Daily Archives: September 22, 2008

One last shot (for today) at some of the hypocrisy now flowing from Washington
From Kevin Hassett, writing in Bloomberg.com

Greenspan’s Warning

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn’t be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie “continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,” he said. “We are placing the total financial system of the future at a substantial risk.”

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn’t become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn’t even get the Senate to vote on the matter.

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53 Park Avenue South
Beauty in the eye of the beholder
I’ve long held a sneaky sort of admiration for the builder of this house because he defied convention and built what he wanted. The only trouble with such defiance is that, eventually, the time comes to sell the damn thing. This Old Greenwich property has dropped from $2.777 million to $2.075 million and still won’t move. Either the “right” buyer will finally show up – a rarity in this business, despite what many sellers want to believe – or the price will reach a level that spurs someone into action. Either way, there may be a wait.

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Langhorne Lane
One of the most successful Realtors in Greenwich (well, that’s my little brother Gideon, but never mind) has commented that the Antares fiasco on Langhorne Lane still resulted in the highest price ever paid for property on the street. Considering that the houses there are mostly rather shop-worn contemporaries, I’m not all that impressed, but others obviously are.

Take, for instance, 38 Langhorne. It came on the market 3 years ago for $2.250 million and finally sold in January 2007 $1.250 million. The new owners tore down the house that graced it, stuck in a new septic system and have returned it to the marketplace for $4.150 million, thus setting a new record for a septic system on the street.

Not to be outdone, the owners of 20 Langhorne have done nothing to the property they bought for $1.9 million (the original asking price was $2.950) and are now asking $2.995 million. Go for it guys – let me know how you make out.

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Courtesy of The Blovina Bloviator, here’s a picture of the Chairman of the House Ways and Means Committee, relaxing after a strenuous day of cleaning his four rent controlled apartments and flying down to his spot in the Caribbean. This gentleman will be writing your tax laws for the next four years, with Nancy Pelosi’s approval.

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You ask, I’ll Google
(from the comments):”Chris, where is a link to the Greenwich Times article which quoted Livvy Floren as feeling bad for the Fulds? She got ripped on those boards for those remarks.”

Here’s the article, and here’s the quote:

The town is home to longtime company Chief Executive Officer Richard Fuld Jr., whose friends and acquaintances from the financial services industry said had spent his entire 39-year career building Lehman Brothers into the nation’s fourth-largest investment bank – only to see it pushed to brink of extinction.

“I feel sick. That’s been his whole life,” said state Rep. Livvy Floren, R-Greenwich, a friend of Fuld. “You know his heart and soul is in that.”

Floren said Fuld and his wife, Kathleen, have been active members of the community and have generously contributed to groups such as the Greenwich High School PTA and Greenwich Country Day School, where their children spent their early years. They have opened their North Street home to parties for the GHS field hockey team, she said.

“I’ve just always found them to be really delightful people, so low-key and unassuming,” said Floren, a former president of the GHS PTA. “I really feel so badly.

I don’t see any reason to rip Ms. Floren – she’s his friend and is doing what friends are supposed to do, stand up for them in times of trouble. The rest of us who aren’t his friends can observe, objectively, that the guy completely ignored his responsibilities as CEO and destroyed the careers of everyone under him. Dummy.

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“One of the great mansions of Greenwich’s 300-year-old history”
On second thought ….
Antares’ great mansion has been sold (I believe as part of a settlement of a lawsuit) for $13.750 million, hardly chump change but a bit less than its original price of $25 million. Both prices, by the way, were for a shell of a house – the buyer is expected to add his own necessities like kitchens, baths and light bulbs.

When questioned about this precipitous fall of one of the future great mansions of Greenwich, Antares’ principal Joe Beninati was eager to dispel the notion that Antares had blundered.

“You see a long term capital loss,” he explained, “but you’re wrong. We pulled off a tax-free exchange: we got rid of this ugly pile of stone no one wanted and got back a ton of Lehman Brothers stock, plus a potful – not a handful, a full potful – of magic beans.”

Beninati leaned back in his chair, hooked his thumbs under his Vineyard Vines suspenders and looked thoughtfully towards his window, or where a window would be if cubicles had windows. “You know, he drawled, “Jimmy and I turned out to be pretty much a pair of dumb f..ks when it came to real estate. I mean, other than the satisfaction of throwing all those old folks out of their apartments, our Byram condo deal really sucked. Our mansion plan was even worse and as for the redevelopment of Stamford, well….”

He leaned forward, an earnest scowl on his face. “We’re not down though, Jimmy and me. We got plans, big plans. Our biggest problem has been figuring out where we can operate without someone smarter than us eating our lunch. And then, just last night, it came to me: we’re going to get into collateralized debt obligations, big time. You watch, we’re gonna take off like gangbusters. I absolutely guarantee it.”

Our interview was terminated when movers arrived to repossess Beninati’s desk but he’s promised to call me, just as soon as his phone service is restored.

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480 North Street
London Bridge is falling down
This place came on in July, 2006 asking $9.5 million. Today it was lowered to $5.495. I wasn’t convinced that $9.5 was the right price two years ago but at its new price, perhaps we’ll stop hearing about the lack of affordable housing in town.

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Greenwich cops running low on ammo?
Great – they’ll have less to bring to the High School next time a kid kicks a chair.

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40 Sawmill Lane
We’ll be seeing more of this
40 Sawmill sold for $6.0 million May 5, 2006. It came on the market this morning for $5.995.

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John Cooke, Prudential, Sales Report
Courtesy of my friend John, here are some statistics to chew on:

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Sell Lehman Brothers!

Oh, gee, Barney Frank as well?

Reform Fannie Mae at the expense of po’folks? Not if Barney Frank, champion of the poor, scourge of George W. Bush, had his way. According to Wikipedia

In 2003, the Bush Administration recommended what the NY Times called “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.” [5] This change was to move governmental supervision of two of the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. However, it did not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enabled them to issue debt at significantly lower rates than their competitors. The changes were generally opposed along Party lines and eventually failed to happen. Representative Barney Frank (D-MA) claimed of the thrifts “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” Representative Mel Watt (D-NC) added “I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing.”[6]

[emphasis added]

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Uh oh, Bush got to Dodd, too!

NYT, October, 1999 – Agreement Reached on Overhaul of U.S. Financial System

The breakthrough in today’s legislation came in a backroom meeting at the Capitol soon after midnight, when a group of moderate Senate Democrats — led by Christopher Dodd of Connecticut and Charles E. Schumer of New York — forced a compromise between Mr. Gramm and the White House over the legislation’s effect on the Community Reinvestment Act, a 1977 anti-discrimination law intended to encourage lending to minorities and others historically denied access to credit.

Mr. Dodd, whose state is home to the nation’s largest insurance companies, and Mr. Schumer, with strong ties to Wall Street, have long sought legislation to repeal the Glass-Steagall Act. Both men said in interviews today that they moved to strike a compromise after it became apparent that the legislation might be killed, as it was last year by Mr. Gramm, over the debate about the Community Reinvestment Act.

…Mr. Gramm had maintained that he did not want anything in the bill that would expand the application of the Community Reinvestment Act because it was, he said, unnecessarily burdensome to banks. He had sought a provision that would exempt thousands of smaller banks from the law. He also wanted a provision that would expose what he has described as the ”extortion” committed by community groups against banks by requiring the groups to disclose any special financial deals the groups extract from the banks.

But the White House found that provision unacceptable and had its own ideas about community lending. It wanted the legislation to prevent any bank with an unsatisfactory record of making loans to the disadvantaged from expanding into new areas, like insurance or securities.

The White House had insisted that the President would veto any legislation that would scale back minority-lending requirements.

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The mortgage mess
Okay, this whole mortgage meltdown is obviously the deliberate work of that Ol’ Debbil, George Bush and his puppet master, Dick Chaney, but this
article from the NYT in September, 1999 suggests that those two evil-doers were at work during the Clinton administration, pressuring Fannie Mae to expand “minority” home loans to 50% of Fannie Mae’s portfolio. “Minority home loans” meant no income verification, no job necessary and drive-by appraisals. Bush, of course, knew that this was a guarantee of disaster but somehow he persuaded Monica Lewinsky to put a bug in Bill’s ear and the rest, tragically, is history.
From the NYT’s article:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

…Home ownership has, in fact, exploded among minorities during the economic boom of the 1990’s. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University’s Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

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Why shouldn’t everyone pay income taxes?
From Professor Glenn Reynolds, of Instapundit

On a related note, I think we should rethink this business of having lots of Americans who don’t pay income tax. As the Tax Foundation comments: “It is time for a serious public discussion of whether it is desirable to have so many Americans disconnected from the cost of government and what the consequences are of using the tax system as a vehicle for social policy.”

Personally, I’d like to see everyone pay at least some income tax, and I’d like to see the amount of tax paid, by everyone, go up or down every year in tandem with federal spending. That would encourage fiscal discipline directly. It would also make it harder for politicians to promise everybody a free lunch, but hey — why shouldn’t they sacrifice something, too?

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19 Farley Street
I like this house, a completely renovated 1900 farmhouse off lower Lake Avenue and within easy walking distance of downtown. $1.585 didn’t move it but it’s now down to $1.225, which doesn’t seem crazy. I know the builder (no, he’s not my client) and he does excellent work, so no cheap shortcuts here. I don’t like the phrase “condo-alternative”; you’re either in the market for a condo or you’re not, but this is a reasonably-sized house for a reasonable price, in my opinion.

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Orchard Place Condos
This was a fairly hot neighborhood a few years ago – despite the noise from I-95, it’s within walking distance from the train and Bruce Park and condos were selling briskly. 71 Orchard Place, however, has been listed since May, 2007 and is still for sale, suggesting that this area’s moment has paused, at least for now. Original price was $1.995 million, today it dropped to $1.595. Perhaps that will do it.

620 North Street, a new mansion, didn’t sell at $6.390 million from April, 2008 until now. Today it has a new broker and a new price, $6.4 million. I wouldn’t think this is the best time to raise a price, even if by only $10,000, but heck, what’s to lose?

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Harvard Graduates 1890
The Best and the Brightest?
The Wall Street Journal ran a scary story this Saturday on how close we came to a complete financial collapse last week. Of course, we may still see everything implode but, for now, the Paulson solution seems to have calmed the waters. I suppose we have no choice but to bail these people out, if you believe the WSJ article, and I do, but what sticks in my craw, and my wallet, is having to pay my money to save these jerks’ hides. When they were prancing around town in their Bentleys crowing about how smart they were and how deserving of their financial windfall because they were so, so much smarter than us little people, Wall Street’s wizards never offered to share their good fortune with the rest of us – at least, I never got a check. Now it turns out that they’re complete morons, Harvard MBA degrees and all, and had no idea what they were so blithely buying and selling. Perhaps most galling, their leaders, guys like Dickie Fuld,and Merrill’s John Thane, now admit that they were clueless about what the people under them were doing. But by God, they were chairmen of very important financial firms and that was worth a few hundred million, wasn’t it?

Because of a loose (and now severed, thank goodness) family connection, I once followed the career of a particularly obnoxious Greenwich resident as he went from failure to failure, ruining one company after another and pocketing $10 million, $25 million, and so on in “please go away” money from each corporation he screwed up. With nothing to boast about boast he did, maintaining a mansion in town, flying all his favorites to Aspen for a millennium dinner that cost $1,000 a plate and in general, exuding an air of superiority that might have been intimidating if one didn’t know what an incompetent buffoon he was. He’s retired now, I believe – I can only hope he’s soon joined by his younger peers.

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Woe is us
The New York Times reports that 97% of all LIRR employees receive a 100% disability pension, courtesy of the federal government and an employer who couldn’t care less about spending taxpayers’ money. I don’t like the idea of my money going to thieves, naturally, but what’s more frightening is thinking about all the other scams just like this one going on around our country. This hoax, now exposed, might be addressed. Who’s going to stop the rest of them?

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Kaiser Wilhelm II
In memory of my uncle, Dr. Gerard Fountain
At a family dinner last night we got to reminiscing about our Uncle Gary who died in an accident last month at the age of 91. In addition to being a noted psychiatrist, Dean of Sarah Lawrence, professor at Dartmouth Medical School and an all-round terrific person, Gary was fond of telling what he called, “the only World War I joke you’ll ever hear”. We thought it a shame that such a recent joke (Gary first heard it on a Scarsdale playground in 1920 or so) should expire with our uncle so here it is again, ready for a new generation:
“Why did the Kaiser change his socks?
Because he could smell defeat.”
When you stop laughing you can tell it to your grandchildren – after you explain who the Kaiser was.

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Why Blog when readers can write this themselves?
Buried in the comments is this thoughtful essay from “Retired IB’r. I don’t share his dark pessimism, but it’s certainly a more accurate view of what’s happening than you’ll find in the latest NAR press release.

To look to recent times (last twenty or thirty years) as any indication as to how real estate will perform in the future is totally folly.

The author of the article you sited for example talks about how the Vancouver market did in the early ’90’s and extrapolates about today’s recoveries.

The run-up’s in values in the last five to ten years dwarves any other period in our lifetime of experience by many orders of magnitude. Just look at the numbers.

This correction is not like anything anyone alive today has ever experienced. And all you have to do is look to the extraordinary moves by the Treasury and the Federal Reserve of last week to put the current situation in perspective.

Do not forget, our “leaders” told us six months or so ago that this was contained to subprime and it was a $50 billion problem. Now it is a trillion dollar problem and climbing six months later. I will not debate whether our “leaders” were stupid or duplicitous, but one or the other fits IMHO. Still, the rapid expansion of the problem demonstrates the mindboggling mess we find ourselves in. Add to this, the fact that Europe and the rest of the world has yet to see the problems in their banking systems as we are currently experiencing (and they will) tells me that this is a worldwide problem that has not nearly run its course.

The tremendous, unrelenting expansion of credit encouraged by the Greenspan Fed linked with a complete and utter failure of regulators and the total breakdown of underwriting standards by financial institutions is what created the worldwide credit bubble that we are witnessing exploding real-time today. To think this mess, which has real estate at its epicenter, will adjust in a mild manner and rebound quickly begs credulity.

Finally, the extraordinary events of the Treasury’s evolving bailout program appear (the details are still hidden in the mist) to not be designed to stop the fall of real estate prices, but instead an attempt to fix the broken intermediation of credit, which has come to a halt, through non-transparency of asset values. To not understand this, is to not understand the current financial meltdown. Whether Paulson, Bernanke et al succeed is still a big open question.

One day, we will find our way out of this wilderness, but it will take time, and the massive destruction of wealth (through the writing down of bad debts). The real estate markets will also have to correct to sustainable levels (without “easy credit” to support them), and only then will real estate appreciate again.

Retired IB’er

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