Hyperinflation: Cash vs. Assets

By Rick Tobin

 

Decreasing value of Dollar. Include Clipping Path

Since 1913, the value of the U.S. Dollar has allegedly fallen to close to a current equivalent value of just 2 to 3 cents. If true, the purchasing value of a Dollar has fallen 97% to 98% over the past 100 years. That is truly amazing, mind boggling, and tragic that the U.S. Dollar has fallen almost 1% in value each year over the past 100 years.

Inflation adversely impacts the purchasing value of a Dollar. It is akin to a hidden form of taxation. The combination of taxes and inflation will then reduce a family’s Net Worth levels as time moves forward.

A person who owns hard assets like real estate and gold may benefit tremendously by owning these same assets during times of rampant runaway inflation like in recent years. However, a person who holds more cash on hand will soon realize that these same dollars will buy much fewer goods and services thanks to the declining value of their dollar today.

Quantitative Easing & Hyperinflation

rick_dollardeclineThe Federal Reserve’s “Quantitative Easing” strategies and various multi-billion and trillion dollar bailouts since 2008 have weakened the value of the U.S. Dollar considerably. The more money which is printed and added to the money supply circulation, then the further the value of that same U.S. Dollar will fall.

As I learned in past Economics courses back in college, too many Dollars chasing too few of goods will lead to rapidly increasing prices. Quantitative Easing has been a way for the USA to artificially boost or improve asset prices in the stock, bond, mortgage, and real estate markets by way of creating seemingly trillions “out of thin air” in order to help purchase more assets and drive up values such as the 16,000+ Dow Jones index in recent times.

There is a serious consequence though associated with the falling value of a U.S. Dollar. It is related to rapidly increasing consumer goods prices such as gasoline, food, clothing, shelter, and other everyday products which most Americans rely upon to survive.

As I have noted before, oil is traded in much of the world through the “Petrodollar” system (or “Oil for Dollars”). When the Dollar declines in value, then the cost of gasoline increases significantly regardless of whether demand for gasoline is rising or falling.

Weimar Republic vs. USA in 2014

When I think of runaway hyperinflationary time periods in the world over the past 100 years, I think first of the Weimar Republic in Germany back in 1918 to the early 1920s, and Argentina back in the late 1980s.

The Weimar Republic was established after World War I and the German Revolution, and was founded in the city of Weimar, Germany in 1918. In Weimar, a new Constitution was written, adopted, and signed so that this new Federal Republic may replace the previous Imperial Republic. One of the official names of this Republic was also known as “The German Reich.”

The Weimar Tax System was fairly weak, and many of the wealthiest Germans were able to avoid paying very much in taxes, or they may have completely avoided all taxes partly since the wealthier Germans did not respect the new German leadership very much at the time.

In spite of collecting relatively small amounts of taxes each year, the Weimar Republic spent recklessly on various public sector programs partly to try to boost the German economy once again post-World War I. The annual spending deficits exceeded the net national product by about 10% per year back in 1919 and 1920. Or, they spent about 110% of their taxes collected in these same years.

Some of the wealthiest German businessmen actually wanted a weaker German currency so that their exports would seem cheaper to foreign investors.  Related to the Versailles Peace Treaty signed after World War I, many Germans also wanted a weaker German currency in order to try to reduce their financial obligations in regard to war reparations that Germany was obligated to pay out after the end of World War I.rick_germany

The Weimar Economic Policy in Germany in 1919 and 1920 was somewhat similar to the USA’s Quantitative Easing policies of recent years. The Weimar Republic’s political and financial leaders back then were motivated to try to stimulate the economy, and grow it out of the country’s severe economic recession. Their strategies included recklessly spending public money (i.e., entitlement spending, etc.), “snowballing” the annual spending deficits exponentially each year, and they also tried to intentionally weaken the currency partly to improve the exports of German goods and services to other nations.

Tragically, the Weimar Republic was a bit too “successful” in trying to weaken their currency at the time back in the early 1920s. For example, a 50-million German Mark banknote which was issued in 1923 was sadly worth the equivalent of just ONE U.S. DOLLAR in the same year. Nine years earlier, this same 50-million German Mark would have been worth closer to 12 million U.S. Dollars. Adolf Hitler would then later soon rise to power after the demise of the Weimar Republic, and their runaway Hyperinflation policies.

USA: Rampant Inflation Since the 1970s

Cute Character young businessman is pulling a inflation balloonIn the first 60 years plus of the 20th Century, inflation seemed more contained or mild than the inflation rates after the start of the 1970s which also included the “Gas Shortages” and “Whip Inflation Now” (“WIN”) strategies created by both grassroots groups and the U.S. Congress by way of the establishment of the “National Commission on Inflation.” These groups encouraged spending less, and increasing personal savings rates.

President Gerald Ford declared inflation as “Public Enemy # 1” in a number of public speeches at the time. President Ford and his followers tried to promote the “Whip Inflation Now” strategies by handing out “WIN” buttons which were later ridiculed by many partly after inflation rates began to skyrocket in the late 1970s as opposed to declining as the “WIN” campaign was set up to promote.

Back in 1971, the median priced U.S. home was just $25,200. The average annual income was $10,622 per year, a new car cost only $3,560, average monthly rent was $150, annual tuition to Harvard University was $2,600 per year, gasoline was 40 cents per gallon, and a U.S. Postage Stamp was just 8 cents (source: Seek Publishing’s Remember When – 1971).

After the WIN campaign began to allegedly “crush” inflation, the U.S. Dollar’s value rapidly declined and inflation levels skyrocketed. In fact, inflation increased so much that the Federal Reserve raised short term interest rates such as the U.S. Prime Rate to as high as 21.5% back in December 1980 in order to try to “quash inflation.”rick_demand

In 2012, 2013, and 2014, we have runaway inflation again. Yet, interest rates are still near historical lows in spite of the recent rate increases over the past year. For example, the 10 year Treasury Yield hovers in the 2.80 range near mid-January 2014. Yet, the 52-Week Low for the 10 Year Treasury, which is the index used for 30 year mortgage rates, reached a low of 1.63 back on May 2, 2013.

Historically, rising rates typically leads to falling demand and prices for hard assets like real estate. This is true partly since fewer borrowers will be able to qualify for mortgage loans, which then leads to falling demand for real estate.

Real Estate: A Hedge against Inflation

Since 2012, home values have increased by double digit annual percentage each year in various regions across the USA. In spite of a continued weak job market, rising consumer and government debt levels, and declining Net Worth levels for a high percentage of Americans, home prices have increased as much as 20% to 30+ annually in recent years in areas such as Los Angeles, Las Vegas, and Phoenix.

Are Americans more optimistic about their perceptions of the health of the U.S. economy, or are they benefiting more from the declining value of the U.S. Dollar? I personally believe that more Americans would agree that the Dollar has fallen in value more so than the USA’s economy has improved in recent years.

rick_dollarbillIt is true that the record and near record low mortgage rates in recent years have allowed more Americans to qualify for larger mortgage loan amounts which then helped to boost home prices. However, it is still much more challenging to qualify for a residential mortgage loan today than it was back before the official start of the “Credit Crisis” (www.thecreditcrisis.net) in the Summer of 2007.

Home sales and mortgage loans funded were significantly higher back prior to the Credit Crisis than today. As demand for homes was higher 6 or 7 years ago, then home prices should have been higher back then too.

Strangely, home prices in many parts of the USA are near almost the same as median prices back in the 2003 to 2007 time periods in spite of, or because of, lower mortgage rates, more challenging loan qualification guidelines, declining numbers of home listings available for sale to the General Public, and some positive economic data released. Some years, real estate may boom 10% or 20% + in value, and other years it may fall 10% or 20% annually during severe economic recessions or depressions.

The value of the U.S. Dollar has declined an average of almost 1% per year over the past 100 years which is not positive for a person who wants to buy goods and services with their Dollar currency. Historically however, the value of a home in the USA has increased by an average of 3% per year over almost the past 100 years thanks to inflation and the rapidly declining U.S. Dollar.

The difference between holding onto cash and buying real estate can equate to a loss or gain of approximately 4% per year (or a -1% annual return for holding cash vs. an annual historic appreciation rate increase of a + 3% per year for owning real estate). While it may be wise to diversify one’s investment options, real estate can be an exceptional hedge against rampant inflation especially during times of much higher annual inflation rates like in recent years.


Author: Rick Tobin

Rick Tobin Professional Pic sharperRick has an experienced and diversified background in both the Real Estate and Securities fields for the past 25+ years. He has had hundreds of articles published nationally in magazines, newspapers, internet sites, newsletters, and other sources, and has also appeared as a guest on various television shows as well as in seminars about real estate and financial information.

Rick has an extensive background in the financing of residential and commercial properties around the U.S. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Hedge Funds, and foreign money sources.

He has purchased numerous investment properties in multiple states, including government and tax foreclosures, All Inclusive Deeds of Trust (AITDs), Land Contracts, Lease Options, and he has purchased significant amounts of mortgage investments. He has worked in the development of hundreds of residential properties, including single family homes, townhomes, condominiums, and apartments.

Contact Information: Rick Tobin – 12424 Wilshire Blvd., #630 Los Angeles, CA 90025 Email: rtobin22@gmail.com Phone: (310) 571 – 3600 ext. #203 CA DRE #01144023

Ricks’ website: www.thecreditcrisis.net


Flexible Financing for Difficult Economic Times

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Portrait of a Young Entrepreneur in a Hurry Featuring Austin Allison

austin1

“Time kills deals,” says Austin Allison, creator of dotloop, and also its President and CEO. His brainchild is a hot new software for digitizing those unwieldy real estate transactions that require reams of paper and rivers of sweat from all parties.

Allison eschews paperwork as an inefficient time-waster for agents, as well as their anxiously waiting customers. A wunderkind real estate agent at the age of 18 with investment property of his own, Austin Allison set out to fix the frustrating, seemingly endless paperwork process that was bogging him down.

By 2009, the result was a remarkable, high-octane company that is gathering in the awards and recognition for Allison faster than he can find space for them in his virtual trophy case. Austin Allison’s undeniably handsome face recently filled the full-page cover of Entrepreneur magazine, who dubbed him a norm-shatterer and dotloop an audacious upstart. Most recently, Allison was named “Innovator of the Year” by Inman News, a sought-after title in the entrepreneurial milieu. Forbes put him squarely on the limited list of their prestigious “30 under 30” class, and CEO Magazine officially recognized him as one of Ohio’s “Most Talented Entrepreneurs.”

Obviously, Austin Allison is a person of interest for those with an eye on next-generation movers and shakers. Let’s look deeper to get at the reasons for all the hubbub:

What, exactly, is dotloop?

Put simply, dotloop is a cloud-based real estate solution where all parties involved in the transaction – agents, brokers, buyers and sellers – can come together to collaborate in real-time. With dotloop, users can add, adjust, approve and electronically sign documents – from anywhere, anytime, online.

austin2dotloop completely eliminates not only that pesky paperwork, but also enormous amounts of time spent in laboriously getting information back and forth among multiple parties to complete real estate transactions. It employs a sleek virtual workspace easy for all participants to access and collaborate in. Electronic forms, signatures, and documents are all available in a single virtual conference room, connecting dots seamlessly by creating loops of involved persons. In this way, real estate deals are negotiated, signed and closed as quickly and easily as possible… without paper.

Austin Allison is currently working with one eye on expansion. “Our primary focus is in the residential market, and we intend to be the dominant transaction solution there,” he says. “But dotloop could certainly be used in commercial real estate transactions. Though the buyers, sellers and properties differ, the process of negotiation and collaboration are the same and could all be made easier through dotloop.”

The non-competition

dotloop is the only solution in the real estate market that eliminates paperwork. Other point solutions solve parts of the paperwork dilemma, from cloud-sharing services to e-faxing and e-signature software. These services require a hodgepodge of systems, document couriers and machines to get the job done. To date, dotloop is the only one-stop point that offers a collaborative solution where deals can be followed from start to finish online.

Users love dotloop

Using dotloop, an agent can save up to ten hours per transaction and close deals up to 40 percent faster. It’s the fastest-growing software company in the real estate industry. In less than three years, it has attracted over 25% of U.S. and Canadian realtors to subscribe, and is increasing exponentially every month. These agents work in more than 700 cities for high-profile, top brokerages such as Keller Williams, RE/MAX and EXIT Realty, to name only a few.

“We’ve added over 150,000 new users in 2012 alone,” says Allison. “Beyond users and revenue growth, we recently closed $7 million in Series A funding from Trinity Ventures and prior to that, raised about $3M from local investors.” Based in Cincinnati, dotloop recently opened a San Francisco office to accommodate the company’s lightning growth. “We expect to be at about 80 employees by the end of 2012,” Allison said.

The future is now

“Real estate agents,” says Allison, who sold real estate during his college years, “definitely use our technology for their benefit. But it also provides their customers with the digital experience that’s expected in today’s world. When it comes to real estate, it’s simple: Time kills deals… and paperwork is one of the biggest time drains.”

Allison anticipates both horizontal and global expansion in the future for dotloop, but has yet to disclose the next targets. Meanwhile, he offers these suggestions to budding entrepreneurs who would emulate his impressive achievements:

  1. The best consumer experience will win.
  2. Follow your passion. Dream big. Surround yourself with amazing people.
  3. Never give up!

Austin Allison bought his first house at the age of seventeen and now at the young age of 27 is making his dreams a reality. Without question, this talented young entrepreneur in the fast lane has transformed the real estate industry, and is not about to stop there.

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The Great Depression vs. The Credit Crisis: Chaos & Opportunities

By Rick Tobin

Better opportunityAfter almost seven (7) years of the ongoing Credit Crisis, will the financial markets ease up a bit more in 2014 or will they tighten up even further? Interest rates continue to hover at, or near all-time record lows due to “Quantitative Easing” strategies (or “create money out of thin air in order to artificially boost stock, bond, and mortgage values”). Yet, the U.S. economy and financial markets seem to be as nonsensical as ever before.

For anyone who worked in, or invested in the real estate fields prior to the start of the Credit Crisis (www.thecreditcrisis.net), how many of us still recognize the real estate and mortgage industries as we move forward into 2014? While it is very true that there have been numerous “Boom” and “Bust” housing markets over the past 100 + years, real estate investors typically had more flexible forms of financing options back then if even at much higher rates.

Over the past century, the two (2) most well-known and discussed sluggish or depressed economic time periods were “The Great Depression” (1929 – 1939) and “The Credit Crisis” (2007 – present day). In both eras, these negative financial event time periods were preceded by “Boom” times related to easier capital access and wild speculative investments in stocks, real estate, and other investments prior to the financial markets drastically tightening up access to the more flexible capital sources. Many times, the “solutions” offered for negative situations, however, may later turn out to magnify the problems even more.

The Great Depression (1929 – 1939)

Great Depression word cloud box packagePrior to the ongoing “Credit Crisis”, the USA had “The Great Depression” which adversely affected many banks, businesses, and citizens. “The Roaring 20s”, which preceded the start of “The Great Depression”, was a period of time when investors seemed challenged to lose any money in the stock market just prior to the financial implosion back in 1929.

What was one of the primary causes for the ending of the “Roaring 20s” combined with the official start of “The Great Depression” back in 1929? ANSWER: Banks and investment firms began to figuratively “slam the brakes” on the availability of capital by way of severely limiting access to margin loans for stock investments, business loans, and real estate loans.

Once margin loans were restricted or severely limited just prior to the start of the stock market collapse, then margin loans were “called” as all due and payable by the issuing lenders or Wall Street firms or financial institutions. As a result of this massive “call” of outstanding margin loans that a high percentage of typical U.S. citizens were using to purchase stocks, investors were forced to sell their stocks at any price possible, in order to pay off their existing highly leveraged margin loans which suddenly became “all due and payable” to the issuing banks or investment firms.

When there are more sellers for an investment class such as a stock than there are existing ready, willing, and able buyers, then prices tend to rapidly fall. Sadly, some stocks ended up worthless due to the massive panic selling.

What was considered the worst financial year of “The Great Depression”, according to various financial analysts, back between 1929 and 1939? ANSWER: 1932. Why? This was the year when the “Bank Runs” began at some financial institutions when bank customers flooded their local bank branches in order to try to pull out all of their remaining cash deposits.


Government Bailouts & Programs linked to The Great Depression

Herbert Hoover was the U.S. President back when The Great Depression first began. President Hoover did not believe that the U.S. government should become too involved with trying to bail out the individual investors who were struggling with their finances at the time, or with the near 25% national unemployment rates.house

President Hoover was then followed by Franklin Roosevelt, and his various economic stimulus programs related to his “New Deal” financial and economic strategies. Some of President Roosevelt’s “New Deal” programs included these ones listed below:

1.) FHA (Federal Housing Administration): This was a government agency created to improve the housing crisis which began during the many years of The Great Depression. Back prior to the introduction of FHA, 40% and 50% down payments were required to purchase a high percentage of owner occupied homes. Subsequent to the introduction of FHA, it became easier to purchase homes with much lower down payments and longer term government-backed mortgage loans.

Interestingly, the most common funded residential loans for owner-occupied homes in the USA after the start of “The Credit Crisis” continues to be FHA insured loans. As I have noted in past articles, upwards of 97% of all funded residential loans in the USA over the past few years are alleged to be either government backed or insured loans (i.e. FHA, VA, USDA, Fannie Mae, or Freddie Mac).

House sinking in water , housing crisis,flooding, ect. concept2.) The Home Owner’s Loan Corporation (HOLC): This agency was created back in 1933, or just one year after the start of the “Bank Runs” in 1932. There was also a flood of foreclosures during “The Great Depression” years just as we have all seen nationwide during the ongoing “Credit Crisis” years. The HOLC loan programs were allegedly designed to help provide existing homeowners with the option to refinance short term mortgage loans into more affordable longer term loans in order to try to reduce the high number of foreclosures.

In many ways, the HAMP (Home Affordable Modification Program) and HARP (Home Affordable Refinancing Program) loan options seem a bit reminiscent of the old HOLC programs back in the 1930s. All of these financial acronyms which begin with the letter “H” were supposedly designed to help existing homeowners to remain in their homes by reducing their existing monthly loan payment options.

Whether it related to increasing the loan term from five (5) years to 30 years or by reducing the amount of interest charged on the mortgage, the goal was to try to make the monthly payments more affordable one way or another so that there wasn’t a giant flood of foreclosures causing havoc to home values across America.

3.) The Civilian Conservation Corps (CCC): The CCC was created by President Roosevelt back in 1933 to try to help reduce the massive 25% national unemployment numbers. This work relief program helped employ many struggling Americans by way of building many public works programs related to parks, roads, buildings, and trails across the USA.

In recent years, the unemployment or “underemployment” figure estimates for Americans has varied between 8% and 20%+, according to various financial analysts and economists.

Who really knows the actual unemployment numbers? Regardless, the projected annual median household income has fallen in 2013 as compared with back in 2007 or 2008. Where are today’s “New Deal” jobs programs which may help employ more Americans, and hopefully increase existing wages for more people as well?

Will Boom Times Follow The Credit Crisis?

While it is very true that millions of Americans lost their savings, homes, and jobs during both The Great Depression and The Credit Crisis, it is also true that much new wealth was created both during and after these severe economic depression time periods.boom

Is “The Credit Crisis” version of “The New Deal” tied more to the financial bailout programs such as “Quantitative Easing”, “Operation Twist” (or buy long term debt with short term money (or vice versa) in order to artificially drive down interest rates”), or other bailout strategies which seem to benefit the larger financial institutions more so than the average American citizen?

Americans are more likely to invest more capital in investments like real estate if they are more certain of their jobs being there in the near term. Additionally, homeowners are more likely to not “walk away” from their homes which may currently be in foreclosure if they have some equity to protect.

Housing growthIn spite of a very sluggish recession or depression since 2007, depending upon one’s personal perspective or financial position today, home values have skyrocketed in many regions over the past year or two. Amazingly, some previous “Bubble Bust” states such as California, Arizona, Nevada, and Florida have experienced annual home rates of appreciation reaching 25% to 35% + per year.

After the end of The Great Depression back in 1939, there were many families who created the bulk of their family’s generations of net worth by creatively and assertively purchasing heavily discounted assets for literally cents on the Dollar. That $50,000 home may eventually turn into a $500,000 free and clear asset as time goes by for many savvy investors.

Are the same potential investment opportunities available to Americans today in 2014 as compared with Americans back in the 1940s or 1950s? Only time will tell.

In hindsight today or looking back into the past, it seems very easy to suggest that there were seemingly endless solid investment opportunities available to Americans shortly after sluggish economic time periods. Many years from now well into the future, we may look back to 2014 as a year in which the positive investment opportunities far exceeded the negative investment options.

Let’s all hope that the potential “Boom” periods of time in our futures are at least as prosperous for many people as compared with “Boom” periods of time for past investors who were willing to take calculated risks which later paid off for both themselves and for their families for many years or generations thereafter.


Author: Rick Tobin

Rick Tobin Professional Pic sharperRick has an experienced and diversified background in both the Real Estate and Securities fields for the past 25+ years. He has had hundreds of articles published nationally in magazines, newspapers, internet sites, newsletters, and other sources, and has also appeared as a guest on various television shows as well as in seminars about real estate and financial information.

Rick has an extensive background in the financing of residential and commercial properties around the U.S. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Hedge Funds, and foreign money sources.

He has purchased numerous investment properties in multiple states, including government and tax foreclosures, All Inclusive Deeds of Trust (AITDs), Land Contracts, Lease Options, and he has purchased significant amounts of mortgage investments. He has worked in the development of hundreds of residential properties, including single family homes, townhomes, condominiums, and apartments.

Contact Information: Rick Tobin – 12424 Wilshire Blvd., #630 Los Angeles, CA 90025 Email: rtobin22@gmail.com Phone: (310) 571 – 3600 ext. #203 CA DRE #01144023

Ricks’ website: www.thecreditcrisis.net


Flexible Financing for Difficult Economic Times

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The Government Shutdown & The Financial Markets

By Rick Tobin

United States of America  Shutdown

The recent partial shutdown of both government services and benefits adversely affected millions of Americans across our great nation. Is our government deficit truly close to the reported $16 + trillion? If so, how do we hope to reduce this deficit while continuing to hopefully expand and improve our national economy?

In our nation’s entire history, we have never had the U.S. government actually default on their financial obligations. A significant reduction of government services or benefits (i.e., Social Security, Food Stamps, subsidized housing, etc.) could negatively impact all types of investments both here and abroad such as stocks, bonds, mortgages, and real estate.

Why can’t the banks bail out the government as a repayment?

The Popping Derivatives BubbleDo you know that the Federal Reserve and the U.S. Treasury supposedly has “lent” out over $16 trillion as well to many of the largest banks and investments banks in America since the near financial implosion of the world’s entire financial system, back in September 2008? These banks included Bank of America, JP Morgan Chase, Wells Fargo, Citibank, and several other well-known financial institutions.

The primary reason for allegedly lending, gifting, or partnering up with these same financial institutions by way of the $16 trillion cash infusion of “emergency funds” was to help keep these “Too big to fail” financial institutions from collapsing. Had any of the Top 5 “Big Banks” imploded between the Fall of 2008 and present day, then their on and off balance sheet derivatives investments (i.e., Credit Default Swaps, Interest Rate Options, etc.) may have cascaded like a falling domino chain across the world.

In theory, shouldn’t these same banks which received $16 trillion in bailout funds since September 2008, have to pay back the same $16 trillion if and when they ever get healthy enough again? If so, then these banks and investment banks could pay off the $16 trillion deficit by themselves? At the very least, the Big Banks’ monthly payments back to the Fed and / or U.S. Treasury should cover the U.S. government’s monthly budget obligations for many years to come.

What’s a Derivative?

derivatives statsWhy should you care about derivatives (a hybrid of an insurance and financial contract)? A derivative, once again, is a glorified form of a financial “bet.” In the bet, one party wins while another party loses. The winner may happily earn returns of 10 to 30 + times their original investment amount. The loser, sadly, may also lose upwards of 10 to 30 + times their dollar amount invested, which can financially wipe them out.

For example, an Interest Rate Option derivative investment “bet” may be placed by Party A, who believes that the LIBOR (London Interbank Offered Rate – one of the world’s primary benchmark rates) interest rate will drop in the near term. If Party A bets that the LIBOR rate will continue downward and then the LIBOR rate increases, then Party A may lose his billion dollar bet plus upwards of at least 10 times that amount. If so, that $1 billion investment can turn into a $10 billion loss in a very short period of time.

The ongoing LIBOR Scandal in which numerous banks and investment banks rigged the directions of the LIBOR interest rates is a prime example of the potential fraud involved in the derivatives and financial markets. In this LIBOR Scandal, it has been alleged that several large banks knew what the exact LIBOR rate would be in the near term, so they could place their derivatives bets accordingly. How can you lose a bet if you know the outcome ahead of time?

Some financial analysts and economists suggest that the total combined value of all of the world’s derivatives combined may equate to over $1,500 trillion. As a comparison, the combined value of all of the world’s stocks, bonds, and real estate may be closer to just $175 trillion. As such, the derivatives markets dwarf all combined assets on planet Earth by a multitude of times. Any potential derivatives market collapse would, obviously, negatively impact potentially most or all of the world’s assets either directly or indirectly.

Bond Yields and Interest Rates

If our government would have, or may soon potentially default on payments made to Treasury Bond investors either here in the USA or abroad, then Bond Insurance ratings companies such as Moody’s or Fitch could downgrade USA’s Treasury Debt from “AAA” (the highest and safest bond rating) to “AA” or some other worsened rating. When an investment is downgraded such as U.S. Treasuries, due to perceived increasing risk, then the interest rates paid on those same investments may increase too.mortgage going up

It is important to pay close attention to Bond Rating agencies’ possible downgrades of our Treasury debt here in the USA. 30 year fixed mortgage rates are tied to the directions of the 10 Year Treasury Yield. As demand for Treasuries decreases from third (3rd) party investors such as retired Americans, Chinese or Japanese investors or governments, or the Federal Reserve themselves, then Bond Prices will fall. As Bond Prices fall, then 10 Year Treasury Yields will increase, since they are inverse to one another. These rising Treasury Yields will then, in turn, lead to increasing mortgage rates.

Government Backed or Insured Loans

Over the past several years, approximately 97% of all funded residential mortgage loans were either government backed or insured loans. The vast majority of these funded loans were FHA, VA, or USDA, and were also sold off in the secondary markets to Fannie Mae and Freddie Mac. Fannie and Freddie typically purchase the bulk of funded residential mortgages nationwide in the secondary market.

Without Fannie and Freddie’s presence, then banks would not be able to sell off their funded loans in their portfolios. This would have, in turn, led to much less loans originated by both small and large financial institutions. As many investors should know, banks eventually run out of money if they cannot sell of their loans in the secondary market.

A few years ago, the U.S. government had to bail out both Fannie Mae and Freddie Mac after they were on the verge of financial collapse too. What many people do not know is that one of the primary reasons why Fannie and Freddie almost collapsed is that they held highly leveraged derivatives investments in their portfolios, which were imploding due to their incorrect financial bets. I still do not understand why Fannie and Freddie were allowed to invest in risky derivatives back then.

The recent government shutdown led to a short term problem with FHA, VA, and USDA processing all of their paperwork, since their affiliate government agencies were unable to provide lenders or brokers with the updated financial information necessary to fund the loans. As a result, many home sales or refinance transactions were delayed due to this reduced access to government data. Once again, we need more non-governmental money back in the mortgage markets so that we are not so heavily dependent upon the government for mortgage loans.

Do we inflate or deflate our way out of this financial mess?

Money making machine, Business ideaMy perspective and belief is that we will continue onward with our “Quantitative Easing” (QE) strategies in that the Federal Reserve creates more money “out of thin air” in order to keep acquiring financial assets like stocks, bonds, and mortgages. The primary reason why the Dow Jones continues to hover near or above 15,000 in recent times, as opposed to closer to 6,500 back in March 2009, is related to the Fed’s QE policies, which include purchasing U.S. stocks on a large scale.

In recent times, the Fed was purchasing about $85 billion per month in bonds and mortgages. Don’t be surprised if the “QE Infinity” dollar amounts increase on a monthly basis, in order to allegedly boost financial prices and values. If the QE policies continue at the same pace or even at a more rapid pace, then mortgage rates may remain near historical lows which will be continued good news for real estate investors.

What is the lesser of two perceived evils as it relates to our shaky and questionable financial markets? Is it asset deflation or inflation? The best answer will be tied to whether or not you own real estate, or hope to buy it at very low distressed prices.

If the government ever defaults, then there actually may be more distressed assets for individual investors to acquire for potentially cents on the Dollar. Yet, our oxymoronic “Fiat Money” (assets backed by nothing) and Fractional Reserve Lending System may help our country move forward one way or another as long as we continue to have access to the “printing press.”

It is truly interesting times that we live in today when an investor or borrower is more worried about the financial strength of his or her own bank and / or government as opposed to their own financial stability. Let’s hope that the government gets their act together so that we may all prosper as much as possible one way or another during this ongoing, convoluted, and opportunistic “Credit Crisis” (www.thecreditcrisis.net) time period.


Author: Rick Tobin

Rick Tobin Professional Pic sharperRick has an experienced and diversified background in both the Real Estate and Securities fields for the past 25+ years. He has had hundreds of articles published nationally in magazines, newspapers, internet sites, newsletters, and other sources, and has also appeared as a guest on various television shows as well as in seminars about real estate and financial information.

Rick has an extensive background in the financing of residential and commercial properties around the U.S. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Hedge Funds, and foreign money sources.

He has purchased numerous investment properties in multiple states, including government and tax foreclosures, All Inclusive Deeds of Trust (AITDs), Land Contracts, Lease Options, and he has purchased significant amounts of mortgage investments. He has worked in the development of hundreds of residential properties, including single family homes, townhomes, condominiums, and apartments.

Contact Information: Rick Tobin – 12424 Wilshire Blvd., #630 Los Angeles, CA 90025 Email: rtobin22@gmail.com Phone: (310) 571 – 3600 ext. #203 CA DRE #01144023

Ricks’ website: www.thecreditcrisis.net


Flexible Financing for Difficult Economic Times

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Trembling Treasuries

By Rick Tobin

What is the bond market? Why have interest rates increased so much between 2012 and 2013 on a percentage basis? How does it affect real estate? Why should I care about it? trembling treasuries

 

What is the Bond Market?

As defined by recent Wikipedia updates, the Bond Market is described as follows:

“The bond market (also known as the credit, or fixed income market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the Secondary market, usually in the form of bonds. The primary goal of the bond market is to provide a mechanism for long term funding of public and private expenditures.

As of 2009, the size of the worldwide bond market (total debt outstanding) is an estimated $82.2 trillion, of which the size of the outstanding U.S. bond market debt was $31.2 trillion, according to Bank for International Settlements (BIS – The World’s “Superbank”).

References to the “bond market” usually refer to the government bond market, because of its size, liquidity, relative lack of credit risk and, therefore, sensitivity to interest rates. Because of the inverse relationship between bond valuation and interest rates, the bond market is often used to indicate changes in interest rates, or the shape of the yield curve. The yield curve is the measure of “cost of funding.”

The Historical Trends for both Treasuries and Fixed Mortgages

treasuries and fixed mortgage historical trendsLet me go back further in time to better explain this section about the more recent changes in 10 Year Treasuries which impact the directions for thirty (30) year fixed rate residential mortgages. Interest rates reached their peak highs back in the very early 1980s (1981, especially). In the very early 1980s, the 10 Year Treasury Yield peaked near an insanely high 16.0%, and corresponding 30 Year fixed mortgage rates fluctuated in the 15% to 18% rate ranges.

Bonds are glorified “IOUs” from governments or companies to investors

As a result of the high double digit fixed mortgage rates at the time in the early 1980s, the popularity of seller financing options such as AITDs (All Inclusive Deeds of Trust), Land Contracts or Contracts for Deed, Lease-Options, and “Subject To” deals increased significantly. On a comparative basis, a 12% “Wraparound” or seller financed deal seemed awfully “cheap” as compared with a 16% fixed rate mortgage loan.

The Credit Crisis Trends for both Treasuries and Fixed Rates

Since the official start of the Credit Crisis back in the Summer of 2007 (www.thecreditcrisis.net), we have seen a downward pricing trend for both Treasury Yields and fixed mortgage rates due to some fancy financial games or shenanigans played by the Federal Reserve, such as “Quantitative Easing” (“create money out of thin air in order to buy stocks, bonds, and mortgages”) and “Operation Twist.” With “Operation Twist”, The Fed sells short term bonds while simultaneously purchasing long term bonds, in order to artificially drive Treasury yields and mortgage rates downward.

Near the official start of The Credit Crisis in August 2007, the average 30 year fixed mortgage rate hovered within the 6.5% to 6.6% rate ranges. During the same month of August 2007, the 10 Year Treasury Note Yield was near 4.86%. After asset prices began to implode such as stock and real estate values after the Summer of 2007, then the Fed reacted by trying to make rates much lower in order to try to offset so much asset deflation, which had also hurt Japan back in the 1990s.

Our Last Year’s Treasuries and Mortgage Pricing Trends

Over the past year, the 10 Year Treasuries hit a low of 1.55% (September 3, 2012), and 30 year fixed mortgage rates reached near the low 3% fixed rate ranges. In the week when I write this article (early October 2013), 10 Year Treasuries are somewhere closer to the 2.60 to 2.70% ranges. Additionally, 30 year fixed mortgage rates are closer to the 4.4% + rate ranges today.Last Year’s Treasuries and Mortgage Pricing Trends

When interest rates increase, then there are less qualified buyers who have sufficient income necessary to qualify for these proposed mortgage payments. As a result, more lenders are beginning to offer adjustable rate mortgages with shorter fixed rate durations so that more of their clients may qualify for loans today.

With the double digit annual home price appreciation numbers in many parts of our nation over the past year or two, it can be more challenging for some people to qualify for a mortgage loan with a higher interest rate and payment as well as for a home which may have increased $50,000 to $100,000+ in price in recent times.

I have read a few times in recent weeks that upwards of 50% to 60% of all U.S. home buyers have paid all cash in 2013. If these numbers are fairly accurate, then many sellers seem to prefer selling to all cash buyers as opposed to buyers who need to qualify for a mortgage loan if they are both willing to pay the same price for the property.

Will the Fed “Taper” QE Strategies?

Fed Chairman Ben Bernanke has now suggested several times that the Federal Reserve may soon “taper” off their “Quantitative Easing” (QE) strategies at some point in the “future.” Will it be tomorrow, or possibly years or decades from now depending upon the state of the U.S. economy?

Bonds are glorified “IOUs” from governments or companies to investors. Bondholders are only entitled to a repayment of their principal amount when the bond matures. This can put an upper limit or ceiling on the amount of price appreciation for bonds held by investors today.

QE StrategiesBond prices are falling today partly due to the Fed’s implied “tapering” threat that they may begin decreasing the amount of stocks, bonds, and mortgages that the Fed may purchase each month. Allegedly, the Fed purchases upwards of $85 billion per month of both Treasuries and Mortgage Bonds, so their investment percentages of the overall market are quite significant.

In a rising interest rate market world as today, even though rates are still near historical all-time lows, new bond investors can purchase bonds which offer higher rates and income. For bond holders who currently own bonds at much lower rates from last year, then these same bond investors will have less future buyers for their existing bonds (or “IOUs”).

In basic Economic theories, a decreased number of buyers tends to historically lead to falling prices for any type of product whether it be a bond, real estate, or lemonade from a child’s corner stand. For bonds, falling prices then, in turn, leads to rising Treasury Yields since prices and yields are inverse to one another, and are akin to being on a “see saw.”

Whether the Fed does, in fact, begin tapering off or reducing their investments by way of QE policies or maintains their perceived and potential “QE Infinity” strategies in order to try to continue boosting asset prices such as stocks and real estate values, please keep a close eye on the directions of both the Treasury Yields and mortgage rates so that you have a better idea of the future potential direction of the overall U.S. economy.


Author: Rick Tobin

Rick Tobin Professional Pic sharperRick has an experienced and diversified background in both the Real Estate and Securities fields for the past 25+ years. He has had hundreds of articles published nationally in magazines, newspapers, internet sites, newsletters, and other sources, and has also appeared as a guest on various television shows as well as in seminars about real estate and financial information.

Rick has an extensive background in the financing of residential and commercial properties around the U.S. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Hedge Funds, and foreign money sources.

He has purchased numerous investment properties in multiple states, including government and tax foreclosures, All Inclusive Deeds of Trust (AITDs), Land Contracts, Lease Options, and he has purchased significant amounts of mortgage investments. He has worked in the development of hundreds of residential properties, including single family homes, townhomes, condominiums, and apartments.

Contact Information: Rick Tobin – 12424 Wilshire Blvd., #630 Los Angeles, CA 90025 Email: rtobin22@gmail.com Phone: (310) 571 – 3600 ext. #203 CA DRE #01144023

Ricks’ website: www.thecreditcrisis.net


Flexible Financing for Difficult Economic Times

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Leverage and the Financial System

By Rick Tobin

leverage and the financial system

An investor who primarily uses third (3rd) party money from sources such as banks, investment banks, private money groups, margin loans, credit lines, or other sources can be both a positive or negative option, depending upon the current state of the economy. In “Boom” economic times, when assets are rapidly appreciating in value, leverage can be an exceptional financial and investment strategy. This is partly true since the owner gets to keep all of the profits as we have seen more over the past year as it relates to rapidly increasing stock and real estate prices, even though the 3rd money source typically puts up the bulk of the capital in order to purchase the asset.

What is Leverage?

Per the financial website entitled “Investopedia”, some of the root definitions for the word “Leverage” translate as follows:
mortgage
“1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.

2. The amount of debt used to finance a firm’s assets. A firm with significantly more debt than equity is considered to be highly leveraged.

3. Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.”

Leverage Can be Good or Bad Depending upon the Financial Cycles

When assets are appreciating in value such as stocks or real estate, then using third party money sources (i.e., margin loans, mortgages, credit lines, etc.) to buy the assets can be a very wise and prosperous investment option. It is almost akin to being on a “hot streak” at the local casino in which a gambler is using the “house’s money” (or the winnings earned from the casino) in order to try to create even higher winnings with the gambler’s compounded parlays or bets.

For example, the $100,000 home that a homeowner purchased in 2012 using just $5,000 down (excluding closing costs or potential seller credits) may now be worth $125,000 in 2013. As a result, the property owner generated a potential $25,000 gain in appreciated value off of just a $5,000 cash down investment (excluding monthly mortgage payments, of course).

However, leverage can be a very bad thing if that same $100,000 property listed above now sells for $80,000. If true, then that same $5,000 cash down payment investment is now worth a whopping negative $20,000 (- $20,000), excluding closing costs and monthly payment obligations.

Leverage and Derivatives

The almost six (6) years of our ongoing Credit Crisis (www.thecreditcrisis.net), which began back in the summer of 2007, is primarily related to the collapsing derivatives markets worldwide linked to convoluted, complex, and nonsensical financial and insurance hybrid investments such as Credit Default Swaps and Interest Rate Options.

Many of these financial investments are akin to glorified “bets” in a figurative “casino” (or the world’s financial markets) in which one party bets on the future directions of things like the future direction of interest rates, or the values of underlying stock, bond, or real estate assets. In a “bet”, somebody typically wins, and somebody also usually loses. With most casino bets, the losing party may lose anywhere from a few dollars to a few hundred or thousand dollars for some of the more aggressive and wealthier gamblers. In derivatives investments, the losing party may literally lose hundreds of millions or billions of dollars to as much as trillions of dollars, tragically.

The global derivatives exposure in 2013, according to some analysts, is allegedly at least $1.5 Quadrillion (or $1,500 trillion) as valued in U.S. Dollars. The top twenty five (25) U.S. banks supposedly may have a total derivatives exposure, on and off balance sheet investments (publicly admitted or not), close to $250 trillion dollars, yet these same Top 25 U.S. banks’ combined total assets are only $8.3 trillion. If these numbers are fairly accurate, then these Top 25 U.S. banks are allegedly leveraged at thirty (30) times (x) their assets.

Sadly, U.S. banks may now have a derivatives exposure risk much higher than back near the start of the Credit Crisis in the summer of 2007, or back when the world’s financial system almost collapsed in late September 2008, as publicly admitted by Federal Reserve Chairman Ben Bernanke in the Spring of 2009 in front of a Congressional subcommittee hearing. The rapidly declining interest rate plunge between 2007 and 2013 is partly to blame for the increased derivatives risk exposure as T-Bill rates dropped from 5.12% to almost ZERO (or 0.03%) since these near zero yields motivated many banks to try to find higher yields in the derivatives markets.

Bailouts & Derivatives: Create Money “Out of Thin Air” for the Casino

Since the near financial implosion of the U.S. and world’s financial markets back in late September 2008, how many trillions of dollars of anonymous and not so anonymous bailouts have the Top 25 Banks, investment banks, insurance companies, and other businesses deemed “Too big to fail” have U.S taxpayers helped to subsidize and save from their own financial implosion? Bailout. Money bag sign

If the fictional ABC Bank did perhaps receive $5 trillion in “bailout” money, then shouldn’t a fair amount of that same $5 trillion in funds be set aside to both boost the company’s stock values as well as to make more affordable loans to their banking customers? However, many financial analysts allege that the bulk of the “bailout” funds are being used to invest even more money in the riskier derivatives markets. In fact, some banking analysts suggest that the vast majority of the largest U.S. banks currently earn the bulk of their income from derivatives investments as opposed to fees and rates earned from making loans to their banking customers (i.e., mortgage, business, and credit card loans).

Leverage & The Bond Market

Over the past year, the 10 Year Treasury yields have reached as low as 1.55%. In recent times, the 10 Year Treasuries have fluctuated within the 2.8 to 2.9% ranges. Since 30 year fixed rate mortgages are tied to the direction of the 10 Year Treasuries, then increasing Treasury Yields and fixed rates are making it more challenging for borrowers to qualify for larger loan amounts with increased leverage.

With recent increased Treasuries Yields partly due to the Federal Reserve’s “tapering” comments by Fed Chairman Ben Bernanke, in which he alleged that the Fed may eventually taper or cut back on the amount of Quantitative Easing (QE) investments in the future. If the Fed may cut back on their QE investments in stocks, bonds, and mortgages, then the overall demand for these investments may lead to worsening prices. As bond prices fall due to less investors, then Treasury Yields increase since they are inverse to one another somewhat like a “see saw.”

Increasing mortgage rates then leads to decreasing mortgage loan amounts which borrowers may qualify for when trying to acquire real estate. As a result, home buyers or investors may need to invest larger down payments in their future real estate investments, since they will have less leverage options at their disposal, or reduced mortgage loan percentage options.

Leverage & Government Backed Mortgages

Over the past five (5) plus years, government backed or insured mortgages have rapidly increased in percentages nationwide, partly due to the weakening mortgage securities market. Once Fannie Mae and Freddie Mac were bailed out by the U.S. government and the FDIC almost imploded themselves back in the Fall of 2008 after the Washington Mutual collapse (* the largest bank collapse in U.S. history), then fewer private, non-governmental backed or insured lenders were as willing to make real estate loans (residential or commercial). This was true partly since they did not have very many secondary market investment sources which may buy these same funded mortgage loans from them at a later date.

FHA, VA, USDA, Fannie Mae, and Freddie Mac represented the bulk groups of government backed or insured entities which were directly or indirectly behind the funding of 97% of all U.S. residential mortgage loans in recent years. Additionally, SBA (Small Business Administration) and USDA (United States Department of Agriculture) have stepped up even more in recent years to help fund small to very large commercial properties (i.e., Retail shopping centers, hotels and motels, gas stations, industrial, office buildings, etc.).

We Need Better Capital Access

capital accessAs I have said for many years now, the number # 1 factor behind the various “Boom” and “Bust” real estate cycles over the past several decades is related to the supply of capital. How readily available is the money today as compared with back in 2005? Even though 2005’s interest rates were higher than 2013’s interest rates, most people would answer that it was much easier to qualify for a mortgage loan back in 2005 than today, in spite of the higher interest rates back then.

I keep hearing rumors of more private money investors or investment groups interested in creating their own secondary markets for new and existing mortgage loans. If more secondary market investors begin purchasing funded residential and commercial mortgage loans, then private investors, small banks, and even larger banks will have more options to sell off their mortgage loans in bulk. Historically, private non-governmental loans typically have fewer fees associated with them such as FHA insurance premium fees, which recently increased even more partly allegedly related to the increasing mortgage default rates for the highly leveraged FHA loans in past years.

Back in the 1980s, I remember “Hard Money” loans, which were called “The Perfect Vision Loan” because the interest rates were 20%, and the cost to fund these loans was 20 points (or “The 20/20 (“Perfect Vision”) Loan”). Today’s private money loan options are incredibly cheap as compared with the old “Perfect Vision Loans.” In many cases, private money loans may be funded in a week or two as opposed to a month or two with various types of government backed or insured loans.

For the real estate markets and U.S. economy to continue improving in the near and long term, we need better access to capital for small investors and “Mom and Pop” business owners who truly represent the bulk of the U.S. consumer market. Even if interest rates continue to slowly increase as they have in recent months, due to the fears associated with potential reduced Quantitative Easing (QE) policies (or “create money out of thin air to bail out the Big Banks and Wall Street firms in order to continue increasing their bets in the world’s largest casino”), then the easing of underwriting guidelines and more private money or non-governmental funding options will help to better stimulate both the real estate sector as well as the rest of the U.S. economy.


Author: Rick Tobin

Rick Tobin Professional Pic sharperRick has an experienced and diversified background in both the Real Estate and Securities fields for the past 25+ years. He has had hundreds of articles published nationally in magazines, newspapers, internet sites, newsletters, and other sources, and has also appeared as a guest on various television shows as well as in seminars about real estate and financial information.

Rick has an extensive background in the financing of residential and commercial properties around the U.S. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Hedge Funds, and foreign money sources.

He has purchased numerous investment properties in multiple states, including government and tax foreclosures, All Inclusive Deeds of Trust (AITDs), Land Contracts, Lease Options, and he has purchased significant amounts of mortgage investments. He has worked in the development of hundreds of residential properties, including single family homes, townhomes, condominiums, and apartments.

Contact Information: Rick Tobin – 12424 Wilshire Blvd., #630 Los Angeles, CA 90025 Email: rtobin22@gmail.com Phone: (310) 571 – 3600 ext. #203 CA DRE #01144023

Ricks’ website: www.thecreditcrisis.net


Flexible Financing for Difficult Economic Times

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The Credit Crisis: The Bubbling Bond Market

By Rick Tobin

The Bubbling Bond MarketIn recent years, both short and long term interest rates have plunged to near, or at, all-time record lows, partly due to the manipulation of the U.S. Bond Market. Since the Credit Crisis (www.thecreditcrisis.net) officially began back in the Summer of 2007, asset prices have both crashed and boomed over the past six (6) years because of, or in spite of, the sluggish U.S. economy.

For U.S. economists, financial analysts, investors, bankers and Central Bankers, one of the biggest fears since 2007 or 2008 was that the USA may end up somewhat like Japan back in the 1990s, when their stock, bond, and real estate “bubbles” all popped. Sadly for the Japanese, the past few decades have been very asset deflationary as asset values have plummeted to values at a fraction of the market peaks in the late ‘80s or early ‘90s, in spite of their incredibly low interest rate policies, which were somewhat akin to the USA’s ongoing “Quantitative Easing” policies.

Asset Values may either Rise, Fall, or be Stagnant

From various regional market peaks across the USA, many homes or commercial properties reached their all-time market value highs anywhere between 2006 and 2008, depending upon their region. After “Stated Income”, “100% Loans”, “EZ or No Doc Loans”, and very low adjustable rate mortgage loans (starting rates beginning in the 1% range) started to disappear following the start of the Credit Crisis, then home values began to drastically fall in value.

From my perspective, the number #1 reason why home values either rise or fall, is related to the ease and availability of capital or loans to either help one buy or sell their homes. When money is “easy” and more readily accessible, then there are typically more buyers for real estate. An increased demand for a home or any other type of asset or consumer goods product typically leads to an increase in prices. Conversely, a decreased demand for an asset class or a consumer goods product historically has led to a decreased value or sales price for this same asset or product.

When too little money chases too few goods, then asset prices may begin to fall across the board regionally, nationally, or world-wide. Additionally, when access to capital begins to get more challenging by way of higher interest rates, tougher underwriting guidelines, fewer liquid or solvent equity investors or lenders, and / or more difficult regional, state, or national regulations, then home prices tend to fall as we have seen during several different “Boom and Bust” housing cycles over the past few decades.

QE to the “Rescue”?

Over the past few years, our financial and governmental leaders have attempted a wide variety of alleged “bailouts” in order to better stimulate the financial and housing markets. QE (or “Quantitative Easing”), once again, may be effectively akin to “creating money out of thin air in order to buy up more stocks, bonds, mortgages, and other assets.” Prime examples of the impact of QE policies in recent years, for better or worse, include the 15,000+ Dow Jones index values as well as annual home price value increases of double digits over the past year or two in various regions nationally (i.e., Las Vegas, Phoenix, Los Angeles, etc.)

The downside of QE policies has been related to rampant inflation for consumer goods like food and gasoline. When our financial leaders flood the markets with trillions of dollars each year, then the overall value of the U.S. Dollar may rapidly decline. Many nations around the world have been so concerned about the USA’s inflationary QE policies that they have begun to use other forms of currency besides the U.S. Dollar. This decreased demand for the Dollar from abroad has led, in turn, to even further falling Dollar values.

QE and the Stock and Bond Markets

QE and the Stock and Bond MarketShortly after Federal Reserve Chairman made public statements on May 22nd that the Fed may begin “tapering” (or reducing) their QE methods in the near term, then U.S. stock prices plunged and bond prices increased quite a bit due to investor concerns. Since many investors know and understand how important QE policies have been to increased stock and real estate prices in recent years, then their same investor concerns adversely impacted stock and bond values in the short term.

Fed Chairman Bernanke also made similar “tapering” statements about potentially easing up QE policies, or buying fewer assets like stocks, bonds, and mortgages, on June 19th and on July 10th. Yet, the financial markets strengthened, strangely, after the July 10th comments at an economic conference, and the Dow Jones sits near all-time record highs once again on the day that I am writing this article (mid-July 2013).

In the 2nd quarter of this year, the $5 trillion dollar U.S. bond market dropped about 2% partly related to Chairman Bernanke’s “tapering” comments. This was the worst bond market drop since the “Bond Market Massacre” back in 1994 after the Fed shockingly raised short term rates a number of times back when interest rates were near thirty (30) year lows at the time.

The worsening bond prices then, in turn, led to higher 10 year Treasury Yields. Thirty (30) year mortgage rates are tied to the directions of the 10 Year Treasury Yields, so mortgage rates began to increase rapidly in recent months. In fact, mortgage rates spiked the most in a two (2) month time span than ever before.

Additionally, thirty (30) year fixed mortgage rates increased to their highest levels or rates since July 2011. While today’s interest rates are still near historically low levels, the 30 year fixed mortgage rate recently increased from a national average of 3.93% to 4.46% within the span of just one (1) week. According to a Freddie Mac report, this was the largest one (1) week increase since as far back as 1987.

Mortgage Rate Directions & the Housing Market

Not every home buyer or investor over the past few years has been an all cash buyer (individual or institutional). A very high percentage of home buyers have been owner occupied buyers in need of highly leveraged FHA loans (96%+ LTVs). The thirty (30) year fixed mortgage rate has increased as much as 40% from their near record low rates at 3.25% over the past twelve (12) months which, in turn, has led to higher FHA, and other loan types, costs.

mortgage rate directions

The Fed may still be purchasing upwards of $85 billion of mortgage backed securities and Treasury Bonds each and every single month. Without their same consistent level of capital investments, then bond and rate yields may only worsen. Is a 5% thirty (30) year fixed mortgage rate more likely prior to the end of 2013 as suggested by some economists and financial analysts? Or, will we possibly reach 6% to 7% mortgage rates which have been more common in recent decades?

Regardless, increased mortgage rates make it more challenging for buyers to qualify. If a potential client may qualify for a $400,000 mortgage loan at a 3.25% interest rate, then that same borrower may only qualify for a new mortgage $100,000 less if the future interest rates hit closer to 5%. With fewer mortgage borrowers able to qualify for larger loan amounts due to higher mortgage rates, then home price appreciation levels may begin to “taper” off, ironically.

As compared with past financial time periods such as the early 1980s when the U.S. Prime Rate hit as high as 21.5%, today’s mortgage rates are still incredibly cheap. Banks need to ease up somewhat on their underwriting guidelines as well, so that more borrowers may qualify for more loans. When the capital markets ease up more and more hopefully, then we may see more stability in the financial and real estate markets.

A more solid U.S. Economy is needed more than another “bailout”

The American economy needs to strengthen more without magical and mythical “bailout” programs which seem to increase the U.S. debt numbers, weaken the U.S. Dollar, and cause rapidly increasing inflation numbers which hurts gasoline, food, and other consumer goods prices while helping certain asset classes like real estate in both the short and / or long term.

If the national job market numbers improve more in the near term, then the potential tapering of QE money may not adversely impact our economy as badly as some economists perceive. Yet, stock, bond, and real estate prices continue to improve fairly consistently in 2013 in spite of a sluggish job market and economy.

One of the main questions to ask ourselves related to this same “QE and Asset Prices” topic may be as follows: “How long will the boom in asset prices continue to last?” Only time will tell. Since my “Crystal Ball” continues to be in the shop, I will not even venture to guess the answer partly since there is no historical time precedent to compare with here in the USA, as we have never relied so heavily on these glorified forms of “bailouts” to better stimulate our financial markets.


Author: Rick Tobin

Rick Tobin Professional Pic sharperRick has an experienced and diversified background in both the Real Estate and Securities fields for the past 25+ years.  He has had hundreds of articles published nationally in magazines, newspapers, internet sites, newsletters, and other sources, and has also appeared as a guest on various television shows as well as in seminars about real estate and financial information.

Rick has an extensive background in the financing of residential and commercial properties around the U.S. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Hedge Funds, and foreign money sources.

He has purchased numerous investment properties in multiple states, including government and tax foreclosures, All Inclusive Deeds of Trust (AITDs), Land Contracts, Lease Options, and he has purchased significant amounts of mortgage investments.  He has worked in the development of hundreds of residential properties, including single family homes, townhomes, condominiums, and apartments.

Contact Information: Rick Tobin – 12424 Wilshire Blvd., #630 Los Angeles, CA 90025   Email: rtobin22@gmail.com  Phone: (310) 571 – 3600 ext. #203   CA DRE #01144023

Ricks’ website: www.thecreditcrisis.net


Flexible Financing for Difficult Economic Times

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The Credit Crisis: An Economic Rollercoaster Ride

By Rick Tobin

Money on rollercoaster ride

Seemingly every financial implosion time period of the past one hundred (100) + years here in the USA was due to the combination of a “boom” economic time period, subsequently followed by an economic “bust” time period. During the “boom” or prosperous economic time periods such as “The Roaring 20s”, the availability of capital was much more flexible as related to easier real estate, stock margin, or business loan options at the time.

The availability of capital is typically the number one driving force behind a “boom” or “bust” time period as it relates to real estate cycles. “Easy Money” time periods such as “The Roaring 20s” and “The Sub-Prime / “EZ Doc” Mortgage Era” (2002 to 2007, approximately) were both prime examples of economic “boom” eras, which preceded economic “busts” such as The Great Depression (1929 – 1939), and the ongoing “Credit Crisis” (www.thecreditcrisis.net).

From Boom to Bust…….Puzzle with flag USA and dollars

What is typically the catalyst for the transition from an economic “boom” time period to a “bust” time period? One of the best answers may be tied to the figurative “slamming of the brakes” related to Americans’ access to capital or money. When a borrower has more flexible access to capital (i.e., loans, equity money, margin loans, etc.), then this same borrower may have more options for investments, business expansion, or earlier retirement options.

On the other hand, if money is tight or more challenging to qualify for like in recent years, then a prospective borrower or investor may not be able to expand their investment or business options, as much as they had hoped to at the time. Since money does not literally “grow on trees”, then one must find better access to capital in locations other than one’s backyard or under their mattresses.

“It takes money to make money” is one of the truer statements as it pertains to investment opportunities. Yet, hard work, persistence, and good luck also may figuratively “open doors” to various new opportunities as well. If more real estate buyers and sellers have better access to capital or cheaper and / or more flexible mortgage loans, then there may be more opportunities for home purchases or sales, partly since most buyers of real estate need third party loans to complete their purchases.

Virtual Money and Debt

According to some financial and economic sources, upwards of 97% of all forms of money created here in the USA may originate by way of a computer keyboard. If true, then only 3% of all forms of American money may be created as coins or dollar bills. The combination of the Federal Reserve and the U.S. Treasury may create our oxymoronic “Fiat Money” (or “assets backed by nothing of real value”) primarily by the power of the computer keyboard stroke. Prior to President Nixon taking the U.S.A. off of the “Gold Standard” back in the early 1970s, the value of the U.S. dollar was allegedly backed by gold more so than “thin air.”

Also, American money is backed by oil by way of the “Petrodollar” system since most forms of oil worldwide have been traded for U.S. Dollars over the past few decades. Sadly, more countries like the “BRICS” nations (Brazil, Russia, India, China, and South Africa) are opting to trade their oil for currencies other than the U.S. dollar.

With less demand for U.S. dollars worldwide in recent years and the combination of rising inflation partly due to the introduction of trillions of dollars by way of “Quantitative Easing” and other government and Central Bank “bailouts”, the price of gasoline has skyrocketed due to the weakening value of the U.S. dollar.

I may venture to guess that demand for gasoline here in the USA in recent years has dropped due to the sluggish economy and $4 to $5+ gasoline costs per gallon. If true, then the weaker U.S. dollar may be the primary reason for the much higher gasoline costs rather than a lack of supply of oil for American consumers.

As I once learned in past Economics courses back in college, when supply exceeds demand for a product, then prices tend to drop. However, when oil is traded for weaker U.S. dollars, then gasoline prices tend to skyrocket, sadly.

bailoutBank Bailouts as opposed to People Bailouts

Since the financial implosion began back in the Summer of 2007 after the near collapse of the world’s derivatives markets (i.e., Credit Default Swaps, Interest Rate Options, etc.), then many of the financial bailouts offered by Central Banks and governments worldwide have focused more on saving many of the largest banks, investment banks, and insurance companies as opposed to directly helping individuals or small to mid-sized business owners. Why haven’t more of the U.S. citizens or “Mom and Pop” businesses been bailed out as well? Why can’t people also be “too big to fail” as alleged with some of the larger U.S. banks and Wall Street firms?

There have been upwards of millions of homes foreclosed in the USA since 2007, and countless personal and business bankruptcies. Couldn’t the USA take a few trillion dollars of allocated “bailout” money for the big banks, and redirect it towards helping U.S. consumers reduce their credit card debt, student loans, mortgage loans, business loans, and possibly to provide them with some “seed capital” for business and investment expansions?

Credit Crisis “Solutions”: Let’s create more Money and Debt out of “Thin Air”

In recent years, the Federal Reserve has become the primary buyer of stocks, bonds, and mortgages with their various “bailout” methods, partly by way of “Quantitative Easing”, “Operation Twist”, and numerous other anonymous or not so anonymous bank bailout loans or investments. The “Fed” allegedly invests upwards of $85 billion per month in U.S. Treasuries and mortgages trying to stimulate the various investment markets.

How nonsensical is it that the Dow Jones index levels now hover near 15,000, in spite of the ongoing sluggish national economy? Without the Federal Reserve’s infusion of potentially countless trillions in the stock and bond markets, then would the Dow Jones levels of today be closer to 6,000 or 7,000 just a few years ago?magicmoney

How about the U.S. Treasury Bond market? If the Fed wasn’t the primary buyer of U.S. Treasuries as opposed to individual or foreign investors or governments, then how high would the interest rates be today due to a rapidly declining supply of non-Federal Reserve U.S. Treasury buyers?

Thirty (30) year fixed rates are tied to the directions of the 10 Year Treasury Yields. An increasing demand for U.S. Treasuries tends to bring down interest rates. On the other hand, a declining demand for U.S. Treasuries due to perceived risks may lead to rapidly increasing interest rates.

“Free Money” is not always so “Free”

Mortgage rates have been slightly increasing in recent months, partly related to Fed Chairman Ben Bernanke’s suggestions that the “free flow” of capital may not always be there to continue trying to allegedly bail out the banks, investment banks, Wall Street, and the stock, bond, and mortgage markets. If the Federal Reserve begins to slowly turn off the figurative “spigot” of their trillions of dollars of capital, then the financial markets may be adversely impacted significantly.

Whether or not the Central Banks and governments worldwide continue onward with their trillions of dollars of bailouts and investments, the perception of smaller future bailouts may cause investors to purchase more or less stocks, bonds, real estate, or other assets in the near or long term. Additionally, the creation of too much capital in recent years had led to massive inflation or hyperinflation for various types of products like gasoline, as noted above, food, clothing, and other basic commodities.

With Real Estate: Inflation is much better than Deflation

rick_inflationWith real estate, inflation tends to be a positive for both current and future appreciation levels. Historically, homes in the USA have appreciated close to an average of 3% per year over the past fifty (50) + years. Between 2012 and 2013, the median priced home in various U.S. regions has increased between 5% and 25%+, due to the combination of near record low interest rates, artificially suppressed home listing inventory levels, and an increased demand from individual and institutional investors.

Homeowners, retail shopping center owners, and other property owners are more likely to “walk away” from an “upside down” property than owners who have equity in their properties. Thankfully, more properties nationally have gone from negative equity to positive equity in recent years due to rapidly increasing sales and prices. There are few things worse for an investor to have then mortgage debt currently exceeding their property values.

For many Americans, the bulk of their net worth comes from real estate more so than for any other type of investment option. Improving equity in real estate nationally also may lead to a more prosperous economy, and hopefully to more jobs created as well.

Tragically, the recent stock market boom has only benefitted a very small percentage of Americans who are fortunate enough to actually even own shares in Dow Jones, or other stock indices. Yet, the recent price improvements in the U.S. housing market have helped more Americans feel a bit more prosperous and happy here in 2013.

From Bust to a more steady Boom?

How many homes between 2007 and 2010 dropped in value between 20% and 50%+ plus due to the Credit Crisis implosion? Even with recent price appreciation over the past year or two in various regions, many properties are still well off their housing peak prices back in 2006 or 2007. However, a slow and steady economic recovery may last a lot longer than a rapidly escalating price “boom” which we have seen in past economic “Boom and Bust” time periods.rick_steadyboom

How long will median prices continue to improve regionally and nationally? How long will “Quantitative Easing”, and other bailouts, continue at the same mind boggling multi-trillion dollar pace? How long will interest rates continue to hover near historical lows? Are these financial gains short term or long term? The answer is “Only time will tell” because there are truly too many economic and financial variables out there today to really make an educated guess.

There is no historical precedence in U.S. history to compare with the near financial implosion of $1,500+ in derivatives worldwide as well as for the various trillion dollar financial bailouts tried in recent years. As such, let’s all hope and pray for a more steady economic recovery, as opposed to one with more volatile and extreme “boom and bust” cycles as in past years.


Author: Rick Tobin

Rick Tobin Professional Pic sharperRick has an experienced and diversified background in both the Real Estate and Securities fields for the past 25+ years.  He has had hundreds of articles published nationally in magazines, newspapers, internet sites, newsletters, and other sources, and has also appeared as a guest on various television shows as well as in seminars about real estate and financial information.

Rick has an extensive background in the financing of residential and commercial properties around the U.S. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Hedge Funds, and foreign money sources.

He has purchased numerous investment properties in multiple states, including government and tax foreclosures, All Inclusive Deeds of Trust (AITDs), Land Contracts, Lease Options, and he has purchased significant amounts of mortgage investments.  He has worked in the development of hundreds of residential properties, including single family homes, townhomes, condominiums, and apartments.

Contact Information: Rick Tobin – 12424 Wilshire Blvd., #630 Los Angeles, CA 90025   Email: rtobin22@gmail.com  Phone: (310) 571 – 3600 ext. #203   CA DRE #01144023

Ricks’ website: www.thecreditcrisis.net


Flexible Financing for Difficult Economic Times

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Why Investing in Greener Homes Now Will Fill Your Wallet Later

By Griff Haeger

recycle“Going Green” may be all the rage these days, but many people have found it difficult to keep up with the movement financially. For homeowners, maintaining a lifestyle is hard enough without the societal pressures to be more environmentally conscious. Greener solutions are costly up front, and with so many other expenditures to manage, many families are focusing their finances elsewhere.

However, what the same people fail to see are the potential savings made possible by green alternatives. A hybrid car may be more expensive than an average sedan; energy-efficient air conditioning equipment may cost more than other run-of-the-mill appliances; but such as recycling, the money you spend on “Going Green,” over time, lands right back in your bank account.

Immediate Savings

Consider your daily routine for a moment; how much water do you think you use on average? How many lights do you keep on at home? How do you usually go about regulating temperature in your house? Look over your utility bill while asking yourself these questions and you should begin seeing areas where you can cut back on usage.

Small adjustments to your lifestyle can mean huge savings every month. Although you may risk discomfort at times, these changes to your regimen are well worth it. Through the installation of low-flow showerheads, toilets, dishwashers and other energy-efficient products, you can decrease your monthly expenses by considerable amounts.

  • By installing a low-flow showerhead, families can reduce their monthly water consumption by 50%.  
  • Low-flow toilets use 1.3 gallons of water per flush, as opposed to the 3.5 to 7 gallons used by older toilets.
  • Supplementing shorter dishwasher cycles with hand washing and drying saves both water and electricity.
  • Unplugging appliances while not in use can save consumers more than $3 billion a year.  

Savings over Time

“Going Green” may be inspired by the desire to save money, but trimming monthly expenses is only the beginning. It is easy to calculate your recurring savings; it is great knowing how much money is going back into your pocket every year upon adopting a greener lifestyle. But is your piggy bank, now flush with pennies, capable of affecting life on a global scale?

Environmental consciousness is invaluable, especially as the wellbeing of the planet continues to decline. As pollution and deforestation continue to strip the Earth of its beauty and natural resources, it should come as no surprise that it’s time to do something more. It may have started as a budgetary decision, but it’s important to remember that with the power to better yourself comes the responsibility to better others.

Next time you gawk at that piggy bank and at the funds you have saved for that rainy day, think of all the other places that it’s raining and do something about it. You may be safe inside your home, but there are so many people out there suffering a crueler fate; don’t let this planet be one of them.


Griff Haeger is a writer and avid environmentalist who enjoys sharing his knowledge of financing through energy recovery and greener living.

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The Credit Crisis: Investments On a Tightrope With Less Safety Nets

By Rick Tobin

Financial crisis bomb

In our perceived capitalistic country since the start of the Credit Crisis (www.thecreditcrisis.net) back in the Summer of 2007, we have all seen many industries effectively become “Socialized” and taken over by the government allegedly to “bail out” the sectors such as the mortgage industry, automobile industry, insurance industry, and Wall Street. As a prime example, at least 97% of all residential mortgage loans funded in recent years were government backed or insured (i.e., FHA, VA, Fannie Mae, Freddie Mac, USDA Rural, etc.).

The near implosion of the world’s financial system back during the week of September 29th, 2008, as I had forecast about six (6) months in advance for a variety of reasons, significantly changed the way we live in our world today. The figurative financial “tightrope” that most Americans walk on each day became a bit more challenging partly due to less perceived “safety nets” to better protect and to save us.

Prior to the near collapse of the highly leveraged financial markets, partly due to the alleged $1,500 trillion of primarily unregulated derivatives (i.e., Credit Default Swaps, Interest Rate Options, etc.), individuals or investment groups supposedly determined the direction of the stock, bond, commodities, and real estate markets. After the near collapse of the financial markets, bailouts from governments and Central Banks around the world became more of the norm as opposed to “Mom and Pop” investors.

For example, the Federal Reserve became the primary buyer of stocks, bonds, and mortgages by way of Quantitative Easing (or create money out of “thin air” in order to buy assets and drive prices higher such as the Dow Jones index) and other bailouts. Each month, the Federal Reserve allegedly purchases up to $85 billion of Treasuries and mortgage bonds in order to keep interest rates as low as possible, and to allegedly try to better stabilize the financial markets.

The history of the FDIC “safety net”

Financial RecessionThe Federal Deposit Insurance Corporation (FDIC) was created back in 1933 after the collapse of almost 9,000 banks in the first few years of The Great Depression (Oct. 29th, 1929 – 1939). The FDIC was originally created as part of the Glass – Steagall Act of 1933 (this act was partly repealed back in 1999 which allowed banks to operate in the insurance and securities industries too), and was based somewhat on a deposit insurance program in Massachusetts which insured a portion of banking customers’ checking and savings accounts.

The worst year of the ten (10) year Great Depression era was possibly back in 1932 when “Bank Runs” began to happen on a more steady basis. Sadly, many banks began to run low on cash on hand as customers stood in long lines somewhat reminiscent of a famous scene in the classic film entitled It’s a Wonderful Life with Jimmy Stewart and Donna Reed.

If bank customers did not have confidence that their money would be safe with their local bank branch, then they would try to pull out most or all of their cash and literally place it under their mattresses at home, or in other seemingly less secure places. Some people also just dug holes in their backyards, and planted their money there. Sadly, money does not literally grow on trees though.

Shortly after the creation of the FDIC in 1933, certain bank accounts had coverage protection of up to $2,500. In 1950, insurance limits rose to $10,000. In the mid 1960s, the FDIC insurance limits reached $15,000 which later increased to $20,000 in 1969. In 1974, the FDIC increased their coverage amounts to $40,000. Then, FDIC limits increased to $100,000 back in 1980. In recent years, FDIC insurance limits reached as high as $250,000.

The FDIC and the Savings and Loan Bailouts

Prior to the start of the Credit Crisis, the last major financial implosion event here in the USA took place in the late 1980s through the mid 1990s. Back in the 1960s and 1970s, a very high percentage of Americans borrowed their money to purchase homes from their local Savings and Loan (S & L). Even though banking customers used to earn relatively low rates of return on their savings deposits with S & L’s, many Americans felt confident about the relative safety of these investments due to the existing Federal Savings and Loan Insurance Corporation (FSLIC).savings and loan bailouts

Sadly for S & L’s, they had existing interest rate ceilings in place which limited how much they could pay their banking customers. As a result, many S & L customers began to pull their funds out of their local banking branches, which hurt their banks’ abilities to cover their portfolios of performing or non-performing loans at the time.

As short term interest rates like the Prime Rate reached 21.5% by December 1980 due to then Federal Reserve Chairman Paul Volcker’s alleged concerns about increasing inflation rates, banking customers started demanding or searching for higher rates of return from sources other than their local S & L. Many banking customers pulled their funds out of S & L’s, and later invested them in money market funds, stocks, or real estate investments.

Parallel to the increasing rates in the USA back in the early 1980s, banking laws and rules were eased so that S & L’s may later diversify their investments, and invest in potentially higher yielding investments like commercial real estate, residential and land development, consumer, and business investments. Additionally, capital reserve requirements were eased so that S & L’s did not have to hold onto as much cash on hand as they used to in years past.

Tragically, over seven hundred (700) S & L’s collapsed as a result of increasing rates and non-performing loans. Almost half of the U.S. banks which existed back in 1970 were no longer in business by 1989. As a result of the massive insurance coverage losses, the Federal Savings and Loan Insurance Corporation (FSLIC) later became insolvent. The FDIC had to later step in and take over FSLIC in order to try to cover so many of the billions of dollars of banking losses.

In 1989, a U.S. taxpayer bailout measure named Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) was created in order to provide upwards of $50 billion to help out the failed financial institutions. Shortly thereafter, the RTC (Resolution Trust Corporation) entity was established, in order to help sell or liquidate real estate assets for a fraction of their once recent market values to try to generate much needed cash.

The FDIC vs. Bank Customers in 2008: Who had more cash reserves?

Just a few weeks before the near financial implosion of the world’s then existing financial system in late September 2008, the FDIC announced that they only had about $45 billion in cash reserves left in their accounts.

Shortly after this announcement, Wachovia Bank, Countrywide, Lehman Brothers, Bear Stearns, Fannie Mae, Freddie Mac, AIG, and Washington Mutual (the largest bank failure in U.S. history) all imploded too. Just the collapse of Washington Mutual alone wiped out the FDIC’s $45 billion dollars of insurance cash reserves at the time. So, who really had more cash reserves back in the Fall of 2008 – bank customers or the FDIC?

With the perceived or very real threat of a domino like implosion of the banking, investment banking, and insurance sectors partly due to the exposure of $1,500 trillion in primarily unregulated derivatives (i.e., Credit Default Swaps, Interest Rate Option Derivatives, etc.), then the U.S. government and Federal Reserve stepped in with trillions of dollars of anonymous, and not so anonymous bailouts.

Even large and respected financial institutions like Wells Fargo were admitting that they were borrowing at least $25 billion in these bailout funds in order to better stabilize their investment portfolios at the time. For many of the largest U.S. banks in recent years, they received the bulk of their income from on and off balance sheet derivatives investments as opposed to loans made to their banking customers. As a result, banks still aren’t as motivated to make loans to their customers these days, sadly.

The Quadrillion & A Half + Dollar Meltdown

The Quadrillion & A Half + Dollar MeltdownAs I have been writing for many years now, the unwinding of the $1,500 + trillion (a quadrillion and a half) dollar derivatives market is truly the root cause of “The Credit Crisis” financial implosion. This is not just a “sub-prime mortgage problem” as the mainstream media likes to tell their viewers. In fact, less than 1% of all non-performing loans worldwide were supposedly U.S. sub-prime mortgage loans.

Most of the problem “Credit Crisis” loans or derivatives investments (a hybrid of a loan and an insurance contract) were “Interest Rate Option Derivatives” when investment banks bet on the future directions of interest rates. Interest Rate Option Derivatives are at the heart of the “LIBOR Scandal” (London Interbank Offered Rate – the biggest financial scandal in world history), the benchmark interest rate index used by hundreds of trillions of dollars of loans worldwide. In this scandal, banks and investment banks were supposedly told the exact direction of the future rigged interest rates so that they may profit from their derivatives bets.

The origin of “The Credit Crisis” was a downward plummet into a black hole-like financial Abyss. It should not be blamed entirely on U.S. homeowners or “flippers” as opposed to reckless investment bankers who enjoyed leveraging trillions of dollars with their risky financial bets.

Many large U.S. banks, Wall Street firms, automobile companies, airlines, and major insurance companies might have been technically insolvent in recent years. If they were forced to use standard bookkeeping methods like the rest of the Americans, their debts would greatly exceed their assets. As a result, these multi-billion dollar companies would be in bankruptcy court.

What is most frustrating to many Americans today is that these trillions of dollars of bailouts have helped many financial institutions better stabilize their overall portfolios and their balance sheets. Yet, these same banks have not rapidly increased their lending options for individual Americans or small to mid-sized businesses.

Financial Implosions & Investment Opportunities

After the end of The Great Depression and World War II and the collapse of the Savings and Loan industry, many investors created the bulk of their family’s generations of assets by picking up assets for literally cents on the dollar. Why pay retail prices when one may pay wholesale prices from motivated financial institutions or individual sellers?crisis

I used to hear stories shortly after the creation of the RTC (Resolution Trust Corporation) which involved apartment building deals in Texas which sold for something like $800 or $900 per apartment unit back in the early 1990s. If the apartment building was a small 10 unit apartment deal, then the sales price may have been close to just $8,000 or $9,000. If the apartments were possibly 100 units, then the apartment might have sold for $80,000 or $90,000.

I wonder what these same apartment buildings may sell for today. I also wonder if the monthly net cash flow today exceeds their original purchase prices. There are few better real estate investments anywhere in the USA than apartment buildings because we all need a place to live.

The word “Crisis” allegedly is derived from two characters in the Chinese language, which may represent both “Danger” and “Opportunity.” Yes, the financial implosion we have endured since 2007 has been quite scary. Tragically, the real estate implosion when considering median home price percentage losses was even worse in recent years than what people experienced during the depths of The Great Depression.

In almost every well known financial implosion time period, recession, or depression these past one hundred (100) years, boom time periods preceded bust time periods when “easy money” time periods such as “The Roaring 20’s” and the early 2000s were followed by “tight money” time periods (or “slam the brakes” on capital access), due to higher interest rates, tougher margin or capital reserve requirements, and / or more challenging underwriting guidelines like today.

When “tight money” time periods later ease up again, then property values typically increase significantly such as what he have seen between 2012 to 2013 primarily due to near record low interest rates. The most important factor for real estate is related to the availability of capital in order to get in, and to get out of the investment. Let’s hope that underwriting guidelines ease up a bit more so that more people may qualify for loans again!

Financial Roller CoasterFortunately, the combination of near record low interest rates, home listing inventory levels near twenty (20) years lows, and motivated real estate investors who are tired of earning negative net returns from their local bank branches are helping to lead the way back for impressive real estate price gains in recent times (6% to 20% + annual price gains in various U.S. regions).

Life and investments are truly akin to a “rollercoaster ride.” We must hang on through all of the booms and bust time periods, and twists and turns just like so many Americans did through The Great Depression, The Savings and Loan Collapse, and the ongoing Credit Crisis. With persistence also comes opportunity, so please continue focusing on the goals or targets in your life as opposed to the obstacles that may stand in all of our ways.


Author: Rick Tobin

Rick Tobin Professional Pic sharperRick has an experienced and diversified background in both the Real Estate and Securities fields for the past 25+ years.  He has had hundreds of articles published nationally in magazines, newspapers, internet sites, newsletters, and other sources, and has also appeared as a guest on various television shows as well as in seminars about real estate and financial information.

Rick has an extensive background in the financing of residential and commercial properties around the U.S. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Hedge Funds, and foreign money sources.

He has purchased numerous investment properties in multiple states, including government and tax foreclosures, All Inclusive Deeds of Trust (AITDs), Land Contracts, Lease Options, and he has purchased significant amounts of mortgage investments.  He has worked in the development of hundreds of residential properties, including single family homes, townhomes, condominiums, and apartments.

Contact Information: Rick Tobin – 12424 Wilshire Blvd., #630 Los Angeles, CA 90025   Email: rtobin22@gmail.com  Phone: (310) 571 – 3600 ext. #203   CA DRE #01144023

Ricks’ website: www.thecreditcrisis.net


 Flexible Financing for Difficult Economic Times

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