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Archive for September, 2008

Is the proposed Bail-out Plan good or bad for America?

Locally, we also wonder if this is good or bad for the Charlotte mortgage and real estate markets?

First let’s understand the problem and need for this plan.  I think there is a lot of confusion right now about who needs help, why they need it and who stands to gain from this plan.  I don’t profess to have all of this mess figured out but I can give a simple overview that might help the average homeowner understand what’s going on…

Banks are in trouble and if Banks are short on money they can’t lend money to the people who need it.  (home buyers, business start ups, etc…)  Banks are short on money because of too many bad loans.  Let me explain…

Banks lend money to home buyers to purchase a home.  The banks get their money back to continue lending by packaging the loan into a bond and selling it to investors.  The bond is guaranteed so even if the homeowner doesn’t make their payments the bond has to honored so in reality even though the bank got their money back to continue lending they are still on the hook for bad loans.  Foreclosed properties take time to sell, so if you have enough of them out there it can tie up the banks’ money and cause a big problem.  Even worse, since this credit crisis has become so well publicized investors stopped buying the bonds for the bad loan products a long time ago, so the banks with huge amounts of money tied up in these risky loans just have them sitting there on their books and can’t get their money back to keep lending. 

KEY - If banks don’t have money to lend, they can’t grow or make new profits and eventually will fold.  NO CASH = NO BANKS = NO LOANS = GREAT DEPRESSION! (we all would prefer to avoid this one!!)

Here is a practical example of how the bail-out can work…

“MEGA-BANK” has $40 Billion in bad loans.  The U.S. Government would pay them a certain discounted value to buy these bad loans.  Let’s say it is 65 cents on the dollar so to buy $40 Billion in loans the government only pays $26 Billion.  The government then can take its time with selling the loans, selling the foreclosed homes, collecting the payments, etc… The U.S. can even realize a profit on this deal if the right price is paid upfront.  “Mega Bank” writes down a loss of $14 Billion but frees up $26 Billion is cold hard cash!  This can at least get some of the biggest banks back in the game, lending money and doing business. 

Bill Gross, head of PIMCO (runs largest bond fund on earth), stated today on CNBC that according to his numbers the U.S. could end up making 6-8% profit on every dollar spent!  He said these numbers were conservative.  Bank in the 1980’s, the government stepped in to solve the savings and loan crisis and ended up making money in the end.  This would be similar except that in this case the government is not taking over debts but buying them.  The upfront price is the key to the U.S. taxpayer making or losing money on this deal long term.

Will this plan solve the problem?  No one knows the answer to that question over the long term.  There is a careful balance when it comes to credit.  Make getting a loan too hard, and the economy can shrink fast.  Make loans too easy (like what has happened here) and the whole credit system can fail.  We have to ensure the health of the lending system so there are banks to lend, but credit must be available at a reasonable level for homes and cars to sell.  This plan can and will get money flowing again, and at least for the short term that is a big win for the economy and the housing market!

This article written and submitted by Olan Carder

Additional thought: This will have an impact on the Charlotte mortgage and real estate markets. While we have seen a slow down in some areas, the Charlotte real estate market is still the strongest in the country. Now is the time to take advantage of low Charlotte mortgage rates and high Charlotte real estate inventory!

I found a few interesting websites today. These are government based websites with information about the mortgage industry. The first one is the blog of the Speaker of the House (Nancy Pelosi). I really did not know that there was such a blog and that a government sponsored website could be used for straight out political pandering and slamming of the other party. This really surprised me and in some ways saddened me.  Anyway… the second is a website for the Congressional Budget Office talking about the results of the new mortgage laws passed. Boring, yet interesting.

So here are some snippets…

I am not one to get too involved with Politics. As a registered Independent and Unaffiliated Voter, I have been frustrated with national politics for way too long. It has seemed that both parties have been all talk and totally consumed with looking out for their own party and own agenda.

When the Republicans took the House and Senate back several years ago, they promised sweeping changes. As Americans we voted them in because of that, only to be let down. Democrats are no better, opposing anything that wasn’t proposed by a Democrat regardless of how good an idea it might have been. So here we are many years later with a greater void in the middle with very few Republicans and Democrats willing to work together.

I have been watching the race this year because I too feel this year is especially important. Here are my thoughts so far:

• Obama is a great talker and gifted motivator. But this bothers me. Maybe its because of my time in sales, having been to quite a few seminars with motivational speakers that get you fired up. Normally, they play on your emotions, but give you very little to actually work on after they leave. Will Obama be that way? Does he talk a motivating talk with great energy, only to have little substance?
• McCain is an old politicain and one that tends to follow his own route. But my fear here is that he could alienate his own party and eventually become a lame duck if not careful. But my gut tells me that his intentions are sincere and that he has a true sense of loyalty to America. I don’t get the sense that he is running just to get the office. I think he is looking to serve.
• Biden simply bores me. I have no idea what this guy is about. So far he has been busy criticizing the Bush Administration, and while Bush has issues that will never be addressed properly, Obama and Biden are not running against Bush. And no political campaign will make me believe that.
• Palin surprised me. First of all, I had no idea who she was. And then I hear there are investigations surrounding her. But I figure the McCain camp has done their homework to ensure that what she has is worth the risk. What I didn’t expect was that she brought as much of the energy to the table that Obama has. She speaks of the same changes that Obama does. Yet, with her I get the sense that those changes are not going to result in handouts, but rather in opportunities for those willing to step out to give it a try.

This issues I see in this election are these:

• The Economy. We are in an economy that feels like a recession and there appears to be little light at the end of the tunnel. Finding a positive way to get that rolling again will be important. I do not think taxing the people or even businesses right now is prudent as we all need more money to work with, not less. So here I gotta think the Republicans have the advantage.
• Energy. I am so tired of hearing that we can’t drill our way out of this energy crisis. While I agree that we do need to move away from oil towards cleaner and better fuels and energy, we are not in any situation to just dump oil today or in the near future. I drive a car that requires gas. I don’t expect that over the next couple years I will be ready to buy the newest technology in cars that is without gas. So how do we dump this? Do the Democrats really expect that we can ignore today and only focus on tomorrow. Tomorrow only comes by getting through today… so we do need to drill AND pursue other resources.
• Iraq and the War on Terrorism. This is a frustration of mine. We dropped the ball in Afganistan to pursue Iraq. Should we be there? I don’t know for sure. What Sadam did to his people should have been addressed, but maybe timing was wrong. Either way, we are there now and must finish what has been started. To simply pull out now would create a disaster. If we pull out before Iraq is truely ready to take their own security measures, other countries such as Iran will come in. The we are screwed as we are way too dependent on the oil over there. (Side note. If Democrats want to pull out, why are they against drilling for oil here? Don’t they see the crucial handicap this would create for America?) In terms of the war, we need to finish Iraq strongly and then focus back on the War on Terror. In my humble opinion, we should do another surge to pretty much eliminate the threats in Iraq, quickly train them and then get out. That would be quick and decisive.
• Gay Marriage. As a Christian man, my beliefs do not support the marriage of homosexuals. That being said, I heard an interesting arguement that I can not shake. Marriage is a contract between two consenting adults. Sure, as a Christian I believe that marriage itself is ordained by God. But the legal aspect of the contract does make me wonder if we can regualte the sexes of those parties to the contract. Either way, I do feel that providing health care benefits should be extended to same sex parties if they are willing to pay the premiums. I feel that family rights should extend beyond the sexual nature of a partnership when both parties involved desire it. Whether you call it a “marriage” or not doesn’t really matter. But I am not for discriminating based on sexual preferences.
• Politics. Both parties are building their campaigns on change. And I sure as hell hope that politics finds some sort of change. I am tired of the politicians that seek power for themselves and thier own financial gain. In my opinion, politicians work for ME. So why do I feel like they are my boss? Something here is not right and it needs to get fixed. Let’s hope that no matter which party takes the Oval Office that we actually see politcial reform and an administration that is focused on working together to fix real issues that our country has to deal with. Otherwise, America is doomed to fall as its leaders seem to spend so much time in front of that vanity mirrior called TV.

With what I have seen so far and heard so far, I am encouraged that we might have a positive outcome in this election. While I am leaning in one direction right now, I am still listening. Neither side has directly addressed HOW they plan to do ANYTHING. But as for me, I tend to beleieve that Americans should be given every opportunity to make what they want out of life without the government telling them they can or can’t. I am also against handouts that only make people dependent on government. For those that are in that situation, its like being dependent on that foreign oil with no ability to drill for yourself and only dreams of some new technology in the distant future that will rescue you. I don’t wish that on any American.

How do you feel about this year’s politics? Tell me…