Sunday, September 21, 2008

How did this happen--the bailout--its not the first time--accountants weigh in please!

The current bailout isn’t the first time something like this has happened. As I understand the situation (and please correct me if I am wrong), the value of real estate has declined, and there are too many problem or uncollectible mortgages. Didn’t that happen in the 1980s with the savings and loan debacle? On the one hand, on a large or grand scale, it can be difficult to estimate or value when real estate will decline in value, and, for the most part, in general real estate as a whole does not decline in value. However, as I understand the situation, in the late 1990s or the early 2000s Congress eased the Fannie Mae and Freddie Mac loan qualifying requirements allowing for more risky loans to be made (such as with no money down, or without proof of income). That action, if true, was ill-advised. Does anyone view Congress as being prudent when it comes to issues of money or finances? I don’t. It has also been discussed for some number of years that the real estate market is over heated, and that values may drop. Of course, whether values would drop, and the amount of anticipated drop would be difficult to estimate. How should the lenders take those factors, and the amount of reserves, into consideration? How should the regulatory agencies take those factors into consideration? How should the outside auditors take those factors into consideration? I understand that the outside auditor may well be entitled to take the loan/property appraisals at face value. The point of this discussion is not to find fault. The point is to identify the weaknesses in the system, and to correct those weaknesses so as to better prevent a problem of this magnitude from happening again in the future. And, the problem is a very big problem, which will be paid for by the taxpayers. As I see it, not too long ago a similar fiasco occurred. It is way too early for a similar problem to have occurred. This time the weaknesses in the system need to be fixed. What do you think? How do we fix the problems?

Dave Tate, CPA, Esq.

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