There is no Santa Claus after all. Are you waiting for the treasury to start buying up bad mortgages? Did homeowvers who are in trouble really expect to benefit form the $700 Billion bailout? You might recall just weeks ago that the $700 Billion Bailout was marketed as an emergency measure that would be used to buy up toxic mortgages and help distressed homeowners. Many Tampa homeowners thought that their ship had finally come in! The government was going to give us a “get out of my mortgage for free card”. Think again.
Today Treasury Secretary Henry Paulson announced he is reversing plans to buy up distressed mortgages and shifting the focus of a massive financial rescue plan. All of a sudden, the Troubled Asset Relief Program (TARP) will instead be used to prop up ailing banks, AIG, American Express and potentially General Motors, Ford and Chrysler. see story.
Hence, short sales and foreclosures are here to stay. Banks must act to clean up their balance sheets and complete short sales and foreclosures.
Expect the stock market to decline further. Investors had priced the bailout into the market; and this dramatic change of course will impact stocks. Why would Paulson make a move to depress stocks further and then use taxpayer money to prop up these same stocks? And we wonder why the banks are not lending?
I seem to remember being told that buying these toxic mortgages might eventually result in the government actually making a profit – hah! Taxpayers will not see any kind of a return on these investments, we are buying stocks of financial institutions that are going bankrupt; and we are paying for somebody else’s dinner (AMEX bailout). Every government intervention is a monumentally bad idea that subverts market forces and delays recovery – have we learned nothing from the past?
- By Dale Bohannon
