The federal government is stepping in to salvage the financial industry of America with help from overseas banks. Wall Street appears happy with the steps taken and cautious optimism toward a recovery are harbored by many. But two problems loom in my mind.
The first is how the leaders of these failed firms over the past two years have escaped with millions in income for sinking the ship. They should be walking the plank! MSN this morning had an internet article that the CEO of Freddie Mac has listed his vacation home for $5 million. This while the taxpayers throw a life buoy to his firm and the individual homeowner is losing his home to foreclosure. And the guy's only 51 years old! My thinking is that draining his bank account and assets would allow a few deserving and hard working Americans to keep their homes. He sank the ship but is still young enough to start over. And he's only one of the CEOs who have gained great wealth while driving their firms into the ground, most likely expecting the government to bail them out.
Secondly, while the efforts in the news may provide stability in the financial industry, it will quickly erode if credit is not restored to deserving borrowers. The lending institutions have tightened all lending practices to the extent that even those who are credit-worthy, have extreme difficulty financing a home. If financing is not available, the property values will continue to spiral downward creating future waves of default and write-offs. A glimpse of the potential problem can be seen in observing the manufactured home market. While not highly respected in many areas of the country, manufactured homes do play a major part in the housing market in some areas. However, several years ago when lenders almost as an entire group decided not to lend on these homes, the values spiraled downward and owners could neither refinance nor sell since buyers could not attain financing. This will also play out in the overall market if financing is not available for buyers and owners of site-built homes.
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