Notes from Charlotte County, Florida

PUNTA GORDA IN TOP TEN

DATE LINE: 09/24/2008 - Charlotte County, Florida

By BOB FLISS
Charlotte Sun Herald Business Editor

Punta Gorda has been picked as one of the top 10 "Best Healthy Places to Retire" by U.S. News & World Report, largely on the strength of its affordability and outdoor recreation opportunities.

And no great surprise, local business boosters are already working this national recognition into their marketing plans.

"Punta Gorda has a lot that typically draws retirees to Florida. Warm winters, plenty of golf courses, and costs that are lower than many states up north. It also has a slower pace, perhaps to a fault, with little night life and not even a movie theater," U.S. News reported.

The magazine also highlighted Punta Gorda's somewhat unusual mix of waterfront attractions.

"This is no Florida beach town," the story opened. But even without a beach, the boating and fishing are "world class." The prospect of a two-mile walkway along the Peace River was also mentioned.

"Even better, we were the only place in Florida picked," said John Wright, president of the Punta Gorda Chamber of Commerce.

U.S. News even mentioned a relatively new downtown Punta Gorda business, The Yoga Sanctuary. The exercise studio won "Small Business of the Year" honors at the chamber's annual awards banquet Sept. 19.

The story appears both in the Sept. 29 issue of the magazine and online at www.usnews.com.

"We know that visitors often turn into homeowners — and taxpayers, and ultimately retirees," said Becky Bovell, executive director of the Charlotte County Visitors Bureau.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®.

A massive $700 billion bill will be fast-tracked through Congress this week to give the U.S. government the authority to buy bad mortgages off the books of Wall Street firms. People are calling it the 'mother of all bailouts' and the 'biggest bailout in the history of mankind.' I am inclined to view it as the biggest sovereign wealth fund investment to date.

Several sovereign wealth funds - essentially a mutual fund run by a government for the government (or its taxpaying citizens) - have been investing in Wall Street firms and mortgage-related debts since late last year. Singapore, South Korea, United Arab Emirates, Saudi Arabia, and China were among the countries putting up a few billion dollars in the hopes of turning a big profit once the housing market recovers. Treasury Hank Paulson, a former CEO of the top U.S. investment bank Goldman Sachs and perhaps missing his old job, has now created a U.S. sovereign wealth fund that outstrips in size all other sovereign funds put together. Some may even view it simplistically as the Treasury Department going "all-in" in this $700 billion Texas Hold 'Em poker bet.

The principal goal of this new Treasury authorization is not to make money but to unclog the financial pipelines. Worries about capital inadequacy, further mortgage debt write-downs, and margin calls have hemorrhaged the movement of capital. The overnight borrowing rate has been skyrocketing, as any firm with excess cash was unwilling to lend that precious dough should it face the fate of Lehman Brothers. The very essence of capitalism - of allocating capital to its most productive use - was collapsing before our very eyes last week. The whole economy and Main Street civilians would have eventually suffered greatly from the mistakes of Wall Street.

The way to unclog the system is to buy certain mortgage backed securities off the books of financial firms. Because of illiquidity many mortgage securities, even those performing reasonably well, are being valued at pennies on the dollar if forced to sell. Let's say, for example, that you as a bank hold 100 mortgages and half of your clients are paying mortgages on time. At worst, these 100 mortgages would get at least 50 cents on the dollar. However, if you need to raise capital because of margin calls in the current panic, you would not get 50 cents but only few pennies on the dollar. These unrealistically low valuations are paralyzing the balance sheets of financial institutions and hindering the liquidity flow.

Treasury intervention will help restore the proper valuation of these illiquid assets. However, Treasury should not reward the mistakes of Wall Street by bailing out at an unreasonably high price and handing out "free money." Buying at a deeply discounted price could potentially lead to huge revenue benefits for Treasury on the behalf of taxpayers once the housing market and mortgage debt valuation recovers, but the financial firms may be unwilling to sell at unreasonably low prices. If this happens, we are back to square one. Subsequently, a delicate balance must be pursued with the goal of helping unclog the financial pipeline, but also protecting taxpayers' money.

Understandably, there will be anger and outcries from the Main Street public of this massive Wall Street 'bailout.' Politicians will feel the heat in this election year. But those same politicians have no choice: if the bill does not pass, the acute financial pain will quickly trickle down to Main Street.

The Main Street disgust of executive pay is also understandable. I will defend the '$700 billion bailout' to help stabilize the housing market and economy, but not the golden parachutes of fallen Wall Street executives. How is it that failed managers are able to get away with a fistful of dollars? The same can be said of Fannie Mae (FNMA) and Freddie Mac (FHLMC) executives. Many past managers of these government sponsored enterprises were paid a gigantic sum for running the very simple business of borrowing cheap and lending high. It was possible for Fannie and Freddie to borrow cheap on the backs of government (i.e. U.S. taxpayer) guarantees. Most of this borrowing cost advantage should have been passed onto consumers and not kept by Fannie/Freddie managers.

Hank Paulson has a tough task. He must permit capital to move around. That is the essence of capitalism. He must at the same time also protect taxpayer money. The return on the taxpayer gamble depends on two things: at what price the Treasury will buy bad mortgage debts off Wall Street books, and the future mortgage default rate. The default rate, in turn, will depend on the housing market recovery. Knowingly or not, the 75 million homeowners and 100 million taxpayers have now become the key stakeholders on the side of housing market recovery. In the end, if all goes better than anticipated, Mr. Paulson may perhaps get his own super hero figure made for returning a healthy rate of investment to taxpayers on this $700 billion gambit.

FANNIE MAE AND FREDDIE MAC

What does the federal government bailout of Fannie Mae and Freddie Mac mean to home buyers and sellers?

Generally, it's a good thing, and should bring much needed stability to the mortgage market. Most experts even expect mortgage rates to drop some over the short term, though qualifying for a mortgage will remain a challenge unless the Feds tinker with fees or rules.