The five key areas where the bailout will hit home for consumers
By Daniel at 28 September, 2008, 8:19 am
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Emergency measures
Bailout plan will help most Americans, but not as much as you might like
By Andrea Coombes & Ruth Mantell, MarketWatch
Last Update: 9/28/2008 5:18:00 AM
SAN FRANCISCO (MarketWatch) — The proposed $700 billion bailout package is aimed
at Wall Street, but how will it affect U.S. homeowners, consumers and savers?
The good news is the expected injection of capital into Wall Street likely will
help to prevent certain things, most notably the job market, from getting much
worse, economists said. The bad news is it won’t necessarily make the financial
situation of most Americans much better.
And whether the package will do anything to resuscitate the ailing housing market
is an open question.
Early on Sunday morning, U.S. policy makers said they’d reached accord on a $700
billion financial-market bailout but needed to put it on paper before declaring
it final. Read the article.
Click for Detail
No matter what its ultimate shape, the final bill isn’t expected to turn the
economy around — plenty of economists see more economic sluggishness and job
losses ahead even with a rescue plan in place — but the credit freeze
constricting the financial markets will likely start to thaw, helping more U.S.
companies tap the funds they need.
That, in turn, will help prevent a major increase in job layoffs, experts said.
The housing market is another story. “We have a collapsing housing bubble,” said
Dean Baker, co-director of the Center for Economic and Policy Research. “This
bailout won’t do anything, as best I can tell, about the collapsing housing
bubble, nor should it. The bubble has to collapse.”
Meanwhile, the rescue plan may lead to a slight increase in credit available for
consumers seeking auto loans, mortgages and credit cards. “There may be some
improvement in [credit] availability in the sense that banks might be a little
more willing to take risks with people that don’t have perfect credit histories,”
Baker said.
That doesn’t mean a return to the no-holds-barred leaps of faith lenders took
during the heyday of the housing market, but lenders might again take small risks
that they are unwilling to take today, some say.
Consider a consumer who defaulted on a car loan five years ago, but who has since
regained his footing and is otherwise a good credit risk, Baker said. “Banks are
erring now on the side of not giving those people credit, whereas if this
[bailout] goes through, things settle down, maybe they will be more like to give
those people credit,” he said. Still, lenders won’t be opening their purse
strings to borrowers who would stretch to afford loan payments, he said.
Importantly, small-business owners who today can’t get a loan might see that
change with the bailout. But this easing of the credit crunch could take months,
or longer. “You’re not talking about $700 billion coming into the marketplace
tomorrow,” said Greg McBride, senior financial analyst at Bankrate.com.
“If it’s successful, [the bailout] would bring about greater availability of
credit, particularly in the mortgage market,” he said. “Lenders that today are on
the sidelines because they’re unable to sell mortgages to the secondary market
and because they need to boost their capital base could come back into the
lending marketplace,” he said. But borrowers will “still need good credit, proof
of income and money for a down payment.”
And there are naysayers. Without serious executive-compensation reform, said
Peter Morici, an economist at the University of Maryland, “this is not going to
free up a lot of credit,” Banks “cannot create enough value creating financial
products when you pay 30-year old MBA’s $10 million a year.”
Here are the five key areas of concern to consumers where the bailout will likely
have an impact:
1. Mortgage rates
If you’re shopping for a mortgage, the bailout might make a loan more available
– but higher interest rates might make it less affordable. “The prospect of an
additional $700 billion in Treasury issuance is suggestive of higher Treasury
yields and consequently higher mortgage rates,” McBride said.
Already, the prospect of a bailout has mortgage rates hopping higher, with the
30-year fixed-rate averaging 6.09% for the week ending Sept. 25, up from last
week’s 5.78% average. See full story.
Click for Detail
Still, McBride expects mortgage-rate volatility for a while. “Longer term,
there’s a lot of concern about inflation, which would ultimately push mortgage
rates higher. But in the short-term, concerns about the economy could lead to
some dips along the way.”
Meanwhile, savers should keep an eye on the Fed and its rate-cutting penchant, he
said. Certificate of deposit yields “have been rising pretty consistently over
the last five months,” McBride said. “I’m not expecting a whole lot of movement
as long as the Fed stays on the sidelines.”
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
No comments yet.