Those of you who are kind enough to take time out of your busy days to read my blog, rants, ravings and musing of all things Phoenix | Scottsdale real estate, know that I am not happy with the $700 Billion bailout of the banking system in its current form.
The proposal, now being debated before Congress, calls for more than a $700 Billion (call it a cool Trillion) fund that would solidify bank balance sheets, though not make mandatory the lending of money to borrower' the orginal concept of the plan.
I call this the end of capitalism.
I do not say this because it offers little help to the real estate market and home values.
I call it the end of capitalism because the bailout by the Federal Government is giving a free pass to corporate America. Basically, big banks were able to participate in 100% of the profits. Yet, virtually, none of the losses.
Think about it like this.
If you could go to Las Vegas, wager and win keep you profits would you? If you do not win, the house would come and give your money back in the form of a low interest loan and say ‘try again'. Now, with this new found money, you have a second chance. If this second change is successful you keep all the profits above and beyond these low interest loans. If this second change does not prove successful, you don't have to pay the money back.
This bailout of those who are not rewarded for taking risk is completely opposite to what built our economy which rewards for risk. And of course, that risk comes at a price if you don't succeed.
What makes matters worse is that if the program does not prove successful and the banks cannot right the ship, the owner of this $700 Billion in bad debt are the American Taxpayer. Most Americans would probably not make this investment the Government is making for us.
Does it get worse?? Possibly.
What also scares me is , "what if this bailout plan actually works?"" and the government takes the debt as the banking system pumps more loans on the market with the new found lottery ticket winning from the FED.
I see the government becoming the owner of a trillion dollars in REO debt as a result of these worthless loans. I call them GEO (think REO, but Government owned real estate) properties.
Ultimately, the government will need to sell this inventory of homes. I expect a flood of GEO real estate on the Phoenix, Arizona real estate market.
These homes will be sold at steep discounts to already sharp price declines as the government has little concern for profits and losses (as we well know).
Government owned real estate will further drive down prices (if that is even possible) and paralyze any chance of homes that are not short sales, REO , GEO's and bank owned homes in the greater Phoenix area from selling.
We do not need more homes for sale in Greater Phoenix AZ or any real estate market across the country.
Most people in Phoenix, AZ and most Americans have most of their net worth tied up in their primary residence. Until, supply of homes stabilizes, real estate prices will continue to decline. Until we resolve this issue, Americans will not be able to recover the current economic stranglehold.
Do not let banks have a free pass.
I suggest that we are able to participate in a greater amount in the profits and are offered more security in terms of capital stock. We should be shareholders of the company if we are going to be partners with the banks.
Equity participation for investment risk is how the banks would make an investment. Why should we be any different? Capitalism should apply. There is no reason for the Government (U.S. Taxpayers) to make bad investment decisions.The banks wouldn't and either would you!
Do not let this Bailout be the end of capitalism.
Call you Congressman and let your opinion be heard.
___________________________________________
Copyright © James Wexler * The end of capitalism is upon us*
call me today at (480) 221-8080 to learn more about life in North Scottsdale Arizona and living in luxury retirement communities in Scottsdale AZ.
I agree with you! The dark side of what we just went through is cronyism, favoritism etc. Who is to say which industry survives, and which fails? We have definitely crossed the line.
Jim Crawford - we have crossed the line into the proverbial "Darkside". Not only do we have to make that ethical decision, then who makes the financial decision with how much, how long, etc.. for our taxpayer money
James, I also agree with what you had to say in your post. Just the othe day on the news a Senator (I forget which one) was speaking about how the money being spent so far has done nothing to aliviate the forclosure issue and that so far most of the banks that have been given money (to the tune of 250 million) have not started to really lend again. His point was, where has the money, issued by the Treasury Secretary gone?
I cannot waite to see how this is going to unfold, right now I think Americans need to prepare themselves to be bent over since we are going to be royally f*&#ed.
Christopher Bonta - - I appreciate your candor. And yes, I agree. The problem is that the bailout does not mandate that the banks use the money to lend. Thus, we have no way of seeing the moeny trickle down to borrowers .
We have become a country with the worst economic model in the world. We let the rich keep all of the profits and then we also let the rest of taxpayers share in the losses. Terrible!
James, your right and when the bailout first came up my instinct was to say it should be passed. Then when I found out that my two reps in Congress (NH only has 2) were both voting no for the bill I became curious as to why. I called both rep's offices and they informned me as to why each was voting no, and after their explanations I changed my mind and was against the passage (both times it came up for a vote).
We gave a blank check with no oversite, mandates or checks in place, what a stupid thing to do!
JM- just like Jim Crawford says, this cronyism where a member of the Keating 5, John McCain can almost become president and manage monetary policy is incredulous
CB - too many politicians due to the upcoming elections knew they had to satisfy their consituents , but couldnt risk powerful donors and pass a bill in the form that was truly need.
James, that's true,interestingly both of NH's representatives were up for re election and both voted no on the bailout and they retained their seats in the November election!
Chris,
the timing of the bill was the problem, most politician who had a seat up for election were willing to take the hard stand and do what needed to be done and risk losing their seat in congress, we have a decent plan that doesnt have the mandates to work
I assure you, it is going to get much worse.
The country is facing economic catastrophe and the total collapse of the monetary and banking sector. With 10% unemployment predicted, 2.5 million foreclosures forecast before the end of next year, thousands and thousands of pay option adjustable rate mortgages about to reset, no hope of refinancing for these people because of negative amortization, thousands of real estate professionals retiring their licenses and losing their jobs, thousands of construction companies filing for bankruptcy, the foreclosure ceiling beyond the crisis stage, thousands of lenders out of business, personal property being repossessed and auctioned off, divorce at an all time high, volume retail business all over the nation seeking chapter 13 protection, billions of dollars of lines of unsecured credit in default, students loans in default by the billions of dollars, health care providers being jailed by the busloads, closing attorneys, loan officers, banking executives, straw buyers and fraudulent appraisers being taken to jail by the thousands, corporate fraud and financial crimes at an all-time high, the mortgage backed security market dead, the market value of homes all over the nation plummeting by 30 to 40 %, the suicide rate exploding, children being placed for adoption because their parents are in the street in and living in their cars, mental illness and depression destroying lives at an incomprehensible and incalculable rate, the government of the United States, hated and despised by hundreds of nations throught the world and considered greeedier and more corrupt and untrustworthy that any empire in the known universe, the poverty rate exploding with incalculable magnitude.....
Merry Christmas
Being from a gambling state, your Las Vegas analogy really makes the point. In effect, these banks are gambling on house money, and we are the house.
BR - we need a revised bailout plan with specific mandates and oversight of how this money will be used, if not, it needs to be returned, if money does not get into hands of those who lent it the banks, then we want it back,
David Saks
Unfortunatly, what you wrote is lined with a lot of possible reality. I know most people will like to write it off as fear mongering. But the picture you paint, except for the 'Merry Christmas" is can be supported by the market economics and outlook
Virginia Hepp - I hate to make that analogy, but how else can it be interepreted. making decisions, profiting from a positive outcome and then if it doesnt work, then appealing to human nature and asking for help
Chris B - I will quote you and say it is not such a coincidence that "
,interestingly both of NH's representatives were up for re election and both voted no on the bailout and they retained their seats in the November election"
the timing was bad, not the bill, as the bill could never pass in the time that was needed in the form that was needed
Agreed, James. It won't be such a "Merry Christmas" for millions of our friends, families, colleagues and our loved ones. I apologize for the improper cynicism, however, a horrible catastrophe is emerging and there is nothing we can do to stop or prevent it from crippling the nations economic structure. It will take decades to recover and it is our responsibility to begin educating the generations about to inherit the debt.
My hopes for a fine week ahead for you.
what a great deal, i can invest, take risk, spend other peoples money, if it works , Great!! profit, i can then use and leverage with more borrowed money. Then I keep it all. It gets better, if I lose, I can turn to my good paying taxpayers and neighbors and ask for help so I can do it all again
David - always feel free to speak your opinion. The "improper cyncism" you mention, would not be so improper , if it were not well founded in a frightening reality.
I know we have to be positive, but we also have to be realistic so we can prepare appropriately.
Scott S - thats pretty funny, or tragic, depending on how you look at it, .... I agree, it does sound like a good business model. Where do I sign up??
Indeed. Thank you, my friend, for an affirmation of my thoughts. God bless.
hey big brother, great post. I know you dont like to get political.
This is the same old story of American Wealth. The rich taking or 'raping' from the poor. This is another form of slavery. This wall street greed profited from offering products at high fees that were doomed to fail. Now, that the failure is here, the same wealthy banks, etc.... are being bailed out by laws written by weatlhy politicians to take money from the poor american taxpayer, further adding to debt and hamstring future generations.
David - your welcome, your thoughts , agreeable, postive or argumentative are always welcome and encouraged here. Happy thanksgiving to you and yours
I don't think it the end of capitalism, but a frenzy, to stop the spiraling economy.
This is a perfect storm and it will get ugly and eventually get fixed.
Richard
Daniel - the cronyism that Jim Crawford mentioned is incredible. When you hear about the political ties to banks and the amount of money donated by wall street financial industry to politicians it is not so amazing the lack of oversight or looking the other way during the boom of 2001-2005.
Now, taxpayers are footing the bill and most never profited , just lost.
Richard Stabile - capitalism rewards risk and success. If we bailout every bad busines decision, then there is no risk.
I know there are bigger issues, like with the 3MM job connected to the big 3 automakers, but bottom line, if you can risk and fail and not actually be allowed to fail, then what do we have as an economy? Not caplitalism!
We simply cannot allow the banks to sit on the money. I am a mortgage broker and I can tell you the truth. Credit has tightened. It is harder to get a loan than ever. Depsite what the news media and the politicians would tell you. Until they lend, we will not recover.
Nick - I agree. It is impossible to get car loans, home loans, business loans are all but gone, and even credit card limits are being cut. We have a big bill from uncle same and bought a lemon with it
I am a city councilman that for reason I need to be nameless. However, it was not realistic to pass such a groundbreaking piece of "Bi-Partisan" legislation that would be appropriate for such a crisis weeks before the most important election in US history
Dear Sir , Mr. or Ms. local politician - i appreciate your honesty even if it is the exact opposite of what we need as citizens and voters and is frightfully in line with why americans are so frustrated and distrustful of politicians.
we need to put an end to the dying (not death) of capitalism and not bailout the big 3 automakers. I know that will not make me popular but bailing out failing busienss so much more dangerous in the long run
Someone should be writing the next great American Novel as this financial fiasco unfolds--it's stranger than fiction with a foundation built on one bad decision after another.
Jeff S - I have a lot of friends in Detroit. I think if you knew how the society, family and economy were so tied to the automotive industry, then you may not say it so easily. I may agree with you, but it is not as easy as a business decision. for me , at least
Norma Toering - this is the modern day Great Gatsby, or I should say the fallout from the American Dream and Greed outlined so arfully in the Great Gatsby , the last great American novel
I am from Detroit. My family and that of all my friends are inextricably intertwined with the auto industry even though we dont work for the Big 3. We need to renogiate contracts and union deals, but we cannot bail on the american worker or jobs will not stay in the US and that is not good for the economy in the long-run.
JL - I agree. We need new guidelines so it is not a bailout. It is a non-bankruptcy reorganization so that the industy can compete in todays market. failure is a bad sign for american workers and consumer confidence
James, I've been busy saying conservatism is the new socialism for months now lol
I don't think our entreprenuerial spirit can be stopped; having said that, I was constantly contacting my representatives when the first bail out went into effect because I don't see giving money without creating jobs as a good idea. And now that a second one is being contemplated, I'm doing it again. I'm hoping this one will go better. In the meantime, there is no accountability (or at least not enough) on where the first bail out monies are going.
I hate it!
Carole -I agree, the entrepenuerial spirit cannot be stopped, but we cannot let people invest with no risk or bailed out from the americans who pay taxes and dont participate in the profits
James - I must agree with your thoughts expressed in this article. If captalism fails in America, it will be because of greed and corruption within the financial and banking industry. The fact that we are having to bail them out (enabling bad behavior), is a VERY hard pill to swallow. I guess, if I felt it would stop the hemorraging, that would be one thing, but we can only hope for that at this point. It still doesn't fix the root problem - the bad mortgages, and main street woes. It's as if we are spraying fertizer on the leaves of a tree, hoping to make them greener - but ignoring the problem of starving roots, which are starving in clay soil.
Myrl J - I am going to quote you "It's as if we are spraying fertizer on the leaves of a tree, hoping to make them greener - but ignoring the problem of starving roots, which are starving in clay soil"
today is a good example of that. The stock market is up nearly 800 points in 2 days and the fundamentals are still not fixed !!
The only thing I disagree with is the comment on worthless loans. Every home has value and not every loan is in default. So there is value even though they take a 100 percent write off. And something that is not being talked about. These same banks are making loans on the very properties they foreclosed. More profit!
Home Realty - good point about still a small percentage of loans in default. However, if todays price announcement by S&P case-shiller is any indication of home price declines, then more and more loans become worth less and less and less
While I do believe that there will be asset backed security and equity ownership interest swaps in exchange for taxpayer dollars, the taxpayers and the Treasury Department will have no say in how the company (who they now have an ownership interest in) is ran. Also, with the redirection by Secretary Paulson of the remaining bailout funds to the non-securitized consumer loan sector, there will be little hope of recovery of any of these funds. It is true, as is easily pointed out, that the federal government was a huge holder of residential property during the great depression and homeowners saw a return on their tax dollars. Today this will more than likely not be the case as the government is more focused on getting lenders (mostly consumer lenders) to write loans to inject liquidity (re-lend to taxpayers) into the markets. This new lending package is bunk; $200 billion to consumer lenders and $600 billion to securitized, government chartered home finance lenders. How the hell heck are we supposed to have any assurance that once Paulson gets this money he will not redirect it? And, as you so aptly point out, there is no guarantee that the government will protect homeowners who paid according to their loan's terms so that when the government liquidates property their home values (read equity) are in any way protected.
Rich D - thanks for the well thought out and articulate and intelligent comment. You point out the 2 main problems as well as can truly describe this disaster.
1) the Banks can borrow the money and Not lend it -
2) government or banks will take possession of more real estate, with little concern of liquidation or local property value
thanks, my friend, and happy thanksgiving