Why Bank of America Needed More TARP Money
Market News & Commentary by Chris McLaughlin, January 16, 2009
http://www.shortsalesriches.com/welcome.html
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This is your year, right?? Let’s make it happen! Forget the headlines, forget all the negativity, and forget all the turmoil. More millionaires are created during times like these than any other time … so are you ready to make it happen? If so, be one of the 23 spots that we have left for our Saturday webinar at 4 PM EST and 1 PM PST entitled “Recession Proof Real Estate Investing: How to Buy Property with no out of pocket costs!”
The link is right here, so jump on this now:
https://www2.gotomeeting.com/register/783035902
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Even before taking the oath of office President elect Barack Obama got what he wanted for Congress. The US Senate voted yesterday to release the second half of the $700 billion TARP fund, and the incoming Obama group has planned to allocate between $50 and $100 billion toward foreclosure prevention. In a positive sign for Realtors and investors looking for buyers, the new President’s team has signaled that stimulating buyer demand for homes is a priority, possibly by reducing interest rates even further is part of such a strategy. We’ll have to wait for more information to come.
Bank of America announced its worst financial performance in 17 years today – they lost $2.39 billion. Ouch! The bank also announced that it would take on another $20 billion in TARP money. Why? Two words: Merrill Lynch. As Bank of America readies itself to buy the brokerage firm, the bank is discovering that the “mark to market” write downs, an accounting rule that requires Bank of America to write down assets to their existing market price, not the price that they might be worth if you took the time to sell them. How does this accounting rule affect banks?
Let me give you an example. Let’s say Merrill Lynch has a billion worth of mortgage backed securities. Let’s also say that 25% of those are now in default, but 75% of them are paying just fine and are on time. You would think that the valuation of the securities would be $750 million or less, right? Well, given how mad investors are with the rating agencies they just don’t want them on their balance sheets. Period. So what would be considered $750 million worth of good loans are now worth $100 million at today’s market value. No one wants them: they are toxic at any price!
Now let’s assume the Merrill Lynch has to recognize these assets on their financials. What used to be a billion is now $100 million in the current market. So even though the securities would be worth a lot more than $100 million if they were to go through an orderly process of selling off the assets, the bank is required to report it based on what it is worth now—in an illiquid market.
Now understand that we got these new “mark to market” rules after the Enron scandal, and they do have validity, because without them banks can essentially lie about what their assets are. But in this instance, when extraordinary circumstances have created tremendous illiquidity, many banks are frankly being forced to unfairly write down assets that will be worth much more than their current liquid valuation.
If the new Congress wants to save some taxpayer money, they should modify the mark to market accounting rules to have an outside appraisal identify what they assets are really worth versus forcing banks to mark down assets that are viewed as toxic.
Now on to our real estate education section…
Unemployment Claims Crashing Websites – Create Your Own “Safety Net”
As pink slips pile up, jobless claims have become so prevalent they are literally crashing websites and phone systems as workers rush to file unemployment claims. New York, Ohio and North Carolina were forced to shut systems down completely due to heavy volume; considering the average unemployment wages are less than $400 per week or roughly $1,600 per month (or less), one might wonder if there is a better way to create your own safety net.
As it turns out…there is! Short sales offer investors of any background the ability to take their financial future into their own hands rather than stand in line waiting for the government to provide minimal income replacement. It doesn’t require a lot of money, time or extensive training to create your own safety net with an income stream as high or low as desired.
In less time than you might spend on “hold” when applying for a Michigan unemployment benefits (average hold time of four hours according to some clients), you could be well on your way to submitting an offer on your first short sale transaction worth thousands – or even tens of thousands. With a straight 12 months of job losses, 2008 is shaping up to be the worst on record in over 50 years.
Learn how to create your own safety net with these short sale related resolutions for the new year:
1. Do it daily. Each and every day do something toward growing your short sale empire. It doesn’t need to be a lot but you should get into the mindset of profit and success.
2. Try something new. Once you master a formula that works (like the one provided by ShortSalesRiches) then continue to refine it and add to your portfolio of tools and resources.
3. Expand. Begin small then build a base by incorporating new areas, different types of real estate or other potentially profitable relationships.
4. Educate. Never stop learning. Find a mentor and learn from others as you go along. Share your knowledge with others along the way.
5. Add a subscription. Find a source of reliable, pertinent and up-to-date information like that provided by the ShortSalesRiches.com/blog to keep a pulse on the trends.
6. Query like crazy. Set a personal “outreach goal” for the next month to revitalize and jump-start this year’s success.
7. Embrace the Internet. Learn how to use it then stick to it. If you don’t have the time to dedicate to doing it all yourself then hire someone to help. It’s an investment in success.
8. Don’t be fearful. During tough economic times there is a tendency for people to run for cover and settle for less – often much less – rather than bet on their own skills and tenacity.
9. Get organized. Stop procrastinating and take the time needed to put everything in its place, set up the tools you need and start using them.
10. Be a bit of a brag! Yes, when you have a success it is important to pat yourself on the back…just be selective. While you are making thousands or tens of thousands of dollars on short sales, don’t expect your unemployed brother in law to be thrilled for you. Instead, teach him how to join you in creating a long term safety net and life you love.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com/welcome.html
P.S.: Be one of the 23 spots that we have left for our Saturday webinar at 4 PM EST and 1 PM PST entitled “Recession Proof Real Estate Investing: How to Buy Property with no out of pocket costs!”
The link is right here, so jump on this now:
https://www2.gotomeeting.com/register/783035902
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