the whole balance out of line. These mandates created Subprime loans and a whole new industry that ran at full speed, with the approval of the government, until it crashed our financial markets. Maybe we'll learn something from this...... Nah, I doubt it.

Posted on Wednesday, October 1st, 2008 at 1:21pm.

Kathy wrote: No, we won't learn anything constructive. However, the predators will learn how to profit from the 'rescue' in a New York minute.

Posted on Wednesday, October 1st, 2008 at 1:50pm.

Joe Manausa wrote: I suspect you're right Kathy. I guess, in a sense, that means we've learned something from history, right :).

Posted on Wednesday, October 1st, 2008 at 3:25pm.

Lee Adams wrote: A bailout that makes sense!
I'm in favor of giving $85,000,000,000 to
America in a 'We Deserve It Dividend'. To make the
math simple, let's assume there are 200,000,000 bona
fide U.S.Citizens 18+.
Our population is about 301,000,000 +/- counting every
man,woman and child. So 200,000,000 might be a fair stab at
adults 18 and up. So divide 200 million adults 18+ into $85
billion that equals $425,000.00.My plan is to give $425,000
to every person 18+ as a 'We Deserve ItDividend'.
Of course, it would NOT be tax free. So let's assume a
tax rate of 30%. Every individual 18+ has to pay$127,500.00
in taxes.
That sends $25,500,000,000 right back to Uncle Sam.But it
means that every adult 18+ has $297,500.00 in their pocket.
A husband and wife has $595,000.00. What would you do with
$297,500.00 to $595,000.00 in your family?
Pay off your mortgage - housing crisis solved.
Repay college loans - what a great boost to new grads
Put away money for college - it'll be there
Save in a bank - create money to loan to entrepreneurs.
Buy a new car - create jobsInvest in the market - capital
drives growth
Pay for your parent's medical insurance - health care
improves
Enable Deadbeat Dads to come clean - or else
Remember this is for every adult U S Citizen 18+ including
the folks who lost their jobs at Lehman Brothers and every
other company that is cutting back. And of course, for
those serving in our Armed Forces. If we're going to
re-distribute wealth let's really do it... instead of
trickling out a puny $1K ( 'vote buy' ) economic incentive.
If we're going to bailout, let's bail out every Adult U S Citizen 18+!
As for AIG - liquidate it. Sell off its parts. Let
American General go back to being American General. Sell
off the real estate. Let the private sector bargain hunters
cut it up and clean it up.
Here's my rationale. We deserve it and AIG didn't.
But can you imagine the Coast-To-Coast Block Party! How do
you spell Economic Boom? I trust my fellow Americans
to know how to use the $85 Billion 'WeDeserve It
Dividend' more than I do the geniuses at AIG or in
Washington DC. And remember, The -plan only really costs
$59.5 Billion because $25.5 Billion is returned instantly in
taxes to Uncle Sam.

Posted on Wednesday, November 19th, 2008 at 5:39pm.

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