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Lately, it seems like we’re living in history every day. The United States has not seen such turmoil in the financial markets since the Great Depression. What started in the subprime mortgage industry has now spread to Wall Street.
When investment houses that have been around since the Civil War close their doors, it is a sure sign that something has gone terribly wrong. First Bear Stearns, then Lehman Brothers, and then Merrill Lynch and Washington Mutual.
We all can’t help but be a little taken aback by what is happening. But while I and others are pointing out that the markets are only going through a “correction,” you might ask, “Dennis, how much do we need to correct?”
Obviously, a big one. Lending too much money to too many people who weren’t able to repay it is a surefire recipe for disaster. Now the time has come to pay the price.
Some analysts are even comparing what is happening now to the stock market crash of 1929. However, there is a big difference between then and now – we are not even close to the economic condition in which our great-grandfathers fell then.
Case in point: the $700 billion bailout (or is it a buyout?) being debated by lawmakers as of this writing is a colossal sum, the equivalent of which was not available in 1929.
Today, we are better prepared to deal with such challenges—partly because we have learned from history. When the Great Depression started, there was no backup. The US government was in a much more “hands-off” position than it is today.
While some like to argue that it is a good thing for the government to stay out of the free market, the new and upcoming legislation promises to bring at least some protection back into the United States economy. The time for debating political theory is over. Something has to be done—and thankfully, our leaders are finally moving to do something about it. The question is whether these leaders will help or add to the problem, only time will tell. As of this writing they still haven’t gotten it together.
After four (or more) years of unregulated lending, foreign debt, predatory practices, and the ensuing subprime mortgage meltdown, the government is finally taking measures to step in before it all spirals into oblivion.
Of course many are asking why Treasury Secretary Hank Paulson and Fed Chair Ben Bernanke didn’t do anything before this mess. While it’s true that no one can predict how bad the fallout will be, it’s clear that when banks start doling out mortgages like candy, something is amiss.
Two to three years ago, every time I heard a mortgage ad on the radio with low numbers for adjustable rates, I winced. I was wondering how long this could go on. During the boom it seemed we could never escape. Now we are in for a major reality check.
So what does this mean for the average real estate agent? First of all, the media has got it wrong. This is not relief. This is a purchase.
A bailout is when you give money to a corporation by forgiving their debt. A buyout is when you come in to save the day—but there is an asset to trade.
The latter is what the US government is proposing: to supply money to take out mortgages on real estate assets. Fixed assets are assets. Therefore, by definition, it is a buyout.
Based on my own personal experience with the markets, I think the government could do pretty well on this deal. Think about it. They step in, take on loans that are in trouble, and refinance them at a lower rate. It is a win win situation.
After all, there’s always money to be made in mortgages. Even if the government restructures these mortgages, we all know that real estate is still the best long-term investment.
Which I believe will be a precursor to the “Great Real Estate Appreciation of 2012”. Real estate will boom again. It always rebounds. It will always be there. And all the major factors are pointing to it growing anyway – population, immigration, emigration, a senior community with more purchasing power, higher divorce rates, and people living longer than ever before.
Personally, I would like to see all the corporate executives who were denied their bonuses for leading failed companies down this terrible financial path. How can a CEO get a $22 million bonus when he has bankrupted the company and left shareholders with the bag? To me, this is one of the most important parts of the mess to be cleaned up.
So only time will tell how long it takes our leaders to get this right. It is certain that something has to be done!!!
And remember when consumers get nervous about Wall Street they invest their money in real estate. So don’t jump to conclusions and believe the real estate market is going down along with Wall Street, it is the real estate market that will get our economy back to where it needs to be
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