Peter Pays Paul

Inside commercial hard money lending.

GMAC has $2.52 bln loss; ResCap unit may fail

Wednesday, November 5th, 2008

Reuters is reporting that GMAC’s mortgage unit, ResCap, has reported its 8th straight quarterly loss of $1.91 billion. GMAC, LLC, the financing arm of GM, reported its 5th straight quarterly loss.

The unit speculates that GMAC may convert to a bank holding company in order to receive funds from the TARP.

This as well as the previous post do not bode well for the residential real estate recovering soon. Fewer lenders equals less competition. Less competition means higher interest rates. Fewer borrowers will qualify for loans at higher rates and fewer houses will be sold.

Long-term this is a good sign because it is the removal of inefficient competitors from the marketplace. It will also be beneficial because it will help with the deleveraging of the economy and it will force those of us in the market for a house to save or build equity the old fashioned way.

GMAC has $2.52 bln loss; ResCap unit may fail | Reuters.

(HT: Agent Genius News)

Posted in Finance, Real Estate, Real Estate Finance | No Comments »

The Paulson Plan or the 2008 Bailout Bill

Tuesday, September 30th, 2008

The “bailout” or “rescue” is the hot topic on most lips these days. In fact it is hard to escape on any of the media outlets.

Below are a few articles for you to ponder on this issue.

Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System?

Nouriel Roubini argues against the proposed plan. He summarizes, “Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer.”

You Can’t Rescue the Financial System If You Can’t Read a Balance Sheet

John Hussman details the reasons that the current plan only provides a benefit if the Treasury pays above market value for the value of the securities, a very reassuring thought (sic). (HT:Naked Capitalism)

Bankruptcy, not bailout, is the right answer

Jeffrey Miron from Harvard argues that the government should do nothing and let the companies that invested in the bad investments go bankrupt. He states, “Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.” He argues that bad government policy should not be fixed with more government. He also reasons that credit markets are frozen is likely caused by the current owners of bad securities being unwilling to sell them at the offered price, because they are waiting for Uncle Sam to come in and pay a higher price.

Posted in Commercial Real Estate, Finance, Investing, Life-in-General, Real Estate Finance | No Comments »