Lately, it seems like we are living the story every day. Since the Great Depression, the United States has not seen so much turmoil in financial markets. What started in the subprime industry has now bled to Wall Street.
When investment houses that have been around since the Civil War close their doors, it’s a sure sign that something has gone terribly wrong. First Bear Stearns, then Lehman Brothers, and then Merrill Lynch and Washington Mutual.
We all cannot help but be a little disturbed by what is happening. But while others and I have pointed out that markets are just going through a “correction,” you might be wondering, “Denise, what level of correction do we need to make?”
Obviously a big one. Too much slow money for too many people who couldn’t afford it is a surefire recipe for disaster. Now is the time 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 being in the same economic hole that our great-grandparents fell into. back then.
Case in point: The $ 700 billion bailout (or is it a purchase?) That legislators are debating at the time of this writing is a giant sum of money, the equivalent of which was not available in 1929.
Today, we are better prepared to handle the challenges that arise, in part because we have learned from history. When the Great Depression began, there was no endorsement. The United States 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 return at least some security to the US economy. The time for arguments from political principles is over. Something has to be done, and thankfully our leaders are finally stepping up to do something about it. The question is whether these leaders will help with the problem or add to it, only time will tell. At the time of this writing, they have not yet been able to do it together.
After four (or more) years of unsupervised lending, exotic lending, predatory practices and the ensuing subprime mortgage crisis, the government is finally taking steps to intervene before it all falls into oblivion.
Of course, many wonder why Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke didn’t do something before this mess happened. While it is true that no one could predict how serious the consequences would be, it is obvious that when banks start handing out mortgages like candy, something is wrong.
Two or three years ago, every time I heard a mortgage ad on the radio promoting low numbers in exchange for adjustable rates, I shuddered. I wondered how long this could go on. During the boom, it seemed like we would never run out. Now we are undergoing a huge reality check.
So what does this mean for the average realtor? First of all, the media is wrong. It is not a rescue. It is a purchase.
A ransom is when you give money to a corporation while forgiving its debt. A buy is when you come in to save the day, but there is an asset to trade.
The latter is what the United States Government proposes: providing funds to take over mortgages on real estate. Real estate is assets. Therefore, by definition, this is a purchase.
Based on my own personal experience with the markets, I think the government could do quite well in this deal. Think about it. They step in, take over the troubled loans, and refinance them at a lower rate. It is a win-win situation.
Ultimately, you can always make money from mortgages. Even if the government restructures these mortgages, we all know that real estate is still the best long-term investment.
Which I think will be the harbinger of the “2012 big real estate appreciation.” Real estate will rise again. It always bounces. It will always be. And all the major factors point to it rising anyway: population, immigration, migration, a community of older people with purchasing power, higher divorce rates, and people living much longer than before.
Personally, I would like all the corporate executives who led failed companies down this horrible financial path to be denied their bonuses. How can a CEO get a $ 22 million bonus when he has ruined the company and left shareholders with the bag? For me, this is one of the most important parts of the mess to clean up.
So only time will tell how long it will take for our leaders to get this right. What is certain is that something must be done !!!
And remember that when the consumer gets nervous about Wall Street, they tend to invest their money in real estate. So do not jump to conclusions and believe that the housing market is falling with Wall Street, it is the housing market that will take our economy back to where it should be.
