Don’t be tempted to think that this is a “political” issue. This is about the real estate market, pure and simple. If this bailout plan passes, the U.S. economy and the real estate market will likely be on incredibly shaky ground for years to come.
My friend, let’s put “labels” aside for a moment. Let’s suspend being “republicans” or “democrats” or “liberals” or “conservatives” for now.
The bailout program before Congress right now is an abomination. It’s essentially a $700 Billion slush fund designed to protect horribly-managed companies from the error of their own poor judgment.
There is no room for this foolishness. The free market has been restrained by the government for years now, as evidenced by formal government policy documents that encouraged and forced government lenders to approve loans for completely unqualified borrowers. Private lenders rushed in to be competitive and to take advantage of the highly liquid market created by the government for these bad loans, and thus the cancer spread from just GSE’s like Fannie and Freddie to private lenders as well.
The original fault for all of this lies with government. Horrible public policy during the Clinton Administration (which was never withdrawn by Bush) gave life to this situation, and Senator Chris Dodd and Congressman Barney Frank are so deep in the creation of this problem that they would be tarred and feathered if their constituents realized what they’ve done.
But they’ll never know, and frankly, right now isn’t the time for that. Yet.
What’s necessary is to call your Congressman and Senators and ask them NOT to support the bailout. If we allow the free market to fix this problem, the problem will actually be fixed. There will casualties, and there will be some pain on Wall Street. But to think that this situation can be resolved without pain is foolhardy.
To see how effectively the free market can solve problems – even while partialy hamstrung by government interference – just look at what has happened in the past two weeks:
- Bank of America acquired Merrill Lynch
- Citigroup has acquired the banking operations of Wachovia
- JP Morgan has acquired the assets of Washington Mutual
- Berkshire Hathaway (Warren Buffett) has acquired a massive stake in Goldman Sachs
It’s quite probable that if the bailout package had been in place 2-3 weeks ago, at least 2 of these acquisitions wouldn’t have happened, and the result would have been weak, poorly run companies dumping more bad debt onto your back. Sure, Wachovia and Washington Mutual may have survived – but you would be left holding the bill for it, and with no hope of a return for your tax dollars invested.
The Bailout plan is bad law. It’s foolish through and through. A free market solution is the only answer here. Let the suffering companies declare bankruptcy. Let the stock market take a huge hit. And let the heads of responsible executives and politicians roll. Corporate excess is not remedied by government excess.
There’s not yet “blood in the streets”. But soon there will be. The question is: will it be your blood or that of foolish companies and politicians? If you want the responsible parties to face the music, call your Congressman and Senators and tell them not to support the bailout bill. And do it now, because the votes are supposed to be cast today. To find out who your Congressman and Senators are, click here and enter your zip code in the upper left side.
Your comments are always welcomed here at Bryan Ellis’ Free Real Estate Training.
The business model behind creating american tax payer dollars is to invest them in our country. This plan is not a bailout…though that name seems to have gained tremendous popularity. We must remember this is an investment in our country and if managed properly will generate great returns for every dollar invested. Will there be problems and scandall, most likely, but the overall good and profit that this will create far overshadows any of the negative aspects. Like it or not our country runs on credit and investment, and investing in that system is far more important than anything else our tax dollars could be allocated towards.
This is incredibly unpopular, but it is the right decision and I admire those in the publics eye who stand up to support it.
Sorry, Bryan but you’re off base on this. Let me say that I am all for less government but in this case the government may be our only hope to stop a complete free fall of real estate valuations. If you own real estate, you should be hoping this “bail out” goes through.
Right now, portfolios of mortgage backed securities are selling for $0.20 – $0.35 on the dollar… IF a buyer can be found. These are “fire sale” prices… completely devoid of rationality. It is estimated the gov’t will bid for these portfolios at approx. $0.65 on the dollar… a much more reasonable price… even if the default ratios stay high. See, the gov’t is a buyer that can wait for the market to come back… which we all know it will, eventually.
When the market finally comes back, it is probable that they can then resell these portfolios at higher prices than they paid for them. Not too mention that they will receive warrants for the companies that are helped out; not to mention that these companies will have their executive pay curtailed tremendously. PLUS, these portfolios pay interest.
I see this as a stabilizing factor which we all know the real estate market could use. Here’s the problem with saying the free markets can take care of themselves… you really don’t know what can actually happen, do you? What if they don’t pass the bill and hundreds of banks fail? We could potentially see the stock market crash completely, real estate values take a nose dive and interest rates rise dramatically. Are you prepared for this scenario? If not, then take more time to consider the ramifications if the government does nothing… are you SURE the free market won’t come crashing down? If there is any doubt, better to see the government try to do something rather than sit idly by.
just want people to know this came from a friend, it is not my idea
But with this example just think what we could all do with the 700 billion bill that just failed
Subject: FW: We Deserve It Dividend
I’m against the $85,000,000,000.00 bailout of AIG.
Instead, I’m in favor of giving $85,000,000,000 to America in a We
Deserve It Dividend.
To make the math simple, let’s assume there are 200,000,000 bonafide
U.S. Citizens 18+.
Our population is about 301,000,000 +/- counting every man, woman and
child. So 200,000,000 might be a fair stab at adults 18 and up..
So divide 200 million adults 18+ into $85 billon that equals $425,000.00.
My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.
Of course, it would NOT be tax free. So let’s assume a tax rate of 30%.
Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000
right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket. A husband and
wife have $595,000.00.
What would you do with $297,500.00 to $595,000.00 in your family? Pay
off your mortgage- housing crisis solved. Repay college loans; what a
great boost to new grads. Put away money for college; it’ll be there,
Save in a bank, create money to loan to entrepreneurs. Buy a new car,
create jobs. Invest in the market, capital drives growth. Pay for your
parent’s medical insurance; health care improves. Enable Deadbeat Dads
to come clean or else
Remember this is for every adult U S Citizen 18+ including the folks
who lost their jobs at Lehman Brothers and every other company that is
cutting back. And of course, for those serving in our Armed Forces.
If we’re going to re-distribute wealth let’s really do it…instead of
trickling out a puny $1000.00 ( vote buy ) economic incentive that is
being proposed by one of our candidates for President.
If we’re going to do an $85 billion bailout, let’s bail out every adult U S Citizen 18+!
As for AIG, liquidate it. Sell off its parts. Let American General go
back to being American General. Sell off the real estate. Let the
private sector bargain hunters cut it up and clean it up.
Here’s my rationale. We deserve it and AIG doesn’t.
Sure it’s a crazy idea that can never work.
But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
I trust my fellow adult Americans to know how to use the $85 Billion We
Deserve It Dividend more than I do the geniuses at AIG or in Washington DC.
And remember, The plan only really costs $59.5 Billion because
$25.5 Billion is returned instantly in taxes to Uncle Sam. Ahhh…I feel so much
better getting that off my chest.
Sorry guys, But I lean towards agreeing with Brian.
I understand the idea of supporting financials will allow lending institutions to keep the costs of borrowing money low. Which, if, and this is a huge if, if companies act on this borrowing of money, is good overall for business and employment. Sort of a Reagan approach.
Fact is I have not seen many companies growing and expanding.
If done right, the government can make money. This is another big if. Infact it’s not an if at all. No large government entity has ever made money. Russia tried and failed. Further, as Tucker above agrees, there will be corruption. Times like this we need efficiency, not corruption. Good luck getting a profit then. Warren Buffett opposes the over market price purchase of these investments. Jim Rogers also has long been a fan of free markets’ ability to create strong healthy economies.
But thats just too much long-term thinking for some.
There is no doubt, though, the continued depreciation of the American dollar and strain on everyday American consumers will continue with this plan. The taxes needed to pay for this will be huge. Effectively lowering the earning power of every working American.
So what is the plan for after they acquire these investments? Not sell them? Really? I’m going to have to side with the economists, over a Government Agency’s plan to “buy and hope”, on this one.
In fact, I think I’ll always take that side.
Please write your congressman.
The Bailout is a catch 22: Government intervention or free market capitalism. Government intervention will restore market confidence and free up much needed capital. However, free market advocates righfully reject socialized economics: why should the Feds determine which assets are bought and which are not? Government has never been able to run a business profitably–are our tax dollars worth risking to prove this wrong?
Sorry Dave your math’s a bit off.
$85,000,000,000 / 200,000,000 = $425.00
I agree with Brayn, no money should be given to be put into the pockets of the very rich share holders. That money should be used the rebuild our schools, roads bridges, electrical grids, and finance small businees to replace thejobs that left use for profit to go over seas. Enron was a leason that our government turn its head.
Doesn’t anyone have a calculator?
This “We Deserve It Dividend” is a hoax. $85 billion devided by 200 million equals $425 not 425 grand.
BTW, Bryan’s got to be right. All you have to do is figure out where Pelosi/Reed/Barney/Dodd/etc. (silly socalists) stand and do the opposite.
Works every time…
Brian
I couldn’t agree with you more. Thanks for standing out and speaking…something far too few do anymore.
I totally agree that the bailout program before Congress right now is an abomination. It’s inconceivable that our own government would give $700 Billion to protect horribly-managed companies from the error of their own poor judgment. Everyone wants everyone else to take the responsibility. Don’t we all wish we had printing presses in our basement to print a few billion whenever we were short or made a bad business decision.
You can be sure I have called and will call my congressman and senator.
Don’t people realize that the government can give nothing to us that IT DOESN’T FIRST TAKE FROM US.
Bryan you’re missing the boat. This bill is about cash flow. Without cash flow too many small to mid size companies will end up on the short side of the ledger. The results will trickle down to loss of jobs and the loss to access credit. No one likes the idea of paying into the kitty, but get it right. Without this money your local to regional banks will not be around nor will access to credit for everyday needs. Don’t watch what the stock market is doing because that’s not the story. Watch the credit markets which is a more telling story. This money will not stop what is happening but it will soften the ramifications so we don’t have to replace recession with depression.
This explains it all:
Thanks for the comments, everyone!
I will, of course, offer yet another brilliant analysis and rebuttal to everyone who is of the opinion that their economic future and security relies on action by government officials who have a proven inability to regulate wisely. But for now, in the interest of further discussion, I’ll defer that reply to get more of YOUR opinions in place here.
So please, continue to tell us what you think! If I’m wrong, tell me why!
When regular businesses or individuals have financial problems due to mismanagement and they cannot recover from them the final likely result is bankruptcy. To make sure that individuals didn’t wiggle out through bankruptcy and get a fresh start the law was changed in October of 2005 at the prodding of the credit card companies lobbyists.
When the friends or the Sec. of the Treasury, Federal Reserve, and Federal Government have the same problem a gun is placed to the head of the taxpayer and we are told cough up or die.
While I respect John Mauldin and his analysis is usually spot on, I don’t believe anyone has a crystal ball to accurately paint what will happen whether there is a bailout or not.
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“The average voter? They will see stock market investments off another 25% at the least. Home prices will go down even more. Consumer spending will drop. What should be a run-of-the-mill recession becomes a deep recession or soft depression. Yes, that may be worst-case scenario. But that is the risk I think we take with inaction.”
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I would not propose inaction. I want Congress and the White House to apologize for messing up big time and causing all the pain John Mauldin predicts we are in for if we don’t rob the taxpayer. I want them to fix all the tax-payer backstopped promises and other Fannie and Freddie type bad behavior issues. I want them to enable true free markets and transparency so that risks can be evaluated with some expectation of validity. How about a post-mortem on the rating agencies who apparently issued rose colored glasses to all their employees. How about enabling responsible markets where you cannot defraud investors by pretending toxic soup is edible. How about demanding our anointed be accountable and hold those that attempted to destroy our country’s finances accountable.
To help those that caused the problem escape unharmed is reprehensible at best. This was not a “free market” by anyones wildest imagination. Free markets don’t support unknown and unlimited risk for years on end. This type of behavior requires central planning and oversight.
“Bankruptcy, not bailout, is the right answer”:
http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html
If you reward the government-encouraged mismanagement of business with tax-payer dollars to ease the pain you will likely get more of the same behavior. Some suggest this crisis (sans extorted bailout $) is likely to be the end of the world. After the success of any proposed bailout I highly doubt the next crisis will be a smaller EOTWAWKI scenario. I suppose my kids will be in a better position to deal with that one when it inevitably comes.
It is fascinating to me that some feel the government is the solution when the government has its fingerprints all over the crisis. With the number of times I have seen $425 misrepresented as $425,000 lately I suppose I should not be surprised.
There is a reason that they are called political “parties” They have fun with our unlimited resources and we, our kids, grandkids, or all of the above always get the bill for the “party”.