Congress Finally Passes The "Bailout" -- What's Next?

How the market turmoil is changing marketing -- and everything else

It's what they had to do. It had to be tough: a whole bunch of these representatives are up for re-election, too -- and I think most of their constituency will vote with their wallets this time around! They added a whole bunch of junk pork into it, but in the end, they did what they needed to do to hopefully correct the financial issues threatening the market.

I don't think for one minute the market would have just "corrected" itself from this iceberg. None of us like the idea of the grasshoppers sliding by and the ants having to foot the bill, but there's more to this than that. There was pretty clear culpable liability on the part of the lenders and brokers involved… and don't get me started on the hedge funds and other investment entities buying the subprime notes on the "greater fool theory," with everyone figuring they could spin off the bad to the next guy.

Here's what really is unnerving about all this

Money is drying up. What bugs me is, most of the experts I keep hearing are saying things like "first of the year, spring at the latest, we should be recovering; Maybe even in better shape by this time next year!" Sure, it's a knee-jerk reaction but those knees aren't going to start running again -- there'll be a lot of crawling and walking before we see the pursestrings loose enough to really sustain economic growth. The people the lenders are targeting -- the scapegoats of the world? Real estate investors. Sure, some investors super-speculated. OK, a lot did. Some acted fraudulently, often in cahoots with real estate agents, appraisers and others in the chain. But by and large, the ones who could get us out of this mess fastest are the people who WANT to invest in properties, and who are willing to do so even now. Yet almost every rule, every underwriting action, has focused on this group more than the general public. And the general public -- homebuyers in particular -- are scared to death of buying real estate right now. So the end result is, while foreclosures increase, fewer homes can be recycled back into the market as fast as we need to help reverse this economic disaster.

The ripple effect -- it's not just about mortgages, people!

Refinance rules and regs will tighten up, making it harder for investors who use "hard money" or bridge loans (all at higher interest, balloon payments and shorter terms) to acquire and rehab property -- to then refinance at a reasonable rate. Reasonable as defined by their ability to cash-flow on the property.
This also makes it harder for Americans to pull equity out of their homes -- whether they need it for college, medical bills, or stupid money (like consolidating credit cards or going on a cruise). Well, time to tighten the belts.

The even bigger problem is the average credit card balance hangs around $1700. A significant number of people are at or near being maxed out on their credit cards. It's been interesting to me to watch how quickly people have "adapted" to $4.00 and $5.00 a gallon gas. At first traffic thinned out and really slowed down. Now the roads are full again and people driving like gas is $.50 a gallon instead of ten times that much (and yes, I remember when…)

Makes you wonder…

A little while back I realized why: most people are buying gas -- like everything else -- on their credit cards. And what happens when the price doubles? They don't pay more on the card; they just let their balance go higher!
What's Next? Watch Out For Q1!

Add to this the impending holiday season, and you've got a perfect storm. It's legend how terrible retailing drops off the first of every year. Why? Because people have gone nuts trying to impress friends and family with their holiday "spirit!" This coming January and February, watch out! That's when the "Joe Six-Packs" and "Soccer-Moms" will start really crying the blues. Imagine not having enough to fill up your F-150 to get to work! Or having to make decisions based on -- horrors! -- how much you can actually afford to spend! The question is, what are YOU doing right now to prepare for tighter credit for the foreseeable future, expensive gas (and everything else as a result), more work (as capital gets tight, spending slows, companies tighten up, layoffs increase and job loads and stress increases).
All of this means major demographic and psychographic shifts in the marketplace. Taking it away from the headlines and personal finances for a moment, what should we -- as businesspeople, as marketers -- do to address this changing market landscape? Give it some thought, and I'll share some of mine on that aspect in my next article.

Carpe Diem!

Emerson