Bail or Fail
For the better part of last week I was out of town in Las Vegas, where reality is at best altered. Not watching the
news or even paying much attention to anything other than my immediate Blog World Exposition schedule, I didn’t learn about the Big Bailout proposed by the U.S. Government until my return. When Larry clued me in, it was to say the least frightening.
This week I’ve been paying catch up on the proposal, what it means and searching for an understanding. One thing I found, watching the talking heads on TV gave me none of understanding I was searching for. Finally today while getting ready to work, the thought came to me, “the government isn’t assuming debt without security. The government (that’s you and me) are assuming assets, albeit poor performing, but assets just the same.
I remember the first time I purchased a home and with it homeowner’s insurance. The insurance representative told me he couldn’t insure my home for it’s full purchase price! OMG! I thought I had bought a “pig in a poke” of a bad house. But then he explained to me even if the home burned down, I would still own the land, which had value.
OK. I got it then.
Listening to the talking heads on TV makes me want to have them call my insurance rep. He’ll straighten them out on assets and liability!
So how I see the $700 Billion Buyout is this: The U.S. Government is buying a business and for that money we the government will receive some homes in varying condition and a whole lot of land. Not every home is in perfect condition but at the very least it will sell for land value. Most homes will be worth more than land value, significantly more.
Right now the market is constipated. Gross analogy, but right on. Homeowners want to sell and buyers want to buy. Problem is they can’t.
Mortgage money is tight and tough to get. Without mortgage money the market is limited to the few who have cash.
By spending $700 billion to “correct” the system, the act alone will improve confidence in consumers and investors all around the world.
When confidence goes up, interests will come down and money will flow. The market will assume a positive track and THAT FACT ALONE WILL HAVE POSITIVE BENEFITS ON THE NON-PERFORMING ASSETS owned by the U.S. Government.
or
The alternative is to do nothing. Let the lending institutions take the hit they deserve and bite the dust. We can all point fingers at each other (Elephants and Donkeys) and say “It’s your fault.”
Homeowners who cannot pay will be escorted to the street by the sheriff. Businesses that depend on real estate and all the other industries supported by it will shut their doors, one by one.
Those they feel they are safe from this will soon realize they too are affected. Home values will drop and equity eroded over the course of time. No one knows how long it will take to recover.
I prefer to take action to INVEST in the U.S. and the economy. Let’s pass this bailout and start looking for a better, safer way to lend money.
The road to recovery always begins with understanding and education.
Who volunteers to educate the talking heads?
Want a good resource for understanding the situation read, The Economy, The $700 Billion Answer
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Great article Kristal. I didn’t think of it that way. I think that if the government does spend the money on the bailout, we take our time and do it with a plan of action. It took us many years of bad lending to get here and so why rush to get out? I do believe something needs to be done to stop all the foreclosures, but I also believe the companies need to be held accountable.
Donna Johnston-Charlotte Real Estates last blog post..Radon, Run for your Lives?
You hit the nail on the head with this one, Kristal, and I have added a link to this post from mine on the same topic.
Rich Schiffer, REALTOR, e-PROs last blog post..Inside the Bailout: A Different Perspective