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Banks Get $200 Billion...Tell Me That Isn't A Buyout!

Stocks Go Up Yesterday, the feds in their infinite wisdom decided to pump an additional $200 Billion into the financial markets to help ease the credit and mortgage crisis even further. As soon as the news hit the markets, the Dow Jones Industrial started to climb and climb, eventually gaining over 400 points, the biggest one-day jump since 2002. Also shares of both JP Morgan Chase and Citigroup (Chase Manhattan & Citibank) were up over 6% and 9% respectively. American homebuilder Centex was also up 11.5%.

Now, while I applaud the feds desire to increase the funds available to the banks to ease this credit crunch, it also sounds like the feds are going to be bailing out the big banks. They are not only pumping the money in, they are also considering purchasing some mortgage backed securities from Fannie Mae and Freddie Mac, as well as looking into purchasing them from investment companies such as Morgan Stanley, Merrill Lynch and others as well.

There has been a lot of speculation on Wall Street as to how much capital is needed to keep the credit markets flowing with the mortgage crisis still in existence. Most experts agree that the amount needed is between $250 Billion to $500 Billion. My personal belief is somewhere between $350 and $400 Billion.

Warren Buffett & Bill Gates

Think about that for a minute. $500 Billion. That is the net worth equivalent of 9 Warren Buffett's or 12 Bill Gates', just to ease and possibly eliminate the mortgage credit crisis. It is also higher than some third world country's Gross Domestic Output in a year. It is also the rough equivalent of 1/8^th of the United States budget for this year. It is also about the amount of money we have spent on the Iraq war so far.

Money!

So with the feds now putting another $200 Billion into the pot and considering purchasing these securities, please tell me how we aren't bailing out the banks when it looks like we are doing just that. It sounds like no matter what we are going to just print out enough money to make sure the credit crisis just goes away and to hell with the value of the dollar.

Am I wrong? Are we not bailing out the banks? Are we not printing money to bail everyone out, including ourselves?

Posted by Charles Tharp ~ Inland Empire Real Estate & Short Sale Specialist on 03/12/2008 12:41 PM

Comments (9)

bank bailout, warren buffett, bill gates, stock rally

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9 Comments on Banks Get $200 Billion...Tell Me That Isn't A Buyout!

One word - INFLATION. We are on a slippery slope here and it scares the hell out of me.

03/12/2008 12:46 PM

by Dave Woodson (Indigo Financial Group Inc.)

It is scary instead of fully addressing the problem and maybe having a few bad months it seems like everyone wants to put a band aid over an infected wound and hope it heals itself.

03/12/2008 12:54 PM

by Orlando & Lake Mary Real Estate Expert, Heather Joubran (RE/MAX Central Realty)

Not INFLATION but STAGFLATION. Prices are rising and the dollar and economy are both weakening and it scares me as well. The economic effects won't be seen for quite some time.

03/12/2008 01:08 PM

by Charles Tharp ~ Inland Empire Real Estate & Short Sale Specialist (Prudential California Realty)

Heather - I agree, although I think with the $200 Billion, it has grown from a band-aid to full-fledged CPR.

03/12/2008 01:09 PM

by Charles Tharp ~ Inland Empire Real Estate & Short Sale Specialist (Prudential California Realty)

It is an election year. They will do anything that sounds like they are doing something, whether it solves the problem or not.

03/13/2008 02:53 PM

by Randy L. Prothero - Hawaii REALTOR® (Century 21 Liberty Homes)

They are adding fuel to the fire, if you ask me! I do not see this problem going away. People are walking away from homes they paid top dollar or took all the cash out of them. I do see the prices becoming moer stable. I feel like it has hit the bottom, when we list a property using the lowest comps, we have 5-15 offers on them. Buyers are fusterated they didn't get it. Buyers are starting to relize a good deal and making better offers. People still need houses! Cammie Gentry-Great West GMAC

03/13/2008 03:05 PM

by Cammie Gentry (Great West GMAC)

Randy - Thanks for stopping by and commenting. Its funny because election years are usually great for housing markets, however as far as this one goes, the jury is still out on it.

Cammie - I don't see it going away without causing some serious damage to the economy, including stagflation and job losses. I know that buyers are coming out of the woodwork and hopefully things will stabilize across the country, and possible start to go up. I also hope the feds will reconsider letting the new conforming loan limits stick, or at least raise them to somewhere between $500k and $600k.

03/13/2008 04:57 PM

by Charles Tharp ~ Inland Empire Real Estate & Short Sale Specialist (Prudential California Realty)

Charles - I think we are rescueing the wrong group of people.

03/13/2008 10:44 PM

by Virginia Hepp - Mesquite NV Real Estate (Mesquite GMAC Real Estate)

Virginia - I agree. Rather than bail out banks and investors, we should be helping the homeowners who are losing their homes and may not have anywhere to go.

03/13/2008 10:46 PM

by Charles Tharp ~ Inland Empire Real Estate & Short Sale Specialist (Prudential California Realty)

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