[Choking] No Questions Allowed, Ramming 700 Billion Answers Down Our Throats

September 23, 2008 | 12:51 am | | Milestones |

I don’t know if have much fight left in me. I am now reading the novel Choke (same author as Fight Club, an all-time favorite), the transition to this book seems appropriate at the moment.

We are spinning around in circles wolfing down the information we are fed and I think we are slowly, painfully moving in a more productive direction. But it is going to cost us dearly, talk a while and we don’t really understand how to fix it or prevent it from happening again.

It’s not enough for Wall Street to be reinvented. Of the 5 big investment banks, Bear and Lehman are now gone, Merrill was bought by BofA and Morgan and Goldman decided it was better to be a commercial bank.

Still no answers yet.

And old habits die hard – commercial banks don’t want assets valued at market value just yet because it might hurt their books before the bailout.

The SEC has been MIA and Paulson and Bernanke are moving in on their turf.

Members of the economic far left and far right don’t like the $700B bailout without answers either:

From the left

“This administration is asking for a $700 billion blank check to be put in the hands of Henry Paulson, a guy who totally missed this, and has been wrong about almost everything,” said Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington. “It’s almost amazing they can do this with a straight face. There is clearly skepticism and anger at the idea that we’d give this money to these guys, no questions asked.”

From the right

“This is scare tactics to try to do something that’s in the private but not the public interest,” said Allan Meltzer, a former economic adviser to President Reagan, and an expert on monetary policy at the Carnegie Mellon Tepper School of Business. “It’s terrible.”

Perhaps, the dialog for a solution can finally begin. The Brookings Institute released a brief: A Brief Guide To Fixing Finance

It’s all pretty basic but lays it out cleanly.

  • Policy makers need to set priorities – the problem is too vast to fix at once.
  • Know What Went Wrong Before Beginning to Fix Anything
  • Act In Our Own Interest, While Consulting with Other Countries
  • Principles To Guide More Permanent Reforms

They recommend these reforms should be:

  • First, financial instruments and institutions should be more transparent.
  • Second, financial institutions should be less leveraged and more liquid.
  • Third, financial institutions should be supervised more effectively, with greater regard for systemic risks.

Is gagging better than choking?


Tags: , ,


[Moral Hazard] No Atheists In Foxholes, No Ideologues In Financial Crises

September 22, 2008 | 12:01 am | | Milestones |

A lot has been made of the lack of moral hazard on Wall Street, festering into the current crises.

Michael Lewis, author of a number of great books, including Liars Poker comments in his recent column titled: Bright Side of a Total Financial Market Collapse:

No sooner did Greenspan shuffle off the stage and sell his memoir than the financial system he helped shape fell apart.

He’s left not only a mess but a void. No matter how well- educated we become in our financial affairs, we still need public officials to look up to, unthinkingly.

Slate’s new The Big Money is an excellent resource for financial news commentary. Martha White’s article: What Is a Moral Hazard? The economic reasoning behind bailout or no bailout is a good read.

While bailout seems to be the financial term du jour, right behind it is the more ambiguous “moral hazard.” Treasury Secretary Henry Paulson cited moral hazard as the reason not to swoop in to save Lehman Bros. and Merrill Lynch. Puzzling to many, though, was that while moral hazard was discussed in conjunction with the rescues of Bear Stearns, AIG, Fannie Mae, and Freddie Mac, it wasn’t a deal breaker in any of those cases.

…moral hazard is the idea that insurance in any form makes people riskier.

When I was 15 years old back in the Bicentennial summer of 1976, I rode my bicycle 4,400 miles zig zagging across the US with a group formerly called Bikecentennial. Of 4,000 people who participated, 3 people actually died riding that summer, and within our own group of a dozen riders, those who did wear helmets experienced wrecks and those who didn’t wear helmets (like me), were fine.

I often wondered if wearing a helmet made the riders more prone to take risks. I don’t think so – they represented a cross section of temperaments in our group. In fact, I bought a helmet when I got home and have worn one ever since – and no wrecks.

Perhaps it is more as an argument of convenience. Throw it in if it helps make the case?

The absence of moral hazard of the current situation was created by the GSE structure to begin with. Investors assumed the US would bail out ‘Mac & ‘Mae if they ever ran into trouble because they were “government sponsored”. I can only imagine what would happen to the financial system if the former GSEs were allowed to fail. “Faith and credit of the US” would have meant nothing forever, or at least as long as the current Yankee Stadium is old.

And the system seems to be unraveling quickly judging by more actions this weekend.

Paulson and Bernanke have been making moves faster than Congress or the President can seemingly comprehend. Expect Congress to start fighting the changes once they get it.

There are no atheists in foxholes and no ideologues in financial crises,” Mr. Bernanke told colleagues last week, according to one meeting participant.

A bit unnerving but the Bush administration has been disconnected from the crisis until a few days ago, when it began to back Paulson’s actions. In fact, that was a requirement of Hank’s acceptance of the position to begin with, unlike his predecessors in the current administration.

And the candidates, until a few weeks ago, didn’t discuss the issue directly – and still don’t seem to get and at the very least, didn’t see it coming. Paulson and Bernanke need to move fast.

The lesson learned from this bailout of epic (trillions) proportions, was best said by Floyd Norris in his Reckless? You’re in Luck

If an activity is important enough to justify a government nationalization to prevent a default, it is important enough to be regulated. The regulators need to know what risks are being taken, and by which institutions, in time to act before a crisis develops.

Had the government bothered to do that in years past, it might not have faced the decisions it faced this week. First, it let one big firm go down, and then it became scared enough to nationalize another one to keep it afloat.

Now, showing no sign of embarrassment over how badly they failed before, the current crop of regulators seem to be unified in their determination not to let the markets force them to make a similar choice on some other big financial institution.

It’s not about more regulations, its about regulations that deal with today’s markets.

Paulson and Bernanke will have to wrestle with these issues later, right now, they are suggesting we all wear a helmet.


Tags: , , , , , , ,


[Crackin’ The Crystal Ball] Short Selling Real Estate

September 18, 2008 | 11:00 pm | | Milestones |

About a week after 9/11/01, seven years ago to this very day in fact, I remember a real estate broker telling reporters that the market had fallen 30% over the prior week and was expected to fall much further. I got calls from several reporters to confirm or to provide empirical evidence to support or disprove the claim.

Falling 30%?

I basically said:

How can someone describe a market as “falling” only days after a significant event occurs when there is no activity to base such a conclusion? What is the basis? A client conversation concerning one deal?

When someone loudly calls a market (up or down) based on anecdotes rather than evidence, it’s irresponsible. Everyone is entitled to their opinion, but it should not be presented as fact.

At that moment back in 2001, who would have anticipated one of the biggest housing booms in US history (and we are painfully unwinding from that expansion right now) was soon to follow?

Fast forward 7 years.

A high end Manhattan broker did the same thing today. Without empirical evidence (no data), who can state the market is instantly down 25% a few days after the Lehman bankruptcy?

Was this pronouncement based on a handful of conversations with past clients? A gut feeling after years of experience?

Quick, call the SEC!

I suspect this was simply extracurricular media commentary by the individual because the brokerage firm is one of the big three in New York and has a great reputation.

Don’t get me wrong, I like Brian Ross’ work and ABC, but he falls short with headline…”Top Broker: NYC Real Estate Already In Steep Decline” …is considered “investigative journalism“? It’s more like entertainment journalism, no?

Better yet…

Good grief.


Tags:


[Credit Cross Section] Peeling Back The Bark On The Financial Crisis

September 16, 2008 | 10:10 pm | | Milestones |

Yesterday was sort of a media frenzy day for me, with calls all day about with the news of Lehman, AIG and Merrill – primarily, what was the linkage to New York City real estate, as well as the US?

Today I got a call from the New York Times asking me to share what I was thinking when I first heard the news about Lehman. It’s quick, I promise. Three others were interviewed from different walks of life in separate clips. Kinda neat.

It ended up on the front of the business section (middle column, center) tonight under the header “Shockwave” and then will permanently sit on the same page as the Patrick McGeehan article City and State Brace for Greater Demands on Diminishing Resources page going forward.

I don’t look forward to Fridays anymore. The weekends are exhausting. Mondays are as bad. Wait. That leaves Tuesdays, Wednesdays and Thursdays to relax. Ok, make that Tuesdays and Thursdays since tomorrow is going to be all about AIG and the Fed.

Listen the to the NY Times Business page audio clip.


Tags:


Growth By Mortgage = Death By Mortgage: Was It Worth It?

September 14, 2008 | 9:28 pm | | Milestones |

Well another Friday came and went and more weekend meltdowns were on the agenda. This time it was Lehman Brothers, the second big investment bank to experience trouble. I have friends at Lehman and they have been scared to lose their jobs for months, and yet they had nothing to do with mortgages. I know a couple with a large exposure in Lehman stock and have been paralyzed to take action to move out of the position for the past year. The time came and went, unfortunately. No bailout this time.

During the mortgage hay days, Lehman did a lot of new development deals. They occasionally brought us in for a “reality” consult after reviewing appraisals already done for new deals. We weren’t asked to do any project appraisals, only “reality check” on the price point and local absorption. I suspect they were “arbitraging” the relationship between reality and what needed to be done to make the deal. Smart people too.

When you think about the scope of the mortgage problem that continues to unfold, its pretty scary and likely has quite a way to go. It says a lot about how ridiculous the talk of “bottoms” and “temporary” conditions really are. I mean, the idea that housing is going to be fine in less than a year is completely insane given the damage that remains to be discovered.

I tried to think of the big players in the mortgage market of the past five years:

Countrywide: bought at a discount by BofA (for their technology/servicing)
WaMu: Under legal pressure, removed CEO, stock price fell to the floor, rumors of buyout
Bear Stearns: Big subprime player. Gone for nearly nothing by JPMorgan Chase
Lehman Brothers: Big mortgage player. Lots of development financing. Nearly gone
Merrill Lynch: Just bought by BofA
Barclay’s: Took their licks in write downs and were too undercapitalized to take over Lehman.
Fannie, Freddie: The housing bill placed nearly all it’s faith in Frannie and now the former CEO’s are eligible for $24M in parachutes. A potential for $200B in losses.

Up until now, the billions in mortgage losses were just numbers to me. But now, the numbers are more in context because they have brought down some of the biggest, most profitable financial firms out there.

All because of idiotic lending practices.

Old school leadership at these entities were no match for fast changing mortgage products without meaningful regulatory oversight.

Well, of course it wasn’t worth it.


Tags: , , ,


A Busy Week For Senators, Lawyers, Brokers And Ex-Fund Managers

June 20, 2008 | 12:12 am | | Milestones |

My kid’s last day of school was yesterday so I’m fighting the urge to take the summer off. Ok, it’s not possible, but I can dream.


It’s been a week to remember.

Fast and easy credit that was relatively unchecked by regulators provided the perfect environment for fraud, the creation of instant wealth and/or newly found leverage to those who were willing to use it or accept it.

We seem to be entering the fourth phase of the credit crunch (not marriage). Discover, Fret, Propose, Charge, Reconsider, Solve

This week’s persistence award goes to a woman who, for 6 months, tried to get someone at WaMu to talk to them about their mortgage (hat tip to Holden Lewis/Mortgage Matters). Can someone please explain to me how WaMu’s CEO has been able to hold onto his job?

Here’s Politco’s list of mortgages held by US Senators.

Tags: ,


Akron Is Just Like Iceland, Only With More Rock

April 22, 2008 | 12:05 am | | Milestones |

Every so often a city or location jumps out at me as getting a lot of coverage in the news. Sort of the Six Degrees of Kevin Bacon versus Credit Meets The Housing Market.

I was reading the review of the new blues rock album by one of my favorite bands The Black Keys. They are based in Akron and apparently love it there, despite its deep economic problems including unemployment and foreclosures. Home to Goodyear, Akron has fallen behind other metro areas (incidentally, Rubber Factory is TBK’s best work IMHO).

The following day I read the New York Times article Don’t Hate Me Because I’m Solvent which chronicled an Akron couple who own:

an exquisitely renovated 1913 Tudor house, with six fireplaces, a solarium and a billiards room, which is well within their means, in part because they paid $65,000 (12 years ago).

They have no mortgage and more importantly, the husband is a part time rock musician.

He is 44, the son of an engineer, married for 19 years, and a lifelong resident of Akron. He may also be the only person in the known universe who has both written for “Beavis and Butt-Head” and names “It’s A Wonderful Life” as his favorite movie. Mr. Giffels identifies with the film’s hero, George Bailey.

And what does this have to do with Iceland?

Insofar as Americans think about Iceland at all, it’s as a land whose remoteness belies a vibrant cultural scene featuring hipster titans, like Björk and Sigur Rós, and exceptional social conditions—it’s the top-rated country in the U.N.’s most recent human-development index. But in the financial world Iceland is now a hot topic of discussion for a different reason: many people suggest that it could become the “first national casualty” of the ongoing credit crunch.

Besides the musician reference, Iceland has represented the bright end of the economic spectrum, the opposite of Akron, whose economic problems were in play well before the recent housing boom not unlike it’s rustbelt neighbors, whom the boom largely passed by.

Now analysts are wondering whether the new Nordic Tiger will end up, instead, as “the Bear Stearns of the North Atlantic.”

Although Iceland’s banks avoided subprime mortgages, most of the capital it raised came from foreign investors. With the credit markets drying up, many investors are unwilling to invest in Iceland and the crunch has begun.

Iceland has been swamped by that tsunami because it trusted in the availability of global credit in time for that credit to evaporate. And the fact that Iceland has been so dependent on foreign investors makes those investors even more skittish about investing there: in markets, weakness often begets weakness.

In other words, the global credit crisis is not just about subprime lending. It is about the lack of availability of credit for investment (in Iceland) and an increase in foreclosures (in Akron).

No matter how loud the music was played in either place, everyone’s ears are still ringing.


Tags: ,


[Wall Street] Dominoes To Go

March 24, 2008 | 12:42 am | | Milestones |

Source: Slate

Click here for full sized graphic.

Supposedly, JPMorgan in Negotiations to Raise Bear Stearns Bid

Good grief, I don’t mean to come across as so gloomy. I don’t even know how to play dominoes.


Tags:


[Bear Stearns] Currency Of The Day: For $2 More

March 18, 2008 | 2:00 pm | | Milestones |

I can’t imagine what it would be like to lose everything you spent your career building up in one day. That’s what many of the employees at Bear Stearns are dealing with, and I am sure many of them had nothing to do with the downfall of the firm. A good friend of mine left the firm last year and is feeling like he made the right decision.

Can you imagine the litigation onslaught on its way? Employees could chuckle about something today.

According to Reuters this photo was found on the front door of Bear Stearns today:

Here’s some more gallows humor from WallStreetJackass referring to the page one WSJ article last fall on the bridge playing, pot smoking Bear Sterns CEO with a mocked up Bloomberg Terminal screen. Consistent with the reasoning why the economy is failing.


Tags: ,


[St Patrick’s Day’ March Madness] Like A Carnival Of Real Estate

March 17, 2008 | 12:01 am | | Milestones |

I have been out of the Carnival of Real Estate for quite a while and forgot how interesting it was to get posts from bloggers I wasn’t familiar with, as well as some great posts from long time friends.

I started getting post submissions on Monday and by today I had a lot of reading to do. Although the carnival hosts are expected to post only their favorites, how can I do that? I decided to provide a top ten list and then everyone else. I excluded a few get rich quick posts and those who seemed to be more interested in selling something or extra posts from those who submitted more than one. If I missed any legitimate posts, my sincere apologies.

Matrix Top 10 List

  1. Jay Thompson presents Deceptive Listings in the Phoenix Area posted at The Phoenix Real Estate Guy.
  2. Aaron Dickinson presents Star Tribune Prints the Wrong Story posted at Twin Cities Real Estate Blog.
  3. Howard Arnoff presents Understanding buyer agency posted at Charleston Real Estate Blog.
  4. John presents The Worst of Home Foreclosures Yet to Come posted at Top Real Estate Blog and Tips of Selling Home from Real Estate Guru Who Sells Home Like Crazy.
  5. MyNewPlace presents Green Apartment Construction Hinges on Living Density posted at MyNewPlace Blog.
  6. Tim Anderson presents The Copenhagen Report: The sound of the popping bubble: A bit about psychology and Copenhagen’s housing market posted at The Copenhagen Report.
  7. Dan Green presents Mortgage Video: Why It Matters When Mortgage Guidelines Change (Redux) posted at The Mortgage Reports Blog.
  8. Dan Melson presents San Diego Housing Market March 2008: Heating Back Up posted at Searchlight Crusade.
  9. Kathy Koops presents Why Bother Paying for Owner?s Title Insurance? posted at The Cincy Blog by Kathy Koops.
  10. Cindy Jones presents Northern Virginia Foreclosures-What Don?t You See posted at VA Real Estate Talk.

Here are other posts of note submitted in no particular order but are all a good read:

Thanks to all of those who submitted posts. It was a fun read and I’ll be expanding my blogroll this week. Don’t forget to check out Inman News Blog, next week’s host for the Carnival of Real Estate.

Its now 11pm EST on Sunday. Gotta get some sleep for a busy week ahead. an anticipated FOMC rate drop, plus more shoes to drop (are there any left?), making my March Madness picks and most importantly, someone has to paint that green line on the parade route tomorrow in Manhattan.

UPDATE: In my $2 per share Bear Stearns stupor and flood of emails, I inadvertantly left a great post off the list:


Tags: , ,


There Is No National Housing Market

December 2, 2007 | 1:47 am | | Milestones |

The use of national housing statistics has been a key source of confusion for consumers, real estate brokers, lenders, media, financial markets and government agencies among others. The statistics are often applied to local markets and properties. The reliance on these numbers for ground level use has a pet peeve of mine for many years.

When Radar Logic rolled out its first RPX Monthly Housing Report on October 2, 2007, we made sure that the focus was geographical housing patterns.

The report effort was based on the premise that there is no national housing market; rather, each of the MSAs, while having some economic influences in common like mortgage rates, is influenced primarily by local conditions.

I was encouraged by the release of the latest batch of market reports this week that have begun to make this point more clear in their press releases. When the market was rising, press release jargon tended to be much more focused on national numbers. I suspect we will see a shift in orientation since this is really a false premise.

Office Of Housing Enterprise Oversight [OFHEO] – November 29, 2007

The figures were released today by OFHEO Director James B. Lockhart, as part of the quarterly report analyzing housing price appreciation trends.

“While select markets still maintain robust rates of appreciation, our newest data show price weakening in a very significant portion of the country,” said Lockhart. “Indeed, in the third quarter, more than 20 states experienced price declines and, in some cases, those declines are substantial.

National Association of Realtors – November 28, 2007

NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., emphasized that all real estate is local. “Keep in mind that home prices are up in 93 out of 150 metro areas, and there is a lot of confusion in the market from reports about national data. Broadly speaking, home prices in most areas are up modestly or fairly stable,” he said. “Areas with population or job growth are seeing the strongest home price gains.”

National Association of Home Builders [NAHB] – November 27, 2007

Their comments on the release of the S&P/Case-Shiller numbers this month…

“We need to put these numbers in proper historical context by analyzing them over the long term, rather than in one-year increments,” said Brian Catalde, president of the National Association of Home Builders (NAHB) and a home builder from El Segundo, Calif. “The statistics released today also reaffirm that all housing markets are local, and conditions in them are dictated by the local economy and job market.




UPDATE: Economist Humor: A friend of mine, who happens to be a well respected economist, mentioned to me last week:

…there are 3 kinds of economists: the kind that can count and the kind that can’t.


Tags: , , , , , ,


[RPX] Residential Property Index Powered By Radar Logic To Go Live 9-17-07

September 12, 2007 | 2:23 pm | Milestones |

Radar Logic has spent the last several years working for the market launch set for this Monday, September 17, 2007.

Its been a significant effort that has resulted in the development of the Residential Property Indexâ„¢, code-named RPXâ„¢. I became involved in this venture to provide commentary and research products to leverage the proprietary technology. The real estate market information covers 25 MSA’s plus a national composite. Its exciting stuff.

Here are a few snippets from the press release:

New York, NY – September 12, 2007 – Radar Logic Incorporated (www.radarlogic.com) announced that derivatives trading in the Residential Property Index (RPX) market will begin September 17, 2007. Trading will be based on the RPX Prices, single values representing price per square foot based on actual transactions in residential real estate in 25 U.S. Metropolitan Statistical Areas as well as a 25-city composite.

Dealers licensed to offer products in the RPX market include Morgan Stanley & Co. Incorporated; Lehman Brothers Inc.; Merrill Lynch, Pierce, Fenner & Smith Incorporated; Deutsche Bank Securities Inc.; Goldman Sachs & Co.; and Bear Stearns & Co.

Michael Feder, CEO and President of Radar Logic Incorporated said, “The launch of the RPX market provides both investors and participants in the real estate industry with sophisticated tools that have not been available to them before. The granular applications of the RPX-based derivatives should allow substantial utility for all interested participants. We are excited by the reaction that professionals have had thus far.”

More announcements to follow!


Tags: , ,

Get Weekly Insights and Research

Housing Notes by Jonathan Miller

Receive Jonathan Miller's 'Housing Notes' and get regular market insights, the market report series for Douglas Elliman Real Estate as well as interviews, columns, blog posts and other content.

Follow Jonathan on Twitter

#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
NYC CT Hamptons DC Miami LA Aspen
millersamuel.com/housing-notes
Joined October 2007