Risk and opportunity are the driving forces for excellence in our country. The opportunity to win eight gold medals drove Michael Phelps to perfect his training regime and spend countless hours striving for perfection. The risk of collapse drove the designers of the Golden Gate Bridge to develop new and creative design solutions and to check and recheck their load calculations. Athletes, entrepreneurs, business owners, and CEOs all work within this system that rewards excellence and responsibility and penalizes mediocrity and irresponsibility. Risk and opportunity are counterbalances that produce excellence.
When our government removes the risk of failure for both Main Street and Wall Street, opportunity quickly morphs into greed. Individuals buy homes they can’t afford, CEOs make ludicrous business decisions, and the pursuit of excellence and responsibility is lost – It’s a high-wire act where there are no consequences for failure because the government provides a safety net for all. The problem is those of us required to hold the net are those who have employed excellence to overcome risk so that we can enjoy the opportunities before us. Every excellent employee and small business owner in America clearly understands this paradigm as we create jobs for others and grow our economy. Now excellence and responsibility will be harshly penalized, while mediocrity and irresponsibility will be rewarded. The government will print more money to pay for this disastrous bailout, which will water down the value of the dollar and erode our standard of living.
Expect there to be some immediate benefits from the bailout, however. Interbank trading should improve, which will enable home buyers to continue getting loans under tighter lending requirements. For those in a position to get a home loan the interest rate on a 30 year conventional loan fell to slightly under 6%. This is partially due to the easing of inflationary concerns as oil prices continue to plummet. The long term inflationary effects of the bailout combined with any increase in oil costs could result in a significant increase in mortgage rates in the future.
Sales were down 20% in August from a year ago, while the average home price remained nearly flat at $261,799. Active listings are up 5% while Average Days-on-Market has increased 19% to 69 days. This number is somewhat misleading, however, due to the high number of properties that have expired or have been pulled off the market.