The stock markets had a great day today, experiencing an upswing of just over 497 points (the biggest one day gain in over four months and the fifth best day ever on Wall Street). The gains came as a result of stronger than expected housing numbers. Existing home sales were up 5.1% in February compared with the previous month. The price of those sales, however, was down over 15% from a year ago.
I think these conflicting numbers are an overall positive. Total sales are up on lower price points. This means the prices of homes are falling, but falling to a range lower than market value (which indicates more buyers will join the market). As time goes on, either more people will buy homes, or the prices of those homes will go up; either scenario is good for sellers in the housing market, making everyone happy.
On top of the great housing news, stocks were buoyed by the Treasury Department's plan to buy so-called "toxic assets" from banks. Under the government's plan, private investors and the federal government would invest 7% each toward assets that banks need off their books (I do not know how this will be determined). The remaining 86% would be covered by a government loan. I do not know the amount of time the loan will need to be paid back in, or what the interest rate is. The government's 7% contribution will be paid for by already approved bailout money.
Government is shouldering most of the risk under this plan, covering 93% of the money used to buy the toxic assets. However, I still support this plan. Banks today are unwilling to loan money to consumers due to the amount of risky investments (like homes in foreclosure) they have on their balance sheets. This plan will help eliminate those risky investments and give banks the confidence they need to begin lending again, as opposed to sitting on their money and waiting out the storm. When something bad happens to your car, you are afraid to spend money again until either you figure out how much you will need to pay to have your car fixed, or you are done paying for the car. This is the same situation banks are currently in (except they own millions of cars). Secondly, while I am against government handouts, I am not against government loans. Unlike a government handout, which will be paid back by people not even born yet, these loans will be paid by consumers who choose to get them (in a structured time frame, as opposed to Congress' manta of "whenever feel like it"). That seems like a responsible balance between government and the private sector.
Yes, we are shouldering a lot of debt on the taxpayer's dime. But hey, we have already spent this bailout money; it is good to see it being used for something truly constructive. A big part of this economic crisis involves credit. Now that the creditors will be more confident to give credit out, we just need to wait for consumers to pay down their individual debts and adjust to living in their means before all facets of the economy take off again. I predicted last year that would happen around September of this year (a year after the crisis really began), and it appears many in economics and government share my views!
Until we meet again, goodbye!
No comments:
Post a Comment