Well it's no secret! We're in the second worse recession in the history of America. How did we get here? How long will we be in this recession? What will it take for us to get out? I'll attempt to give my opinion of what ail's me today. Sit back, relax and enjoy the bumpy ride we are in for!
According to the GDP (Gross Domestic Product) recorded in the second quarter of 2002, the Bush administration entered into office with the American economy already in a recession according to the declined 1st, 2nd and 3rd quarters of 2001 which would have begun with the Clinton Administration. So lets step back a little further in history and find out what really started this. We can all agree that Fannie Mae and Freddie Mac are the nations biggest underwriters of home mortgages securing over 50% of all home loans made in America. So lets start there.
Founded in the 1930s Federal National Mortgage Association aka Fannie Mae was created to encourage homeownership by purchasing mortgages from banks which in turn freed cash for the banks to make new loans. This was a great idea and helped to pull America out of the Great Depression, however, this was not a single factor, job creation by WWII was probably the biggest influence of bringing us out of the Depression. However, as we see now, Fannie and Freddie could lead to fraud if these companies which are set up by FEDERAL LAW and are allowed to act as private companies with profits and stockholders are allowed to dig their hands into the pockets of banks without regulation.
On November, 12 1999 Bill Clinton signed a repeal of the Glass-Steagall Act called the Gramm-Leach-Bliley Act. This opened up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited banks from offering investment, commercial banking and insurance services. Well you might think this was a good thing by repealing this act. Yes it creates competition but as we saw with Wachovia buying First Union, Citibank merging with Travelers Group to become Citigroup the worlds largest financial services network working with Smith-Barney and Morgan Stanley, you see that the great Competition that Bill Clinton signed has now back fired and the Bush Administration as well as the American people are now feeling the impact of such actions. When competition of such a large industry such as banking takes place and opportunity to grow with more options such as being able to make commercial loans, investments and offer insurance it allows those larger banks to BUY and MERGE and eliminate smaller banks as well as no longer creating competition but verging on monopolization. What does this do to the American Economy? It creates job insecurity with layoffs and ultimitely the down fall of our economy.
Guess what! Home Mortgages are among the largest revenue producing entities in the nation. With all these banks merging and buying each other out now that they are allowed to also do investment, commercial and insurance loans Freddie and Fannie backed these banks loaning money's and essentially went back to the roots of why these so called "private" companies Freddie and Fannie were formed. Remember, they were formed to encourage homeownership by buying the mortgages from banks. A New York Times article in September of 1999 stated that Fannie Mae has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate income people and the corporation has loosened its lending requirements to comply. ie Amortized loans! Offering homeownership to low income families sounds nice doesn't it?
Ahhh here we are to the truth of how we got into this recession. From here you can understand that the idea of homeownership for everyone in America is a great idea, however, homeownership is a priviledge not a right. Just like Welfare was a good idea to help low income families, mainly the black population to grab an upperhand and have a more successful opportunity in the job market, it simply held them back by showing those on Welfare, it doesn't matter if you work or not, the tax payers of America are here for you and will pay for you to live in poverty. Simply, this banking "competition" act just like welfare puts those in low income situations into a worse situation by providing them opportunities that are designed to fail. It's nice to want to help, but Federal Government, get your hands out of it, you keep failing the American people and taking the low income families lower! We are all humans and feel compassion, allow us, the American people, the opportunity to help our communities ourselves. Give us support and backing not regulation.
Before I get off on my tangent, lets get back on track. We've discussed how we got here now lets talk about how long we will be in this recession. The short of it, NO ONE KNOWS. That depends on the American people. The idea of offering incentives to homeowners and home buyers was a good idea, however, we are now in a more serious situation. No matter how far you drop interest rates, no matter how many first time home buyer incentives you create and no matter how many tax breaks or stimulus plans you create....we WILL NOT get out of this recession if there is a strong lack of job security. You want to know how long it will take us to get out of the recession? I ask you, how long before you stop listening to the media to horde your money? Instead go out and spend money, don't over spend and buy things you don't need, but take that much needed vacation you deserve, instead of going to Cancun, go to Disney World, Six Flags or somewhere in America. American's don't wait on the government to bail us out, they're the ones that got us here. Instead, lets create our own stimulus package. Spending money creates business. Demand goes up, Supply goes down and the economy and trading increases thus bringing us out of the recession.
Now lets bring America out of our recession and run with this idea. How can we get out of the recession by spending money you ask? When you think about it, the housing market probably keeps more people employeed than any other market. Realtors like myself are employeed by you, the buyers and sellers. But you not only employ my services. Banks depend on you, the government depends on you to buy and sell and workers probably including yourself depend on you to invest in Real Estate some way or another either directly or indirectly. Here's how...A home is first bought from a builder, who employed workers, these workers buy the tools needed for building the house from the lumber yards to the Lowe's employees all the way down to the manufacturer's of the nails for the house. Think of all the people this employees. Take painters for example, Painters are affected, then those employed to make the paint, those who market the paint companies, those in HR who hire the painter making employees, those companies that provide health insurance for paint companies and so on. Are you catching my drift? Guess what, now lets stretch it into the auto industry. All of those painters probably own cars so now those painters are affecting the auto industry and those that work there to sell the cars, manufacture the cars and manufacture the parts for the cars and dig up the metals for the parts to be made. Do you see how far this stretches? No wonder the government created Fannie Mae and Freddie Mac...Real Estate holds our economy together. Now as you can see, destroy Real Estate with loans sold to people that can't afford to make the payments and you destroy the economy by causing those people to foreclose on their homes. Thus as the housing industry slides so do the jobs for those that depend on the housing market and now those who manufactured the paints no longer have jobs and best believe they are cutting the marketing department down. Now there isn't much reason to insure all of their workers that's just costing more money so there goes insurance and no one can buy cars now because we don't have jobs and those that are fortunate to have jobs aren't real sure if they'll have their job next week.
So with job insecurity so high, people stop looking to buy a house and now you're looking at more job loss and a progression from a recession into a depression. If we spend money in America, our jobs become more secure. Employment or Demand goes back up, people begin buying homes again and now we are on a rise out of a recession.
Don't wait for the government to bail us out. Get out there and create business. Network, and work hard. We can't afford to wait on the good things to come to us or we'll miss out on the opportunities that wait for us to find them. I'm 25 years old, I came out of college in debt and continue to be in debt as I work to grow my business of being an indepently contracted Realtor but in the mean time, I have 3 other part time jobs to get by and do what it takes. I already dedicate 40+ hours a week to my Real Estate Business and the rest go to my other part time jobs. I will do what it takes to pay my bills but I still go out there and generate leads and work hard for my buyers and sellers. I also take time to do my part and stimulate the economy. Once a month I take a weekend for my self and lay aside the business and worries of bills and take a trip. Maybe to visit a friend or family member or see my girlfriend who doesn't live in the same town as I. What ever it is, I take time to go out and spend some money because I know others need it as much as I do. It's tough to pay my bills but I make it and I make do by living modest until I can afford the finer things in life from working hard now to grow my business for the future. I encourage all of you to do the same. It is our America and our Economy. We have the freedom to make the change. Be knowledgeable and be smart. Do your part and help stimulate our economy.
As always, if I can be of any help to those of you with Real Estate needs please never hesitate to contact me.