Another Big Bailout! All the government cheerleaders are on TV right now (Bush, Bernake, Paulson, etc) telling us how the government will be bailing out Freddie and Fannie with more non-existent government money. How is the government paying for all these bailouts? Have they raised taxes drastically? No. Is the economy going gangbusters so that tax receipts are soaring? No. How are they (we) paying for all of these bailouts? Through the “printing” of dollars that are rapidly decreasing in value and through rapidly increasing REAL inflation (not the silly government inflation numbers).
These are very interesting times. I believe that we’re actually witnessing the formation of a depression, much as the depression developed in the late 1920s.
The more I learn about how the economy works and where its headed, the scarier it is. However, I know there will be more and more RE deals out there. I just don’t know how to position myself for the opportunities. So far I’m working on reducing debt and increasing my reserves. Most people I talk to seem to think this will blow over. I used to think this way too. What I see now is the govt. plugging holes in a dam with temporary bandaids. They’re just prolonging the inevitable. My question to vets on this board is " What should we be doing NOW to best position ourselves for the opprtunities coming?"
Along this same line…what do you think is going to happen for people with good credit looking for new loans? Do you think we’ll start seeing requirements of huge down payments because of the almost non-existant lending standards of the past few years? While I think a lot of these issues and problems will work to our advantage for bargaining a price, I’m just concerned about the ability to get that money now. What are your thoughts about the abilities of the smaller regional banks surviving the storm vs. the mega-banks?
So basically as the the dollar loses value, the only way to finance these expenses are through increasing debt ( national deficit). Does that mean that as long as countries are willing to grant us credit, we will have the resources we need? But what happens when we get shut off? How long can we borrow our way out of trouble?
What are your thoughts about the abilities of the smaller regional banks surviving the storm vs. the mega-banks?
That is a good question. I think the answer depends on the depth of the recession/depression that is on the horizon. If enough people in the middle class lose their jobs, a huge number of banks will be at risk and a lot of consolidation will occur in the banking industry. If unemployment remains relatively low, then many of the smaller banks should do well, especially portfolio lenders - like the small banks that I use.
At the peak of the depression, unemployment reached about 25% (not including farmers) and I have seen numbers as high as 33% including the farmers. Of course, if things get that bad, I think all bets are off, relating to who will or will not survive.
The same is true of the real estate business. I’ve been thinking a lot lately about the best strategy for success in a depression. Here in Ohio, I’m already starting to see good tenants having difficulty paying the rent. For example, I have one relatively long term tenant who is a construction worker. There is relatively little work in the construction industry in this economy and that (combined with high prices on everything), is taking a toll. I expect to see this really kick in when heating season starts. With natural gas MUCH HIGHER than last year’s already high prices, I believe this will spell disaster for many tenants.
It’s going to be an interesting ride. Of course, that’s what they said about the Titanic!