Real Estate News & Commentary by Chris McLaughlin, April 21, 2009
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PPIP comes under fire
Inspector General Neil Barofsky, a fierce skeptic of the bailout schemes, has come out with an official report expressing concern over Tim Geithner’s Public-Private Investment Partnership (PPIP). In a report issued today, the report said “The sheer size of the program ($2 Trillion) … is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives.” Under plans unveiled by Treasury, for every $1 of private investment, Treasury would invest $1 and could provide another dollar in a nonrecourse loan. That money could then leverage a loan from another government fund backed mostly by the Federal Reserve, a step that Barofsky said would dilute the incentive for private fund managers to exercise due diligence. Barofsky recommended that Treasury not allow the use of Fed loans “unless significant mitigating measures are included to address these dangers.”
Credit Card rules are a changin’
President Obama will meet on Thursday with administration officials and credit card company executives to press CEOs to adopt practices designed to protect consumers. In the meantime, existing legislation, designed to ban card companies from abruptly jacking up interest rates and fees and prevent young adults from getting credit cards, will be going ahead in Congress. But even if Congress doesn’t pass the legislation, Federal Reserve rule changes set to kick in next year would stop higher interest rates from being imposed when consumers are late paying unrelated bills. The changes also stop companies from averaging finance charges from two previous cycles, a practice that dings consumers who carry a balance and pay it off. This year, credit card legislation made it out of a Senate committee, but just barely, by 12-11. The Senate bill is even tougher than the House bill, preventing credit card issuers from raising interest rates and fees even if the consumer’s general credit risk goes up. A top industry advocate, Scott Talbott of the Financial Services Roundtable, said that if credit card companies can’t charge fees and interest based on general risk, all card holders will have to pay more because customers with good credit scores will have to subsidize those with weaker credit scores. “It’s going to reduce credit and make it more expensive for everyone,” he said. “That’s not what we need for the financial markets.”
Leading economic index down .3%
The Conference Board’s Leading Economic Index declined 0.3% last month, showing the recession may persist through the summer. The drop was steeper than the 0.2% analysts polled by Reuters were expecting. It also fell 0.2% in February, which was originally reported as a 0.4% drop. Over the last six months, the index has fallen 2.5%, compared to the smaller 1.4% drop for the previous six months. The Coincident Index, a measure of current conditions, fell for the third month in a row, by 0.4%, primarily due to declines in employment and industrial production. The Lagging Index, which provides a glimpse backward, has been on a downward trend since July 2007, the Conference Board said. Its 0.4% decline in March was caused by weakness across all of its components, which include duration of unemployment, inventory levels, and outstanding loans. “The recession may continue through the summer, but the intensity will ease,” said Ken Goldstein, an economist at the Conference Board. Hey, where have we heard that before?
More cash for car companies
An independent oversight report on the Treasury Department’s corporate rescue fund said the Obama administration will extend $500 million to Chrysler through the end of April as it tries to reach an alliance with Fiat, and up to $5 billion through May to help General Motors restructure outside of bankruptcy. The UAW, which represents about 26,000 workers at Chrysler and 62,000 at GM, and is under pressure along with bondholders and banks to help Chrysler and GM slash debt so they can restructure. The central issue for the UAW and the car companies is reaching an accord on restructuring the finances of a multi-billion-dollar retiree health care trust. GM said on Monday it would cut another 1,600 salaried jobs by May 1, as part of a plan to slash its global salaried work force this year by about 10,000, or 14 percent. GM also aims to cut 37,000 hourly jobs worldwide by the end of the year.
Bailout fund running low?
Only $109.6 billion in resources remain in the government’s $700 billion financial rescue fund, but Treasury Department officials said they expect the fund will be boosted over the next year by about $25 billion as some institutions pay back money they have received. Geithner said the Bush administration had committed $355.4 billion in resources before it left office, and the Obama administration has since committed an additional $30 billion to AIG and $5 billion to auto suppliers, bringing the total for what the administration termed “exceptional assistance” to $152.4 billion. Another $218 billion has been committed to banks to bolster their capital reserves. So far, that program has disbursed nearly $200 billion to more than 500 banks nationwide with more applications pending. Former Treasury Secretary Henry Paulson had once set a goal of having $250 billion disbursed to banks. Oh well, if we run out of money we can always just print more, right? It’s all the rage.
Now on to our real estate investing education section…
Fortunes, Freedom and Fear – The Time are a Changing
The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin.
And the first one now
Will later be last
For the times they are a-changin.
Bob Dylan
While the media continues to report the decline of real estate, the rising vacancy rates among commercial holdings and the trend toward lower returns on rentals or other investments, short sale investors are still managing to bring in big bucks. Given the ultra-low returns on dollars, stocks, bonds and other traditional investments one would wonder why the American public hasn’t taken a second look at historically low interest rates and realized a correction will take place sooner or later.
Amazingly, it’s simply because they don’t truly believe in change. Most American’s today believe the buy and hold strategy of faithfully putting away a few dollars for a rainy day will fund a decent lifestyle. Work at a job and start a 401-k to assure an easy and comfortable retirement. Let stock brokers and fund managers handle your hard earned money for you…like Madoff and others who “know best” what how to best put your money to work.
Rather than profit from the time-tested value of land and real estate, they would rather take a chance on “buy and hold” stocks and bonds. Indeed, rather than think for themselves or open their eyes to the massive challenges facing the nation as a whole, they would rather leave their future retirement and the lives of their children to the provision of Uncle Sam. Unfortunately, history tells us this is not the road to wealth – few governments in the world have ever provided more than a subsistence existence to the population and all Ponzi schemes eventually fade away.
No dear reader, the current financial order may not survive…and neither may millions of more retirement accounts or pension funds. Consider the roaring 20’s…it was a time of unprecedented economic prosperity, massive gains in real estate, easy credit, luxury and growth. The nation was intoxicated by parties, the industrial improvements of the day and most of all…the expansion of riches due to financial instruments like stocks and bonds. Then, like now, it went south. Newspapers and media reports indicate some opted for suicide, others lived a life of poverty never to recovery while a few – very few indeed – went on to make family fortunes that survived until the present day.
Who were those that thrived while others were lining up outside of soup kitchens? Those that bought land and other hard assets for pennies on the dollar. The examples don’t end there; remember the scene in “Gone with the Wind” where the father tells a stubborn daughter the only thing worth fighting for is the land. It’s more than a quaint idea…it’s the stuff fortunes and freedom are made from. Britain was built on the acquisition of land. The Greek and Roman empires only recognized the rights of their “free” citizens…all of which were landowners. In fact, going back for thousands of years the single item of value which differentiated the wealthy and free citizens from the rest is land…or in today’s vernacular – real estate.
Like the old Bob Dylan tune, the order is rapidly fading and those that are first are likely to come up last as financial guru’s give way to the time tested road to riches gleaned from real estate. Real estate might be slow right now but it will later be fast. The nation elected a new President on the podium of change. The financial figures have fallen one by one and indeed, the line is drawn. Learn how to profit from the change rather than rely on past promises by learning how to control your own financial future with short sale investments.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com/welcome.html
P.S.
Don’t miss our webinar tonight at 8:30 PM ET, 5:30 PM PST:
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P.P.S.:
Check out one of the ShortSalesRiches students holding himself as well as us accountable to whether the system truly works! Go here now to watch the videos from John Michailids:
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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
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