Historic Bailout - What does it mean for you?

Well, it has certainly been volatile in the financial, mortgage and real estate markets, especially in the last few weeks.  

Congress finally passed an unprecedented $700 billion government bailout of the financial and credit industries. 

Whether you were for it or against it, it was going to affect you whether it passed or not.  Even though the focus was on Wall Street, the real problem was in our credit markets.  It was getting to the point that banks were not loaning to one another, let alone to businesses and private sectors.  Small businesses were finding it hard to meet payroll without the common short term lines of credit that they used to have to function as working capital.  Credit cared companies were cut cardholder credit limits (which may not have been a bad thing), and college funding and car loans were harder and harder to come by.  If the credit crisis were allowed to continue, it was very close to coming to a grinding halt that would have perilized the economy. In the end the consumer was going to pay for it with a potential crash in the economy not seen in our lifetime.

Now the consumer will still get to pay for it, but hopefully without the drama of a failed economy. Many people feel that we are in a recession even though we don't meet the technical defenition of a recession.  There is no doubt that recovery from this "recession" would have been a lot more difficult if this bill had not passed.

It is now back to basics for everyone.  The government will buy off these bad loans that are choking our lending institutions at a discount and hold them until such time the real estate markets come back (and they will come back, they always do.)  At that point in time when there is more equity in the homes the loans can be sold back to the private sector most likely at a profit and the hope is the profit will be used to pay down the $700 billion dollar debt before anything else is done.  Perhaps we should remember to keep an eye on Congress when the government starts to resale the loans and the money starts to flow back in that they don't spend it on something else.

Once these bad loans are off the books of the banks, then they can start to lend money again to other banks, to businesses and to regular consumers in the form credit cards, car loans, and home loans.  Don't worry that the banks will just start lending crazy again which got them all in trouble.  The lending criteria have all been tightened so the lending will go back to the basics.  But at least now there will still be some lending going on which will ultimately begin to drive the economy back in all week sectors, real estate, mortgage and eventually Wall Street.

Nobody is expecting a speedy recovery, and there may be some more bumps in the road along the way, but the recovery is coming nonetheless.