5 mins read

Current economic crisis (rescue or purchase)

Lately, it seems like we’re living history every day. Not since the Great Depression has the United States seen such turmoil in financial markets. What started in the subprime mortgage industry has now bled to death on Wall Street.

When investment houses that have been around since the Civil War close their doors, it’s a sure sign that something has gone terribly wrong. First Bear Stearns, then Lehman Brothers, and then Merrill Lynch and Washington Mutual.

We all can’t help but be a little taken aback by what’s going on. But while I and others have pointed out that the markets are only going through a “correction,” you may be wondering, “Denise, how much correction do we need to make?”

Obviously a big one. Too much slow money for too many people who can’t afford it is a sure recipe for disaster. Now is the time to pay the price.

Some analysts are even comparing what is happening now to the stock market crash of 1929. However, there is one big difference between then and now: we are not even close to being in the same economic hole our great-grandparents fell into. back then.

Case in point: The $700 billion bailout (or is it a buyout?) that lawmakers are debating at the time of this writing is a giant sum of money, the equivalent of which was not available in 1929.

Today, we are better prepared to handle such challenges as they arise, in part because we have learned from history. When the Great Depression started, there was no backup. The United States government was in a much more “hands-off” position than it is today.

While some like to argue that it’s a good thing for the government to stay out of the free market, new and upcoming legislation promises to bring at least some security back to the US economy. The time to argue from the political principle is over. Something has to be done and, thankfully, our leaders are finally stepping up to do something about it. The question is whether these leaders will help the problem or make it worse, only time will tell. As of this writing, they still haven’t been able to put it together.

After four (or more) years of unsupervised lending, exotic lending, predatory practices, and the ensuing subprime collapse, the government is finally taking steps to intervene before it all falls through the cracks.

Of course, many wonder why Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke didn’t do something before this mess happened. While it is true that no one could have predicted how serious the consequences would be, it is obvious that when banks start handing out mortgages like candy, something is wrong.

Two or three years ago, every time I heard a mortgage ad on the radio touting low numbers for adjustable rates, I cringed. I was wondering how long this could last. During the boom, it seemed like we could never run out. We are now undergoing a major reality check.

So what does this mean for the average real estate agent? First of all, the media is wrong. It’s not a ransom. It is a purchase.

A bailout is when you give a corporation money while forgiving its debt. A buy is when you enter to save the day, but there is an asset to trade.

The latter is what the United States Government proposes: to provide funds to take over mortgages on real estate. Real estate is assets. Therefore, by definition, this is a purchase.

Based on my own personal experience with the markets, I think the government would do quite well with this deal. Think about it. They step in, take over the loans that are in trouble and refinance them to a lower rate. It is a win-win situation.

Ultimately, there is always money to be made from mortgages. Even if the government restructures these mortgages, we all know that real estate is still the best long-term investment.

Which I think will be the harbinger of the “great real estate appreciation of 2012.” Real estate will go back up. It’s always rebound. It always will. And all the major factors point to it increasing anyway: population, immigration, migration, an affluent community of older people, higher divorce rates, and people living much longer than before.

Personally, I would like to see all the corporate executives who led failed companies down this horrible financial path denied their bonuses. How can a CEO get a $22 million bonus when he has bankrupted the company and left the shareholders with the stock market? For me, this is one of the most important parts of the mess to clean up.

So only time will tell how long it will take for our leaders to get this right. What is certain is that something must be done!

And remember that when consumers get nervous about Wall Street, they tend to invest their money in real estate. So don’t jump to conclusions and think that the housing market is going down with Wall Street, it is the housing market that is going to get our economy where it should be.

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