9 February 2009
Hotel Lawyers contemplating the cleanup ahead. Today and tomorrow may either mark a turning point for economic recovery or just another ledge we bounce off before we plunge into a deeper abyss.
What happened today? President Obama held his first press conference, particularly focused on the economic crisis. The President’s bailout bill cleared a critical hit a hurdle in the Senate and is expected to be passed tomorrow, February 10.
Also tomorrow, we expect “the other shoe will drop” as Treasury Secretary, Timothy F. Geithner, lays out the Obama administration’s new plan to bail out the nation’s banks.
Here’s why this will be a watershed moment.
President Obama’s trip to Elkhart, Indiana today, before his evening press conference, focused the public’s attention on the unemployment crisis. President Obama used Elkhart as the example, saying that its 15% unemployment rate could spread elsewhere if we don’t solve the crisis.
In his press conference tonight, president Obama used a “different voice” — a more forceful one. He said, “This is not your ordinary run of the mill recession. We are going through the worst economic crisis since the Great Depression.”
He also said, “We’ve lost, now, 3.6 million jobs. But what’s perhaps even more disturbing is that almost half of that job loss has taken place over the last 3 months, which means the problems are accelerating instead of getting better.”
A bad bank to liberate toxic assets?
One of the most critical questions to be answered in the coming days will be the mechanics and the effectiveness of the program to deal with the virtual gridlock on liquidity and finance.
From a press briefing reported tonight by the New York Times, it is believed that Geithner largely prevailed in internal debates over the shape the plan will take. Many are reading his early comments to indicate that there will be a bad bank or aggregator bank or “RTC-2” to get the toxic assets out of the banks and get the system running again.
Michael Shannon, of KSL, summed it up well last week at the ALIS conference when he said that nothing has happened to loosen the economy up and nothing will happen until these toxic assets are moved off the balance sheets of the banks and are finally disposed of with RTC-2 or whatever it may be called.
Private. capital will not come into the game until there is some confidence of “value” again. Until values are re-established, and public policy is known, it’s a fool’s game to buy troubled assets at anything other than pennies on the dollar. When the federal government is potentially going to spend hundreds of billions of dollars — possibly trillions of dollars — who wants to bet against the government or invest without knowing their policies?
The business world loves certainty, even grim certainties. We need to get things moving again.
To better understand how this all affects the hospitality industry, please see some other recent articles listed below:
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We’ve done more than $50 billion of hotel transactions and more than 100 hotel mixed-used deals in the last 5 years alone. Who’s your hotel lawyer?
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