Real Estate Investing

U.S. Treasury Secretary Henry Paulson placed the blame for the financial crisis and Wall Street meltdown on the “housing correction” yesterday, according to CNN.com.

“The root cause of distress in capital markets is the real estate correction and what’s going on in terms of the price declines in real estate,” Paulson said at a press briefing after the meeting. “So we’re coming together to work for an expeditious solution aimed right at the heart of this problem, which is illiquid assets on financial institutions’ balance sheets.”

Following the meeting, Speaker of the House Nancy Pelosi ironically used a term common in the real estate industry when she said,

“We hope to move very quickly - time is of the essence.”

One way the financial bail out - the largest ever surpassing even the S&L crisis of the 1980s - could occur is an auction type sale,

One way the agency under discussion could work is by setting up bulk auctions to buy mortgage assets from financial institutions. The auctions would be for set dollar amount purchases. Companies that want to offload the hard-to-sell assets from their balance sheets bid to sell to the government at a huge discount. The company willing to sell at the lowest price wins.

Clearly this financial rescue will bolster the economy, but how does it trickle down to help the little guy - homeowners and average joes?  The Miami Herald breaks it down in a great Q&A section,

In theory, this would help keep homeowners from foreclosure if it includes modifying loans that have been pooled into mortgage bonds. In such a scenario, there’d be fewer foreclosures, which would help prevent a deeper downturn in housing prices, especially in neighborhoods that already are experiencing more foreclosures. Again, however, details aren’t available yet.

Not all in Washington are thrilled with the bailout.

Conservative lawmakers and thinkers say they are alarmed by the growing trend of federal intervention. In addition to providing massive loans to prevent the complete collapse of AIG and Bear Stearns, the administration unveiled a bailout plan for the mortgage finance giants Fannie Mae and Freddie Mac earlier this month. Congress also passed a housing bill earlier this year to rescue thousands of Americans facing home foreclosure.

Free market experts agree the question that remains is whether the bailout violates free market principles and sets us up for further failure.

“It’s a dangerous trend,” said Walter E. Williams, an economics professor at George Mason University and a proponent of free markets. “When we bail people out, down the road they’ll engage in risky behavior assuming they’ll be bailed out.”

These are interesting times we live in, my friends.  Meltdowns of the stock market, mortgage rescue, housing in crisis, and a presidential election year make for riveting news coverage.