Monday, July 31, 2006

Larger Issues Effecting Our Economy

Although this is primarily a marketing blog, I do want to keep readers in the loop on what is happening in our economy and what politics may effectively shift how everybody does business. This press release published on the NAR website is one of those issued:

Essentially, Wal-Mart and its subsidiaries are applying for FDIC insurance of its financial groups and a House Subcommittee is reviewing the application. Although unlikely to pass, the application sets a dangerous precedent for large companies. The basis for market valuation, and indeed every business endeavor is the balance between the risk that the investment poses and the potential reward. Often times, the risk associated with a project or investment is the complete loss of the investment. Subsequently, adequate potential reward must sufficiently off-set the risk in order for an investment to be “worth the risk.”

So how does this translate to business and to larger corporations? Well if you have a potentially beneficial investment opportunity, you need capital to invest in the opportunity. However, capital is scare but can be borrowed from the bank. So you go to the bank, explain your opportunity and try to borrow money. If your opportunity is a sound investment with an acceptable amount of risk, the bank issues the funds and you make the investment (This is more applicable to larger organizations than private individuals. Most banks have a really hard time loaning individual’s money for investment opportunities)

Okay, so what happens when you own the bank and the government underwrites some of the losses you may experience? Well, your acceptable level of risk for a potential return has the potential to become much greater. You can take much bigger risks and potentially lose a lot of money with the assurance that the taxpayers will bail you out. Personally, I can’t afford to bail Wal Mart out if they start loaning money to their subsidiaries for projects that have an unacceptable level of risk.

Okay, off the soap box and on to finding leads for real estate agents.

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