Fear: Something fishy swims here.


As 2008 is coming to a close, we all look back in stunned silence. What Happened?

Fear, for one thing. Sometimes financial markets remind me of schools of
fish. All the fish dart one way, then one fish gets nervous, turns-- and
the whole school turns as well.

And sometimes, when the fish are in a state of fear, they freeze. They think--
"Ha! I'll just be very still, maybe that shark coming toward us will think I'm
a piece of coral."

It is amusing to watch an aquarium for a while and notice the behavior of the
group of fish, each trying its best to survive, but each acting out of group fear.


Over the last year, each time there was some bad bit of news, the whole school of
investors got startled, and like a group of fish, all moved at once, darting left, then right,
then freezing still, then darting back again-- ending up in the same place, but with
a lot of wasted effort.

I watch Jim Cramer or Maria Bartiromo try to make sense of fear and panic in
the suites-- the fear mentality: sell, buy, freeze, sell. no one seems to remember
the panic and fear from yesterday ("Oil prices are going to the MOON!" ); there
is always a new scare today ( "This will be another Great Depression!").

In real estate, we seem to have some schools of fish trying to figure out how better to
be a diner rather than some shark's dinner. And it isn't easy, because every time one
fish moves, another 100 fish follow, creating enough of a stir so that every shark in the
sea knows where to find a tasty supper.

So what do fish have to do with buying or selling real estate? Well, sometimes it is better
NOT to swim with the fishes.

Sometimes the smart thing to do is to swim off, find a nice piece
of coral, settle in, munch on some plankton--and avoid sharks and panic.

Sometimes you just have to let all the others consumed in panic to rush madly
about. But usually fear and panic don't lead to the best decisions.

Enough fish tales: buyers and sellers of real estate have to think
clearly and independently. Just because TV and newspapers have
been promoting fear desn't mean people haven't been selling real estate
and others buying it. Each person's circumstances are unique. Some
people will profit based on panic selling (think of all the poor souls
who sold NYC real estate after 9/11, convinced NYC prices would
plummet).

Prices for apartments and homes will probably decline in NYC, but that isn't
cause for either gloom or panic. It may be a great opporunity for a buyer to
pick up a more reasonably priced apartment, or it may be time for a seller
to take his profit now. Either way, the decision should be based on individual
considerations: learning about neighborhoods and job opportunities,
thinking about future needs and family plans, and what kind of quality of life
one wants and can or can't afford.

2009 should be a challenging and exciting year-- Dive in, the water is fine!

What Obama Will Mean for NY Real Estate

Finally the election is over.... I thought we'd never reach Election Day. And even though I
enjoy politics and current events, a steady diet of campaign sound bites and electoral coverage
became rather tedious.

I'm glad Obama won, having nothing to do with race and the first African American
to win the Presidency. That is something we can all be proud about, but going into a voting
booth and pulling a lever isn't going to end racism and poverty and all the world's ills.
I hope Obama's experiences, including his having lived in Indonesia and having immediate
family in Kenya-- will give him a global perspective. And although I tend to be
skeptical of hype and I like to be a contrarian, I finally had to conclude that Obama-- with the
strange name and sometimes controversial allies-- was the best man to lead the nation.

How will his election affect New York real estate? Well, first, Mr. Obama is inheriting
enormous debts and a bag full of snakes. It wont be easy for him.
Sometimes the best and brightest politicians get
bogged down in minutiae and trivial matters (poor Bill Clinton spent two years dealing
with a stupid sex scandal). Throughout Obama's
campaign, however, he stayed on message and refused to get off track when
confronted with Rev. Wright, Bill Ayres, "Joe the Plumber," etc.
I hope as President he doesn't allow others to divert his attention from the pressing
issues of America.

The primary issue is, of course, the economy. As President, he has limited powers.
George Bush has already committed hundreds of billions to bailing out banks and other
financial institutions. Obama will have to raise taxes-- there is no other way to pay
for the enormous debts he is inheriting. One hopes he structures taxes so that
entrepreneurship is encouraged, as well as small businesses. The nation needs good
jobs, since the US is in competition with 200 other nations, many of whom have eager
people willing to work for little money. So American workers must be smarter, more efficient,
more innovative-- which they have been in the past. The government must offer
encouragement to the next Bill Gates, the next Steve Jobs-- or at least get out of his way.

I hope Obama keeps his promise to extricate us from the useless and
painful conflict in Iraq-- a totally unnecessary conflict which has cost us
hundreds of billions and will end up costing us at least THREE TRILLION
DOLLARS (according to Nobel economist Prof. Stiglitz of Columbia University).
That will free up billions that might be better spent in this nation-- on essential
goods and services that will also provide jobs for Americans-- improving infrastructure,
adding teachers and schools, providing parkland, etc.

I would hope Obama will be a role model, not just for minorities, but for anyone
who has to struggle. Obama has succeeded in overcoming many obstacles-- racial,
economic, political-- but he made it. And one solution to our economic problems is a very
simplistic one-- more economic growth, which leads to more tax revenues, more jobs,
more money for everyone.

And economic growth need not be more smokestack industries polluting the nation.
I heard Vinod Khosla speaking recently at MIT about the enormous potential
of "green" industries, everything from alternative fuels and energy sources to
alternative transportation. And here real estate is vitally important-- because
there can be prosperity and wealth without exploitation and pollution.
Mr. Khosla is hardly a hippie tree-hugger; he has made billions by being smart
and also increasing his own personal wealth. Real estate developers can produce
better, more energy-efficient buildings. I'm writing an article now on creative
re-use of industrial buildings for residential use, for instance, and recently
published a piece on roof gardens. These are ideas which will save money,
save the environment, produce jobs, and give people places to live which
are sustainable. Again, the federal, local and state governments can encourage
sustainable growth-- through tax credits, local tax abatements, offering
advice and counsel rather than bureaucratic red tape.
(perhaps Obama can reverse one of the Big Lies: "I'm from the government,
and I'm here to help you....")

What about foreclosures and all the investors stuck with lousy investments?
First, I don't believe all the current problems are caused by "greed" and
a few big Wall Street crooks. Those are easy scapegoats, but there has
always been greed, and nothing indicates any particular increase in the "greed index."
The reality is the current credit crisis and economic meltdown was caused by many
people who aspired to home ownership when they really couldn't afford it. Banks
gave loans to people they shouldn't have loaned to-- and the government encouraged
it. As a real estate attorney, I saw it happen-- people who couldn't afford to pay
back mortgages would get 90% financing. Banks encouraged people to take out more
than they could reasonably pay back.

Real estate prices continued to rise far in excess of Consumer Price Index or wages
or any other reasonable indicator of prices. But sellers were happy making big profits,
and banks were happy giving out big loans (since they made money on fees, and sold
the loans after originating them), and attorneys were happy to represent clients.
It was a win-win-win proposition-- except prices can't go up 15%-20% forever.

And when reality set in and prices began to stabilize (and fall in some locales),
homeowners suddenly realized their mortgages were more than the equity they
had in their homes. When homeowners began defaulting, that affected securities
(mortgage-backed securities). Investors
assumed these were solid investments-- they were AAA rated by Standard
& Poor's, and were backed by residential mortgages-- and people usually pay their mortgages
rather than face living on the street in cardboard boxes.

So, there we have a rather fragile world economy-- built on sand--
fine until the tide comes in.

Now President Obama has to make hard choices to straighten out
years of shoddy financial activities. Banks should be cautious about
granting mortgages-- there need to be prudent underwriting standards, even
if that means that some people won't get loans. A home buyer should
have to provide a reasonable down payment, so that he has an investment and
equity in his home. Prospective home buyers need to show common
sense as well (alas, the government can pass all sorts of regulations,
but can't stop people from being foolish suckers). And there should be
some government oversight of organizations like Fannie Mae and
Freddie Mac-- non-governmental entities that made big profits and
paid executives enormous salaries-- but cried "MOMMA!" once they had
economic problems. And you and I will pay for all their mistakes.

President Obama is a very smart man, and I assume he will appoint
smart people to his cabinet and other posts. As Americans, we have a job, too.
If an inter-racial kid raised in a poor single-parent home can become the
most powerful and important person on earth (and no doubt about it,
President of the US is STILL that), we all can acheive great things, too.
So rather than be depressed about the economy or whining about our
jobs (or lack thereof), we can reinvent the world-- and make some money
while doing it.
-end-

"It's the End of the World As We Know It..."

Financial institutions continue to fail. Banks are being merged, investors are still losing
trillions. Today, the Dow Jones index lost 777 points (a lucky omen?). And the House of
Representatives refused to give a rubber stamp to the $700 billion bail out.

These are very interesting times. It appears this is a global phenomenon, with
banks and other institutions feeling the ripples from the Wall Street debacle
in Iceland, the Netherlands, and Great Britain.

Luckily, real estate is a fairly stable investment, even if
mortgages collateralized as securities are one of the causes of the current crisis.
But people can't sell their co-ops in a few minutes by calling their brokers
to SELL!-- as owners panic that they'll be left with a worthless investments.

A home may be an investment, and in most cases it has been a very good
investment for people in the long run. But a home should primarily be a home, a place to
live. It isn't primarily an investment traded back and forth and purchased
just for speculation. A stock in a corporation that fails will leave an investor with--
a worthless certificate, suitable for framing. An apartment that loses value remains the
same apartment-- until and unless it is sold.

It is never a good idea to sell in a panic, because market frenzy distorts the
market. The price of apartments will likely decline, primarily because
people will lose their jobs and no longer be able to afford to live
in expensive apartments in NYC. And some will sell because they figure
they'll get a better price now than in a year or so, when "the end of the world"
will depress prices even more.

But people are still drawn to NYC. It is a very exciting place to live. It
is international, it is fun, it has much to offer. And not everyone works
on Wall Street-- New York has a very diverse economy-- as the advertising, fashion,
publishing, art and cultural capital of the US, if not the world.

R.E.M.'s song rings in my mind as I watch the talking heads on TV, predicting
another "Great Depression" and collapse of the US economy. The lyrics,
as well as I remember them, consisted of Michael Stipe intoning that "It's the
end of the world as we know it--- and I feel fine!"

While banks have folded and investments have lost value, I watch the leaves
turning bright colors and Canadian geese flying south. No one has told the
pigeons in the Park that the world is ending, and the babies laughing
don't seem to know it either. The moon is still bright, no matter what happened
on Wall Street today. So I think we need to be calm, and appreciate the sky-- because
despite all the panic-- Chicken Little was wrong-- the sky isn't falling.

-end-

Naked Short Sellers and Golden Parachutes

This has been some week-- and it is only Wednesday!

Monday folks awoke to find that some Grinch had stolen Merrill Lynch, and Lehman
Brothers had sunk in the night as well. Billions and billions of dollars had vanished
from various investment banks and people's retirement accounts. And the latest
is that the government will bail out insurance titan AIG with 85 billion dollars.
According to The Wall Street Journal and other financial publications, financial
speculators known as "naked short sellers" (no, nothing dirty) were hoping for more failures so they could profit from the declining prices-- "shorting" stock they had sold but didn't yet own.

Some late night comedians made light of the collapse of three major financial institutions
in three days-- in the wake of the bail-out of Fannie Mae and Freddie Mac (see prior
blog), and after the loss of Bear Stearns and failure of banks like Indymac.
Craig Ferguson was kidding that the Wall Street moguls would have to do with a few fewer
luxury sports cars. But the reality is what happens on Wall Street doesn't stay on Wall Street--
it affects the whole nation.

So firms that had survived the Great Depression, world wars, recessions, crises,
9/11 destruction, just fell apart like a house of cards in a Texas hurricane.
McCain suggested a federal panel look into the matter (THAT is sure likely to
put money back in people's pockets), and Obama had few concrete suggestions,
either. Neither candidate, to be frank, has much experience dealing with economics.
One was a career naval officer, the other a community organizer and law professor.
Neither has ever run a business (marrying someone whose father distributes beer
doesn't count). Neither really understands what it is like to wake up each morning
and start the day with a blank slate and an empty til and end up at the end of the day
with enough to break even and maybe a few dollars profit.


The current President is the first Chief Executive with an MBA-- from Harvard, no less.
Of course, he seems to be a fine example of "failing up," moving up higher and higher
with each successive failure, and even being re-elected after four disastrous years.
And the folks who managed to destroy Fannie Mae and Freddie Mac have been promised
golden parachutes of millions and millions of dollars (what incentive do executives have
to do the right thing when they end up rich no matter how they screw things up?)
But it seems to me government bail-outs are not really the answer, particularly when
it isn't really the government that is bailing out these financial institutions-- it is you
and me, with our taxes.

People ask me how this will affect real estate. It will affect real estate, just as it will
affect whether kids in public schools will get enough crayons to draw (probably not).
The government doesn't have unlimited resources, so if trillions are going to a useless
and endless war in Iraq, and billions are going to correct corporate blunders, there
wont be much left for frills like health care, education, transportation, environment, etc.
You know, frills like life, health and happiness.

It seems ironic to me that a conservative Republican administration is nationalizing
private corporations faster than you can say Marx and Lenin. I understand the need
to try to save major financial institutions and unfortunately a lot of good and smart people are being hurt by the blunders of a few-- but those that are most responsible
for the failures and irresponsible decisions are not being hurt as much as the thousands of employees who have been working hard and doing their jobs.

Life will go on, no matter how much the Dow Jones and Standard and Poor's indexes drop.
The sun will come up tomorrow, the moon will be out at night. But it seems unfair
to me that Big Business and Big Government have met like a Skull and Bones
frat gathering and have decided where billions of dollars will be spent, and how we will
all be stuck with an enormous bill for the folly of cocky financial folks who gambled
and lost.

Nobody consulted me about these bail-outs. And yet money is being taken out of
my pocket as if I were being gently mugged.

In the meantime, I still have a roof over my head, and no matter what happens
in the stock market, I still have a home, and it has been the best investment I ever made.
And, unlike a stock certificate, it keeps me warm in winter and keeps the rain out
in a storm. And it is unlikely to disappear over a week-end because a bunch of
dark-suited men met in a room and decided I was expendable.

-end-

Fannie and Freddie bailed out by Rich Uncle Sam

Fannie Mae and Freddie Mac, those hillbilly sounding corporations, have been taken over
by their rich Uncle Sam. Now the Treasury will be calling the shots-- and making sure that
the two major entities that buy and guarantee residential mortgages have the deep pocket
resources of the entire US Government.

Fannie began life as a Federal agency, but LBJ let her be free-- and alas, Fannie was a
troubled soul--sometimes known as a Government Sponsored Enterprise- a non-governmental entity that everyone knew was born with a rich Uncle. Fannie
was a for-profit corporation, with private shareholders and investors but few fussy governmental requirements or restrictions.
If it made money, it would earn profit for the shareholders. The executives were well compensated whether or not Fannie or Freddie made money. But if the entities lost money--
they could whine to their rich Uncle--- "Bail Me Out! I Lost My Money! I'm Broke and
Need Lots of Cash, Fast!"

Everyone knew who would have to pick up the bills if Freddie and Fannie went wild and
were broke (It is a bit late for Uncle to admonish either Fannie or Freddie or all
the homeowners who took out more debt than they should have. A home isn't an ATM machine, even if the banks encouraged people to tap into home equity loans). The take-over may cost some $200 Billion-- a Billion here, a Billion there-- it adds up to real money, as one DC politico once noted. On the other hand, home ownership is a legitimate governmental purpose-- and
certainly the Feds don't want hundreds of thousands of foreclosures and mobs of
homeless folks marching on Washington with pitchforks and torches!

But Wall Street was happy with Big Government taking over. The stock market (Dow Jones)
was bullish on the news, and financial institutions were happy-- always good to have
a deep pocket to pay all the bills and avert disaster (100 years ago, it would have been
JP Morgan calling a few bankers into his office to assure them that all was well, and
JP would make sure of it). I suppose we can all sleep well knowing our paternal government
can kiss our financial boo boos and make it all well.

It seems like a win-win, except for the US taxpayers, who may not like the idea of having to bail out two private corporations that sometimes lent money like a tipsy sailor with a wad of cash. But mortgage rates are down, the take-over will help to ease credit, and may ease the housing crisis--which is mostly a matter of perception. If the buyers of homes perceive we are in a housing crisis, we will be in one.

Ironic that a conservative Republican administration has been growing bigger and bigger, taking
on more and more financial responsibilities from the private sector. But better that the government should act than let two hillbillies named Fannie Mae and Freddie Mac
turn us all into trailer trash.

Let's hope people will see mortgages as a means to buy homes within their budgets, and
banks will treat buyers fairly but prudently. Real estate is still one of the best investments
anyone can make-- it (usually) appreciates as it provides both shelter and warmth. And folks
who have invested time and equity in their homes are usually better neighbors and make
for better communities.

-end-

Welcome

Please join me as I write about New York City real estate, architecture, new developments,
the housing market, and information of interest to anyone who lives with a roof over their head.
I hope you find it helpful, whether you live in a co-op in NYC or an igloo in the Arctic Circle.

John D.