Here comes another S&L scandal.
Not this year, or even next year, but in a few years.
Banks have been lobbying to get laws and regulations that prevent them from having interest in the real estate deals they finance changed so they can be both a loan provider and a developer of property.
A short review of the history of the first S&L debacle from the late 1970s and early 1980s should enough to demonstrate that problem arise when people have a vested interest in seeing a project financed no matter how (un)realistic the profit potential is.
For example, why you buy or refinance your home the bank wants their own appraiser to value your property. Nothing personal, but it may not be worth what you say it is. Now imagine a bank developing property and being the entity that provides the loans. Where is the independent appraisal? How can other investors (of the property and the bank) and customers of the bank to be assured that their money isn't being used to finance suspect deals?
If you want to see a real real estate bubble, and not just one made up by the media and politicians, just allow banks to become real estate dealers.
I am all for free markets and minimal government intervention in commerce, but there is no way the actual risks will ever be disclosed by banks running both ends of a deal. As the "developer" they will assure you that the financing is all set and it wouldn't have been without a full examination of the profit potential of the project. As the "financier" they will assure you that the project is a sure-win and bound to make money, that's why they're backing it with loans. It is like writing yourself a check for a million dollars and then trying to use that as collateral for a loan, because hey, you have a million dollars with which to pay back the next loan!
Who gets left holding the bag? Consumers who buy into the projects or who invest in the banks which go south (sometimes literally as their owners make a dash for Florida with a suitcase full of money).
We tried this before and it didn't work. It would be a huge mistake to try it again.
Full disclosure: I am a real estate agent.
Banks have been lobbying to get laws and regulations that prevent them from having interest in the real estate deals they finance changed so they can be both a loan provider and a developer of property.
A short review of the history of the first S&L debacle from the late 1970s and early 1980s should enough to demonstrate that problem arise when people have a vested interest in seeing a project financed no matter how (un)realistic the profit potential is.
For example, why you buy or refinance your home the bank wants their own appraiser to value your property. Nothing personal, but it may not be worth what you say it is. Now imagine a bank developing property and being the entity that provides the loans. Where is the independent appraisal? How can other investors (of the property and the bank) and customers of the bank to be assured that their money isn't being used to finance suspect deals?
If you want to see a real real estate bubble, and not just one made up by the media and politicians, just allow banks to become real estate dealers.
I am all for free markets and minimal government intervention in commerce, but there is no way the actual risks will ever be disclosed by banks running both ends of a deal. As the "developer" they will assure you that the financing is all set and it wouldn't have been without a full examination of the profit potential of the project. As the "financier" they will assure you that the project is a sure-win and bound to make money, that's why they're backing it with loans. It is like writing yourself a check for a million dollars and then trying to use that as collateral for a loan, because hey, you have a million dollars with which to pay back the next loan!
Who gets left holding the bag? Consumers who buy into the projects or who invest in the banks which go south (sometimes literally as their owners make a dash for Florida with a suitcase full of money).
We tried this before and it didn't work. It would be a huge mistake to try it again.
Full disclosure: I am a real estate agent.