AMERICA’S FINANCIAL SHAKEOUT CONTINUES

In the wake of last week’s bailout of Fannie and Freddie, news of restructuring at Lehman Brothers and Merrill Lynch surfaced last week. Then, the US Treasury stepped in and funded the AIG bailout averting the collapse of the “company that was too big to let fail.”

Amidst all this turmoil, it is important to understand that we are better off today than we were yesterday. Our national economy is now moving past the apex of the worst that could occur, according to most Wall Street analysts. Those that were going to fail have either done so or have been saved. The sub-prime mortgage crisis, which is at the root of all of this, continues to evolve and take its toll, but the casualties in terms of the largest financial institutions seems to be over.

The turmoil in the financial markets will mean a flight to quality investments, particularly US Treasuries, as a result, long term interest rates, including mortgage rates, are now predicted to go lower. This is all part of the natural evolution of the financial crisis and the excesses enabled by credit that was too easy to obtain. The problems stemmed from lack of financial self discipline by many consumers, at best, to outright mortgage fraud, at worst. It’s pretty safe to now say that the pendulum has swung in the other direction and safeguards will be emplaced to preclude such abuses in the future.

Local real estate markets will continue to feel stressed until consumer confidence and new jobs grow. For those that can shed the negative emotion, this market continues to offer buying opportunities with tremendous upside potential.