Who Do You Bail Out?

 

This was recently a column heading in the New York Times. Do you bail out Wall Street and the hedge funds? Do you bail out lenders? Do you bail out homeowners? 

 

There is a new proposal being floated by lenders to have the American taxpayers bail out the lenders. After decades of keeping Congress out of the lending game, these lenders have floated a proposal to allow the Federal Government (the taxpayers) to buy the lenders distressed loans!! The first step in this process is for the lenders to write down their loan portfolios to a ‘reasonable’ level. This would be extremely difficult, since many loans are in declining markets, which are continuing to slide downward. Once the lenders wrote down their portfolio, the Government would agree to purchase these portfolios at the discounted amount, with the hope that home values would increase, rather than decrease. The outcome, however, could be that the American taxpayer would be saddled with bailing out these lenders, ala the Charley Keating mess in Phoenix several years ago. 

 

Sen. Johnny Isaakson of Georgia, I believe, has floated a much better proposal. He is proposing to give buyers tax credits of $5,000 per year for 3 years, if they purchase a foreclosed home. This, in my opinion, is the stimulus which is needed to bail out our sagging housing market. In Phoenix, we have 15 months of inventory on the ground, and in March, the 3,000 Notice of Trustee’s Sales posted in December, will be hitting out inventory. It is imperative that this inventory be sold, quickly rather than slowly. The sooner we can ‘chew up’ this inventory and move on, the quicker we will recover from this housing ‘mess’.