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Archive for government bailout

Bailout Bingo – “Citi, Please Step To The Window”

Here we go again…The next company too big to fail puts their hat out for some tax payer love.

The more I hear the term “bailout”, the less I believe it is the right thing to do.  Probably the one that I have the biggest problem with at this point is the auto industry.  I know that there are millions of jobs associated with the auto industry.  And I know that a collapse of any one of the big 3 US auto makers would have a devastating affect on the economy.  But, has anyone noticed that Toyota and Honda are expanding?

Hmm…Some auto manufacturers are actually expanding and creating new jobs, while the US auto makers are completly crippled by expenses and technology issues.  I also discovered that the average wage for GM was $73 per hour, while the same worker at Toyota is making about $44 per hour.  I am no economist, but it looks like the company that makes a better product and can sell it cheaper deserves to beat out the competition.

So, that brings us back to Citi.  The term “too big to fail” is complete BS to me.  If you are providing a quality service, with an appropriate amount of risk, in a market where consumers need or want your product….you won’t fail (regardless of how big you are).  The more we keep throwing money at these companies to subsidize their failure, the more it is going to come back around to bite us (or our grandchildren) in the end.  And worse yet, the more we do it, the more everyone becomes numb to the idea of it.

Anyway, that’s my soapbox for the day.  If you would like to discuss your own mortgage bailout, give me a call at 850-221-8334, or visit


Bailout Bill…Round 2

The senate is putting together a new version of the bill that failed earlier this week.

Reports from Washington are that the senate has been feverishly re-tooling the bailout bill with adjustments that will make it more palatable for the public and more likely to pass through the House of Representatives.  Early reports are that an increase in FDIC insurance for bank deposits is being increased for the first time since 1980 from $100,000 per depositor to $250,000.  With the national average bank balance being around $5000, this will have little practical affect on consumers.  But, it can help small businesses feel more secure, and the overall perception is likely to show that there is more for the common tax payer than the original version.

It is not yet clear what other components have been added or removed, but there is no doubt that the pressure is on Washington to do something based on the reaction of the stock market this week.  Also, given an unprecidented amount of discontent towards any bailout plan (some reports say as many as 80% of tax payers are violently opposed to the bill), there is no doubt that those who vote for it should read it carefully as the outcome will likely dictate their fate in November.

I do find it interesting how much the public misunderstands the significance of passing legislation to help this problem.  I was listening to talk radio locally here in Pensacola yesterday, and the overall sentiment is still that there is no incentive to the tax payer and that this simply bails out millionaires that made bad decisions.  Unfortunately, the actual problem is much more detrimental to the overall economy than most people realize or even understand.  For instance, many small businesses rely on credit to run their daily operations.  For a car dealer, it is their line of credit that they use to purchase inventory to put on the lot.  For the plumber that wins a bid for a large job, they need access to credit lines to purchase inventory to be able to start the job.  Given that 80% of all americans work for a small business (defined by a company with 200 or less employees), the amount of layoffs and jobless claims as a result of the business being unable to grow could be more than we have ever seen in this country.

This problem began with the deregulation of mortgages through Congress during the Clinton administration in the late 90’s, and became a widespread problem as banks were forced to make loans to certain low income borrowers or face economic sanctions from the government.  It was understood that a percentage of these mortgages would fail at the time that they were originated, but that was understood as the cost of doing business on the part of lending institutions.  This is not when Subprime loans were born, but it certainly gave them the steroids to go into the wildly risky direction that they were 3 or 4 years ago.  I’m sure you won’t hear much in the news about this because no one in Washington would ever willfully take responsibility for something that had a negative affect on the economy.  In fact, most of our elected officials do not understand the financial markets enough to even know that they created the problem.  Now that the chickens have come home to roost, it is Congress that has to clean up its mess.

No one wants government intervention less than I do.  But, the cost of a lack of action is far greater than the cost of any bill that may be passed.

Where Do You Keep Your Money Safe?

In these historical times in the financial markets, how do you know that your money is protected?

Everyday there is a new headline about some other “sky is falling” scenario.  It was only a week ago that history was made when the government stepped in and took over operations of Fannie Mae and Freddie Mac, but that is old news now.  This week it was the nations largest insurer AIG being given an $85 Billion loan from your tax dollars to help keep them out of bankruptcy.  But hidden in all of the negativity are shining pockets of positive news.

If you ever watch CNBC, you may know that Jim Cramer likes to say “there is always a bull market somewhere”, and he is right.  In the constant yin and yang of the financial markets, where there is a loser, there is also a winner somewhere, you just have to know what to look for and where to find it.  For instance, if you bought into gold earlier this week, you are no doubt celebrating as the gold market had the largest dollar gain in history this week.  Equally, as confidence fades in the stock market, investors must forge ahead and put their money somewhere, and guess what just started looking really good…..real estate.  Thats right, real estate.  The dirty word that people have been scouling at for months just became one of the best places to put your money.

Think about it, if you have $1 million in the stock market and you don’t know if you will wake up one day to find that your top holdings are out of business, your money may be better served in a tangible asset that you can see, touch, get a tax break, and live in (or rent out).  At a time when real estate is at historically low prices, you could be getting in at the very beginning of a new bull market.

I find it interesting what an affect the media has on the markets.  They seem to give you just enough information to instill a panic without regard to how people will react.  I know that the AIG issue is big news, but did you know that there are 1000’s of people without homes or jobs in Galveston, TX after Hurricane Ike virtually wiped the town off the map.  Chances are pretty good that you didn’t because no one in the news is saying a word about it.

So back to the topic at hand, is your money safe in the bank?  Yes, if it is less than $100,000 per depositor per institution.  Is it safe in stocks?  I guess it depends on the stock and your level of exposure.

Even if you take away my obvious bias towards real estate (because I am an active mortgage banker), do your own home work in your local market to see if I am right.  If you haven’t looked lately, you might be shocked at the deals available now.  I my area of the Florida Panhandle, there are gulf front condos that can be stolen for prices that compare to 4+ years ago.

Good luck to you, and tell me how things are in your local real estate market.

Why Is The Government Bailing Out Everyone?

In an unprecedented financial crisis it seems like the tax payer is the real loser.

Bear Sterns, Fannie Mae, Freddie Mac, Lehman Brothers, AIG…..what does all of this mean to you?  Why are some companies being bailed out while others are allowed to fall on their face?  It is a complex question being answered by your tax dollars, and the answers change from one day to the next.  Just 2 days ago, the official opinion of the Treasury was that there would be no bailout of AIG (the nation’s largest insurer).  Less than 48 hours later they are writing a check for $85 billion.  So how is it in the best interest of the country to bailout these corporate executives that made bad decisions?

For starters, every situation is different, and the government is not bailing out every company that steps up to the bread line.  Those that are allowed to fail without creating widespread devastation in the economy is, in my opinion, good for the over all health of the economy.  The ability to assume risk and fall flat on your face is actually what makes a free market economy work.  IndyMac Bank for example was a huge financial institution.  Yet, they were allowed to fail because there are dozens of other companies performing similar functions in the market, and therefore it is not the responsibility of the governemt to step in and help.  In that example, since most depositors were covered by FDIC insurance, there was little affect to the end consumers and account holders anyway.

The Fannie Mae and Freddie Mac takeover was different.  With over $5 Trillion in combined assets, the collapse of Fannie and or Freddie could have widespread implications in the credit markets and significantly hinder mortgage lending.  But, in the case of Fannie and Freddie, the government took over operations.  Their business was significantly less risky than the subprime lenders that have had so much trouble.  But because of their shear size, they have been affected by the current housing market.

AIG is a much different situation than any other that we have faced.  The significance of AIG is that more than 100,000 employees work for the company, and a collapse would affect so many sectors of the economy that it could create a ripple effect that is almost immeasurable.  The $85 Billion being provided to them by the FED is actually a short term loan, and the collateral for the loan is the entire $1 Trillion dollar asset portfolio of the company.  From a simple bottom line lending standpoint, it appears to be a no brainer, and for me to say that is really something.  I’m not in favor of the government bailing out anyone, but, an $85 Billion loan backed by $1 Trillion in assets that also saves over 100,000 jobs just makes sense.

Ultimately, we are in unchartered territory and no one knows what the long term affects will be.  But there is a light at the end of the tunnel.  For those who are even remotely in the market to buy a home, the events transpiring are creating unprecedented buying opportunities.  At the same time, for those in an adjustable rate mortgage, the market is ripe for a refinance with fixed rates as low as 5.25% (see for current pricing).  In every market, there are winners and losers.  Those who have the fortitude to seek out these buying opportunities will be in a position to build wealth like nothing we have seen in generations.