Washington and the Federal Reserve have it 180-degrees wrong, says longtime developer and housing-finance expert Stanley Tate. He says current policy is keeping the banks from lending money, stunting growth and keeping unemployment high.
The “book economists” at the central bank are doing damage to the housing market, which Tate believes has already bottomed and could grow strongly if only banks would start lending. He said Federal Reserve Chairman Ben Bernanke is doing a "terrible job" and his policies are wrong.
“There’s more money available in the banking industry than ever in the history of the United States,” Tate tells Newsmax.TV. Tate was CEO of the Resolution Trust Corporation in the Clinton era. Today he runs Tate Capital Real Estate Solutions, a private real-estate fund.
“The difficulty is that they’re not lending it to where it should be. None of it is being lent to new businesses, none of it is being lent to housing, none of it is being lent to anything that would constitute job opportunities. That’s one of the reasons unemployment is at a high level.”
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The prevailing idea at the Fed has been to create trillions of new dollars, using some of that money to buy up Treasury bonds in hopes of keeping rates lower than the free market might otherwise set.
Simultaneously, the Fed has been paying banks to leave the money in their accounts at the Fed, providing the banks with liquidity but not necessarily the economy.
The result, so far, has been a low interest rate but also extremely limited private lending. Tate says that the answer is to let the market take back over. That likely would lead to higher rates sooner.
“I believe if interest rates rise, you’re going to get an increase in the recovery. And that’s because you’re going to get the lender, the banks, more interested in lending to developers and builders who are building new product,” Tate says.
An increase in building might seem like a catastrophe, considering the huge numbers of underwater loans across the country. Tate says the reality is quite different, at least for builders of residential homes.
“The amount of product which is available now, which is distressed property, is probably going to be exhausted in a couple of years. And it takes six months to a year to get the property developed, ready to be built, do the infrastructure, and then build the spec houses and build models. So, you need that lead time,” Tate says.
Home builders could be caught off guard by a sudden turn in housing, forcing them to scramble to catch up to demand.
“I think the single-family residential market has generally bottomed out in most areas. I believe that there will be recovery coming,” said Tate, echoing the position espoused by billionaire hedge-fund manager John Paulson.
Paulson, who bet big against housing in the crash, has been buying up land in expectation of a coming housing boom.
Commercial real estate, the specialty of Tate’s fund, is another ballgame, he says.
There, Tate sees a “huge amount of product on the market before the end of this year,” largely in the form of strip shopping centers. Coming commercial real estate problems could even precipitate a second recession, Tate says.
“There’s probably close to $1 trillion of non-performing loans. A trillion is a thousand billion. That’s a lot of property. It’s primarily strip centers, many of them older than newer, and that market hasn’t really begun to be foreclosed by the lender, but it’s starting,” Tate says.
“The question is, are there going to be buyers? And if not, what’s going to happen to the banking industry that still owns the paper.”
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