Bernanke brings banks billions of bucks
The Federal Reserve opened its coffers once again in an effort to abate the current credit crisis, at least in this country. One of the big current problems involves banks and other companies refusing to lend each other short-term money, often referred to as commercial paper.
The major problem involves lack of trust between companies. Company A refuses to lend to Company B because they are unsure of the value of assets or collateral Company B will put up for the loan. This complicated part of everyday business has been boiled down to a simple example, but this is part of the reason why pundits and politicians keep referring to the ‘credit crisis‘.
The Fed is throwing out $99 billion (for now), essentially as a third-party. Their hope? Company A will now lend to Company B because the Fed tells Company A that Company B’s assets/collateral are valid. As a result, very short-term commercial paper rates (one day to one month) should drop significantly, back to the low rates businesses have counted on for years in order to continue operations, order goods, make payroll, etc.
What does this have to do with real estate? Plenty. Almost everything in the business world is interrelated to other aspects of the economy. For example: Your client, employed by Company B, is in danger of being laid off due to their employer being unable to come up with new work, and as a result, payroll. No pay for your client equals no approval for a loan equals no ability to buy that new house.
Sure, this is a stark hypothesis, but think of other situations. Job stability is a major factor in large decisions such as whether to buy a new home, new car, or any other big-ticket item. The huge drop in the stock market that has happened as a result of the credit crisis, panic, selloff, and resulting flight to safety has caused many potential buyers huge problems coming up with an expected down payment.
Ruh-roh, Reorge!
