$50 Million in AIG Bonuses Returned

Real Estate News & Commentary by Chris McLaughlin, March 24, 2009
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Up and…down.

The Dow Jones industrial average jumped 498 points yesterday, or 6.8 percent, and the S&P S&P 500 rallied 7.1%, on news that Treasury Secretary Timothy Geithner would buy a trillion dollars worth of toxic assets, and an unexpected 5.1% rise in existing home sales. The jump was the biggest since October 28 of last year. Not surprisingly, the markets opened lower today on profit taking. “There’s a feeling that we’re getting to the end of the worse of the news,” said Ken Wattret, economist with BNP Paribas in London, but noted that there’s still plenty to be pessimistic about, including skepticism over whether the toxic assets at the center of the government’s plan will ever rise in value.

AIG – the saga continues

15 of the top 20 bonus recipients at AIG have agreed to return their bonuses, for a total of $50 million of the $165 million originally paid out. Whether it has more to do with altruism, or angry mobs with torches, is open to speculation. Just about everyone in the United States is outraged over the payouts, including congress, the president, and New York Attorney General Andrew Cuomo. Today Chairman Ben Bernanke got into the act by claiming in testimony to congress that he too wanted to sue AIG, but declined because if he had lost it would have added punitive damages to the bonuses.

Real estate rebounding? Sort of.

In housing markets around the country, there are signs that the bottom may have been reached, and sales are beginning to come back up. First-time buyers are coming back into the market thanks in part to federal incentives, which include a $8000 tax credit for first-time, residential buyers. Real estate search firm Trulia found that the greatest rise in internet searches occurred in Florida, where investors and retirees are snapping up bargains. Sales for Lee County, Florida, which includes Fort Myers and Cape Coral, were up nearly 80 percent from 2007 to 2008, says Mark Washburn, a realtor at Island Coast Realty in Ft. Myers. “That’s pretty impressive. The caveat is the prices are half.” That’s a caveat indeed.

Detroit troubles.

Car dealerships are going broke across the US. Nationally, the United States lost about 900 car dealerships last year, according the National Automobile Dealers Association. About 66% percent of the dealers that closed last year were single-brand dealers. The losses are greatest among dealers selling Detroit brands, said Jim Appleton, president of New Jersey Coalition of Automotive Retailers. Big dealerships with deep pockets are snapping up some of the smaller dealerships at fire sale prices, but many small dealerships are just closing up shop, unable to service the financing on the automobiles sitting idle on their lot.

Now on to our real estate investing education section…

It Can’t Happen Here – or Can it?

In the famous satirical novel written in the midst of the last great economic Depression by Sinclair Lewis, the election of a new president spurs the fanatical rise of “true believers” to propel the newly elected leader to the height of government. After gaining control of Congress and the Supreme Court the nation is radically altered as the dictator attempts to save the nation from financial cheats, crime and other societal woes through a series of ever more severe restrictions on the lives of citizens.

While the story might center around a fascist regime, the similarities are otherwise well worth noting; a charismatic presidential candidate that runs on a platform of “reform” and claims to be a champion to the causes of the average citizen while still maintaining close ties with big business. A media darling who is elected during a time of financial crisis, greed and the growing distress of the masses, he soon has the support of the populace in exchange for their freedom. Notice any similarities yet? Whether you love him or hate him, one thing is certain…going on late night television to proclaim up to 90 percent taxation plus retroactive implementation of taxation is one way to get the attention of every hard working American in the nation. Even the host admitted the prospect was of more than passing concern.

So, what does this have to do with Short Sales? Take a look at the state of the nation; from Wall Street to Main Street people are searching for someone to bail them out and fix things. The repeated refrain is “This is America”…things are supposed to turn out just fine and recovery is just around the next corner. But what if it isn’t? What if the economy continues to falter in a Japanese style lull that lasts for years as economist Nouriel Roubini predicts? Worse, what is the USA goes the way of the former USSR as predicted by Dmitri Orlov? What if income taxes are suddenly increased with little to no warning? What if your prior earnings are retroactively taxed at rates as high as 90 percent?

Consider this, while domestic automobile manufacturing companies beg for bail-out funds even while slashing payroll and cutting back on benefits, car sales continue to decline and obtaining financing to purchase a depreciating asset like a new vehicle becomes even harder…meanwhile, it’s now possible to purchase a home – complete with lot and land – in Detroit for less than the cost of even a modest compact car. In fact, most people could pay in cash simply by charging it on a credit card. Now, we aren’t suggesting this is the right road to wealth but it does point out some of the underlying assumptions and mixed-up priorities currently being perpetuated by the mainstream media. As little as two years ago real estate was considered the road to wealth by everyone – so why the sudden change of heart?

During tough economic times it is more important than ever for investors to think for themselves rather than follow the masses. Real estate is a tangible asset that allows you to secure additional sources of cash flow when and how you want. Have a high income year? Take time to fix up the place to secure some additional write-offs. Need a little extra cash this year? Sell a property while you are in a lower tax bracket. Searching for a regular supplement to a fixed income? Rent or lease a property. Want to sell but retain a long term steady income? Hold a note. Whatever your situation, real estate has the flexibility to provide the financial returns you need to ride out the economic storm. While most American’s agree that it can’t happen here – some already think it did. Either way, learn how to profit while others panic by coming to our webinar this evening at 8:30 PM ET, 5:30 PM PST:

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See you at the top!

Chris McLaughlin

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P.S.

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About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month

   * Long-time authority on real estate investing
      and rapid flipping of distressed homes. Owns
      portfolio of nearly 100 high-value, high-profit
     properties

    * Owner and Supervising Broker of one of Florida’s
     largest Real Estate firms, running 4 different
     offices, supporting nearly 450 agents, uniquely
     positioning him to help thousands of investors
     make money in the biggest market opportunity ever!

     * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building

* On twitter: http://twitter.com/mclaughlinchris
* On facebook: http://www.facebook.com/addfriend.php?id=709199143

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