Bailout’s Trickle Down Effect to Help Staten Island

If case you haven’t heard about the $700 billion bailout that just passed, I’ll give a quick rundown. The bill was heavily opposed by Main Street (small and/or locally owned businesses) as they felt they were left out and not being helped at all. While that is an issue in and of itself, Staten Island falls into the ‘Wall Street’ category and therefore the points I make regarding Staten Island Real Estate and the bailout will come from this perspective. 

Let’s start with what’s been building up, as the situation we face at the moment is tangled mess.

• Homeowners are unable or struggling to pay their mortgages. This is from adjustable rates, loss of jobs, and the inability to refinance due to falling housing prices.
• Wall Street companies use mortgage-backed securities for business purposes. These banks use these securities as collateral for the short term loans they need to function. With falling housing prices and the need to ‘mark to market’ (an accounting rule that requires you to value the security at it’s present value and not what it could be worth), Wall Street companies have seen their assets deterioriating.
• Wall Street companies layoff employees and cut-back on spending. No, not everyone that lost their jobs lived in Staten Island, but a lot did. This could ultimately lead to more mortgage defaults and in turn falling home prices. And you can’t forget cut-backs on spending. Large companies do use smaller businesses for services, so when large companies stop spending the small businesses feel it too. This leads to a situation where the small businesses might fail as well.

The longer that corrective measures are taken, the worse the problem gets. More layoffs and less spending leads to more foreclosures. More foreclosures leads to lower home prices. Lower home prices leads to less collateral for Wall Street. Decreased securities leads to bank failures, layoffs and less spending. And repeat.

The bailout will help Wall Street get back off the floor and attempt to return to normalcy. While I cannot tell you definitively that it will work, it’s better than nothing. After 2009 rolls in, we should hope to see decreasing unemployment rates and more homeowners with the ability to afford their mortgages and stay in their homes. Don’t forget the mortgage legislation that passed earlier this year that will hopefully allow homeowners to refinance at lower rates.

All of this will ease the housing market on Staten Island.

Housing follows the same basic economic rules of Supply vs. Demand, so what we see across most marekts makes perfect sense. But I’ll save Economics 101 for another day…