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Stabilization for the Markets and North Georgia Real Estate

by Don Martin ~ September 29th, 2008

Well according to most of the talking heads this has been a long time coming and is based on decisions made years ago.  I am sure that by now you have heard explanations of how the housing downturn is at the root of all these problems.  It is intuitively obvious that a housing downturn affects the people directly involved in the process: buyers, sellers, real estate professionals, mortgage lenders, builders, construction workers, inspection companies, cabinet makers, building supply companies – the list goes on and on.  This provides impacts that you can see and feel in our local community.  We have not worked our way through this part of the problem, but there are some signs locally that we may have finally reached a level that we can work up from.

It is a little less intuitive how these problems in our US housing market destabilized not only our own economic system, but banks and economies around the world.  A short and oversimplified explanation is that we lost control over mortgage lending rules and then what happens to investment products based on those mortgages made without much oversight.  In 2005 and 2006 there were calls from some in Congress for more control over the two giant quasi-federal institutions in this field – Fannie Mae and Freddie Mac.   Congress decided not to increase oversight and instead continued requirements for mortgage lenders to intentionally make questionable loans in order to ensure home ownership spread to the widest possible number of potential homeowners.  Not only did mortgage lenders follow that guidance, but some used that guidance to make huge unqualified loans to persons that might have qualified for some loan, but would not normally qualify for the jumbo loans that they actually received.  That clearly creates a potential crisis for some mortgage lenders, but then those questionable loans were sliced, diced, blended and poured into investments that looked very attractive and some investors may have even believed that since they came directly or indirectly out of Fannie Mae and Freddie Mac that they carried the full faith and confidence of the US Government.  These investments were bought by banks, insurance firms, retirement funds and individual investors and when the housing market slowed, the economy slowed and bankruptcies and foreclosures spiked these “safe” investments plummeted in value and many became worthless.  The ripples are still flowing though our economy, our financial markets and over the weekend we even saw banks in other parts of the world that had to be bailed out. 

Congress has been in an unusual weekend session and actaully went to work at 8:00 this morning – early for them, but not for most of us and they will vote on a recovery measure later in the day.   The President was out early this morning encouraging Congress to act and he acknowledged that it will be a hard vote.  There are still a lot of people angry about bailing out Wall Street and there are others who know we have to do something, but are concerned that there are still too many risks in the bill that is on the table.  Early this morning Congressman John Lender (R, GA) e-mailed a summary of the Emergency Stabilization Act of 2008 and I have reprinted it below for your information.



I. Stabilizing the Economy


The Emergency Economic Stabilization Act of 2008 (EESA) provides up to $700 billion

to the Secretary of the Treasury to buy mortgages and other assets that are clogging the

balance sheets of financial institutions and making it difficult for working families, small

businesses, and other companies to access credit, which is vital to a strong and stable

economy. EESA also establishes a program that would allow companies to insure their

troubled assets.


II. Homeownership Preservation

EESA requires the Treasury to modify troubled loans – many the result of predatory

lending practices – wherever possible to help American families keep their homes. It

also directs other federal agencies to modify loans that they own or control. Finally, it

improves the HOPE for Homeowners program by expanding eligibility and increasing

the tools available to the Department of Housing and Urban Development to help more

families keep their homes.


III. Taxpayer Protection

Taxpayers should not be expected to pay for Wall Street’s mistakes. The legislation

requires companies that sell some of their bad assets to the government to provide

warrants so that taxpayers will benefit from any future growth these companies may

experience as a result of participation in this program. The legislation also requires the

President to submit legislation that would cover any losses to taxpayers resulting from

this program from financial institutions.


IV. No Windfalls for Executives

Executives who made bad decisions should not be allowed to dump their bad assets on

the government, and then walk away with millions of dollars in bonuses. In order to

participate in this program, companies will lose certain tax benefits and, in some cases,

must limit executive pay. In addition, the bill limits “golden parachutes” and requires

that unearned bonuses be returned.


V. Strong Oversight

Rather than giving the Treasury all the funds at once, the legislation gives the Treasury

$250 billion immediately, then requires the President to certify that additional funds are

needed ($100 billion, then $350 billion subject to Congressional disapproval). The

Treasury must report on the use of the funds and the progress in addressing the crisis.

EESA also establishes an Oversight Board so that the Treasury cannot act in an arbitrary

manner. It also establishes a special inspector general to protect against waste, fraud and





There will probably be some kind of bill passed today and whether you support it or not we will all be witness – up close and personal – to a critical period of American financial history.  We are certainly not at the end of this crisis, we are probably not at the beginning of the end; hopefully, we are at least at the end of the beginning.


See you ’round the mountains,




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