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Bank Stress Tests are Now a Joke

May 5, 2009 by Marco Santarelli

The Treasury's stress tests are now, officially, a joke…

First, the outcome looked as if all banks would need to raise capital. Then it was reduced to just three. Now it “might” be “about 10” of the 16 banks subjected to the Treasury's toothless stress tests that may need to raise additional capital to withstand further weakness in the economy.

And the report isn't even supposed to be out until Thursday. The Obama administration is doing its level best to make sure the market is perfectly prepared for the results of the stress tests.

While it's probably wise to consider the impact of the stress tests on the financial markets, I can't say I approve of rigging the tests to achieve a preferred outcome.

The New Bailout

Bloomberg reports that financial stocks made their biggest gains in a month yesterday on “optimism about the tests.”

That “optimism” is better described as the realization that the stress tests are fundamentally flawed and the government is prepared to handle the capital issue by letting the banks convert the preferred stock the government owns from TARP loans into common stock.

[Read more…]

Filed Under: Economy, Real Estate Investing

Setting Your Financial Real Estate Goals

May 1, 2009 by Marco Santarelli

I bet you wrote down your goals in January 1st this year.  Is that all?  Did you re-think them this month and write it down again?  If you don't know what your goals are, how are you going to measure whether you've reached them.  And, I would bet that if you didn't write them down at all, you are in the same financial position as you were on January 1st.  Ouch!

Is it time for a change of strategy?  Maybe so, read on…

Take the most accurate archer, the best in the world. I guarantee that I can do a better job of shooting than he can…IF…you first blindfold him and turn him around a few times. You might think, why that is ridiculous. How is he supposed to hit a target he cannot see? Here's a better question: How are YOU supposed to hit a target you don't even HAVE?

When investing in real estate, in order to succeed, you need to set financial goals. Here's how to go about it.

[Read more…]

Filed Under: Real Estate Investing

Asset Protection for Real Estate Investors

April 28, 2009 by Marco Santarelli

During the early years of my real estate investing I ran my business as a sole proprietor because I was confused about asset protection. All the books and expensive courses only added to the confusion, and the subject of asset protection only became more frustrating for me.

Luckily, I survived with only minimal damage, but there comes a point when it is time to assess the best legal structure to use for real estate investing. This becomes increasingly important as your net worth grows.

Consider this scenario. You are sued for an accidental injury that occurred on one of your properties where you held title in your name personally. You are sued for $2,000,000.Your insurance only covers $1,000,000. That's a very bad day.

The biggest mistake you can make in real estate is to hold title on your property in your own personal name. Title to property is public record. Anyone can look up what you own, determine its market value, and deduct what you owe to determine what they can attempt to sue you for. It's like painting a bulls-eye on your back for prying eyes such as attorneys, creditors and even your tenants.

So what entity provides you the best asset protection? How do you limit your liability exposure? [Read more…]

Filed Under: Real Estate Investing, Taxes Tagged With: Asset Protection, Real Estate Investing

Has Wall Street Taken Over Washington?

April 23, 2009 by Marco Santarelli

Are we all getting sucked in by the President Obama's charm as he tells us about the hard work and sacrifices that face Americans in the days ahead?

Should we also be disappointed in the President's dealings with the continuing mess on Wall Street?  I think it's time for the administration to take a hard line with companies like AIG, Goldman Sachs, Citigroup and others that have demonstrated gross irresponsibility.

We should probably include the automakers too!

Our country is in trouble when bankers can dictate policy. Isn't that what got us in this mess in the first place?  If so, then President Obama should be changing the situation for the better of the country and taxpayer, and without regard to the self-interests of the bankers.

There is a culture between Washington and Wall Street.  The government continues to spend massive sums of money under the guise of aid for Wall Street, only leading to tax increases for America.  Where's the measurable benefit?

Maybe it's time for a protest against Wall Street's lobbying and influence on the government.  Wall Street must stop robbing America, and Washington must stop helping Wall Street cover it up!  Bailouts and handouts for the sake of maintaining the status quo is only robbing the American taxpayer.

For example, taking over the troubled banks, terminating the executives, removing the board of directors, purging out the toxic assets and then selling the “clean” bank back to private investors.  Is this the only solution that Treasury Secretary Timothy Geithner can come up with?  I think the American people should be outraged!

I didn't take the Obama administration's campaign motto of “Change” to mean the continued placement of Wall Street interests over those of American's.  There is an unwillingness by those in power to do what's right.

Harvey Rosenfield, President of the Consumer Education Foundation, believes that since President Obama’s key appointments to the Treasury, the SEC and other agencies, like their predecessors, are veterans of the Money Industry that the Money Industry remains in charge of the federal agencies and keeps our elected officials in its deep pockets and, as such, nothing will change.

Rosenfield says, “If America is to recover from this economic debacle that we find ourselves in, its people must return to the principles that made it great — hard work, creativity, and innovation — and both government and business must serve that end. Washington must serve America, not Wall Street. Things will not change so long as Americans acquiesce to business as usual in Washington. It’s time for Americans to make their voices heard.”

There is a great article in this month's Atlantic that covers how Wall Street has in essence taken over Washington. It's highly recommended reading: Click here.

What are your thoughts?

Filed Under: Economy

Who Profits from Toxic Assets?

April 18, 2009 by Marco Santarelli

Yesterday, I suggested that the idea of the "Stress Test" for banks was really just a marketing ploy by the Treasury to boost confidence that the United States financial system is stable. After all the back-bending, and billions in bailout funds to avoid bank failures, do we really think the Treasury is suddenly going to declare any banks insolvent?

Highly unlikely, in my opinion.

So if the Treasury is unwilling to nail any banks, what does that mean for the Public-Private Investment Program that's supposed to buy banks' toxic assets? What will be the motivation for selling if there are no consequences for keeping these assets and waiting for value to return?

Well, it would appear that the Treasury is playing the "opportunity cost" card. Offer the banks a premium for these assets now that might otherwise take years to achieve.

The banks win, as they free up their balance sheets and can theoretically increase lending. The "Toxic Investors" win, as they buy potentially valuable assets with very little of their own money while the Fed and Treasury subsidize the rest. And the taxpayer wins as Fed and Treasury loans are paid back.

I don't know about you, but that all sounds a little too perfect. Something's bound to go wrong with this neat little win-win-win scenario. And I know who isn't going to get shafted – the investors who partner with the Treasury to buy these assets.

That's because they simply won't be taking on much risk at all, and they potentially make a lot of money.

Filed Under: Economy, Financing

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