Posts tagged as:

lehman brothers

AIG Stands For “An Investor’s Goldmine” for Short Sales

by Chris McLaughlin on September 17, 2008

And so it goes.  Another up and down day on Wall Street, with anxiety as high as it has ever been, reminiscent of the few days post 9/11.

What the heck happened?

Goldman Sachs reported the worst quarter since they went public with their 3rd quarter profit plunging 71%.

Lehman Brothers now trades for pennies and is bankrupt.  Barclays is reportedly offering $2 billion for its broker unit, which essentially means pennies on the dollar.

Bank of America scoops up Merrill Lynch.

And Washington Mutual was downgraded to “junk status” by Standard & Poors, following another “junk” rating by Moody’s Investor Service last week.

And the story of the day is whether the government will come in and bail-out AIG.  My former colleague at TheStreet.com, Jim Cramer, says “AIG is too big to fail” and that the government needs to come to the rescue.  Let’s just make sure the AIG corporate folks get their golden parachutes before the bailout, right?  But let’s recognize that AIG has a trillion, that’s with a t not a b, in assets.  A meltdown of a trillion dollars in assets would send shock waves throughout our economy that might make $4 a gallon gas look like $7 a gallon.  Other financial institutions with exposure tied to AIG would surely fail as well.  And as I say, that’s just a trillion reasons why foreclosures and distressed properties will be here for the foreseeable future.

What, why is this all related to real estate?  In this economy, all the big financial news gets back to one thing: real estate.  So let’s see what else happened today.

Well for starters the Fed didn’t raise interest rates today, which would have sent the stock market down another 500 points had they.  They held them steady.  The Fed is in a catch 22.  On one hand, there are real inflationary pressures.  On the other hand, growth is slowing and needs more stimulus.  In typically FedSpeak, the Fed said: “The downside risk to growth and the upside risks to inflation are both significant concern to the committee.”

But the simple matter of national headlines, with major companies like Merrill, Lehman, and AIG struggling, will inevitability lead Congress to “over-correct,” which will likely mean that the availability of credit from non-government back sources will be longer in coming.  Have you tried getting a loan that isn’t FHA lately?  Have you tried getting a commercial loan?  It is much tougher, and with more regulation it is likely to get even more complicated.  There are no more third-party down payment assistance programs, as a few of the bad ones ruined the fun for the good ones.

And so we come back again. To distressed properties.  To short sales.  To REO properties.

It is estimated that foreclosures will top over 6 million.  The Fed is busy trying to sort out the messes caused by major financial institutions that made the wrong bet on mortgage backed securities.

So who’s gonna get us out of this mess?

The Fed has done its part by providing more liquidity, but don’t ask for the banks to help us much. They are too busy sending out loan denial letters.  It is time again for creative financing, for wrap around mortgages, and even contracts for deed.  That’s how you get deals done in a market where banks don’t like to work with you.

And who knows how to do this?  Realtors and investors.  These two players will be the folks that lead us out of the darkness.  So stay tuned … we’ve only just begun to sort this stuff out.

Yours for short sales riches,

Chris McLaughlin
e-mail: info@shortsalesriches.com
web: http://www.shortsalesriches.com/welcome
phone: (800) 452-7627

P.S.: For those interested in our product, we actually include 5 CDs with the Short Sales Riches System.  Check it out at http://www.shortsalesriches.com/welcome

P.P.S.: Let’s get this blog up and running.  And to do that we need comments from you on our articles … so come on over right now and write us back: http://www.shortsalesriches.com/blog

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Wall Street Panic Means Main Street Opportunity Part 2

by Chris McLaughlin on September 16, 2008

Let me ask you a question.  Have you ever bought rental car insurance?  You know, after you pay for it you feel a little free when your driving someone else’s car, right?  I know with rental cars I love to take the corners sharper, gun the engine, and basically get my monies worth, knowing full well that if I bang up the car, I’ve got nothing to lose (other than my health if I bang it up too much!).  Now please don’t forward this e-mail to Avis and get me on their blacklist!

Same concept for the government.  They bailed out Bear Stearns.  They bailed out Fannie Mae and Freddie Mac.  But if they were to bail out yet another financial institution, particularly one that we can all live without, there would be a sense of carelessness that would encourage future speculators.

There’s a rather sick story of moral hazard recounted by The Wall Street Journal years ago: “[T]here is the macabre case of ‘Nub City,’ a small Florida town that insurance investigators decline to identify by its real name because of continuing disputes over claims. Over 50 people in the town have suffered ‘accidents’ involving the loss of various organs and appendages, and claims of up to $300,000 have been paid out by insurers. Their investigators are positive the maimings are self-inflicted; many witnesses to the ‘accidents’ are prior claimants or relatives of the victims, and one investigator notes that ‘somehow they always shoot off parts they seem to need least.’”

So what’s the story here?  In this case, the government wants them not to intentionally cut off their toes, but rather if they see gangrene they go to the hospital rather than awaiting their financial windfall.  Lehman Brothers financial woes, due in large part to bad bets on real estate and its related securities, means that the economy is frankly in worse shape than many think.  There will be more collateral damage.  Lehman’s unwinding will cause damage to other financial institutions as inevitably the interest rate swaps (which the Wall Street Journal reported may run into the millions) and other financial instruments affect other institutions, too.

But I’m a real estate guru, right?  Why am I going to this trouble to explain moral hazard, to explain what’s going on, and why US Treasury Secretary Henry Paulson had to put his foot down?  Because the opportunity that exists out there right now is unprecedented.  In the next two years if you can’t make at least a few hundred thousand taking advantage of distressed properties, then you’ll need to hang it up and go back to the 9 to 5 job.  Just make sure the clock in and out on time, ok?

Thomas Friedman says the “Word is Flat” and it really is.  We’re all so connected and intertwined.  If Lehman fails, if Bank of America buys Merrill Lynch, it all cycles around and affects real estate investing.  The 30 year mortgage dropped nearly a full percent when the government bailed our Freddie and Fannie.  That means buyer demand for houses will return.  And the banks will be letting even more houses go, which means more opportunities for short sales.

So now that it is clear that you don’t do self-inflicted wounds anymore to make money, perhaps it is time to make some money on short sales.  After all, the banks need us right now more than ever … so get busy!

Yours for more short sales riches,

Chris McLaughlin
e-mail: info@shortsalesriches.com
web: http://www.shortsalesriches.com/welcome
phone: (800) 452-7627

P.S.: Did I mention our upcoming webinar on how to flip short sales?  We’re putting on the final touches and I’ll let you know the dates and times soon on it.  Go to http://www.shortsalesriches.com/welcome to get the short sale flip system if you just can’t wait.
P.P.S.:  We’re in such unusual times that I’ve decided to go back to what I used to do. Back in the late 1990s and early 2000 I used to write market commentary for SmartPortfolio.com, which I later sold the TheStreet.com (Jim Cramer of CNBC fame’s company.  So I hope you enjoy this commentary … and can forward it to your friends, colleagues and any Realtors you know.   We need more people out there talking about how this is an opportunity market, as opposed to a depressed market.  So let’s blog away!

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Wall Street Panic Means Main Street Opportunity Part 1

by Chris McLaughlin on September 15, 2008

What a day.  What a week.  What  a month.  And what a year.

Frankly, the turmoil in the financial markets has been nothing but staggering.  Storied institutions such as Bear Steans and Lehman Brothers are essentially gone.  The US government has come into rescue Fannie Mae and Freddie Mac, but it figured at some point there is a risk of doing too much bailout.  A fair amount of my friends that got their MBAs when I was getting mine at Georgetown University have sent e-mails today … they are worried for their jobs, worried for their careers.  But guess what they are saying?

Here’s one excerpt: “Chris, you timed it perfectly to get into distressed properties.  You and the guys you are in business with are going to make a killing while we’re all losing our jobs!!”

Well I sure hope they don’t lose their jobs, but I sure hope to make a killing over the next few years.

What does all this mean for real estate investors?

Get ready for more wild rides.  Now that equity markets have proven an unsafe and risky investment, more and more real estate investors will be coming out to play.  And now that financial institutions are filing for bankruptcy, this will setup even greater liquidation among those real estate assets.

Which means that more wealth will be created for some individuals now than ever before, and frankly this type of wealth creating wasn’t even possible when things were considered “good.”  Sure things are plain awful out there for some investors, but for others this is the opportunity that comes around only once a decade, or perhaps a century.  The only thing that resembles this is the S&L crisis in the 1980s, where 747 savings and loan associations failed.

But some folks say, Chris, why didn’t they just help out Lehman, maybe then our stock market wouldn’t have gone down as much?  My 401(k) is sucking wind.

Well, enter the economic concept of moral hazard.

More on this next time.

-Chris McLaughlin, MBA JD
www.ShortSalesRiches.com

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