More Than Just Atlanta Real Estate
What a week! This must be one of most eventful in terms of the financial markets and the US economy.
Whether you live in Atlanta or Alaska, the word of the week was ‘bailout’ but is has also been called ‘financial stimulus package’, or by some ‘wall street giveaway!!’ what ever you want to call it, there is definitely a split in opinions as to whether it is even needed.
Some of the pundits were even suggesting that we should ‘let the chips fall as they may’ in other words, all of these financial institutions that are in trouble should be left alone to fail and then let the markets settle and reset.
At the other end of the spectrum there is President Bush, who on Tuesday is claimed to have said during the talks ‘If money isn’t loosened up, this sucker could go down’, he apparently made those comments as he saw the package he offered fall apart.
In between these two opinions there are some people who although they believe that the markets are king, they see the flaw in the do nothing plan. Although on the outset it would not cost the taxpayer billions of dollars, once these institutions fail, due to the complex nature of the modern financial markets their effect is always wider that just their employees and shareholders, the markets have a tendency to panic and become unstable, and as I said in the last blog, they all effect each other in some way, so this approach although well meaning in its nature has major problems. That said, this plan does highlight one observation, no one knows what the full depth or potential cost of this situation is.
It seems most people believe that the problem is big enough that we need to do something. Amongst this crowd are people who claim that Hank Paulson’s main interest is saving the value of his Goldman Sachs stock, true he is an ex-chairman and CEO of the financial giant, but actually what gave Goldman Sachs a great boost was the announcement on Tuesday by Warren Buffet that he would invest $5 Billion in Goldman Sachs. I should disclose that Warren Buffet owns the company that I work with, but without favoritism I can honestly say that there are many, many people and financial institutions that follow the words and deeds of Warren Buffet, after all he didn’t get to be the richest person in the world (Forbes.com 03/05/08) without understanding the financial markets, value, economics etc.
But coming back to the bailout, I have heard people saying that we should use this $700B in other ways, such as handing thousands out to each household. Now while this is a great thought (I really need a big screen HDTV) what they misunderstand is that we don’t actually have this money. We are going to have to go with our begging bowl to other countries such as China, to lend it to us, and with our credit rating being as low as it is, you know the interest rate will be high, so this will just be added to the approximately 9.7 trillion that the USA owes other countries.
The plan it its original form was only three pages long, this seems short for a high school essay, never mind a financial plan to save the world! Well the senators (and public) have seen through that ploy and have asked for more detail to be added to crucial elements, such as executive pay to those involved in bailed out institutions, are there limits to the size of loans or bad paper that is covered. How long will the government hold them for? And will they sell them on at a profit? By Monday the document was 42 pages long, by Friday the working version was up to 102 pages.
Whatever we do to fix this the bigger picture also involves fixing the mechanism that allowed this to happen in the first place…………….lack of regulation and oversight of the banking and financial institutions. We have already heard from countries like China, and Germany saying ‘I told you so’ as we sailed towards the iceberg. The markets will never have the same confidence in American investments if we don’t fix it. The days of property prices rising annually by double digits are gone, what it proved is what all grandmothers know ‘Things that come to quickly always end in tears’.
But ironically the objective of all these bailout plans is to achieve one very basic aim…….. Help property prices to stabilize, bottom out, and then start to increase. Once that happens we are all back on the good ship ‘happiness’ as this is an indication that the economy is headed in the right direction.
Is this the way to do it…………..what do you think?
Good news….Our company’s market share of sales of Atlanta homes rose by 30% in August 2008 over August 2007.
The next Blog - Is this socialism?
Sunday, September 28, 2008
Tuesday, September 23, 2008
More than just real estate.
I believe that this blog should be about more that just Atlanta Real Estate, after all as we now see nearly all financial markets are tied to each other, and calamity in one market can have global effects. Therefore where the opportunity arises or circumstances dictate I will blog about matters that are widely related to the Atlanta Real Estate market such as Finance, Economics, Politics, world affairs etc etc.
How did we get in this mess?
I have a large number of friends and investors who reside outside of the USA. Some of them have been asking me “How did we get in this financial mess?”. The effects have truly been felt all over the world. Huge investment banks that had weathered, world wars and depressions have thrown in the towel. (eg. Lehman Brothers, founded 1830). Yes this latest problem did originate here in the good old USA. I will devote a little time to help us all to understand how, and why it happened. I will stick to the facts, as far as possible and of course any views offered are my own personal views.
The current financial crisis definitely has its beginnings in the housing market. Greed and dishonesty …………those two bed fellows often found in the rubble of many a financial crisis, sure did play their part here, but let’s leave that for another time. Two of the biggest players on the block of housing finance were Freddie Mac and Fannie Mae.
Fannie Mae was created in 1938 at a time when millions of families could not become home owners or were at great risk of losing their homes. Fannie Mae’s role was to expand the flow of funds in all communities and enable more people to become homeowners. But it also had a duty to its private investors (read more about their history at http://www.fanniemae.com/index.jhtml ) Basically Fannie Mae is a privately owned company with a congressional charter (hence it became a Government Sponsored Enterprise - GSE) to operate in the secondary mortgage market, to guarantee loans and make sure that Mortgage Banks and other lenders have enough funds to lend prospective home buyers.
Freddie Mac is another GSE with the same role (http://www.freddiemac.com/.) It was created in 1970 to end the monopoly of Fannie Mae.
Unfortunately with the incestuous relationship these GSEs had to the government and Congress they were not as heavily regulated as they should have been. It became clear to a few trained observers that some of the subprime mortgages that were being bundled by the lenders (who incidentally only had to keep some of them for only 30 days!) were carrying huge risk. The issue was ignored by congress. Now we know that all financial markets thrive on risk, but as investors all over the world, purchased these bundles of loans, that carried the promise of collecting mortgage payments in the future, it slowly became clear that these bundles were not going to pay off. The other ingredient that turned a misfortune into a disaster was the falling house prices. Under normal circumstances when a home owner defaults on the mortgage, the lender takes over the property (foreclosure) and sells it off and gets their investment back. But unfortunately US house prices were falling, thus the banks could not sell them and break even, and when the market became flooded prices fell even further, creating a very difficult situation for everyone, from home owner, lender, Freddie Mac, Fannie Mae and even the investment banks, pension funds etc etc that held these bundled investments.
That’s it for today, next time I will talk about what being done to steer a path out of this situation.
On a positive note now is a great time to be buying a home, whether you're looking to move to Atlanta or anywhere else in the USA or become an investor, there is plenty of choice, property prices are amazingly low, interest rates are historically low, and with foreclosures at an all time high, there a plenty of prospective tenants. If you have any questions hit me back.
I believe that this blog should be about more that just Atlanta Real Estate, after all as we now see nearly all financial markets are tied to each other, and calamity in one market can have global effects. Therefore where the opportunity arises or circumstances dictate I will blog about matters that are widely related to the Atlanta Real Estate market such as Finance, Economics, Politics, world affairs etc etc.
How did we get in this mess?
I have a large number of friends and investors who reside outside of the USA. Some of them have been asking me “How did we get in this financial mess?”. The effects have truly been felt all over the world. Huge investment banks that had weathered, world wars and depressions have thrown in the towel. (eg. Lehman Brothers, founded 1830). Yes this latest problem did originate here in the good old USA. I will devote a little time to help us all to understand how, and why it happened. I will stick to the facts, as far as possible and of course any views offered are my own personal views.
The current financial crisis definitely has its beginnings in the housing market. Greed and dishonesty …………those two bed fellows often found in the rubble of many a financial crisis, sure did play their part here, but let’s leave that for another time. Two of the biggest players on the block of housing finance were Freddie Mac and Fannie Mae.
Fannie Mae was created in 1938 at a time when millions of families could not become home owners or were at great risk of losing their homes. Fannie Mae’s role was to expand the flow of funds in all communities and enable more people to become homeowners. But it also had a duty to its private investors (read more about their history at http://www.fanniemae.com/index.jhtml ) Basically Fannie Mae is a privately owned company with a congressional charter (hence it became a Government Sponsored Enterprise - GSE) to operate in the secondary mortgage market, to guarantee loans and make sure that Mortgage Banks and other lenders have enough funds to lend prospective home buyers.
Freddie Mac is another GSE with the same role (http://www.freddiemac.com/.) It was created in 1970 to end the monopoly of Fannie Mae.
Unfortunately with the incestuous relationship these GSEs had to the government and Congress they were not as heavily regulated as they should have been. It became clear to a few trained observers that some of the subprime mortgages that were being bundled by the lenders (who incidentally only had to keep some of them for only 30 days!) were carrying huge risk. The issue was ignored by congress. Now we know that all financial markets thrive on risk, but as investors all over the world, purchased these bundles of loans, that carried the promise of collecting mortgage payments in the future, it slowly became clear that these bundles were not going to pay off. The other ingredient that turned a misfortune into a disaster was the falling house prices. Under normal circumstances when a home owner defaults on the mortgage, the lender takes over the property (foreclosure) and sells it off and gets their investment back. But unfortunately US house prices were falling, thus the banks could not sell them and break even, and when the market became flooded prices fell even further, creating a very difficult situation for everyone, from home owner, lender, Freddie Mac, Fannie Mae and even the investment banks, pension funds etc etc that held these bundled investments.
That’s it for today, next time I will talk about what being done to steer a path out of this situation.
On a positive note now is a great time to be buying a home, whether you're looking to move to Atlanta or anywhere else in the USA or become an investor, there is plenty of choice, property prices are amazingly low, interest rates are historically low, and with foreclosures at an all time high, there a plenty of prospective tenants. If you have any questions hit me back.
Friday, September 19, 2008
New Website Launch
Hello everyone! It's official, the new website was launched on September 5, 2008 at a launch party. The newly designed website has something for everyone looking to buy, sell, or invest in real estate.Some features of the new site are:
- Why you should move to Atlanta
- Historical and informative data on the Atlanta area
- For the investor, view thousands of investment homes, including some with tenants to pay your mortgage
- View and comment on beautiful kitchens in Atlanta homes
- The easiest way to find your dream home
- Get information on how to get free flight and hotel accommodations (see terms & conditions)
For this and much more, visit www.TheAtlantaDream.com.
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