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[The Housing Helix Podcast] Dan Gross, Newsweek & Slate Columnist

June 7, 2009 | 10:37 pm | Podcasts |


This week I speak with Dan Gross, a senior editor and columnist at Newsweek and he writes the “Moneybox” column for Slate. Dan covers economic topics in his columns and has written a number of books with the most recent available as an eBook titled “Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation”

Keywords and phrases from Dumb Money:

  • [BSH] Bourgeois Suburban Heaven
  • Stray hedge fund managers scrounging for food
  • Trumpensfreude

We also talked about the second home market and wondered whether the commercial real estate market was the next shoe to drop.

Check out this week’s podcast.

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.


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Wondering If The Negative Gravy Train Has Left The Station?

May 6, 2009 | 12:34 am | |

You’ve got to admire people that go out on a limb and call a market as a contrarian and turn out to be right. It’s a lucrative opportunity for those that are able to monetize it.

There is a lot of discussion lately about a slower pace of decline and that the end may be within the few years. The recession is expected to end at the end of this year and unemployment is expected to top out in about 18 months. In other words, there is plenty of room in the tank for financial opportunities for negativism.

Some notables who seem to continue to do well are:

The Housing Bubble Blog and others like it were screaming that the bubble was going to burst. They were right, despite all efforts by NAR to keep them in check. Ben Jones is one of the most prolific content posters and has the gold standard blog name for the subject. I’ve linked out and have been checking in with his work since late 2005. Although he is a free lance writer, his content appears to be collected by copying full articles from primarily newspapers and magazines around the country – with little or no analysis. Yet he’s consistent and finds a broad array of the key articles of the day. He still attracts hundreds of commenters on every post and all kinds of theories and ideas are shared. He takes donations and has banner ads. He’s created a grass roots feel.

But site traffic is down by more than half over the past year. Are people tiring of the negative?

Professor Robert Shiller, who is a very nice person and has published some terrific work on the wealth effect, economic psychology to name a few, was able to capitalize on the contrarian perspective with his book Irrational Exuberance and the subsequent update to include housing. He called the NASDAQ and housing market bubble correctly and has since released two additional books.

According to Shiller we are looking directly in the face of an enormous “speculative bubble” and the question is not whether stock prices will fall but when!

He tirelessly promoted the S&P/Case Shiller Home Price Index which has become the defacto standard for housing indexes by virtually all news outlets and economists. Despite his efforts and those of S&P, the trading markets for which the index was created, has yet to gain significant traction.

Nouriel Roubini, economics professor at NYU who is also known as Dr. Doom, has been spot on in his calling of the housing bubble. He was so blunt and negative that he quickly gained many detractors.

By late 2004 he had started to write about a “nightmare hard landing scenario for the United States.” He predicted that foreign investors would stop financing the fiscal and current-account deficit and abandon the dollar, wreaking havoc on the economy. He said that these problems, which he called the “twin financial train wrecks,” might manifest themselves in 2005 or, at the latest, 2006. “You have been warned here first,” he wrote ominously on his blog.

I’ve heard his consulting firm RGE Monitor is doing well but I have no way to confirm.

When he spoke at a convention in New York, several people quipped to me that they needed to jump out of a window because the world was ending.

Roubini was known to be a perpetual pessimist, what economists call a “permabear.”

He’s been hard to find fault with, and he fights with Jim Cramer calling him a buffoon. His recent opinion piece in the WSJ called We Can’t Subsidize the Banks Forever was strong, yet was also called to task for misquoting the IMF.

However this info was just released which makes Roubini right once again::

Regulators have told Bank of America that the company needs to raise roughly $35 billion in capital based on results of the government’s stress tests, according to people familiar with the situation.

Thus, I answered my question. The gravy train for pessimism is still in the station.


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Dumb Money Yields Paradox of Thrift

April 29, 2009 | 10:55 am |
The Colbert ReportMon – Thurs 11:30pm / 10:30c
Daniel Gross
colbertnation.com
Colbert Report Full EpisodesPolitical HumorGay Marriage Commercial

My friend Dan is at it again – he claims to be on the “C” list of regular guests on MSNBC Countdown – now he’s achieved the pinnacle of every writer’s dream, to be interviewed by Stephen Colbert. He’s humping his new book, Dumb Money.

Colbert Nation summarizes:

Daniel Gross urges rich cable TV personalities to buy steaks, cigars and whiskey.

Very salient interview and I must say, very entertaining.


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Wait A Second, Perhaps There Isn’t A Housing Crisis?

April 14, 2009 | 1:03 am |

I always thought the word crisis wasn’t the right word for the situation we find ourselves in these days. I see this more as a housing reset. It’s when the issue crosses over into the mortgage/credit arena, then we are in a crisis – sort of a technical malfunction. Massive de-leveraging = a crisis I suppose.

There’s a good article in Forbes called, oddly enough: “The Housing Crisis Isn’t A Crisis.”

This brings us to Zywicki’s disagreement with the Obama administration. Treasury Secretary Timothy Geithner, Director of the National Economic Bureau Lawrence Summers and the other adepts in the administration all argue that the bursting of the housing bubble amounts to a national tragedy. According to President Obama himself, the “crisis” is “unraveling homeownership, the middle class and the American Dream itself.”

…and we start to realize how much power the financial services sector wields over Washington policy makers. This is best explained in Simon Johnson’s piece in The Atlantic called The Quiet Coup.

Of course many find it easier to simply blame the person in closest proximity in this fun piece in Salon by Erica Ferencik called They shoot real estate agents, don’t they? Erica bills herself as “a recovering stand-up comedian and featured guest on NPR’s “Morning Stories.” I recently plugged her recent novel, “Cracks in the Foundation” which is a good read. Erica promised me an Orange Julius or a mention of my eventual first book in her blog, whichever comes first.


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[At First, Insight] 1Q 2009 Manhattan Market Overview Available For Download

April 2, 2009 | 9:54 pm | | Reports |

The 1Q 2009 Manhattan Market Overview that I author for Prudential Douglas Elliman was released today.

Other reports we prepare can be found here.

The 1Q 2009 data and a series of updated charts are also available.

Press coverage can be found here.

An excerpt

…Last fall’s rapid change in market conditions established a new housing market that reflected a lower level of activity and a reset of housing prices. The tipping point, which occurred last September at the bailout of Lehman Brothers and bailouts of AIG, Fannie Mae and Freddie Mac, marked a sharp contraction of credit, greatly restricting demand as participants had more difficulty obtaining financing. A national recession, rising unemployment and reduced compensation in the financial services sector also played a role in restricting demand. The market reset caused sellers to be more than a year behind the current market, still setting list prices in relation to the last high water mark in their respective buildings. This resulted in the expansion of inventory, listing discount and days on market metrics…

Download 1Q 2009 Manhattan Market Overview

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The Black Swan and Really, Really Dumb Smart People

March 31, 2009 | 12:22 am | | Milestones |

Sorry but I am in Manhattan Market Overview high gear prep mode – the report will be published later this week – so I am pretty lame on the content side for Matrix at the moment.

One of my semi-regular podcast downloads is Russ Robert’s EconTalk. This week he interviews Nassim Taleb , the author of Fooled by Randomness and the Black Swan of a few years ago. I own the latter, but I think the former is over my head. I’ve never heard him speak before. I have now listened to this podcast 3 times already and thoroughly enjoyed it. Also make sure you read the slew of comments posted to their site.

Nassim Taleb talks about the financial crisis, how we misunderstand rare events, the fragility of the banking system, the moral hazard of government bailouts, the unprecedented nature of really, really bad events, the contribution of human psychology to misinterpreting probability and the dangers of hubris. The conversation closes with a discussion of religion and probability.

On one hand I am very leery of people who suggest they have all the answers to a problem but not the solutions – Nouriel Roubini is another example – but Taleb’s arguments are compelling. After all, I think we all want to understand how so many smart people could be so utterly stupid for so long. If it wasn’t mortgages as a vehicle, it would have been something else.

I loved the ten year flood example given in the notes of the interview:

A ten year flood has a higher probability than a 100 year flood, but the 100 year flood will be massively more consequential. You care about the probability times the size of the impact, the expectation of these events. Small-probability events can have in some domains, fat-tailed domains, a big impact and we don’t know how to estimate them.

Here’s the compensation scenario and moral hazard – notes from the interview:

Were heads of Bear Stearns and Lehman Brothers not aware of how much they were gambling or did they not care how much they were gambling? Combination. Three things: 1. fooling themselves, psychological dimension. 2. Had an interest in building huge risks and tail because if you blow up every 10 years, you will make 9 bonuses and the 10th year someone will pay the cost, not you. Vicious: taxpayers are paying retrospectively for the bonuses of the first 9 years. Banks are insolvent, have lost more than their capital base, but managers have kept their bonuses. Some of them have been wiped out because they went a little further than normal blow-up cycle. What about the ones who didn’t do it? Lower returns year after year; now should be doing extremely well, but now unable to buy up some of the firms that have made the mistakes because the government is propping them up.

Aside: Speaking of dumb, how about the new space station named “Colbert” and video. To see the vote page and the number one suggested name – go here.


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[Risk as a Bonus] US Treasury Makes Another Attempt To Fix Economy, Housing

March 23, 2009 | 11:21 am | |

Last week, Dan Gross at Newsweek wrote a fun piece on Slate/Newsweek called “Jump” (not a a correlation with the old Van Halen song). Basically he says that nothing the government can do will fix the economy unless we participate.

In the grips of a bubble mentality, we—as investors, consumers, and businesses—blithely assumed risk and convinced our­selves it was perfectly safe to do so. We bought houses with no money down, took on huge amounts of debt, and let the booming stock and housing markets perform the heavy lifting of saving.

I remember the ridicule the former president took for his previous economic fix after 9/11 – “Shop!” else we enter the “paradox of thrift.

If everyone saves during a slack period, economic activity will decrease, thus making everyone poor­er. We also need to start investing again—not necessarily in the stocks of Citigroup or in condos in Miami. But rather to build skills, to create the new companies that are so vital to growth, and to fund the discov­ery and development of new technologies.

I am not suggesting that shopping is solution, but it is certainly part of the problem right now. When consumers and investors hunker down and do nothing, a failure spiral results.

Today Secretary Geitner announces the plan we have been waiting for, which is heavily reliant on the private sector. US Treasury secrectary Geitner unvailed his second attempt at getting the economy moving again and this time there is probably no room for a do-over. Did he really call it “My Plan”?

We cannot solve this crisis without making it possible for investors to take risks. While this crisis was caused by banks taking too much risk, the danger now is that they will take too little. In working with Congress to put in place strong conditions to prevent misuse of taxpayer assistance, we need to be very careful not to discourage those investments the economy needs to recover from recession. The rule of law gives responsible entrepreneurs and investors the confidence to invest and create jobs in our nation. Our nation’s commitment to pursue economic policies that promote confidence and stability dates back to the very first secretary of the Treasury, Alexander Hamilton, who first made it clear that when our government gives its word we mean it.

Of course Hamilton was shot dead in a duel. Let’s hope this strategy has a quicker draw and better aim.

Here’s the official press release and fact sheet posted this morning.

Here’s the problem with the AIG bonus outrage that fueled this modification of plans – it’s not about being scared of keeping AIG and other Wall Street firms afloat and it’s not about the obscene lack of morality – it’s about the danger of scaring off the private sector from participating in the solution. It’s called “Free Market.”

Council of Economic Advisers Chief Christina Romer said:

“We’ve got banks with a lot of toxic assets, what ‘toxic’ means is they are highly uncertain … so that is certainly the big picture, and that is going to be the main reason for doing this … We simply — we simply need them. We need them — you know, we’ve got a limited amount of money that the government has to go in here, so we need to partner, not just with private firms, but with the FDIC, with the Fed, to leverage the money that we have,” she said.

$165M AIG bonuses (actually it’s $218M) and it’s symbolism of greed have been a distraction and we have to be very careful of taking our eye off the ball. Cut out the “Main Street versus Wall Street” homilies and let’s fix this.

Congress underestimated consumer outrage and the House quickly passed retribution legislation to get even via a 90% tax. Because the political playing field is incentivized by one-upsmanship, Congress is much more comfortable with this sort of grandstanding/finger pointing and that’s what this debate has regressed to. Dodd is in hot water.

It began with the previous legislation of caps on Wall Street compensation (when Congress didn’t catch it), while a feel good measure, is also a short sighted position much more apparent now because there will always be work-arounds.

I love how many simply lump all Wall Streeters into one evil pile and feel it’s right to treat everyone the same. It’s professional prejudice on steroids. A market for the “toxic” assets needs to be fostered. Do we want to get out this mess or not? No room for populist shortsightedness.

More on the plan later. In the meantime I need to download that song from iTunes – it’s systemic so we might as well jump.


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[Pi Day] 3.14159265358979323846264338327 95028841971693993751058209749445923078 1640628620899862803482534211…

March 14, 2009 | 10:36 am | |


Wikipedia

Given the uptick in the financial markets this week, the positive sign that many seem to be taking from it, and the fact that it involves endless digits of circular numeric calculations, yesterday was Friday the 13th (there are 4 in 2009), so we should:

Do The Math After all, its 3.14…

National Pi Day: Congress took time from it’s busy bailout schedule designating today as National Pi Day.

Here is, quite appropriately, an attempt at a monetized version. Some even argue that Pi is better than sex, but I suspect that is difficult to calculate. Wikipedia has an amazing presentation on Pi for those who are curious. Here’s the million digit version.

Per Wikipedia
Ï€ is defined as the ratio of a circle’s circumference to its diameter
Ï€ can be also defined as the ratio of a circle’s area to the area of a square whose side is equal to the radius

In real estate economics (Matrix-wise), a Pi-type formula might be expressed as:

property value = ((consumer confidence + (1-their employment outlook/their employment outlook)) + (personal drive for home ownership x irrational behavior) + ((total distance from schools+ total distance from employment)/(White Castle projected visits/Whole Foods projected visits))/(mortgage rates x cash on hand x affordability ratios x size of down payment)/(mood of bank underwriter – name on stadium factor + amount borrowed from US Treasury))

In other words, its complicated.

Perhaps we can turn to Albert Einstein because its his birthday today and simply use E = mc squared and apply it to housing values to figure this all out.

Ok, back to reality.


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Too Big to Fail Meets Too Failed to be Saved

March 12, 2009 | 11:27 pm | |

It’s becoming apparent that several of the large institutions that are in the vortex of bailoutdom are teetering: namely AIG and Citi. They were deemed too big to fail, bit now we are wondering if they are too far beyond saving.

I am struggling with this concept and am rambling here, but now is the time to fix things for the long term benefit. I am sick of quick fixes.

The Too Big to Fail policy is the idea that in American banking regulation the largest and most powerful banks are “too big to (let) fail.” This means that it might encourage recklessness since the government would pick up the pieces in the event it was about to go out of business. The phrase has also been more broadly applied to refer to a government’s policy to bail out any corporation. It raises the issue of moral hazard in business operations.

The top 5 banks are showing significant signs of weakness.

Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan Chase reported that their “current” net loss risks from derivatives — insurance-like bets tied to a loan or other underlying asset — surged to $587 billion as of Dec. 31. Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.

The industry never thought macro enough to consider systemic risk – as in “What happens if it all goes wrong?” Seems pretty basic.

The Federal Reserve appears to be trying to reform its ways and perhaps even the concept of too big to fail. Fed Chairman Bernanke just spoke to the Council on Foreign Relations

Until we stabilize the financial system, a sustainable economic recovery will remain out of reach. In particular, the continued viability of systemically important financial institutions is vital to this effort. In that regard, the Federal Reserve, other federal regulators, and the Treasury Department have stated that they will take any necessary and appropriate steps to ensure that our banking institutions have the capital and liquidity necessary to function well in even a severe economic downturn. Moreover, we have reiterated the U.S. government’s determination to ensure that systemically important financial institutions continue to be able to meet their commitments.

…while former Fed Chairman Greenspan has been attempting to re-write history.

David Leonhardt, in his piece “The Looting of America’s Coffers” said:

The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.

In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer said, would have operated in a completely different manner. The investors displayed a “total disregard for even the most basic principles of lending,” failing to verify standard information about their borrowers or, in some cases, even to ask for that information.

The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”

Last week, Sheila Bair of FDIC told 60 Minutes she would like to see Congress attempt to set boundaries for banks to remain as banks. In other words, they grow beyond a certain level, they become some other entity but can’t be bailed out if something goes wrong. Perhaps this implies a higher risk which is understood by investors, forcing the institution to decide whether it can afford to be bigger.

Let’s get our act together real quick or we also too big to fail?


Aside: Why make billions, when you can make millions? – Austin Powers


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Bank Failure Is An Option

March 8, 2009 | 11:30 pm |


Watch CBS Videos Online

60 Minutes had a good segment this Sunday called Your Bank Has Failed: What Happens Next? which was perfect timing because a number of people seem to be worried about their own banks failing.

I bank at one of the national firms in the headlines and, while the thought has crossed my mind, I still place a lot of faith in FDIC’s handling of the problem. Of course, the fact that FDIC could run out of money is a growing concern. Let’s hope our the message from elected officials doesn’t weaken confidence at a time of growing bank failures.

The clip discusses the too big to fail concept. In most cases, the failure of a small bank has limited if any impact on the depositors in those institutions, but it can wipe out investors in those institutions. Sheila Bair, FDIC chairman and one of the consistent voices of competency in Washington, suggested that lawmakers may consider some sort of cap on size – giving some definitions toward the “too big to fail” concept.

The larger exposure to mortgages over the past decade by most lenders in search of larger profits is a key factor here aside from the recessionary environment.

UPDATE – something I shared last week but thought I’d insert again because it was so good. Think banking, bailouts and “loser mortgagees.” Good grief.


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[Book Matrix] Cracks In The Foundation With Humor To Build On

February 16, 2009 | 12:06 am |

In this crazy economic world, we are probably in dire need of some levity. Erica Ferencik (pronounced “forensic” – certainly one of the most interesting last names around), a former stand-up comedian and active real estate agent working hard in this tough environment, has written her first book, Cracks In The Foundation.

Since I began blogging here in 2005, I have been sent many books to review. I don’t review the majority I receive but I end up referencing them if I liked them and include other books I have read whenever possible. I enjoy the process so keep sending ’em.

I had the pleasure of speaking to Erica a few weeks ago and found her to be disarmingly interesting and made me want to read her first book Cracks In The Foundation which she sent me. It’s gotten great reviews.

I enjoyed the book and highly recommend it.

Given her background, I can only imagine the application of humor in her current profession. Perhaps when buying or selling a house, besides professionalism, one can also expect the experience to be fun.

After all, we are all in the outhouse at the moment. Why not enjoy it?



[StimSpeak] I’m With The US Government And I’m Here To Help You

February 9, 2009 | 11:46 pm | |

Whatever your political persuasion, it’s hard to deny there is a whole lot more government in our future. It feels like the focus on housing has been lost in the stimulus shuffle, but then again the financial system needs to be “Stimmed” before housing can be repaired.

And of course, the recession is real. – Nancy Pelosi told us so. (hat tip: NY Mag).

Here’s some of the government related stimspeak.

Freedom fries are now on the menu.

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