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
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phone: (800) 452-7627
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