April 20, 2009

The government action clearly shifted to the right the return distribution. It reduced the downside while increasing the upside. More importantly, the government actions shifted the risk away from the investor to the lender or holder of the leveraged paper. In the current case this is the U.S. Treasury. Given the parallel between real estate and the public-private investment program we should expect a similar response on the part of the investor. Investment in the sector will increase.

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