In order for the United States to retain the world value and position of the dollar it must consider an across the board devaluation of private and public real estate investments and properties. The devaluation must happen there or it will happen to the dollar itself and impact it in a manner which will be irreversible to its global value.
The financial market crash or extreme recession, as most would like to consider it, was primarily caused by bank investments in poor sub prime loans and the acceptance of inflated property values as part of their bottom line value and profits reported to share holders. As we know now, these were not fringe investments, to the contrary, banks were all in. The definition of “all in” being that bad real estate investments and inflated property appraisals attracted stock purchases, portfolio managers that controlled pension assets, Union investments, Insurance Company investments, small mom and pop investors and of course, the Bernie Madoffs of the world. Even the federal government began using numbers based on the inflated real estate market when making their own economic forecasts. It is the very reason former President George W. Bush triumphantly declared the U.S. economy was “economically sound”, only to see the country and the world financially shaken to its knees in a matter of months following his statement.
To this day, property prices are still based on inflated values, maybe not as high but nonetheless, inflated. It is also the very reason banks have consumed federal stimulus funds without extending new credit to small business and the every day consumer. The credit they would extend would still be collateralized by current inflated property values.
Moreover, the banks know that modifying home loans as stipulated in new federal lending programs will put them in a position of not only refinancing still inflated properties, but due to rising unemployment, these homeowners who have managed to stave off final foreclosure through these programs are at a high risk of defaulting all over again because of job loss or accepting major cuts in their current income, in order to keep their jobs because of corporate restructuring. In fact, instead of making these loans, banks have found it more profitable to actually make money off of financial hardships by raising credit card rates and or charging exorbitant banking fees to their customers for late payments, over drafts and other infractions; further negatively impacting the everyday consumer and slowing the possibility of recovery through consumer spending.
Since banks began using real estate as a measure of their own stock worthiness, these assets should be treated as such, common stock. Common stock is devalued all the time as the market and their correlating corporate value dictates. Do people lose money when a stock is devalued? Of course they do. However, the across the board devaluation of real estate could and should have an opposite effect for the following reasons:
1. Properties would finally be appraised at their true value.
2. It would bring much needed movement to the real estate market by allowing those who want to stay in their properties more able to afford the mortgages and those who want to sell be able to price their properties at a price that home buyers are able to consider in today’s real dollars.
3. It would allow banks to move bad asset properties off their books through sales and begin to base their assets on true numbers.
4. The FHA would slow in becoming the largest mortgage holder and move the federal government out of the home loan banking business or at least bring it to level which is fiscally acceptable and does not continue to feed the federal deficit.
5. Allow the devaluation to be targeted so that areas where real estate is competitive and close to its’ true value will not be effected.
6. Locales that are not inflated would not be effected or devalued.
7. Locales that have a mix of foreclosures will give home owners who are current on their loans a choice as to whether devaluation helps give them relief from competing financially with properties that are at foreclosed values. Or they are given incentives based on their current loan.
8. Financial portfolios that contain property assets would, like any other stock portfolio, finally reflect it’s true value and become more solvent in doing so.
9. A realignment of the market would attract foreign investment.
10. A real estate market closer to its’ real dollar value, strengthens the dollar around the world and therefore strengthens the world economy.
Inclosing, the recession has always been about the handling of ‘Fools Gold’ real estate investments and the recovery still is. The world economy will not find recovery until the United States takes a step back and begins to deal in real dollars. Either we deal in real dollars and true value or the world will shift to a currency that does and America will lose the almighty buck.
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