The 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
The 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
- 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.
- 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.
- 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.
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.
The 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, 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.