Posted by Jonathan J. Miller -Thursday, October 2, 2008, 12:29 AM
Dan Gross over at Newsweek/Slate makes a great case for the argument that the bailout is a lot like a hedge fund.
It’s massively leveraged, It’s buying distressed assets, It’s taking equity stakes.
Mother Goose probably had no idea that she was to be in the conversation of hedge funds, equity investors investment banks and commercial banks.
To market, to market, to buy a fat pig,
Home again, home again, dancing a jig;…
Ok, ok so I tweaked the wording a bit, but the whining associated with the mark to market pricing concept of mortgage backed securities comes to mind. Apparently now accountants are to blame for the credit crunch because of Statement No. 157: Fair Value Measurements.
Mark to market explained: In accounting, mark to market is the act of assigning a value to a position held in a financial instrument based on the current market price for the instrument or similar instruments.
Much like market value estimates of properties derived from a typical residential mortgage appraisal, the state of the market at the present time frames the value of the asset. But what if there is no value because there is no market? We had this situation come up in Manhattan just after 9/11 because there were no sales. How do you estimate market value if there is no activity? I have long held that there is no market at that moment in time and therefore a value estimate is moot.
One of the biggest issues and the driver for the bailout is to be able to move the toxic mortgage junk off the balance sheets of lenders so they will not have the same capitalization requirements, which will free up capital to re-enter the markets to provide more mortgage money to homeowners.
Well the US Senate tried again and succeeded in passing the bailout wednesday, which was described as having more “lard” added to it (ahem… pork). Say what you want about Senator Dodd and his poor judgement in accepting favorable mortgage rates from Countrywide, he sounded pretty sharp even with the obligatory political posturing in this interview with IMUS just before first bailout bill vote.
And nearly every politician is fired up about mark to market in Washington and reversing the 50 year trend toward fair value accounting.
the big complaint at the moment is that markets for some mortgage-related securities have so totally broken down that marking them to market dramatically understates their value and makes banks’ finances look much shakier than they really are.
In Justin Fox’s Curious Capitalist blog over at Time he concludes in his Suspending mark-to-market is for zombies.
investors and regulators and reporters and corporate executives need to learn not to take any financial reporting numbers, whether marked-to-market or not, at face value. The health of a bank or any corporation can never be adequately measured by a single bottom-line number. Understanding the assumptions and uncertainties inherent in accounting numbers is crucial to understanding how to use them.
Think of it as a balance sheet with lipstick.
Posted by Jonathan J. Miller -Monday, July 21, 2008, 12:23 PM
Here’s a collection of phrases that caught my eye for our newfound understanding about our new housing/credit morality/thinking:
Moral Hazard – I have linked to Holden Lewis’ brilliant post before: Moral hazard is when people take unwise risks because they are sheltered from the consequences. For example, if you wear a seat belt and drive a car with airbags, you’re more likely to tailgate.
Rally between Concern Phase and Fear & Capitulation Stage – Comstock Partners has some great commentary about the housing market: Now even Fed Chairman Bernanke has caught on to the dangers of the bursting of the bubble.Â He stated in both Tuesday’s and Wednesday’s testimony before Congress, “the housing market is the central element of the financial crisis.Â Anything we and Congress can do to strengthen the housing market, or strengthen the mortgage financing market, will be helpful.Â We can do this by restoring confidence in the Government Sponsored Enterprises (GSEs).”Â We are happy to have Mr. Bernanke on board, but are not too happy about begging Congress to slow down the process by trying to get bills passed that would postpone the inevitable decline and make the eventual decline even worse. We have to let the free market work its way through the housing crises.
Flat is the new up – Daniel Gross of Slate’s column captures the feeling of victory in today’s economy. Last weekend, at a suburban barbecue, I asked a friend who works for an asset-management company how his firm was faring in these turbulent times. “We’re actually doing OK. Keeping our heads above water.” At which point another guest chimed in: “Hey. Flat’s the new up.”
Nexus between fear and greed – I wrote about this one before.
Foreclosure Contagion – Zubin Jelveh’s Odd Numbers blog in Portfolio.com offers a wealth of sharp insight on an array of economic topics: The researchers also find that the negative hit from a foreclosure is strongest right before a lender takes control of the property. They argue “that when foreclosure is inevitable, efforts to speed the foreclosure process would be effective at reducing the contagion effect.”
It’s a good time to buy real estate – housing prices double every ten years – NAR is hard selling and yes, it may be a good time to be real estate in certain markets and for some people. Because NAR says this 24/7, it’s hard not to cast a jaded glance their way.
Posted by Jonathan J. Miller -Tuesday, July 8, 2008, 9:20 AM
Its the originals versus the copiers. Its the creative versus the mundane. Its the celestial evangelists versus the card carrying masons.
The New York Times had a very lengthy article today, worthy of a real estate section lead story today on the naming of a new residential development. There has been a rash of new condo developments in New York that are named for stars (the celestial kind). In fact, there have been a rash of new condo developments…period. Theoretically, most have names so it is hard not to be confused.
There are developers who favor the “star name” concept and those who don’t. Each camp contends that their originality or beliefs are more effective in selling their product. Each seems to be bragging about how effective their strategy is.
Try proving a project name’s effectiveness with empirical data.
I remember speaking with an onsite broker at a Trump building in the late 1980s (when Trump, like most developers, fell on hard times) who shared her thoughts on the subject. She (I can’t remember her name) came up with the name for The Promenade, a mid-1980s project whose developer, Glick, later became overextended losing at least one project (The Horizon) to a lender, Chase.
She had come up with the name…
…back when real estate
The NYT article sounded a bit like it originated from a PR pitch for the Ariel project in the Upper West Side to create awareness (that the name, ironically, did not seem to do) but it was a well written fun read.
I recall how overused the Starchitect label became in new development several years ago. Every project was associated with some individual that consumers were supposed to know.
I would guess that most consumers didn’t know the architect names before the marketing push and the overused effort numbed the consumer. Next: building names.
With so many projects coming on line these days, their names seem to blur together. I always prided myself in remembering the name and facade appearance of most of the 4,000+ Manhattan co-op and condo buildings in our own database (with this trivial skill I still can’t retain anyone’s name at a cocktail party or the capital of Sri Lanka).
Does a name matter? To some, I am sure it does.
How about names for feelings or emotions? “Aggravated”, “Impatient”, “Rushed”, “Annoyed”, “Panic”, “Confident”, “Rage”, “Bullish”, “Obnoxious” come to mind as potential choices.
Or better yet, how about swear words?
Heck no, families will live in those buildings.
Posted by Jonathan J. Miller -Thursday, May 29, 2008, 9:50 AM
I’ve been AWOL since Monday. Got out of the hospital. Ouch! In for the same reason I went in 1997 and 2003, which coincidentally were the same years the Marlins won the World Series. I got the opportunity to mention this to the current owner a few years ago for a chuckle. The Marlins are in first place right now and then I go to the hospital. Coincidence? Don’t bet on it. They’re a lock.
So this emoticon thing, we think we’re pretty clever and original. It’s a language created in a growing world of Instant Message, Twitter, Text Message, etc. The emoticons in this post header are from 1881.
Abbreviations have a way of expanding (remember when MacDonald’s only served hamburgers?), creating the need for something simpler to replace it. I have talked lot about abbreviations used in property listings in newspaper advertising, where a language of real estate abbreviations evolved incentivised by pay per word pricing which is becoming more diluted as classified listings move online.
There is an awesome article in William Saffire’s column On Language in NYT Magazine last weekend called Emoticons: The seamy side of semiotics where he makes the case that language is in the third stage of compression.
Three centuries ago, we were fed the shortâ€™ninâ€™ bread of contraction; wonâ€™t, donâ€™t, Iâ€™m, youâ€™re made the apostrophe the king of cant, which caused a 19th-century lexicographer to denounce writers â€œcarrying contraction to such an excess as to make their writings unintelligible to all but the initiated.â€
Then came the period of portmanteau terms, named after the French suitcase with hinged compartments: chuckle and snort blended into chortle; breakfast and lunch fused into brunch; and, in our time, broadcast and the World Wide Web morphed into webcast (still capitalized as â€œWebcastâ€ by the New York Times copy czar).
Electronic communication has whisked us into a third phase of compression: the Age of Shortspeak. As we listen and watch replays of multicasts to suit our scheduling convenience, those above-mentioned interminable, bor-r-ing four-second pauses are edited out. Humanizing uh, er, ah, um moments of meaningless vamping are pitilessly erased; even the dramatistâ€™s â€œpregnant pauseâ€ has been digitally aborted.
In other words, intro a new “short” way to communicate. It evolves. Repeat.
I know people who use IM who are not good at communicating emotional nuance and some that are. This all boils down to the constant change and evolution of language. Some people are good at adapting and some aren’t.
Posted by Jonathan J. Miller -Thursday, March 20, 2008, 12:05 AM
About a year and a half ago I posted about the housing blame game in my post, oddly enough called: [Matrix Commentary] The Housing Blame Game
As the falling housing market shakes financial institutions and pummels Americans in an election year, the nation’s economic woes have surged to the top of voters’ minds. The timely question: To what extent are politicians and regulators at fault?
Since its an election year, it is now fodder for the ongoing presidential election campaign. The Wall Street Journal had a page one story about this yesterday with a pretty neat graphic:
Open larger version.
- Republicans: In power during the housing price run-up. Cheerleaded riskier mortgage products.
- Democrats: Pushed homeownership increase. Prevented tough laws on subprime regulation.
The article seems to place more blame on the Republicans but housing has always been political.
As far back as the Civil War, owning a home has been associated with civic virtue and moral behavior. Democratic and Republican administrations alike sought to raise homeownership through subsidies, tax breaks and dedicated agencies.
When George W. Bush took office, that push became a pillar of his “ownership society” campaign. “We want everybody in America to own their own home,” Mr. Bush said at a housing conference sponsored by the White House in October 2002. Earlier that year, he issued a “challenge” to lenders and others in the industry: Create 5.5 million new minority homeowners by the end of the decade. In 2003, he signed the American Dream Downpayment Act, creating a program that would offer money to the poor so they could secure a first mortgage.
Posted by Jonathan J. Miller -Sunday, February 10, 2008, 12:43 PM
Every so often, I get overloaded on a specific cliche that seems to explode in popularity, even though it has been around for a long time. Don’t get me wrong, I find myself using them and try to keep it to a minimum but its hard to do. While housing market has its built-in cliches:
Location, location, location
And sales related cliches like:
Dangle the carrot
Laugh all the way to the bank
Get your foot in the door
Making money hand over fist
Pick the low hanging fruit
Sweeten the pot
You scratch my back, I’ll scratch yours
Think outside the box
Survival of the fittest
Firing on all cylinders
Drink the kool-aid
Keep your nose to the grindstone
I think that a lot more cliches have crept into the daily housing vernacular as many markets have been experiencing declines and there are growing economic woes are related to housing.
With all the interest in the financial markets, I am seeing, or just more sensitive to, stock market phrases used to characterize the housing market. Its not that the phrases are used incorrectly, its just annoying that so many use them adnauseum.
I remember when gravitas became a cliche nearly overnight a few years back. Last year, a huge phrase in the news media and blogosphere was:
Dead cat bounce
When a stock’s price goes up a little because people have bought it after seeing it go down drastically.
Now that my family has a cat at home, I find it a bit distasteful.
The phrase which gained steam last year to depict the housing market, which is particularly annoying is:
Catch a falling knife
To buy a stock as it’s price is going down, in hopes that it will go back up, only to have it continue to fall.
I heard the phrase several times at the recent Inman Connect conference by panelists, and while an accurate depiction, I just found it annoying.
So when characterizing the condition of the housing market these days, lets cut to the chase, because the jury is still out and I am at the end of my rope because the end doesn’t justify the means. I don’t want cliches to be our achilles heel because the depiction of housing conditions requires us to get our arms around it or its death by a thousand cuts and thats no joke when we consider the tangled web we weave so just stick a fork in it and burn the midnight oil to come up with another phrase that knocks housing out of the park.
Remember, at the end of the day, there is no “I” in housing.
Posted by Jonathan J. Miller -Saturday, January 5, 2008, 11:30 PM
Says American Dialect Society, voting the word Subprime as its 2007 Word of the Year.
80 members spent 2 days debating this word over the stiff competition of:
As for “subprime,” Glowka [their spokesman] said it is an odd word â€” at least as far as linguists are concerned.
The prefix “sub” translates roughly to “below the standard,” while “prime” means something close to “the best.”
So, according to Glowka, the word really means “far below the best.”
“People were saying that students were referring to their tests, ‘I’m going to subprime this; I’m going to mess it up,’” he said.
Last year the word of the year was pluto. Yeah, I’d say we are on a different planet this year.
Posted by Jonathan J. Miller -Monday, May 7, 2007, 12:16 PM
A while back, I bought into the whole Freakonomics phenomenon, sort of enjoyed it and still continue to read their blog. While I don’t always agree with their key points made in their New York Times magazine articles, (like the controversial one about real estate agents) it provokes interesting discussion and always provides a refreshing outlook – which is the whole point.
One of my favorite blogs, The Stalwart, is sick of the freakin’ genre because its being copied and yet there is still not much economics discussion out there that is approachable to the general consumer. Thats a shame. However, I think Freakonomics does serve an important purpose, to expand our way of thinking about economics by kicking conventional wisdom in the posterior.
That being said, there was an interesting post on the Freakonomics Blog:
Do Street Names Matter?
I don’t think they really do, but let me explain…
Street names like Levitt mentions, including â€œMassacre Lane,â€ or â€œPoison Avenue,â€ or â€œStench Streetâ€ are rare because it would be unlikely that someone, unless they had a strange sense of humor, would select such names. I am speculating that it probably doesn’t matter, but if it did, its affect would probably be nominal and virtually impossible to prove empirically.
This is a different concept than the prestige names that are touted in real estate marketing. In Manhattan for example, Fifth Avenue is a prestigious address to many and it does infer value, but if it were called Pumpkin Town Lane or Swamp Marsh Avenue when Manhattan was mapped out, would likely have the same cache because the prestige (yuck, I hate that word when tied with location) is in the location, and not in the name alone. In other words, I think the name of the street can be correlated to value, but its an indirect link.
The location element is associated with the name, Fifth Avenue. A big difference. The name selection of a new condo development that implies luxury, is important, but it means nothing if it isn’t associated with a luxury product. Thats cheating. Sometimes we see developers insert the name “penthouse” in front of an ordinary unit but no additional value added was achieved. Its ultimately the combination of the name and the fact the the unit really is a “penthouse” is what makes the name appear to be effective.
Next up in our search: city names and their impact on housing values – so lets look at Intercourse, Pennsylvania and see who is getting, well, screwed…
but I again digress…
Posted by Jonathan J. Miller -Thursday, March 15, 2007, 10:38 AM
Well actually, my point is that the use of the word “prime” in appraisals and lending vernaclar, could possibly be construed as violating fair lending laws. Fannie Mae in their Fair Lending and The Appraisal Guidance (LL02-95) lists examples of words or phrases to avoid:
- pride of ownership
- poor, good or desirable neighborhood
- crime-ridden area
They are directing lenders and appraisers to avoid using words and phrases that could cause the reader of the reports to come to erroneous conclusions as to bias. Phrases like undesirable curb appeal and prime neighborhoods could fall into that category.
Think about it: When you say prime neighborhood or sub-prime mortgages, inferences to at least some of the no-no’s in the Fair Lending law such as race, color, religion, sex, handicap, familial status or national origin have to cross most people’s minds.
Sort of like one of George Carlin’s seven words you can’t say on television [Profanity Warning]
So the fact that the word prime is used in the word sub-prime should have told us that something was amiss.
Next on the verbal assault list: Use of the word prime in steakhouses, the prime rate and prime time television.
Posted by Jonathan J. Miller -Monday, February 5, 2007, 12:41 PM
I love this phrase!
Four words that pretty much paint the picture of the war between those selling real estate and those who are renting (and either can’t afford to purchase or are uncomfortable with doing so at this time).
While I had heard the phrase many times before, it was inspired by my Three Cents Worth weekly column on Curbed where there are always a few conspiracy theorists that comment on my posts. They accuse me of being in the REIC because I am in a real estate related business, although not as an agent, but as an appraiser.
When someone is accused, labeled, etc. of such an affiliation (guilty as charged), its not about being open to solutions or ideas, its about taking sides. Although some of the blame clearly should be placed on the real estate industry, its not a 100% type of issue, even though it is presented as such.
REIC is a cynical phrase that is used as a weapon on real estate spin, but actually serves as reverse-spin as well. As I mentioned in an early post…there are no gray rooms in the Real Estate Industrial Complex (REIC).
However, I think the blogosphere has served as a powerful offset to the spin coming out of NAR. Although its funny, I think the conflict is more about an awakening that NAR is a trade group, and not a neutral reporter of market conditions.
As a result, I set up a separate simple site yesterday (to play with Apple’s iWeb tool – still a little rough), to cover the REIC and will be adding content over time and linking it to Matrix.
Enjoy and please send along ideas for the phrase’s use.
Go to RealEstateIndustrialComplex.com
Here’s the first entry: Military origins (which explains the acronym)
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