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-
Monday, September 29, 2008
Wednesday, September 17, 2008
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-
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-
Tuesday, September 9, 2008
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-
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-
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