What a week, eh?  Talk about riding a rollercoaster!  More banks and companies failing, more local builders (Renaissance) “reorganizing debt”, candidates sparring, government officials looking to point the finger, but more importantly, more and more uncertainty in the housing market both nationally and locally.  I have a whole file drawer full of potential buyers right now, more than any other single point in my career, that are “waiting”.  And I really can’t blame them.

How we got in this mess may remain a mystery for decades, but it starts with sub-prime mortgages.  We’ll hear the real truth 30 years from now, while watching a late night expose special.  When no one will really care anymore, because we have made it through it, whatever that outcome will be.  More importantly, how are we going to get out of this mess?  I can explain a part of it, fairly simply with the following story:

A Grocer, A Farmer, Potatoes & Pigs

Once upon a time, there was a grocer that owned a modest chain of grocery stores.  One day his produce broker came to him with an opportunity to buy a slightly lower quality potato than he  normally sold, at an excellent price.  The potatoes sell well at first, and literally everyone is buying potatoes.  Customers, who could not previously afford potatoes, could now enjoy potatoes with everyone else.   But because they weren’t the best quality, the potatoes start to go bad.  Customers that bought the potatoes on credit, start to return the bad potatoes to help relieve their debt. To make matters worse, the produce broker not only won’t buy the potatoes back, but has been arrested by the sheriff and is out of the produce business for good.

Meanwhile, the grocer can’t buy more, fresh potatoes because all of the grocer’s cash  is tied up in the rotten potatoes.  And the grocer is limited on the other produce he can offer because of his cash shortage, and because he is now working twice as hard buying produce at a higher price from local farmers, who are also suffering from the potato crisis.  The grocer is forced to stop extending credit, even refusing credit to those customers who always paid their bill every month.  He can now only sell to cash customers, who still demand the same lower price they’ve become accustomed to with the cheap potatoes.  The grocer is in a real pickle.  He is paying more for limited supplies, has fewer customers and is unable to raise his prices.  The grocer closes all his stores but one, and feels it’s a matter of time before he will have to give up the grocery business all together.

 Finally, a pig farmer stops by and says, wow, rotten potatoes, I just happen to have pigs that will eat your rotten potatoes.  The farmer buys the potatoes for a deeply discounted price, but the grocer couldn’t be happier.  He is rid of the stinking heap in his store, and now has at least a little cash to buy small quantities of better quality potatoes and other produce, and ultimately start re-building his business.  He feels fortunate, because other grocers had also been caught up in the cheap potatoes the produce broker was selling,  and had to close their doors because they couldn’t wait around long enough for the pig farmer to bail them out.  The grocer’s customers slowly return, and he will be able to extend credit again, but on a more conservative basis.

But who really benefits the most?  Why, the farmer of course!  He’s got a bunch of fat, happy pigs to sell at a good price.   He’ll sell whole, live pigs, he’ll butcher some and sell them off in pieces, he’ll even keep a few for himself.  His customers will be local customers as well as customers from distant lands.  All he has to do is keep his pigs healthy and fat until the market is ready for them.   He even has the thought that when this whole potato mess is over he might be able to invest his profit in a new venture.   He’s heard a lot of talk about energy farming lately….

Opinions expressed in this article are the opinions of author, and not to necessarily the opinions of Meadows Group Inc.
All rights reserved on all original content, non-original content is given credit | Michelle Berry | 2009