There is no doubt that we are living in a time when therehas never been a more closely tied relationship between politics,economics and real estate. In fact, the unprecedented level ofgovernment intervention has had profound implications for our realestate fundamentals. This has been true for both the residentialand commercial markets.In the residential market, the impact ofgovernment intervention could not be clearer. The government'sinitiative to increase the homeownership rate in the U.S. from, thealmost-equilibrium level of, 62% into the high 60s has been frontand center. This one initiative, which created a platform to putpeople into homeownership who could not afford to own homes,provided the shove off the cliff for Fannie Mae and Freddie Mac,leading them into insolvency. The mandate to put people into housesthat the could not afford to own them forced the GSEs to loosentheir standards. They would buy almost anything in sight whichencouraged banks to originate mortgages to anyone with a heartbeat.How could they possibly substantiate making those infamous "ninja"loans? You know, no income, no job, no assets......no problem. Astrong case can be made that this one initiative was the tippingpoint for our current financial crisis, setting the stage forparticipants in the marketplace to do what they do best whenopportunities present themselves. .Today, the government is themost important influencer of the residential market. BetweenFannie, Freddie and FHA, the government now guaranteesapproximately 92% of all single family mortgages in the country.Moreover, the government purchases most of those mortgages andkeeps interest rates low by having the Fed purchase most of themortgage backed securities and treasuries that are offered forsale.The first time homebuyers tax credit (which has been expandedto include some non-first time buyers) has created a very unusualdynamic. The average home price in the U.S. is presently about$178,000. Most buyers are getting FHA loans today which requireonly a 3.5% downpayment. This amounts to $6,200. The tax credit is$8.000. So essentially, the government is handing buyers a deed anda check for $1,800 and saying "Go for it". Haven't we seen thismovie already? If housing double-dips, it will not be a surprise.Inthe commercial sector, government intervention has, again, played aleading roll. In order to get the credit markets unfrozen, TALF wasexpanded to apply to commercial real estate in the hope that itwould stimulate the secondary market. The PPIP was created toessentially achieve the same objective. While neither programproduced nearly the direct results that were expected, they serveda useful purpose in that their sheer existence brought creditspreads in, helping to thaw the frozen markets.However, the bestthing that can be done for commercial real estate is for thegovernment to focus on job creation. The relentless pursuit ofother unpopular agenda items does little for CRE and, in fact,hurts our market. Job creation will help fundamentals get back tothe point where we will see occupancy rates rise and rent levelsincrease. When I mentioned this at a conference I was speaking atrecently, one audience member stated that when it comes to jobcreation, "We can't expect the president to be a miracle worker".Miracles we don't need; just a little focus and some strongleadership.A tax policy that can be relied upon would be a goodstart. Within the past two months, for instance, we have heard thatthe Bush tax cuts will be extended, that they will sunset and thatthey will be extended for some Americans but not for others. Isyour head spinning too? Without anyone in Washington (on eitherside of the aisle) being able to show political will tosubstantively cut spending, how can we be lead to believe anythingother than the fact that our taxes will rise significantly?Uncertain tax policy has been one of the major reasons employersgive for not hiring, even when a current need exists.Another jobcreator would be consumer stimulation. Why does the governmentincrease taxes, process those dollars through an inefficientmachine that removes some of the money in the form of waste, fraudand abuse, and then doles out what's left in the form ofentitlements and bailouts? Why not just cut taxes and have 100% ofthe money go directly to the consumer? Tax cuts have workedeffectively in the past and both parties have used this tool. Notonly did Ronald Regan use tax cuts to stimulate the economy but sodid JFK. Few people remember that.The president claims thatdoubling our exports would create over 2 million jobs, yet threetrade agreements have been sitting on his desk since he took officewith no attention given to them. It is unlikely this will changeuntil after the mid-term elections (if ever) as union support iscritical for this administration and organized labor does not favorfree-trade. This is unfortunate as free trade agreements help openmarkets and expand opportunities for American workers andbusinesses as they can enter and compete more easily in the globalmarketplace.Spending on infrastructure would seem to be anotherarea in which job creation could be attained. Only 11% of the $787billion stimulus was targeted towards infrastructure and much ofthat money has not been deployed yet. The idea of forming anInfrastructure Bank has been discussed which would create apublic/private initiative to build, augment and upgrade the coreinfrastructure in the U.S. which is greatly needed. Peoplepoint to "green jobs" as a possible answer. Thus far, the resultshave been disappointing. $5 billion of government money wasallocated to weatherization programs with the intention of puttingas many as 87,000 workers back to work "right away". Many of theseworkers would presumably be in the construction industry, a sectorin dire need of assistance. Thus far, only 2 of the 10 highestfunded states have completed over 2% of planned units. In New Yorkfor example, we finished a whopping 280 homes out of the planned45,400. California competed 12 out of 43,400 and Texas was unableto get anything done out of the 33,908 they had planned. Thosethree states have a total population of about 80 million and only292 homes have been weatherized, hardly making a dent in that87,000 jobs number. The biggest concern participants in thecommercial real estate market should have is that we are now soclosely tied to government intervention and policy. This is scary.The track record of Washington's policy making and initiatives(created, implemented and overseen by both Republicans andDemocrats) has been far from stellar. The U.S. post office wasestablished in 1775 and is now insolvent. Social security wascreated in 1935 and it is insolvent. Fannie Mae was established in1938 and it is insolvent. Medicare and Medicaid - insolvent.Freddie Mac - insolvent. The Department of Energy was formed in1977 to lessen U.S. dependence on foreign oil. Since then, thedepartment has grown to 16,000 employees with an annual budget of$24 billion. The result is that we import more oil than everbefore. Is it any wonder that only 35% of Americans want thegovernment running a business which represents 1/6^th ofour economy?Simply put, Americans are concerned today. Concernedabout government spending, taxes, deficits and where we will be in5 years or 10 years. These concerns impact hiring decisions andconsumer spending. And those things greatly impact the fundamentalsof commercial real estate. Clear direction and sound policy wouldgo a long way towards normalizing things. We all want our market torecover as quickly as possible. Let's hope it happens more quicklythan we expect.Mr. Knakal is the Chairman and Founding Partnerof Massey Knakal Realty Services in New York City and has brokeredthe sale of over 1,050 properties in his career.