Over the past week, I have watched, read, and listened to as many so called experts as I can bear explain the financial crisis we are in – including the presidential candidates.

Nearly all of them say the same thing,

“Nobody wants to bailout the banks, but the problem is so bad that we have to do it.”

It is impressive how much detail these experts are able to go into explaining exactly why the crisis happened and who is to blame. But what’s really amazing, is how little detail these experts are able to provide on how the $700 billion dollars will solve the problem and why $700 billion is the right amount to do the job.

“Just trust us (with your money).” is the common answer we are provided.

(And for the few that do attempt to explain the solution, they all leave out the real danger this solution creates – which I will explain in a moment)

So how will the bailout impact real estate developers and the property development industry as a whole?

Well to start you need to understand the problem. I am not going to rehash it here but I will give you a snippet from a particular doomsday email I received from John Mauldin’s Thoughts of the Frontlines service. (John Mauldin is a best selling author and financial expert. His weekly economic e-letter goes out to over 1 million subscribers. You can subscribe here, http://www.frontlinethoughts.com/learnmore )

“Banks can lend to consumers and investors about 12 times their capital base. If they have to write off 20% of their capital because of losses, that means they either have to sell more equity or reduce their loan portfolios. … Because banks and investors and institutions are having to deleverage, that means they need to sell assets at whatever prices they can get in order to create capital to keep their loan-to-capital ratios within the regulatory limits.”

In other words, because of regulations, banks are forced to sell their loans at a time when nobody is buying which is fueling the economic downward spiral for these banks. And until the banks get to the bottom of the spiral, they can’t make any new loans. Its new loans (i.e. the supply of capital) that fuels the growth of the economy.

So, if the government can buy all these loans from the banks, the banks can get back to doing what they need to be doing – supply the cash for the country to grow.

Or at least that is what we are told. And to sweeten the deal, most of the pundits finish off by saying “…the government will most likely make a profit on these loans because they get to buy so cheap now and they can sell them for higher prices later on.”

So as a real estate developer, the bailout sounds great right?

I mean you need financing to get your project developed and the bailout will increase the availability of that financing.

Uhmm, no.

Or at least under the current plan, that is extremely unlikely to happen.

One of the best explanations of why this is the case was presented by Ken Courtis, former vice chairman of Goldman Sachs, Asia and George Magnus, senior economic adviser at UBS during an interview on the BBC Worldservice. This interview is by far the best discussion on the problems and potential solutions I have heard to date. (I recommend you listen to the entire interview here - http://www.bbc.co.uk/worldservice/specials/1512_debates/page24.shtml )

In the interview, Ken Courtis and George Magnus explain that under the bailout plans that are proposed the government will be buying the bank’s loans, but not actually increasing the amount of capital reserves with which to make new loans. And in fact, the new banking rules implemented as a part of the bailout will actually make it more difficult for banks to lend money.

The bailout will actually reduce the availability of financing for real estate developers making the depression worse.

This is one of the biggest reasons the bailout is bad for real estate developers – but not the only one.

There is another reason – a reason that is actually more important and the ramifications are far more serious than what all the experts are talking about at the moment.

You see everyone is focused on problems with supply – but no one seems concerned about the problems with demand.

The banks ability to loan capital to businesses is the SUPPLY. The DEMAND is business’s need for loan capital to meet the publics growing demand for their products.

Unfortunately, taxing the public to the tune of $700 billion dollars (actually it is closer to $2 trillion) will create a massive drop in DEMAND - sending us into a deeper and longer recession. Ken Courtis attempted to point this out in the BBC interview and was cutoff because nobody wants to hear it.

Nobody wants to face the fact that whether the drop in DEMAND happens immediately or is put off by financing the bailout with overseas loans – the drop in DEMAND is going to happen. And it will most likely be severe. Gross National Product will go down and could stay down for a long time.

The structure of the bailout;
• solely focusing on buying loans,
• no attempt to increase bank’s capital reserves while further restricting their ability to make loans,
• and no serious concern for the devastating impact the financial burden of the bailout will have on DEMAND and GNP –

creates a high probability that we are facing a decade long recession similar to the one Japan is only now coming out of.

When faced with the real result of the bailout, one has to wonder why any real estate developer would be in favor of it. Yes the lumps we are taking now are not easy to swallow. But I would rather take one bad beating and get it over with than face a long drawn out tortuous series of beatings in the future.

What’s holding your Real Estate Development Success back?

Most likely, you are in the same boat as developers I deal with all the time.

You’re as close as you’ve ever been to a successful project…You can see it right there, just a few inches from your grasp…

You can practically TOUCH it…

Except for one thing.

There’s a wall between you and your well-deserved achievements. And that wall has been plaguing your real estate business since you first decided to venture into this arena.

You know what I’m talking about. Every time you seem to spot an opportunity…every time you get just a little taste of what could be…

That wall pops up and says, “Hello there–it’s me again, ready to find a problem that will stop this deal dead.”Sound familiar?

Yeah, me too. I’ve wrestled with my own roadblocks in the past–more than I care to remember.

And each time, it seemed to get harder and harder to overcome those barriers and move to the next level.

But I wanted to tell you about a resource that can help you get past that.

It’s a free report written by a guy named Rich Schefren.  Now Rich isn’t a real estate developer.  He is a successful businessman that started out in retail clothing and now is considered one of the best in the world of online marketing and business management.
 

And he’s whispering 2 words in your ear:

“Swing away”.

https://schefren.infusionsoft.com/go/sept08/Bart/

Rich’s new report, “The Uncertainty Syndrome,” takes on the biggest problem marketers and business builders have: overcoming adversity and explains how and why you need to just go for it.

Now this report is geared toward online business people, but I just read it and virtually everything in it can be applied directly to real estate development.

It is amazing how much setting up a successful online business is similar to completing a profitable real estate project.  After all, the web is literally virtual real estate that you develop to its maximum potential.

Every website is a piece of property and a successful online venture requires you to;

• Reasearch and Determine Demand,
• Conduct Due Diligence and Assess Feasibility,
• Design and Construct the Project
• Market and Monetize the End Product

Sounds familiar doesn’t it?

Well, for the past year, Rich has been researching like a madman, trying to find the secrets of getting past the roadblocks that online real estate developers have.

And in this report, he’ll outline key strategies and tactics you can use RIGHT NOW to virtually obliterate whatever’s holding you back–and advance your business to where it should be.

How does that sound? 

https://schefren.infusionsoft.com/go/sept08/Bart/
 

Rich’s reports are legendary in the online marketplace for delivering outstanding content that’s straightforward, to-the-point, and leaves nothing behind.

And while, they aren’t focused on real estate development, they easily cross over and are worth your time to check out.
 

Bart