The Treasury gave its first update on the progress of $700 bailout package. So far $125 billion has been distributed or pledged to 9 major banks. The money has not been used for purchasing defaulted mortgages, as was the original proposal. Of course, soon after passage of the bailout proposal, the target was changed to focusing on bank capitalization. Buying defaulted mortgages took a back stage, as it was thought that a capital stock investment would provide more capital for lending. This seemed a good plan with good hopes to open back up the credit markets, although it did not directly address the housing market woes by helping with foreclosures, struggling home owners, mortgage modifications, or home inventories.
As things worked out, the bailout bucks have not been used for new lending either. So far banks receiving bailout bucks seem intent on acquiring other, weaker banks. Supposedly these moves will help our economy.
There are more reports that the Treasury has plans to focus bailout bucks on other, non-bank institutions.
The report this week does not give any specific information on perceivable improvements. Treasury cautions that we should give the bailout time to bring about economic improvement.
NPR reports some economists comments about the progress report. "Too early." "Banks were evidently worse off than initially thought." "Banks are scared to lend." "We should not expect too much from the bailout." "Lending is just going to be tighter with or without the bailout."
So there you have it. The big bailout may not have been so big after all.
GM lost $2.5 billion, with sales down 45%. Ford sales down 30%. The big three are looking for their own bailout.
Credit card losses are at historical highs, with a $6.8 billion increase in consumer debt.
Unemployment is at a 14 year high, at 6.5%, with nonfarm payrolls dropping 240k jobs. Employment losses are widespread among all industries and businesses.
Two articles in my paper today spoke about consumer and business credit. Local banks in Chattanooga state that they have plenty of funds to lend. The bottom line is customers need better credit and will pay higher rates. They were speaking about credit cards, consumer loans, car loans, and commercial loans.
An AP article by Stevenson Jacobs indicates that the credit markets are opening, but many potential consumers are not borrowing. Recent retail sales reports indicate that many people may not be interesting in borrowing, even when credit is available. This is likely fears over employment stability. I'm not sure how to reconcile this reported lack of borrowers with the $6.8 billion increase in consumer debt, but there it is.
President-elect Obama is already receiving daily economic briefings. I suspect that much of what takes place over the next few weeks will be done in line with his objectives. We should soon be hearing about a new stimulus package.
It seems to me that the bailout package has not been successful. It is not encouraging consumer spending, employment, credit, investment. It is not helping foreclosures, mortgage modifications, home inventories and prices, new construction. It is not helping to qualify new home buyers. The bailout payout is being executed by a fairly secretive process. It is evidently encouraging bank consolidations. Is that the plan?
I would really like to see how this can be coordinated with an overall economic restoration plan. We need to ease fears, to qualify more home buyers, to bring employment, to enact reasonable regulation to prevent future abuses with speculative lending practices.
We need something real, and fast. What I think that we will get is another batch of money to more banks and another drop in the federal funds rate.
Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.
|
|
|
|
|
FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation,
FHA Renovation, Mortgage Modification and Loss Mitigation
Mortgage lending offices located in Chattanooga, TN
rsmith@aamonline.com
Join me on LinkedIn, Facebook, Twitter
Richard, This is all very discouraging. My gut feeling is that this money will be wasted very quickly and homeowners and taxpayers will be much worse off than they are now. The next 6 months or so should be very interesting.