Property Grunt

Tuesday, September 30, 2008


So what now?

Dow plummets record 777 as financial rescue fails

I have had some interesting conversations on this development. My friend who works in finance, the one I saw the Dark Knight a second time, told me that an emerging consensus is that the bailout is just prolonging the inevitable. In the short term this is going to suck ass but in the long run we are going to be better for it.

Over IM a family declared that the Republicans who voted against this bill were patriots. I asked why since Republicans are known to protect big business. My family member's response was this was not issue of business of sustainability.

We all agree that unfortunately a bailout is needed. However there is general disagreement in what form this bailout should take. Perhaps the current form of the defeated bill would have harmed us rather than help us.

There is a part of me that wants to get this s**t over with. Pass the f**king bill so we can get started rebuilding. However, what is the point in passing a bill if it just serves to screw us over in the end?

Well, we got two more todays before the next vote. Let's hope they get it right.

Monday, September 29, 2008

Paulson: "Scott, it's gotta do it and we're going to make this work, and we're going to do what it takes to work,"

What will be left of the economic frontier?

By now we have all heard that that 3 page plan has become a 110 page bill which is set to be voted on today.

The bill's approval is still in question considering that there are parties who are quite resistant which is understandable. So we'll see if this gets through or not.

60 Minutes has done a great piece on the whole bailout which includes an interview with Paulson and Pelosi.

I really recommend watching it when you have the chance because it sheds more light on this situation which include the following.

The economy.

How much jeopardy is the economy in?

"It's a fragile situation, a very fragile situation. There were times, a couple days, last week, and a day this week, when U.S. Treasury bills were trading for well under one percent," Paulson told Pelley.

"People were buying Treasury bills knowing that they would get almost no return. But it was a safe place to stuff their money," Pelley said.

"It is, in some ways, the equivalent of sticking money in your mattress," Paulson said.

It appears that is the only place to protect your cash and who knows how long that will last for.

60 Minutes was with Paulson and his team later in the week as they wrote that first draft to send up to Congress. It ran three pages, and would put him in charge of the largest bailout in American history.

"We've got to get this up to the Hill quickly," Paulson instructed his top advisers in his office that afternoon. "We’ve got to keep it simple, very simple… this is about recapitalizing our banks and financial institutions."

"It was shocking in that the Treasury Department wrote the bill in a way that gave the secretary czar-like powers. And also it had a $700 billion figure, a number that had never been used. And that was pretty shocking," Pelosi told Pelley.

"I want strong oversight and transparency," Paulson explained. "Scott, the last thing in the world I wanted to do was be sitting in this seat and be going up to Congress asking for these kinds of things. It is a terrible position to be in. The only thing worse is the alternative."

The President called Congressional leaders and the two presidential candidates to the White House this past Thursday. Behind closed doors, there was a tense, angry debate over how the bailout would be structured. Republican House members revolted. Speaker Pelosi led Democrats out for a break and Paulson followed.

Asked what happened, Pelosi told Pelley, "We had our conversation."

"I'm given to understand that Secretary Paulson kneeled down on his knees and begged you to move this bill forward," Pelley said.

"No, no, no," Pelosi said.

Asked if that did not happened, Pelosi said, "Well, Secretary Paulson injected a moment of levity into the conversation but…"

"Levity on one knee?" Pelley asked.

"Well, for a thousandth of a second," Pelosi replied.

"There was a lot of tension. And frustration. And I thought we needed a moment of levity. And I wanted to break that tension. There was some shouting going on," Paulson remembered.

"He said, 'Please, please, I beg you. Don't blow this up.' And we said, 'We're not blowing up. It's the Republicans.' To which he said, 'I know. I know,'" Pelosi told Pelley. "Well, for a thousandth of a second," Pelosi replied.

I have heard another version of this story but it do not involve Pelosi, as far as I am concerned, this is canon. Paulson is no idiot and he has gotten toe to toe with some of the biggest and baddest of finance. The fact that he is willing to act in such a self deprecating manner just indicates how scared sh**less he is.

Federal agencies that regulate Wall Street didn't understand, and neither did the companies that rate the quality of investments.

"You're telling me that the credit rating agencies didn't understand these investments?" Pelley asked Altman.

"We had the first instance, at least in my memory, where AAA rated instruments, the highest rating, actually defaulted while rated AAA. Now there's something wrong with that," he replied.

While people wonder what's coming next, many are asking why experts like Paulson didn't see this coming.

"A year ago, last April, you said this, and I'll quote, 'I don't see subprime mortgage market troubles imposing a serious problem. I think it's going to be largely contained.' Why did this seem to take you by surprise?" Pelley asked Secretary Paulson.

"Well, again, hindsight's 20/20. When I came to government, I said, 'You know, we are about due for some kind of market turbulence.' I didn't expect quite this. But I said to the team, as we worked, 'You never know, when there's a lot of dry tinder out there, you never know what spark is gonna light the tinder,'" he replied.

One of the key principles of investment is that if there is a financial product that you do not understand, do not get anywhere near it. This is a rule they obviously ignored.

"The regulators should have been suspicious that something very strange was going on," remarked Joseph Stiglitz, a Nobel Prize winning economist who warned of danger two years ago.

Asked if this was not unforeseeable, Stiglitz told Pelley, "Oh, not only was it foreseeable, it was foreseen. Now, economists aren't very good at predicting the precise date in which the whole thing is gonna unravel. But that it was unsustainable was perfectly clear."

Stiglitz agrees a bailout is necessary, but he doesn't like Paulson's plan, which would have the American taxpayer buying bad debt now held by banks. "His proposal is to take on to American taxpayers the millions of bad mortgages, toxic mortgages that no one in Wall Street wants to take. When they announced that plan, the champagne bottle corks were popping on Wall Street. They finally found the sucker to take off these bad assets. No one in the private sector would touch these toxic mortgages," he explained.

Stiglitz says the "sucker" is the American taxpayer.

You know what I noticed? Nobody panics when things go according to plan. Even if the plan is horrifying. If tomorrow I tell the press that like a gang banger will get shot, or a truckload of soldiers will be blown up, nobody panics, because it's all, part of the plan. But when I say that one little old mayor will die, well then everyone loses their minds!

The Joker

This weekend I saw the Dark Knight again with a friend of mine who works in finance. We were discussing the current economic climate and how it related to the Joker. And we both agreed that what got us into this mess was that everything was going to plan. Everyone was making money and all was right in the world. No one bother to listen to anyone who stated otherwise and gave good reason to watch our backs.

Stiglitz is right. We are the suckers of this whole clusterf**k. However, we know we are the suckers and we know who screwed us over.

"Now some people, [including investor] Warren Buffett and others have argued to me, and said 'Hank, if you do this right the taxpayer could actually make money on that.' We're not saying that because I see this as a risk, depending on how the economy does. I believe the cost to the taxpayer will be far less than what is actually spent to buy these assets," Paulson said.

Still, Paulson understands many Americans are angry that they're being forced to bailout Wall Street recklessness.

"I would be angry too. People are frustrated. They're angry. They're angry at the excesses. They're angry at executive compensation. They're angry at a whole series of things," Paulson said.

"Let me suggest one of the reasons that people are angry,” Pelley said. He read from e-mails uncovered by federal investigators. The e-mails were written by analysts for the credit rating agencies on Wall Street.

One of the e-mails said, “quote, 'It could be structured by cows and we would still rate it.' And this one, this is my personal favorite, one Wall Street analyst to another wrote, quote, 'Let's hope we are all wealthy and retired by the time this house of cards falters.' They were writing these e-mails nearly two years ago. Why are we bailing these people out?" Pelley asked.

"Scott, first of all, that is outrageous behavior. Absolutely outrageous behavior. But what we're doing, right now, Scott, is working to protect the American people. Because a breakdown of our financial system is going to hurt the American taxpayer," Paulson said.

"Once this bailout proposal, as it's called, takes effect, are we out of the woods?" Pelley asked.

"We will have turbulence and turmoil in our financial system for some time, but I believe that this is going to work and it will instill the confidence in our system and the stability we need to allow us to work through this very difficult period and to let the economy continue to function the way it needs to function," Paulson replied.

The finance industry might not have understood what they were doing, but they sure as hell knew it was not going to end well. Paulson better pray to God that this deal works, because alot of people are not going to simply shrug this off. Those empty champagne bottles that were used to celebrate are going to end up being used as molotov cocktails and thrown at these idiots who got us here in the first place.

I honestly hope it does not come to that. Because if the economic situation deteriorates to that point, that is when people cry out for someone to take control of the situation.

You crossed the line first, sir. You squeezed them, you hammered them to the point of desperation. And in their desperation they turned to a man they didn't fully understand.

Alfred Pennyworth

What would be truly frightening if the people embrace someone that they do not fully understand until it is too late.

Sunday, September 28, 2008

BREAKING NEWS!: You still need to get on line at Trader Joe's in Manhattan

While things are calm at Trader Joe's in Brooklyn, it appears that is not the case in its brother borough of Manhattan.

Between 4-5pm on this Sunday, this was the scene.

Friday, September 26, 2008

Paulson pissing in his pants, WAMU gets whacked and the Dark Knight speaks

I don't think we are going to see any of these anymore.

Paulson is now s***ing bricks now that the bailout deal is starting to crumble and now WAMU has been seized and is being chopped up for JP Morgan to gobble up.

Here's the good news:
Shareholders and some bondholders will be wiped out. WaMu deposits are guaranteed by the Federal Deposit Insurance Corporation up to the $100,000 limit for each account. WaMu customers are unlikely to be affected

I would like to take this moment to share some words from the Dark Knight. Although he is not in finance (Thank God!) he does navigate in those circles and I think we should take it upon ourselves to reflect upon his words. These were part of an email conversation he had with a friend who now fighting tooth nail for his job in the financial world.

Anyway, I don't disagree that the government's takeover of AIG was necessary. And, perhaps missing my point, I did not suggest that this is "common place bush policy." Quite the contrary, the take over of AIG by the government was a radical departure from the free-market orthodoxy espoused by Bush and the corporate-cons of the Republican Party. Additionally, today we learn that the government will be using an additional $500 billion to purchase bad debt from banks and other financial institutions. So, at the end of the day, the government is committing close to 4% of GDP to essentially nationalize the financial industry. Again, I am not suggesting this is not necessary or prudent, only that it is a radical break from current Republican ideology.

And, we hear nary a peep from the choir. Where are the free-market purists among the Republicans saying "No! This is heresy!"? Nope, these guys just go along because well, if the Bush administration is for it, we just trust the government. Now, that is common place. Warrantless wiretapping? Sure, if the government says its required. Torture? Sounds OK to me? Medicare Drug benefit? Umm, ok, if you think it will win us the election. Conservatism is dead.

Anyway, I hope all these guys remember this week when the push for Universal Healthcare arrives next year and they start braying "socialism! socialism!". If the the government can rescue Wall Street, and nationalize insurance and mortgage companies, it certainly is entitled to ensure each American has access to affordable, quality health care. Hey, maybe it can use that shiny new insurance company it just picked up to issue the policies?

His friend's response.

" Well, I must admit I was wrong. I thought the world was better w/ no government intervention/oversight. I supported deregulation like McCain. Now, that being said, I’m not sure government oversight and regulation would have prevented this financial pearl harbor, however its worth a try. "

Then the Dark Knight's friend emailed him these chilling words.

Truly, really, seriously- I am petrified.

'nuff said.

Thursday, September 25, 2008

Paulson blinks, McCain tries to play Spartacus and Bush fails the hard sell

This is how Bush should have done it.

Paulson has agreed to a concession regarding executive pay. Honestly, I do not think this will be enough.

What is the really big news is that McCain is now playing a Mighty Mouse by announcing he has suspended the campaign and going back to Washington to save the day because they obviously can’t do this without him. He even canceled an interview with Letterman, which Letterman has razzed him on.

Wed Sep 24 2008 17:41:58 ET

David Letterman tells audience that McCain called him today to tell him he had to rush back to DC to deal with the economy .

Then in the middle of the taping Dave got word that McCain was, in fact just down the street being interviewed by Katie Couric. Dave even cut over to the live video of the interview, and said, "Hey Senator, can I give you a ride home?"

Earlier in the show, Dave kept saying, "You don't suspend your campaign. This doesn't smell right. This isn't the way a tested hero behaves." And he joked: "I think someone's putting something in his metamucil."

"He can't run the campaign because the economy is cratering? Fine, put in your second string quarterback, Sara Palin. Where is she?"

"What are you going to do if you're elected and things get tough? Suspend being president? We've got a guy like that now!"


The story behind McCain is that there was some type of conference call between McCain and Obama but there was no mention of delaying the upcoming debate. Then McCain made his big announcement about doing a timeout to get the economy back on track and supporting the bailout.

Of course Obama is not letting him off the hook.

"This is exactly the time when people need to hear from the candidates... Part of the president’s job is to deal with more than one thing at once. In my mind it’s more important than ever.” (Obama also agreed that "there are times for politics and there are times to rise above politics and do what’s right.”)

From what I have heard in the News, the Palin sheen has now been replaced with the current economic crisis which is hurting him in the numbers. Therefore McCain is pulling the bug out to shore up his numbers.

I just heard the President’s speech, which is basically a rehash of what has been going on. Honestly, the only vibe I got was “All I know is that I am out of here in 4 months and this will be somebody else's problem.”

Wednesday, September 24, 2008

Senate to Bernanke and Paulson: F**K NO!

Buyout Plan for Wall Street Is a Hard Sell on Capitol Hill

The New York Times is completely wrong. Bernanke and Paulson are not selling anything. They are simply going straight for the close.

After 9/11, the war on terror was expanded to Iraq for weapons of mass destruction because the American people were sufficiently emotionally hijacked to support any type of action. We are now in a similar situation now where people are emotionally hijacked in demanding action for this economic crisis. However, they aren't stupid. Everyone knows how this went down and the last thing they want to do is give anyone a free ride.

Following the Bailout Hearing

“It’s very easy to second guess it,” Mr. Paulson said, adding that it was a “bare bones” document. But he insisted, once again, that the economy would not wait for the details to be worked out. There will be time to create “strong oversight,” “transparancy” and other “protections,” but the bailout must come first, he argued. “Implementing it does not mean investing $700 billion right away,” Mr. Paulson added, suggesting that there may be some leeway in going forward.

Even Paulson admits that his plan is sparse and that it could be second guessed. So according to his logic it would probably be a bad idea to get the money first without laying down some ground rules.

Bernanke: Approve bailout or risk recession

WASHINGTON - Federal Reserve Chairman Ben Bernanke bluntly warned reluctant lawmakers Tuesday they risk a recession with higher unemployment and increased home foreclosures unless they act on the Bush administration's $700 billion plan to bail out the financial industry.

Motherf**ker did you really go to Harvard or did you just pad your resume? We are already in a f**king recession. Are you trying to threaten the Senate with that old line?

Treasury, Congress ramp up bank bailout talks

"We totally understand the gravity of the moment ... but you cannot just turn over $700 billion of taxpayer money and not insist that the taxpayer is going to be protected," Senate Banking Committee Chairman Christopher Dodd told reporters.

This is a situation where you need to be extremely cautious. You can't simply kump in because your next move could be your last. You need to evaluate every option and to seek other alternatives. You also want to make sure that the people who started this mess are not rewarded and to ensure they do continue their abusive behavior.

Gingrich slams Paulson rescue plan
This is Newt Gingrich, the bane of all liberals. He is being quoted to be against this plan by Dailykos, which is considered to be one of the most liberal blogs, and even they are f**king baffled that Newt is on the same side as them.

As I said before in my previous entry about chatter, this is the time to demand guarantees, Wall Street is the one on ropes. They will agree what the people demand. And if they do not agree and things get worse, well it might get a little hairy.

CEO murdered by mob of sacked Indian workers

Corporate India is in shock after a mob of workers bludgeoned to death the chief executive who sacked them from a factory in a suburb of Delhi.

Lalit Kishore Choudhary, 47, the head of the Indian operations of Graziano Transmissioni, a manufacturer of car parts that has its headquarters in Italy, died of severe head wounds on Monday after being attacked by scores of laid-off employees, police said. The incident, in Greater Noida, followed a long-running dispute between the factory’s management and workers demanding better pay and permanent contracts.

I don't know about you all, but I would like to avoid this.

Tuesday, September 23, 2008

Dead Alive

The American version is Dead Alive but you get the idea.

Gothamist gives the rundown on a series of articles detailing the current state of what is left of Lehman employees who now have been absorbed into Barclay’s. According to the NY Post it appears the sword of Damocles stills hangs above their heads. Till the end of 2008 Barclay’s will be doing evaluation to see who they keep and who they toss to the wayside.

On Saturday night, about 10,000 Lehman employees of the units that Barclays is buying were sent letters stating there will be no guarantees they will keep their jobs as that purchase is completed.

The letter - sent by Barclays President Robert Diamond, Barclays Chief Operating Officer Rich Ricci and ex-Lehman COO Bart McDade - said the "best" staffers would be given positions.

Sounds harsh but they got a better deal than their colleagues in the Canary Wharf.

One of the most sobering articles is by New York Magazine titled The Rage of the Previously Rich which profiles how a former Lehman trader is dealing with his new found status of being a member of the unwashed masses. Below are points of interest.

Like many on Wall Street, the Trader’s career was moving along briskly. By 2006, he had settled into a new $2 million house in Connecticut with a pool, and kept a pied-à-terre in Manhattan. With two young children, he had private-school tuition to cover. He had recently completed a home renovation, and now there was talk of a new porch with a built-in stainless-steel barbecue. The Trader estimated that he was two years from making enough money to retire and never have to work again.

The collapse of the world’s most powerful wealth-creating engine required everyone to take stock of their financials. One Lehman executive in Rye Brook, fretting about paying off a Hamptons summer house and a ski chalet in Vermont, panicked on Monday morning and laid off her nanny, who had been with the Westchester family for nine years. “The nanny called me crying,” says Marla Sanders, who runs Advance Nannies and staffs Lehman homes. “One of the children she had brought home from the hospital.” Sanders knows more cuts for her clients are on the way. “They’re going to have to sell homes. The question is, will the homes sell? They’re cutting some of the children’s activities out, dance class, acting class. Are they going to have flowers delivered every day to their homes? I don’t think so!”

Even with a huge reduction in expenses, these individuals are going to still be in it because those expensive homes are not going to be flying off the market anytime soon. Buyers are going to play wait and see and if they are lucky they might get a luxury foreclosure.

Of course, this is one of the meanings of moral hazard, that term that’s been used so much in recent months. At this level, it’s not a tragedy so much as the end of a specific vision of the American good life, one that’s helped to define the city and its suburbs for more than a decade.

Pain was relative. “One of my managers, he’s a guy who is a little bit older,” one low-level Lehman staffer said on September 16. “He has an $800,000 mortgage, a wife who can’t work, and two kids. That gives you a little perspective.”

Like Bear Stearns, Lehman’s culture was built on fierce loyalty to the firm. Senior staffers were granted bonuses that would be paid with 50 percent or more in Lehman stock, which they couldn’t unload for five years. In July, Dick Fuld approved a move to guarantee staffers a part of their bonuses midyear. But the plan backfired when staffers learned that they’d be assured only 20 percent of their previous year’s bonus and would receive restricted stock at $21 per share (“Great, so you basically shorted my own compensation,” one Lehman staffer groused).

Rich people are no different they have mortgages and bills to pay and they also get screwed over by the man.

Even if the Barclays deal would save many jobs, staffers were outraged at Fuld. Since Friday, September 12, Fuld’s domineering presence had all but disappeared from Lehman’s headquarters, and he was assigned a security detail. “They are sneaking him in and out of this place,” a senior Lehman staffer said. “They wouldn’t let him near this deal. It was for his own safety.” Asked what Fuld could do at this point to make it up to his company, the Trader said, “Stand naked in Times Square while I Tase you.”

Lehman staffers in London felt particularly stung. Barclays acquisition includes only Lehman’s New York operations, meaning that the employees at Canary Wharf are going to be jettisoned. On the morning of September 17, one London managing director sent a terse e-mail to Lehman’s president, and cc’d the entire London office. The message—subject line: “To Tom, Michael and Bart: The Email that Never Came”—complained bitterly that New York never expressed gratitude for London’s efforts even while they were thrown under the bus.

Then, just before 10 p.m. on September 16, Fuld finally sent a memo to the staff. “I know that this has been very painful on all of you both personally and financially,” he wrote. “For this, I feel horrible.”
It was the apology the staffers had sought for days.

Security detail? What homeboys needs to do is call Air Force buddies to see if they know anyone at Blackwater who can help him out because he is going to need to bring in the state militia, the LA Thunderbirds, the ghost of Steve f**king McQueen, and 10 f**king Roman Gladiators to watch his ass. Dick Fuld did not just fart in the middle of a state dinner, the man basically got up on the dining table, pulled down his pants and blasted his diarrhea on the all of the dinner guests, namely his employees.

Meanwhile the market continues to dive and dive.

Monday, September 22, 2008

Confirmation of one piece of chatter

Remember this?
3. Federal Governement: Lender to the world

It is common knowledge that the Federal Government is being very generous with their lines of credit. But what is really f**ked up is that they are pretty much giving credit to everyone, including overseas banks.

It appears I was onto something.

Exclusive: Foreign banks may get help

In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night.

The theory, according to a participant in the negotiations, is that if the goal is to solve a liquidity crisis, it makes no sense to exclude banks that do a lot of lending in the United States.

Treasury Secretary Henry Paulson confirmed the change on ABC's "This Week," telling George Stephanopoulos that coverage of foreign-based banks is "a distinction without a difference to the American people."

"If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said.

Whatever dude. In the end America is footing the bill for this buffet regardless of who ate.

Thursday, September 18, 2008

Real estate chatter: The Great American Bugout and how Morgan Stanley is trying to pull a Houdini

Yeah, they planned it.

There has been a ton of financial chatter that I have been hearing from the financial trenches. I am unable to verify or confirm the authenticity of the chatter. It is just what I hear.

1. The American Markets are done.

The investors with the liquidity are staying away from the American Markets are treating them as if it is a reunion of former members of Plato's Retreat. The new game plan is emerging markets. They are focusing on places like Russia.

This piece of chatter is pretty much confirmed by the New York Times article on on the current state of Sovereign Funds.

To Avoid Risk and Diversify, Sovereign Funds Move On From Banks

The explanation is simple, bankers in the region say. Plenty of other, more attractive assets are out there right now.

With markets having been hit by the global downturn, compelling, value-priced deals are numerous — from sports teams in Britain and publicly traded companies in Russia to deals closer to home, like Middle East infrastructure buys, Youssef Nasr, chief executive of HSBC Bank Middle East, said.

Middle East funds certainly took their wallets out in September — just not for Wall Street banks. A unit of Kuwait Investment Authority is taking stakes in the country’s national telecommunications company, and Abu Dhabi’s investment fund bought the Manchester City soccer team. A Dubai fund is in talks with the British property developer Minerva, and Saudi funds are weighing agricultural tie-ups in Pakistan.

But bankers say that because the funds have already invested billions in American financial institutions, they are less likely to put more cash into that sector right now. Middle East sovereign wealth funds “put more money in a few months ago then they would have ideally done,” because financials were cheap then, Mr. Nasr said. That has “unbalanced” the portfolios of sovereign wealth investors, he said. “Now they need to go in the other direction” to diversify, buying up assets that are not financial institutions.

Sovereign wealth funds “haven’t disappeared, they’ve remained on the sidelines or gone elsewhere,” said Jan Randolph, head of sovereign risk at Global Insight, an economic forecasting firm with offices in London and Boston.

My theory is that they are waiting till things really hit rock bottom, after all why should they buy a rapidly depreciating asset?

This is a no brainer but buyers that are armed with tons of liquidity are the ones in control. Which means they can demand guarantees for their investments. Anyone that says otherwise is either delusional or in denial.

2.Citibank is not going out like that!

Citibank is not going down anytime soon. I am unsure if this is common knowledge but apparently there is a 51% stake owned by a member of Saudi royalty. Allegedly this guy has 30 wives, if he can take care of them, he has no problem laying out a couple of billion to keep things going.

3. Federal Governement: Lender to the world

It is common knowledge that the Federal Government is being very generous with their lines of credit. But what is really f**ked up is that they are pretty much giving credit to everyone, including overseas banks.

4. The Morgan Stanley Shell Game or Isn't this how they got into trouble in the first place?

Now here is the story behind the Wachovia and Morgan Stanley merger.

Morgan Stanley is definitely drooling over Wachovia however they are having trouble raising the capital for a merger, therefore they are taking chunk of Morgan Stanley and selling it to JP Morgan Chase. The capital from that will be used for the Wachovia merger. But wait there's more. Apparently after that deal closes, they are going to go after Wamu which is already on the auction block.

Expect alot of layoffs in that direction.

I have also been hearing the following being said a lot which although I understand the commonalities, I disagree with its use. "It feels like 9/11 all over again."

Tuesday, September 16, 2008

Real estate chatter: Consumer flight to quality and reader's comments.

Name withheld is totally shocked that Lehman and Merrill are gone!! WTF is going on? This was my world for the last 11 years? Where am I going to work after B-School??

This is from an FB. Sums up what alot of people are thinking now.

I have been hearing a lot of chatter at a certain bank that is famous for hunting a large Ursa and it is either good or bad. Depending on who you are.

I am unsure if I have told you all this story but even if I did it is still a good story.

This incident occurred between the Bear Stearns acquisition and the Lehman Brother implosion.

This banker was at his desk when a new customer came to open a new account. At first the banker thought this guy was going to open a small account. The banker realized his initial impression was mistaken because the customer sat down, took out his lunch and placed it on his desk. The customer that both of them were going to be here awhile. For almost 3 hours, the customer began transfer money from his account at Wachovia over the phone to his new bank

Apparently the Wachovia telephone banker repeatedly ask the same question which was “Do you realize your closing your account?” which the customer repeatedly responded “Yes.”

Perhaps the reason for the Wachovia telephone banker’s concern was due to the fact that the customer was transferring about 4 million dollars to his new account.

The next conversation occurred today while I was trying to get service on the phone at this particular bank. It was quite frustrating because I was constantly put on hold. When I finally got a branch service representative, I was peppered with apologies. All day this branch was being bum rushed by Washington Mutual customers who were opening up new accounts and transferring their funds.

I would like to address the following comment that was left by a former reader


I have long been a fan of your blog but this bitter tirade about some guy playing his stereo too loud deserving to lose his job is utterly ridiculous. Your posts have gotten weak as of late with many having little to do with your "trench reporting" on real estate. I'm not a banker nor am I particularly fond of bankers but this post is just plain stupid.

-former reader

For someone who claims to be a longtime fan you would know what I wrote was not a tirade. If it was a tirade the screen would be dripping with blood. I was showing a tremendous amount of civility with this person in my interactions with him and in that entry. And it was more than he deserved. It wasn’t just about loud music but his absolute lack of respect and disdain of me that was completely unwarranted. I make an effort to leave others alone and respect their privacy. And even when they violate mine, I make an effort to use the proper channels to address the issue in order it to be resolved in a diplomatic manner.

I asked him to lower the music down in a polite manner and he interpreted it as an insult to his manhood. It is simple as that.

I take no satisfaction from his occupational demise, for all I know of him he has a mortgage and family to support, which is going to make it quite difficult without job and trying to find a job in this economy. In fact if the following is true he might be starting from scratch.

“Over the past decade an increasing amount of the compensation had been given in stock and stock options,” said Robert Willens, a tax expert who worked at Lehman from 1987 to this year. “Employees were paid in restricted stock that took several years to vest. Stock was granted at the current price.”

If he has kids, he has to figure out another way to fund their college education. God forbid he has no health insurance because if he or someone get seriously ill, they are heading straight to the free clinic.

All I presented is my observation of this former neighbor and his employer. It is completely unscientific, but it is in my opinion that it is not by accident of these two share their current fate.

It said that Lehman Brothers CEO Richard Fuld own hubris played a key role in his company’s sudden and tragic end. So it does not surprise that my former neighbor exhibited the same attributes that as his former boss did.

On a personal note, I am not perfect. I have made a lot of mistakes in my life and because I am human I will be most likely make more. I only hope that I will have the humility and discipline to recognize those mistakes and make the effort to learn from them.

As for my “trench reporting” becoming weak, you are correct on two points. Real estate is no longer an island. It is connected to other investment vehicles and to society. This “trench” has become quite wide and includes places like China to superfunds sites across the United States. It is not just New York City anymore, it is the world.

As for my writing being weak, you are right. It is weak because this whole situation is weak. The United States economy is no longer in a position of power and we are now at a point where we are fighting for our survival and it does not seem like it will get any better in the future.

As for my words being stupid. You have no idea how right you are. This whole thing is so stupid. There was no reason for this to go this far. All Wall Street had to do was to apply the principles of asset allocation, diversification and make the effort to re balance their portfolios. But no, they didn’t. In fact even after the housing market crashed and even after Bear Stearns became JPMorgan Chase, the band played on and it was business as usual for Lehman Brothers. It is not just them, Merrill Lynch has already been sold to Bank of America and now the cross hairs are on AIG and even Morgan Stanley is looking skittish. All because greed was replaced by common sense we are now dealing with a situation that is stupid on epic proportions.

The irony is that the people that work for these companies are not stupid. They are highly educated and are well experienced in their fields. They worked for companies that are quite prestigious and yet here we are circling the bowl wondering when the next time it flushes.

Sunday night I was having an IM conversation with a family member and that family member made a very sobering argument for Obama not to win this presidential race. Because whoever is elected is going to be a one termer since they will be faced with the very unattractive prospect of not cleaning up but surviving this nightmare.

Monday, September 15, 2008


Frequent readers of this blog know that I hold a dark cold pit in my heart for those who violate the law of right to quiet enjoyment. I would like to share the origins of my disposition towards noise.

One of my first apartments I lived in was a lovely rent stabilized one bedroom that rented for a under $1000 a month which is something none of us will ever see in the New York City area in our lifetime.

On my first week of living there, my neighbor welcomed me to the neighborhood by blasting his stereo. I stupidly followed my landlord’s advice and asked if he could lower it down in a cordial and calm manner. Thus began a hellish noise ridden voyage that would raise my blood pressure and leave me cursing with rage.

This douchebag, and I use the term lightly, decided my request to lower the volume was an act of war. Not only did he turn the volume up on his stereo, he decided to display his skills as a step dancer and repeatedly stomped on the floor with all his 6 foot tall plus 200 lbs might.

If finally got to the point where the super had to intervene on my behalf, not once but several times when this douchebag would start having a temper tantrum like the man child he was.

Every now and then we would be find ourselves in each other’s company either passing each other in the hallway or sharing the elevator. Despite the discomfort of the situation I always made an effort to be cordial with him despite our differences. His response was either complete indifference or a cold stare. He would never even thank me when I would hold the door for him.

One day I heard the sound of construction from his apartment and was informed by the super that el douchbag had moved out for greener pastures.

So how is he doing now? Let’s find out.

Lehman races to find buyer or investor

The turmoil weighed heavily on employees . “There are 25,000 people who are sitting there crying,” one banker said on Thursday. “I just hope there’s a solution.”

For Lehman Employees, the Collapse Is Personal

Mr. Fuld himself has seen much of his wealth disappear. At the stock’s peak, his 11.4 million shares of various types of stock and 2.5 million stock options were worth about $956 million, according to James F. Reda Associates, a consulting firm. Now, they are worth only about $40 million. But employees know that Mr. Fuld has reaped rich rewards in his decade and a half at the helm.

Even if he loses his grip at Lehman, he stands to collect more. He does not have a severance agreement if he loses his job, but if he were terminated without cause, Mr. Fuld could expect to collect a $16 million pension and $5.6 million in deferred compensation.

“Over the past decade an increasing amount of the compensation had been given in stock and stock options,” said Robert Willens, a tax expert who worked at Lehman from 1987 to this year. “Employees were paid in restricted stock that took several years to vest. Stock was granted at the current price.”

“We feel like we have been controlled by events and haven’t controlled them,” said one rank-and-file employee. “And it has just been the most punitive market. Is there frustration with the management team? Of course.” Another employee who left Lehman earlier this year lamented that he had put enough faith in the firm to retain shares — a decision he is paying for. “My children’s education fund is wiped out,” said this person.

“I’m not a millionaire like a lot of these guys. Of course this is on Dick’s hands,” he said, referring to Mr. Fuld. “It all happened on his watch.”

Lehman heads toward brink as Barclays ends talks

Lehman Files for Biggest Bankruptcy as Suitors Balk (Update2)

It appears he is not doing too well since the company he works for has just imploded.

Looking back on my experience with the douchebag, I have a better understanding of why Lehman Brothers met its tragic demise. That f**k you, I ‘ll do as I please and its not my problem if you suffer attitude is what got them into this mess. This douchebag exhibited that same attitude of his former company. Which is probably the reason why they hired him in the first place.

Do I feel any type of satisfaction from this? No. Just an awareness of the lesson that
what comes around, goes around
and just because you have to the freedom to be a douchebag does not mean you should exercise the right.

There was many a time when the music and noise became too loud, or his rude demeanor would rub me the wrong way, and I wanted to give into the urge to scream at him. I wanted to give into my anger and let him know what I truly thought of him,as Dale Carnegie would put it, and make the greatest speech I would ever regret.

Instead I kept a stiff upper lip, exercised avoidance and left my apartment when the noise became overwhelming.

One may say I was acting passive aggressive, but after my initial contact with this person, I realized this guy was not going to back down and was going to escalate the conflict to the point of no return. The fact that he responded to my initial request by being more of an a**hole made me realize what I was dealing with and even when I was experiencing an emotional hijacking and my Amygdala would roar for a verbal altercation, my Neocortex would step in and tell me to go for a walk.

The most important lesson I have learned is that it is best to let the 800lbs gorilla sit where it wants. Because eventually the gorilla will sit in a minefield. And even if it doesn’t sit in a minefield, it will associate with other 800lbs gorillas and at least one of them will sit in a minefield and end up blasting all the other gorillas in its radius.

Friday, September 12, 2008

Just for fun

Comic Bobby Lee will play McCain in a segment on the season premiere of “MADtv” this Saturday night. The segment, “So You Think You Can Dance: President’s Edition,” features Bobby and Arden Myrin as Cindy McCain and Keegan-Michael Key and Erica Ash as Barack and Michelle Obama.

I think Arden Myrin is inspired casting for Cindy McCain.

So what the hell is this? It is me saying let's take a step back and laugh. Already we have commerrated those we lost on 9/11 and we are still dealing with the economic turmoil that appears to be far from over.

As for Lehman Brothers, I actually have a personal story related to Lehman Brothers, which as far as I am concerned, explains why that investment bank in a world of hurt.

But for now, let's laugh. Let us enjoy ourselves. We will have plenty of time to ruminate next week.

Below is a brilliant set from Bobby Lee where he talks about his first job.

Thursday, September 11, 2008

7 years ago

Peter Craig Alderman

We will never forget you and the others that were lost that day.

Wednesday, September 10, 2008

Queens or Scarsdale Part 3: The Final Countdown

Let's all take a deep breath and forget about the bailout and the fact that Lehman Brothers is being reduced to rubble. Let's play a game of Queens or Scarsdale.

Feast your eyes on this bad boy!

Nothing says classy than a McMansion above a strip mall!

This home screams one thing.


Sunday, September 07, 2008

Fannie and Freddie sitting in a tree! D-Y-I-N-G!

Unlike the Carpenters, the tune is decidedly more grim.

Obviously we have all heard about the government bail out of Fannie Mae and Freddie Mac. For more more information go to this NYT link..
The New York Times also has a list articles related to the bailout. I highly recommend everyone read it.

Below are some interesting points from the articles.

U.S. Unveils Takeover of Two Mortgage Giants

Mr. Paulson refused to say how much capital the government might eventually have to provide, or what the ultimate cost to taxpayers might be.

He doesn't want to f**king now. If I was Paulson, I would be counting the days until the end of the Bush administration because at that point it will be someone else's problem.

But if you really want to know, the passage below will give you an idea.

The companies are likely to need tens of billions of dollars over the next year, but the cost to taxpayers will largely depend on how fast the housing and mortgage markets recover.


Although this provides little consolation if any at all, it appears that no one is getting out alive

U.S. Rescue Seen at Hand for 2 Mortgage Giants

The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

The bail of Fannie and Freddie has been the talk of the town for quite awhile. But why now?

The declines in the housing and financial markets apparently forced the administration’s hand. With foreign governments increasingly skittish about holding billions of dollars in securities issued by the companies, no sign that their losses will abate any time soon, and the inability of the companies to raise new capital, the administration apparently decided it would be better to act now rather than closer to the presidential election in two months.

I completely concur with this perspective. The economy is currently in a s**tastic state and of course we have other international situations to deal with. Fannie Mae and Freddie Mac imploding weeks before the election would have drastic consequences for both candidates and could possible put the whole political process in a state of chaos that would make Florida 2000 look like a bar mitzvah.

Uncertainty plays a key role in elections but too much can really f**k up the program for everyone.

According to this article, this is another part of Paulson's game plan.

U.S. Unveils Takeover of Two Mortgage Giants

The two companies would be allowed to “modestly increase” the size of their existing investment portfolios until the end of 2009, which means they will be allowed to use some of their new taxpayer-supplied capital to buy and hold new mortgages in investment portfolios.

But in a strong indication of Mr. Paulson’s long-term desire to wind down the companies’ portfolios, drastically shrink the role of both Fannie and Freddie and perhaps eliminate their unique status altogether, the plan calls for the companies to start reducing their investment portfolios by 10 percent a year, beginning in 2010.

The investment portfolios now total just over $1.4 trillion, and the plan calls for that to eventually shrink to $250 billion each, or $500 billion total

Is this too little too late?

Of course what is not a big surprise is that these two mortgage behemoths were playing fast and loose with their books.

Mortgage Giant Overstated the Size of Its Capital Base

Then, last week, advisers from Morgan Stanley hired by the Treasury Department to scrutinize the companies came to a troubling conclusion: Freddie Mac’s capital position was worse than initially imagined, according to people briefed on those findings. The company had made decisions that, while not necessarily in violation of accounting rules, had the effect of overstating the firm’s capital resources and financial stability.

Indeed, one person briefed on the company’s finances said Freddie Mac had made accounting decisions that pushed losses into the future and postponed a capital shortfall until the fourth quarter of this year, which would not need to be disclosed until early 2009. Fannie Mae has used similar methods, but to a lesser degree, according to other people who have been briefed.

If they were not cooking the books it appears at least they were doing some sautéing.

This is damn well certain.

As a result of the government’s intervention, the cost of borrowing for Fannie Mae and Freddie Mac should decline, because the government will be standing behind their debts. Equally important, because the government is backing the companies, their buying and selling of loans will continue.

But the plan to bail out the firms will probably do little to stop home prices from falling further. And foreclosures are almost certain to rise.

Thursday, September 04, 2008

Blind item: Which building became a makeshift morgue?

There is a well known downtown residential building where one of the residents passed away a week ago. Management found the resident's body yesterday.

They have already initiated a full building scrub to get rid of the odor which was everywhere including the gym.

Wednesday, September 03, 2008

You have to be kidding me.

Is this for real?

I swear the unborn soul of Sarah Palin's impending grandchild that I got this email from someone who wanted to advertise on my blog.

I have just stumbled across your site and I'm interested in buying a text-link ad on the main page of this website, or a page where you think it may be more suitable. It's one of the very few websites I have found that I feel would be suitable for my client. I would be grateful if you could send me a price for a link in the section discussed above for a period of 12 months.

The text link I would like you to place would be mortgage bonds

Look forward to hearing from you.

Name Withheld because I pity the fool.

My response was the following.

Mortgage bonds? You're kidding right?

Monday, September 01, 2008

The End

Recently received a disconcerting email from a reader regarding the rental broker profession in New York City that I would like to share with all of you.

Is there a future in being a rental Broker?

I was just wondering what’s your opinion on the subject , since owners are going thorough hard times and with a lot of time on their hands so they are advertising the very same apartments for free, that brokers are trying to earn a fee ,

what I see is happening more and more that renters and owners are just abusing the brokers time to show them around ,then searching on craigslist for the owners ad and skipping the broker,

Does this mean the end for rental brokers to earn a decent living?

My response.

It's funny you mention this. I had actually touched upon this subject 3 years ago on my entry on outsourcing rental brokers.

I think what you have touched in regarding landlords advertising apartments is quite significant. In these desperate times, landlords realize that a broker presents a barrier of entry for prospective tenants because the additional broker fee presents an added cost to an already burdened customer.

However, that does not mean that all rental brokers are completely screwed. Here is an example.

I knew one particular broker who focused on downtown lofts. These were unique properties that were not openly advertised. These were high end residences which only a specific type of clientèle could afford. These particular types of clients could easily pay the fee let alone the rent. This particular broker established a reputation of being able to bring these types of tenants to the loft owners that these landlords were more than happy to give this broker their business and ultimately relied on him to bring in tenants. How is he doing now? Hard to say considering that the majority of his clients were Wall Streeters and we know how that movie ended.

Is there a future for rental brokers? The odds look bad. However if the rental broker is smart and figures out the right strategy, they should be able to at least survive the downturn.

I would also like to add to my response to a question that the Hunt Grunt posed to me regarding how a broker fee can become a barrier of entry.

The fee was $2,000, Mosaic’s minimum, even though it usually charges 15 percent of a year’s rent ($1,395 in this case). So few low-end rentals are available that typically “you’ve got to get creative in finding the apartment or making the deal happen with the landlord,” said Brian Dusseau, a manager at Mosaic Properties. Also, “if people can afford to pay our fee, we know they can afford to pay that rent every month,” he said.

PGrunt writes:

I have experienced the flipside which is that the client has only enough money to pay for the 3 months of rent to hold onto an apartment.
I asked Grunt to expound further. He noted that the renter has a high upfront cost -- rent, security deposit, fee -- which can be several thousand dollars. Furthermore:

If a client can pay the fee, they should, theoretically, be good to go to pay the rent. But if you are dealing with a client who is strapped for cash, then you have a catch-22 where they have only enough money for one or the other but not both.

Even after the market recovers, I think that landlords and property management companies will still maintain this new model of advertising and processing rental applications on their own because it will be more quicker and efficient to do so. And there will be more companies like On site Manager that will provide these types of services at a fraction of the cost a rental broker.