Let us take a step back: The proposed government bailout will involve at least half a trillion dollars of the public’s money; the AIG bailout was $85 billion; Bear Stearns, around $20 billion; the Fed has pumped in well over half a trillion into the credit markets by this point; interest rates for Treasury bonds are significantly lower than rates for bank-to-bank loans.
A lot of that money will be gotten back to the taxpayer eventually. The opportunity cost – that is, the metric economists use to analyze the actual cost of all that money – however, will be huge. In the end, the taxpayers will almost certainly end up spending thousands of dollars for every man, woman, and child in this country.
It’s an infuriating situation, primarily because it doesn’t have to be this way. The executive branch of this country has nationalized a significant portion of the financial industry. It will continue to do so for some time. However, congressional Democrats have huge leverage over the process at this point. With or without their help, the federal government could end up turning many of these forced purchases into stable investments that pay significant dividends for the American taxpayer.
That’s not going to happen, however. And the scale of the loss is beyond criminal. We’ve entered a realm of importance and damage to our national and collective well-being wherein the offending actors could be accurately characterized as treasonous. Within the confines of what is possible for any given actor, it is almost like, at each step of the way, the executive branch’s actions have been directed by the world’s largest financial firm, Goldman Sachs. It is little wonder, then, that the Treasury secretary is the ex-CEO of Goldman Sachs.
What does all this have to do with the New York City housing market? There are two major points to be made: First, the government has to spend so much on activities that will have negligible levels of stimulative effects – in comparison to, say, a major public works project – that the economy will almost certainly enter a full recession.
This will lead to a significant decline in housing prices, even in New York City.
However, the picture for the city’s real estate market has brightened significantly from yesterday. The doomsday scenario for the New York City housing market was that the city’s financial industry would be largely on its own to absorb the damage it has done to the world’s economy. Life’s not fair, however, and the country as a whole is going to absorb those losses, not New York City’s most important industry.
So, the market will do much better than many people thought at the beginning of the week. Many expected the Fed to blink and eventually cave to the industry’s demands, at least partially. Few foresaw, however, the government’s complete and total retreat from its earlier position.
In short, the bailout is a horrible thing for the country, but a very, very good thing for the New York City real estate market.
Already deals abound. My favorite is a quote from a New York Times article earlier this week: “Mr. Petterson” who purchased an apartment in the Aura for under $600,000, “said ‘it was an upgrade’ from a studio on the Upper East Side to a one-bedroom with a balcony in a sleek modern building of glass and brick with a gym and a garden with a hot tub.”
Time to start looking for deals.