The Problems are the Path: AND they are Familiar!
* 33 A.D. After property speculation fed by low interest rates led to a crash, the Emperor Tiberius authorized a banking commission to bail out wealthy real estate speculators.
1825. British banks began to fall after falling interest rates goaded them into buying immense quantities assets, including debt issued by Poyais, a fictitious Central American nation invented by a con artist. The Bank of England lent money "by every possible means and in modes we had never adopted before", a bank director testified.
1882. The Paris stock market crashed, and its membership of brokers ran out of capital. With Government approval, the French central bank made an emergency loan of 80 million franc, preventing Paris bourse from going bust.
1890 The giant British bank Baring Brothers & Co collapsed after gouging on Argentine bonds right before the South American country defaulted on its debt. To stem a panic, the Bank of England swiftly lent Baring's 75 million pounds and coaxed private banks into pledging an additional 17 million pounds to cushion potential losses.
* Courtesy of the Wall Street Journal Saturday/Sunday March 18, 2023
History Continues the same repeat in the US
1998 The FED engineers a $3.6 Billion rescue to Hedge Fund Long Term Capital Management
2001. The FED slashes interest rates after the collapse of internet stocks
2008-09 The FED backs Money Market Funds with $50 Billion pouring more than $425 Billion into troubled banks and industrial companies. The FED buys more that $1.7 Trillion in government securities.
The FED follows up with lowering interest rates to near Zero, while other countries go below 0.
2020-2020 The FED buys additional Treasuries to calm the Covid-19 Pandemic. To total of the the FED Balance hit a high of just over $9 trillion. All the money added to the money supply and created the largest accumulation of savings of Americans in the History of the United States.
The Great Depression of 1929 and aftermath saw bank failure and the lack of trust in bank permeated the psyche of most Americans1
The failure of trust in banking created a drive by American into assets that have been part of history's faith in store. of value back from before Tiberius to the present day. The assets were Gold, Real Estate, Collectibles.
Today the American Dream will be fed by continued lack of faith in the banking system, Silicon Valley Bank, Signature Bank, First Republic will be just the start of the cause of the failures. The cause being the ultra low rates and the failure of the FED to supervise banks and their investment policies, the failure to comprehend the real cause of the crisis the ultra low rates and the over zealous rise in those rates.
The fall in stocks is a familiar trait after a bank failure. The demand for gold an old standby of faith and the demand for real estate is visible today.
Since the Bailout a number of homes in our area listed went over list. Agents set offering dates. Price sold went over list. Cash buyer predominated the buyers.
Now there is the other side of the coin. It is not only the good there is a bad. Foreclosure notices and auctions scheduled are increasing in Redwood City and San Carlos. A review of those being notified are surprising, from start up venture capitalist to professionals. The mortgages they hold are not surprising: negative amortization loans, adjustable rate mortgages, reverse mortgages. Those mortgages reflect the errors of the banks bailed out. The rate of return or income, could not meet the cost of the new mortgages.
Take in mind the next wave to potentially jolt consumers/investors. Insurance Companies issuing Fixed Rate Annuities. This is an easy forecast. An annuity offers a fixed rate of return to the investor tax deferred. the annuity is funded with fixed instruments such as bonds. The spread between to rate offered the income earned is profit. The problem is the with the rise in interest rates the annuity is below market rates. Investors can swap annuities to another higher yielding annuity without incurring taxes. The result is the Issuance company must sell the bonds backing the specific annuity being redeemed any losses insufficient to cover the redeemed amount to provide redemption made up of sale proceeds plus insurance company reserves. At some point the insurance company will run out of reserves and there could be another set of failures for the FED to assume.
The real estate owner will continue to come home or own income property and pay their fixed 30 year mortgage without worry.
Remember it is your Real Estate!
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