Those of you who read my blog about Phoenix, Scottsdale Real Estate and new home builders and new home communities in Peoria, North Scottsdale and Glendale know that I have been opposed to the bailout in its current form.
I do think Congress has been working hard to get a plan that will take a major step towards helping (maybe not fixing) the financial crisis that has put a stranglehold on real estate in greater Phoenix, Scottsdale, Fountain Hills and the nation.
The "Rescue Package" will be the largest intervention since the Great Depression. Without going into too much detail the major changes are:
- The government could get at $250 billion immediately, $100 billion more if the president certified it was necessary, and the last $350 billion with a separate certification - and subject to a congressional resolution of disapproval
- letting the government insure some bad home loans rather than buy them - designed to limit the amount of federal money used in the rescue
- To help struggling homeowners, the plan requires the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes
- The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies' future profits
I am still not satisfied that the plan will do anything to help real estate.
I expect the government to take possession of real estate , like REO's , think GEO's (Government owned real estate) and they should not be expected to manage a real estate portfolio any better than banks who are in that business.
As a result, I expect to see a lot of real estate hit the Phoenix, Scottsdale, Peoria real estate market in the next 6-9 months. More inventory, will drive down prices further. Maybe a necessary evil ? We will see.
Never the less, I am going to play devil's advocate for a moment.
There are approximately 300 Million Americans and about 1/3 are taxpayers or (very) roughly 100 million taxpayers. At a cost of less $700 Million , that equals 7K/ per tax payer.
Agreed, it is not as good as getting $7,000. However, I would argue that if taxpayers are going to pay for 'social' programs for the welfare of the American people, this is probably more important then health care, education or national defense.
Further, these banks should have be able to pay these loans back, with interest. Additionally, the stock (warrant) participation should provide profit participation from the taxpayer investment.
Clearly, we need the banks to be solvent so that depositors will come back and banks can begin lending money again. Not until then can Phoenix real estate get back on the road to recovery.
However, even at a cost of $7K, I believe that every homeowner, new home builder and real estate investor would take the money out of their wallet to get real estate back on track to lead the economic recovery we desperately need.
Let me know what you think.
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Copyright © James Wexler * Bailout is cheap: only $7/ taxpayer *
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james,
seems like if each taxpayer recieved the money directly and then deposited it in the banks, all would be ok?? is that too simple ?
bottom line is that it doesnt matter how much money we the taxpayer gives freely to banks if they are not willing to lend it the people who gave it to them in the first place
Mike - I think most americans can use the $7,000 a lot more then the $300 stimulus checks. spending that type of money would jumpstart economy. Either way, the money could go to education or healthcare before wall street
Mike Delvero - what a great idea. Make the FED give money to consumers in the form of a mandatory 3 year interest bearing CD - banks could lend, and consumer are making money
Jon T - you hit it on the head, if the banks are not going to lend, then they should give back the money. Period !!
Barbara R - we both agree with Mike. banks should either lend the money, or Give the money back, maybe even for consumer spending ?? interesting thought
Wexler - we need something, but the problem is that the bailout has been a disaster because politics got in the way of a bill that would mandate the banks actually lend the money. Instead, they use it to buy small banks and strengthen balacne sheets
Jason - this bailout has not been successful. To use your words, "disaster" is more like it. We have watched the market collapse and credit tighten. Banks need to lend or give the money back