I read the 110 page Emergency Economic Stabilization Act of 2008 today (Oct. 1, 2008) and it looks like we brought Main Street and Wall Street together. Homeowner's and the financial systems are on the same team now with plenty of security guards to TRY and make sure the rules are followed. I say security guards because they don't have more than a over sight and post reporting function.
I believe the 700 Billion should go to the Small Business Administration for immediate emergency loans to small business owners, home buyers and car buyers. We have thrown 620 Billion dollars of liquidity to the financial markets and that money has done nothing and now we are throwing 700 Billion more with a contingency plan to throw anther 700 Billion if this 700 billion doesn't do what it is supposed to doesn't do what it's supposed.
Anyway...
The plan is to have us make a profit from this loan. There is a stipulation that the President will come up with a plan to get our money back from the financial system if the bailout doesn't go according to plan. I was 100% against the first bill.
I don't like this bill, but I'm on board with NAR and realize that something must be done and this is what we have. We don't have 3 bills to choose from. I would much prefer to see the Fed lend directly to Americans as they did during the Great Depression. It is history and fact that those loans made money for the government and the project is considered a success. It worked once in a similar situation why not try it again?
I don't think that the bailout money that goes to the financial system will come right back out to Americans. The banks will hold a lot or most of the money and maybe lend a portion. That won't solve the liquidity problem. We're spending a bunch of money to buy the bad loans and the banks are not going to turn on the water faucet just because they got some bad debt off their books. The banks are going to be happy that they aren't going out of business and can coast on tax payers money while they hope the economy improves around them.
As much as it may not make sence I would prefer to let the bad loans stay where they are and let the small business owners that need to make pay roll and Americans that need to buy a car or a house go to the Fed directly for the next year. Wall Street should have a chance to deal with the problems as in a normal market where the bad companies go bust and get bought by the companies with money. If we have to intervene in one year then we've given the Wall Street the chance.
The Wall Street normalization has already begun. Warren Buffet bought an energy company and lent 3 Billion to GE. Bank of America bought Countrywide and Merrill Lynch. JP Morgan bought Bear Stearns and Washington Mutual. Citi bought Wachovia. The Fed kicked in Billions for AIG, Indymac and Lehman Brothers. Barclays Capital bought Lehman Brothers. The market is functioning. Yes, the consolidation doesn't add liquidity, but that's where the one year Emergency Fed Bank Money comes in. Problem solved!
Our liquidity problem is different today than the Great Depression because we not have companies with Billions of dolllars and we have Americans with Billions and Millions of dollars. Only a couple of people had money during the Great Depression. Everything can be sold at some price. The businesses that go bust will be swallowed by smarter and richer companies. The "busted" companies can be started new again by the same people or new people. This "End" for some is the "Beginning" for a whole new generation of people and businesses. It's evolution!
My last gripe... all of the reports in the bill should be presented before the checks are cut, not after. If only I was a Senator or a Congress woman!
OK! HERE IS THE BILL CLIFF NOTES!
Golden Parachutes and Severance Packages are not allowed for executives in companies that sell assets to TARP and there are lots of rules about executive pay in public companies. The bill says that we can recover bonus and incentive money that went to senior executives that were based on inaccurate earnings statements! If a company pays an executive more than $500,000 in Workers Compensation the company can not claim a tax deduction. All companies who participate in this bill must cooperate with the FBI in their investigation of fraud, misrepresentation or malfeasance.
Other than the reference on page 65 line 8-15 that the allowable public debt will be increased to $11,315,000,000,000 (11 TRILLION, 315 BILLION!) the revised bill looks as reasonable as giving away $750 BILLION dollars can look.
The bill requires background checks for Asset Managers that are hired and specifies that there can not be a conflict of interest between the Asset Managers and the financial institutions. The Asset Managers will define the bad loans that we will buy and establish how we will value and buy the loans.
All profits we make from this bill will pay down the National Debt. Companies that participate will give Warrants to us the tax payers. The Warrant will give tax payers the right to receive dividends and own stock without voting rights. If the government sells the stock we keep the appreciation in the stock (Warrant). If after 5 years the program looses money the President must present a plan to Congress to recover the money from the financial institutions that benefited from this bill.
Homeowners, buyers and Realtors® will all be happy that the bill encourages lenders to negotiate Short Sales. Hopefully lenders will get away from the "drag your feet until the buyer goes away" current way of negotiating Short Sales. The wording was not very specific. I would have liked to see some time tables added and some specific oversight or direction.
Homeowners will be happy that the bill encourages lenders to negotiate new principal, interest and period of repayment mortgage terms for property owners that want to keep their property if the loan was originated prior to March 14, 2008. That loan origination date is a modification and extension over the previous date of origination.
Renters in multi unit buildings are also protected. If you rent a commercial space or an apartment and you pay your rent there are provisions to keep you in your home or business even if the owner fails to pay the mortgage.
Small banks with assets of less than 1 Billion that were adequately capitalized as of June 30, 2008 are eligible to participate in the sale of bad assets. Each financial institution may sell a maximum of $300 Million in bad loans to the tax payers. This bill terminates after the last bad loan is acquired and transferred out of the government's possession.
Some new committees have been created to work with the existing ones to play a role in the oversight. There are new positions and reports that must be completed according to timelines and after certain funds have been released. The checks and balances appear to be strong.
I would prefer to see a report go to Congress before the money is spent for final approval. The way the bill is written now the Secretary of the Treasury gives a report after each $50 Billion is spent. The first release of money is for $250 Billion. The second $100 Billion will be authorized by the President. The final $350 Billion requires Congressional approval.
A new creation is within the Treasury Department. The new Office of Financial Stability will operate the newly created Troubled Asset Relief Program (TARP). The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), Controller of the Currency, Office of Thrift Supervision and the Secretary of Housing and Urban Development (HUD) will guide TARP's operation.
To help with the policing is a new position called the Inspector General (IG) which will oversee TARP and is authorized to investigate TARP. The new IG must give quarterly reports to Congress. The Federal Reserve must also report, as usual, to Congress on the implementation by lenders.
Judicial review is specified and a Congressional Oversight Panel has been given the assignment to oversee all of the reports that are created through this bill.
This new bill would get my vote in the current form. No one wants to spend this money, but we need to do the bailout if we are in the real estate business. The country would no doubt go on with out it, but this bill will insure that we can still sell houses. As we have all found out, we are the single most important element of a healthy US economy.
Maya M. Thomas
REALTOR®
(305) 522-1398
MayaMarieThomas@Hotmail.com
www.ShowcasePortfolioProperties.com
