banks

Bush to Federalize Nine Major Banks

Syndicated from iVoteAmerica

Well, by George, he’s given new meaning to “compassionate conservative” by federalizing the banking and capital systems on his way out of office!

Don’t let the swinging door slap you backside on your way back to Crawford, Mr. President.

According to the Bush Banking proposal, nine major banks have accepted the notion of partial government partnership. These banks are: Bank of America, Merrill Lynch, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, State Street and Wells Fargo.

Watch this video:

George Bush is implementing the G7’s recommendations for government partnership with American banks. In other words, free money from American taxpayers to shore up the international economy.

Is this the new federal socialization of our economy? Bush said, “The government’s roll will be limited and temporary…” Can anyone name a federal program which, after implemented, remained limited or was temporary?

For the full story, visit this morning’s (Tuesday, October 14, 2008) article by Washington Post Staff Writers Howard Schneider, David Cho and Neil Irwin, entitled “Bush Defends Government Bank Investment.”

banks

Warning: RE Industry will be Harmed if Bailout is Backed by Us

URGENT INDUSTRY MESSAGE

REALonomics continues to take a position that the natural market cycles should dictate the recovery and that government sponsored bail out attempts will create additional long term issues and actually stall a real recovery.

Although many in the industry favor federal intervention we are hard pressed to find anyone setting forth specific rationale for doing so. We hear a lot of emotion but not much sound economic reasoning based upon our industry’s historical commitment to traditional capitalism as the driving force behind real estate home ownership.

Wachovia was snatched up by CitiGroup just days ago. According to the FDIC’s website, there have been 40 bank failures since 2000 and NONE of them…yes, that’s right…none of them was bailed out by taxpayers. At iVoteAmerica.com there are predictions of more bank mergers over the next several business days.

Failing banks will continue to be absorbed just as ALL of them have been absorbed to date. After all, the best investment good banks can make today is to purchase assets of failing banks for pennies on the dollar and delivering huge internal rates of return to themselves. Therefore, patience is called for and we ought not to allow ourselves to be influenced by knee-jerk politicians from either party. Forget the election for a moment! Forget your favorite party preference for a moment!

Yesterday, September 29, 2008, the stock market lost more than $1 trillion in value. REALonomics predicts that investors will surface, shifting their investment strategies to more conservative, traditional positions.

NAR is Wrong on Rescue Package

Furthermore, REALonomics believes that the endorsement of the bailout by the National Association of Realtors (NAR) is a dead wrong endorsement and a clear indicator of NAR’s desperation with the housing market and its departure from the traditional approach to real property investment where true equity was a necessity to home ownership.

Our core value has always been home ownership as the primary investment for individuals and families. Behind this core value we have heretofore (prior to subprime lending) advised our clients to utilize conservative strategies when purchasing a home, including establishing and NEVER compromising their equity position. Have we decided as an industry that this is bad advice and adopted a dangerous borrow-to-the-hilt value system?

Some of you will remember the days when we encouraged homeowners to build “true” lasting equity that they could rely on when it came time to retire. The home was a person’s primary savings and investment account. I have a question for the RE industry; “Have we decided to depart from this core value position?”

Danger, Danger and More Danger to Owners

What about real estate company owners, our favorite topic? If the bailout occurs with a massive amount of taxpayer dollars used to rescue the so called “toxic mortgages” most real estate company owners will be effectively out of business within a short time as home values will likely plummet to pre 2001 levels. The toxic loans will be discounted to unprecedented levels, impacting literally every property value in metro markets.

If a rescue occurs, all property values in the United States will immediately decline. In fact, the financial institutions are already cutting HELOCs and credit card amounts in a desperate attempt to ratchet the market downward.

If the rescue occurs as currently outline by the Senate and voted down by the House, the ability for the average American buyer to access available real estate investment capital will diminish the market by perhaps another 50%. Although REALonomics is not attempting to inject hysteria into an already highly charged situation, we believe it is important that Realtors® have a clear understanding of the potential long term risks of a bailout by taxpayers.

Just Plain Old Bad Business and Bad Policy

The rescue of bad loans is simply bad real estate business and bad real estate business is bad for the real estate industry and bad for real estate company owners.

Let the market fix itself. The market will repair itself and the results will be less painful than allowing the bailout to prevail. The fact is…actually, the truth is, we are going to be harmed. The only question is how much pain are we going to allow to be inflicted upon the industry?

If we do not allow the market to heal itself and we adopt a taxpayer bailout mentality we will be adopting a fundamental shift in the historical values espoused by the real estate industry and to a large degree we will have socialized real estate, diminishing the value of all Realtors® and the industry itself. Such a shift in policy will create a huge potential for government oversight of the real estate industry and create transaction liabilities for broker/owners, franchisors and let’s not forget appraisers and mortgage lenders.

We encourage you to think deeply upon these things.