Daily Archives: March 6, 2009

How can this happen? SIPC checks go to Madoff victims

The checks are flowing. That’s heartwarming but I don’t understand how Madoff investors are protected by the SIPC.

Why We Are NOT the FDIC

“Insurance” for investment fraud does not exist in the U.S. The Federal Trade Commission, Federal Bureau of Investigation, state securities regulators and other experts have estimated that investment fraud in the U.S. ranges from $10-$40 billion a year. In the case of microcap stock fraud, the toll on investors has been estimated as $1-3 billion annually.

With a reserve of slightly more than $1 billion, SIPC could not keep its doors open for long if its purpose was to compensate all victims in the event of loss due to investment fraud.

It is important to understand that SIPC is not the securities world equivalent of FDIC–the Federal Deposit Insurance Corporation. Congress specifically considered creating a Federal Broker-Dealer Insurance Corporation, but lawmakers wisely concluded that such a designation would be both misleading and out of step in the risk-based investment marketplace that is so different from the world of banking.

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Harry Reid gets religion

Proposes super federal power to override state and municipal laws and run power lines for solar projects wherever needed. Great idea, Harry, how come the sudden shift in positions?

The green power lines would boost development of solar, wind and geothermal energy projects otherwise cut off from the nation’s electric grid. It’s also a proposal that Reid acknowledged in a news release would give “an enormous boost” to his own state of Nevada where companies are eyeing large solar projects. 

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Al Gore scared to debate skeptic

So there is our would-be ex-president, foaming at the mouth at a Wall Street Journal sponsored conference on global warming when Bjorn Lomborg  speaks up: It wasn’t pretty.

The Nobel-prize winner declined to take any questions from reporters, but he did receive a couple of challenges from attendees, including Bjorn Lomborg. But don’t expect Mr. Gore to debate the merits of how best to tackle climate change anytime soon.

Mr. Gore stuck to his prepared script about the urgency of taking action to curb global greenhouse-gas emissions, down to well-worn phrases he trots out at conferences across the country: America is at “a political tipping point” on climate change, and even if Washington has failed to address the energy challenge in the last 35 years, “political will is a renewable resource.”

But he was challenged by Mr. Lomborg, the Danish skeptical environmentalist who thinks the world would be better off spending more money on health and education issues than curbing carbon emissions.

“I don’t mean to corner you, or maybe I do mean to corner you, but would you be willing to have a debate with me on that point?” asked the polo-shirt wearing Dane.

“I want to be polite to you,” Mr. Gore responded. But, no. “The scientific community has gone through this chapter and verse. We have long since passed the time when we should pretend this is a ‘on the one hand, on the other hand’ issue,” he said. “It’s not a matter of theory or conjecture, for goodness sake,” he added.

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Contango – it’s always something!

No sooner do I learn a new word than news comes that it’s disappearing! Make up your mind, people.

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Cool Pics

Courtesy of reader Bobby, here are some great shots of the US Airways jet, pulled from the Hudson and making its way through East Rutherford, New Jersey.

airplane-12airplane-21

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NYC prices falling

So says the New York Times and who are we to disagree? 25% down so far, 40% total drop predicted by some. The article’s fun because, as everywhere, they found realtors to deny that there was anything going on.

Looking ahead, however, some believe it is possible that the average slide from peak values could reach 40 percent by the end of 2010, with variation by neighborhood and market segment. That would put values back to levels last seen around 2002.

Others are more optimistic. “I’m not disagreeing with you that values are coming down,” said Pamela Liebman, the president of the Corcoran Group. But, she said, “there’s no way the Manhattan market is dropping to those levels that are being talked about. Certain apartments might, but as a whole it will not happen.”

Hall F. Willkie, the president of Brown Harris Stevens, said he, too, would be surprised by a decline that large.

“A lot of negative things would have to happen in the general economy,” he said. He is seeing sales prices 15 to 25 percent below those of last summer, with renters making up an ever-increasing percentage of buyers. And he saw a positive sign in the fact that, despite all of the bad economic news, sales volume is about half what it was this time last year.

Jonathan J. Miller, the president of Miller Samuel, a Manhattan research and appraisal company, estimates that contract prices have declined by about 25 percent since last summer.

Just how much further prices will dive may depend more on how soon and how generously banks resume lending than on the recovery of Wall Street or the end of the recession.

Ms. Herman said she expected the brunt of the pain to be borne within the next six months. Others expected the downward drift to last for a year to 18 months, until credit markets regain their equilibrium.

When will we know when the market has reached the bottom?

Frederick Peters, the president of Warburg Realty, noted that some deals his firm had brokered lately were nearing the lows being predicted by others. “Even if the New York market were to end up being 35 to 45 percent down,” he said, “to the degree we’re seeing deals done at 30 to 32 percent down anyway, it’s not very far away.”

Mr. Miller says sales activity needs to stabilize first. “You’re approaching bottom when you start to see sales activity stop declining and level off,” he said. “Pricing begins to push up when you have an extended period, like a year, when sales activity doesn’t decline anymore.”

One measure of just how anorectic sales have become is the bloated state of inventory.

 

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Wanna buy a house cheap? Look between $6 – $7 million

John Cooke Inventory Feb. 2009

John Cooke Inventory Feb. 2009

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Woohoo! Real estate activity

14 Clark Street

14 Clark Street

A cheap ($715,000 ask) condo went to contract this week and this 0.23 acre piece of land in Old Greenwich sold for an even $1 million (contract date was November ’08). I doubt a builder would pay that much but an end user could possibly make it work.

 

14 Martin Dale

14 Martin Dale

Then there’s this spec house in central Greenwich, come back to the market with a new broker and a new price of $5.150 million. Viewing this house is like seeing the distant past. The half acre it sits on sold for $2.3 million in June ’07 and this house came on last March, 2008, priced at $5.995. It’s a very nice house, on a good street in a good location and I’m sure, when the builders paid $2.3 for the land, they were confident that the sales price of whatever they built on it would justify the purchase. Not so sure now, I imagine.

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People are beginning to talk

Opinion Journal’s James Taranto is just the latest to point out that Obama’s failure to deal with the bank problem may not be due simply to incompetence as we all first suspected. It seems that he may be extending the crisis in order to ram through the things he really wants, from nationalized health care to punitive taxes.

What’s going on? “You never want a serious crisis to go to waste,” said chief of staff Rahm Emanuel. “This crisis provides the opportunity for us to do things that you could not do before.”

And as Reuters reports from Brussels, Emanuel isn’t the only one saying it:

[Secretary of State Hillary] Clinton told young Europeans at the European Parliament that global economic turmoil provided a fresh opening. “Never waste a good crisis . . . Don’t waste it when it can have a very positive impact on climate change and energy security,” she said.

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This is about as dumb as giving money to Walter Noel

Do I got some Greenwich waterfront for you!

Do I got some Greenwich waterfront for you!

On the same day that his former dump came on the market for the astonishing price of $50 million, news today that another Trump property is suffering.

Trump luxury resort in Baja folds – still just a hole in the sand.

SAN DIEGO (AP) – Stephen and Linda Drake cast aside concerns about owning property in Mexico because they believed in Donald Trump. The Southern California couple paid $250,000 down payment on a 19th-floor oceanfront condo in Trump Ocean Resort Baja in 2006 before the first construction crew arrived.

But admiration for the celebrity developer and star of “The Apprentice” has now turned into anger and disbelief as Trump’s luxury hotel-condo plan collapsed, leaving little more than a hole in the ground and investors out of their deposits, which totaled $32.2 million.

“I can’t even stand to see Trump’s face on TV,” says Linda Drake, a psychologist, whose husband is a commercial airline pilot and financial adviser.

Investors were told last month their money was spent and they won’t get a penny back. A single mother in suburban Los Angeles lost $200,000 and won’t be able to send her sons to private universities.

Trump and his children heavily promoted the northern tip of Mexico’s Baja California coast. He sold 188 units for $122 million the first day they went on a sale at a lavish event in a downtown San Diego hotel in December 2006.

“I went out and saw this site, and I was blown away by it,” Ivanka Trump told The Associated Press in June 2007. “From the minute I saw it, it was a deal I had to do.”

The Trumps remained buoyant even as the U.S. housing market began to crumble. Ivanka assured buyers in an October 2007 newsletter that all Trump projects were immune to a slowdown.

Excuse me, you put your kids’ $200,000 college tuition savings into a Mexican resort development? With the Donald? Are you out of your friggin’n mind, lady? I’m sorry, but some people are so stupid it’s almost criminal to let them waste their money on necessities – steal it and put it to good use. Bernie figured that out a long time ago.

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Ouch, and ouch again

20 Dingletwon

20 Dingletown

This house on Dingletown provides a horrific example of bad market timing and poor building decisions. The land it sits on sold for $1.350 in September, ’03 but the buyer changed his mind and put it back up for sale immediately. The current owners bought it for $1.420 in January, 2004. They then paid one of our local contractors to build them a spec house which he did, charging them full retail, I presume, because they listed it for $5.395 million in July 2006 – an aggressive price, even then, but I suspect a price they had to get to cover their debt and make a modest profit. They didn’t get it and its price has been dropping steadily ever since. Today it came down to $3.995 million. Can you spell “painful loss”? I thought you could.

124 Woodside Drive

124 Woodside Drive

 

The owner of this Milbrook property hasn’t begun to spell anything, I’ll bet, because he just listed it today for the exact price he paid for it in March 2008: $1.995 million. He may start that process soon, though. It’s a nice enough house, albeit with a fair amount of highway noise, but it’s just 2,000 sq. ft. I’m not sure anyone should have paid $1,000 sq.ft. for this house last year – it’s going to be difficult to get that price now.

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My want is your obligation

Mrs. Obama showed up to serve food to the homeless the other day and provided a heartwarming vignette of the advantaged serving the disadvantaged. But as this LA Times blog points out, reviewing the cellphone pictures taken by one of the diners, how come someone who can’t afford to buy food can afford a cellphone and if he’s homeless, where do they send the bill? (maybe pre-paid phones have cameras now – do they?)

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Foreclosures, short sales

Right now, we don’t have too many active foreclosures pending in Greenwich – 15 or so, I believe. But we do have a lot of houses underwater in terms of what the owners owe and what their house is worth, and I suspect many of them will end up in foreclosure, soon.

I was called by an owner recently about a possible short sale of his property. I’ve got access to guys with money and to the banks and I can probably work something out for most situations where the owner is willing to walk away if he can get out from under his debt. I was familiar with the house, having seen it some years ago when it was last up for sale but most importantly I was familiar with the neighborhood and what’s selling. As a pretty rough, top of the head figure for what I could tell the money guys would move this house in any market, I came up with $1.1 million to $1.25 million. But it turns out there is a $3 million mortgage debt. I may try to do this deal, but I’d guess the bank won’t take that kind of haircut before it forecloses on the property and puts it up for sale itself, a process that could take two years. 30%? Maybe. Not this much.

But that also raised the question, who agreed to loan this much money on this house? At the height of the market it failed to sell for anywhere close to that amount and back then, I’d have estimated its value at, at best, $2.2 million. Yet two different appraisers (there are two loans) came out and told their lenders that this house was worth it. No wonder the banks are failing. And, I wonder, how many more houses do we have in town in this exact situation? My guess, judging from this one and a couple of other stories I’ve heard is, a lot.

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Where do spec homes go when they die?

180 Park Avenue

180 Park Avenue

To the rental market, if they can. I loved this house when it was first finished and put up for sale last November. The builders asked $4.850 for it which, considering they’d paid $2 million for the land earlier that year, seemed reasonable to me but the market didn’t agree, even when they dropped the price to $4.5 million. So today it was rented for $12,500. I haven’t run any numbers, but it seems to me that some renter lucked out. Nice place.

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Scum rises to the surface

Ethanol producers want government to force us to buy more of their product.

The struggling ethanol industry is flexing its political clout to try to change government regulations on how much ethanol can be blended into gasoline.

Today retired General Wesley Clark, a onetime presidential candidate who now co-chairs of an ethanol industry group, asked the Environmental Protection Agency to raise the limit on how much ethanol can be blended into gasoline. The current limit is 10 percent; General Clark and his group, Growth Energy, want the amount raised as high as 15 percent.

Many environmentalists, however, don’t like corn ethanol.

“This is a likely prescription for more pollution – and more engine damage,” wrote Frank O’Donnell of Clean Air Watch on his blog today.

Indeed, many opponents of corn ethanol argue that it creates plenty of greenhouse gas emissions, partly because of the fertilizer needed, and partly because in their view, growing corn as an energy feedstock displaces food crops, and forces an outward expansion of agriculture into precious forest land abroad.

Plenty of drivers already complain that the 10 percent ethanol blend reduces their mileage, and boaters and other users of small engines worry about complications that result from ethanol’s ability to attract water when the fuel is stored.

Kris Kiser, the executive vice president at the Outdoor Power Equipment Institute, warned today of “serious concerns” about E15.

“We need to acknowledge that current equipment — including boats, chainsaws, lawn mowers, snow mobiles, motorcycles, generators and other small engine equipment — may be permanently damaged and poses a safety risk if E15 fuel is used,” Mr. Kiser said in a statement. “Current equipment is neither designed, built or warrantied for mid-level blends.”

From its inception, the mandatory use of ethanol has been a political program that has nothing to do with clean air – touted as an “oxygenator” when first proposed, it was totally useless for that purpose once cars switched to fuel-injection systems back in 1988. The fuel was forced on consumers for no better reason than that Iowa farmers grow corn and Iowa holds presidential caucuses earlier than other states. That’s it.

Because ethanol absorbs water it cannot be mixed with gasoline and shipped via pipeline so we pay the extra cost of having it brewed in Iowa and trucked to local distribution plants while our cars deteriorate and our mileage suffers. It does nothing to clean the air or reduce our dependence on foreign oil (it costs more energy to produce than it yields).  IT DOES NO GOOD!

And that smarmy pseudo-war hero Wesley Clark wants us to buy more of the junk so that he can get richer. I don’t think that’s a good idea.

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The other shoe

I keep waiting for the Dow to just give up and sink from sight. Is today the day it drops below 6,000? Probably not – it’s only dropped 57 points, but the news just seems to get worse and one of these days, whoosh. That will suck.

before the Fall

before the Fall

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Vista Drive is back up

Here we have 6 full acres and a large house on “Chimney Pond”, which opens into Long Island Sound, for $50 million. This place last traded in 1998 for $15 million and the town assessed it at $12 million in 2005 (70% of which is taxed – I want a tax refund on my place!) but the listing says it was renovated nine years ago and is now worth $50. That’s a heck of a lot of renovations – $35 million, for those of you as weak at math as I am. If I were to dip into my own savings for that much I’d prefer the old Boss Tweed place at the very end of Vista which has real waterfront (and better fishing) but for now I’m saving my pennies  to buy GE at fourteen cents.

Tamar Lurie’s priced and listed it. She sells far, far more real estate than I do so I’ll just stay quiet and learn from my betters.

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Madoff ready to plead?

That’s the word from MNBC. Works for me if he goes to jail for life, Ruthie follows him there for 10 years, brother Pete ditto and every penny of Madoff assets, father’s, mother’s, brother’s and the two boys’ is forfeited and returned to investors. Everything these people own was purchased with stolen money, everything should go. From dust ye came and to dust ye shall return – something like that.

Same for Walt, but he can stay out of jail, what the heck.

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Disappearing listing

We had a $50 million listing on Vista Drive (the old Trump place, I think) show up on the MLS this morning but now it’s gone, to be found only in the “purged listing” category that, when printed, produces a blank page. I blame Cheney!

As for disappearing listing prices, the penthouse at 11 Lafayette Court, listed at $3.995 back in September, 2005, has been reduced again today and is now at $2.5 million. Nice place, and at some price, I’m sure someone will want it.

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Here’s a tax for everyone! No slackers here

Obama’s carbon tax is going to whack everyone who uses electricity – that includes you, Granny.

“People are learning,” says William Kovacs, vice president of environment, technology and regulatory affairs at the U.S. Chamber of Commerce (which has been cautious about embracing a climate plan). “The Obama budget did more to help us consolidate and coalesce the business community than anything we could have done. It’s opened eyes to the fact that this is about a social welfare transfer system, not about climate.”

Truth is, any cap-and-trade system is a tax, even if Mr. Obama’s plan has only started to force business proponents to admit it. The government sets a cap on how much greenhouse gas can be emitted annually. Companies buy and sell permits that allow them to emit. Customers bear the price of those permits.

But the political question was always how that first batch of permits would end up with companies. Corporate support rested on the belief they’d be “allocated,” for free. This would allow them to delay the day when they’d have to pass costs on to consumers, and ignore, for now, the “tax” question.

It didn’t take long for the pols to figure out they could auction off permits and spend the loot. President Obama’s auction bonanza would earn the feds $650 billion in 10 years, according to the administration’s budget estimate — and that’s a low, low, low estimate.

Thus Mr. Rogers’s lament. No one can now pretend that this isn’t going to cost, and Duke is going to be tagged as tax collector via higher electricity bills. If the customer outrage won’t be enough, some utilities will also be forced into fights with state regulators, who have to approve the rate-hike requests.

Congress isn’t sympathetic. Most Democrats want the money to spend, while many Republicans have written off companies asking for government freebies. “What you saw when [the Climate Action Partnership] was draping itself in the name of saving mankind, what they were really doing was trying to create the largest earmark in modern history,” says Tennessee Republican Sen. Bob Corker of the “allocation” system.

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