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September Market Report

Here are a few pictures from the Lifeworks “Home Improvement Challenge” this weekend, which so many of you supported at our “Flip That House” viewing party last month. Thanks so much for your generosity! The young mother pictured with her two children was so grateful! Please call if you would like to get more involved with this amazing charity.

“Too Big to Let Fail” – This is the new economic catch phrase defining the debate between government intervention to prevent large businesses from failing, or allowing the market to naturally take its course. The stock market saw a 500+ point correction on Monday as Lehman Brothers went under, and Merrill Lynch was sold off. AIG, the nation’s largest insurance company, is now on the bubble as well. Last week the Fed stepped in to bail out Fannie Mae and Freddie Mac, deciding that their failure would be catastrophic to the economy. This had a positive effect on the bond market and thus on mortgage rates. Additionally, oil prices continued to decline, easing inflationary pressures, strengthening the dollar, and making bonds more attractive to investors.

So where does that leave us? Yesterday’s market correction was the first 500 point drop since 1987. This seems dire, but in reality was only a 4% decline, versus the 22% drop in 1987. The greater concern is a slowdown in interbank lending. This could make obtaining loans of any sort, including home loans, much more difficult, bringing us back to the very issue the government was attempting to address when it created Fannie and Freddie in the first place.

Some will say there needs to be more federal oversight and regulation in the market place. Others will say the government caused most of these issues by creating and enabling two companies that would not have grown to this size if not for their generous federal credit advantages, and if the market were allowed to address economic needs naturally. Unfortunately, the worst case scenario transpired, as the government involved itself, and then failed to oversee and regulate what it started. Regardless, us taxpayers will be on the hook for each of these bailouts, and will pay personally for all the poor personal, corporate, and federal decisions it took to create this mess. “Too Big to Fail” should be “Too Dumb to Survive”.

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