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Foreign Buyers at the Ready


If the United States does not get control over the situation, another country will...


I realize the debate is hot and heavy surrounding the government's proposed mortgage bailout, however I am curious if those forming their opinions have taken into account what would be the ultimate ramification with a lack of government intervention. The media tells us that it would be the millions of people who lose their homes, and the financiers will chime in to discuss the repercussions of a continued credit crunch; however, not many are discussing what would be in my opinion the saddest state of affairs--a foreign bailout.

I am a believer in the human spirit, and having suffered setbacks myself, I understand the value of going through challenging times to emerge stronger and more experienced. The debate surrounding whether or not individuals or mortgage lenders should be bailed out of a mess they created unfortunately doesn't just stop there. Twenty years ago, it may very well have, and more than likely I would be on the side of allowing free markets to prevail. But, today is much different and if the United States does not get control over the situation, another country will. Ironically, since psychology is primarily based on assumption, whether or not the mortgage plan works isn't what really matters in this particular scenario. What is really important is that the perception now is that the US government is not willing to let the system fail, which does help those involved but also attempts to ward off foreign prey.

A few weeks ago, Abu Dhabi's Citigroup (C) deal marked a historic event that I believe not many are truly grasping. It was this outside intervention that not only put a floor in the US financial system, but sent a very loud message, telling the United States that buyers were lurking and at the right price, would gladly step in.

You see, free markets are the lifeblood of this country. Our foundation is only as firm as the dreams, aspirations and ability of its people to pursue their ideas. A government intervention, when things go wrong, does hinder this. Yet the alternative today is that the free markets expand much farther than the US national borders, and if we remain truly free, we are at the world's mercy.

At present the US is a two part economy based on service and finance. As citizens we can proudly say that we have the smartest financial minds at work and have built the world's strongest financial system. However, those minds, those companies, and those practices are also for sale through the stock market. At the right price, and with enough money, this entire system is on the auction block and can be purchased by anyone. While our current mortgage mess comes from the overbuilding from companies like Toll Brothers (TOL), Centex (CTX) or Lennar (LEN), as well as lending practices from companies like Countrywide Financial (CFC), the result has spiraled into a credit crunch as well as a devaluation of major financial institutions such as a Citigroup, Bank of America (BAC), or a Wells Fargo (WFC). It is the intellectual property of these financial institutions that is extremely appealing to foreign countries seeking to evolve from their single export roots.

Ironically, at the same time that this intellectual property is for sale at an extreme discount, the purchasing power of foreign bidders has increased dramatically. In simple terms, it would be as if you not only go into a store that has marked everything half off, but to boot you also receive another 25% through a mail in rebate. Regardless of what may still be coming down the pike, or the financial unknowns hidden off balance sheets, at the right price, foreign countries have to be licking their chops at the opportunities that present themselves in the US stock market today.

In years past, economic issues have always remained concentrated within this country's borders to be dealt with ourselves. The outside world did suffer as we went through domestic turmoil, however this time is much different. Rather than the outside world being at the mercy of US economic cycles, they are now waiting and watching with a checkbook open and ready.

In conclusion, while I realize each side in the mortgage bailout possess great points, and I too have strong feelings regarding this plan, we must truly understand that if the US does not at least present the illusion that it is at the ready, willing to protect the financial companies that have made this country what is today, they will be lost and we will not get them back.

PS – This morning UBS (UBS) is on the wires discussing its exposure and disclosed a Singapore investment.
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