Effects Of Foreclosures After Real Estate Bubbles Burst In Emerging Markets

Dec. 26, 2011 1:32 AM ET13 Comments
William Gamble profile picture
William Gamble

It took some time, but they are finally beginning to get it. Leading financial analysts, money managers and economists have commenced to comprehend that real estate bubbles in many emerging markets could crash. The Nobel Laureate economist Paul Krugman wrote in his New York Times column that China was another emerging danger as its credit fueled real estate bubble burst. The same concept has at last dawned on hedge funds A hedge fund owned by the famous private equity firm Carlyle sent an elite strike team to do a “deep-dive research trip” to China. It won’t help. They might find what is, but they have no idea of what is to be.

To find out we have to look at what was. The United States state of Texas had a real estate bubble in the late 1980s. When the bubble collapsed, the banks were stuck with massive bad real estate loans. To solve the problem the US created one of the first “bad banks”, the Resolution Trust Company (RTC). The banks transferred the bad loans to the RTC along with the job of foreclosing on and selling the property.

The RTC tried to do its job, but was stopped when local real estate interests complained loudly that sales of foreclosed property were depressing the market. When the RTC stopped selling, the market froze. The buyers stopped buying, because they knew the RTC would eventually have to clear its inventory. After a time economics overcame politics and the sales restarted.

Today the US has a similar problem. Almost 30% of houses sold in the US in 2011 were the result of foreclosures. Over 3 million homes have been foreclosed since the real estate market collapsed. But the market still has not cleared. Although many of the foreclosed homes do get sold, they make up less than one

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William Gamble profile picture
William Gamble has been active in the international business as a consultant, lawyer, investor, and corporate counsel for the past thirty years. He holds two law degrees, an executive MBA and has attended several universities in the United States and France. He has been a member of several state and federal bars. He has spoken five languages, visited over 40 countries and climbed Mt. Kilimanjaro. He has developed an original methodology derived from law and economics and game theory to determine the economic efficiency of a legal infrastructure. His premise is that economics is not just about capital and technological constraints. It is also about political-legal institutions, such as the protection of property rights and the enforcement of contracts that are critical determinants of sustainable economic growth and investment opportunities. His methods allowed him to successfully predict the crash of the Chinese, Russian, Brazilian stock markets along with the price of oil. He has appeared on many television networks including, ABC, CNN Asia, CNN FN, Bloomberg, Fox, CNBC and NDTV Profit in New Delhi. In addition to television, he has appeared on NPR, Bloomberg, and over 60 radio stations throughout the US. He has also appeared in Canada on the CBC and in China on Voice of America. His most recent book Freedom: America’s Competitive Advantage in the Global Market was published in 2007. His other publications include a book: Investing in China, Legal, Financial and Regulatory Risk, and numerous articles for various journals including Foreign Affairs, Harvard International Review, International Financial Law Review, and others for the International Assessment and Strategy Center. He has have published letters in the Wall Street Journal and over 27 in the Financial Times. He has spoken at many conferences and programs all over the world. As a participant in the CFA Institute’s Retained Speaker Program, he has made presentations in 10 countries and 10 US cities in the past year. He has testified before the US China Economic and Security Review Commission. He has been quoted in The New York Times, The ANALYST (India), CNN.com, Smart Money, USA TODAY, The Far Eastern Economic Review, The International Herald Tribune, The South China Morning Post, Sankei Shimbun (Japan), The Sacramento Bee, The Hartford Courant and on the internet at many web sites including NewsMax.com, ProDevelopment (Russia), La Opinion, Univision (Spanish).

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