21 comments to “What Do You Think? Real Estate Investors — Speak Up”

Kathy on September 7th, 2007 at 7:59 am said:

• As a business owner, a home owner, a real estate investor AND a mother (with a degree in economics no less) I find myself uncomfortably straddling this fence.

  In a theoretical sense, I believe that the best course (in the long run) of action is to allow us to enjoy (or suffer) the consequences of our actions.

  Surprisingly, it’s my role as a mother rather than my “formal training” that provides the foundation for this opinion.

  When my children are allowed to behave in a manner that does NOT allowed to suffer the consequences of their actions, they tend to become repeat offenders. Sure, they know they should clean up their room… but they don’t actually DO it until there are consequences for not performing the task. I fear the same is true for adults (investors and otherwise) as well.

  Of course, theory is nice until it bites ME in the arse. As someone who is positioned to “experience” the aforementioned “consequences”, I can’t say that I’m excited to fully experience the fall out.

  Sigh. That which does not kill me makes me stronger… at least, that’s what THEY say.

Sandy on September 7th, 2007 at 9:21 am said:

• What can we think? Bernanke is talking about doing what the Federal Reserve exists to do. I don’t see the problem, unless the problem is a fundamental one with the existence of the Fed.

  The Fed was created in 1913 to respond to the bank panic of 1907. It was created to restore stability (or create it–it is a point of contention whether monetary stability ever previously existed in the US) to monetary policy.

  It’s actually done a reasonably good job of that, with the exception of 1929 - 1933 which it might be argued was the Fed’s first real test, and the inflationary period of the 70s/early 80s. Even in those instances, one might ask what would have happened without Fed intervention.

  Other than those two periods the Fed has by and large accomplished what it was created to do. And our entire economy has benefited from that, as has most of the US population on an individual level.

  You could argue whether it is a worthy goal to stabilize the economy while leaving certain “poisons” still in place, or whether it would be better to allow the economy to come to a market solution.

  Me personally, I think stability is a good thing. Market solutions tend to be extremely painful. Pain may be how we learn, but we don’t really want to create a situation where those who’ve gotten burned then elect to stay out of the market entirely. Investors, large and small, are the engine of our economy–if they aren’t willing to invest their money and take risks, we are going to have a bigger problem on our hands than the one we have now.

  The Fed may protect Wall Street from its excesses, but it also protects the rest of us. I think Ben is doing the only thing he can do, within the context of what he is tasked to do.

Sock Puppet on September 7th, 2007 at 2:50 pm said:

• Generally I’d like the moral hazard of the Fed cocooning the bubble wrap around Wall Street removed.

  That being said… maybe a little warning about “no more bubble wrap” would have been in order a couple years in advance.

  The Fed did after all play a role in the lead up to where we currently are.

  -Athol

BawldGuy on September 7th, 2007 at 2:53 pm said:

• Kathy - Love the analogy using your kids, which I think makes a great point: Do we walk the talk with our kids, or tell them to do what we say, and not what we do?

  For instance, how many 35 year olds smoke today, because of the example their parents set?

  That doesn’t take them off the hook for the consequences though, does it? Of course not. But if their parents had walked the talk, they wouldn’t be so much at risk for all the life threatening diseases, would they. Probably not.

  Thanks Kathy - great perspective, and an interesting thought process.

BawldGuy on September 7th, 2007 at 3:02 pm said:

• Sandy - I think you’re saying it’s fine for us to suffer from poor decisions, but not to the extreme. That the Fed is there to smooth out those rough edges, and they’ve done a good job, excepting the depression.

  Of course, even though it’s easy to give the Fed a pass on their moronic handling of the ‘29 crash, they were new at the time and didn’t realize (I think) what real power they had to change the direction of the raging river. That said, they didn’t realize their mistake until after World War II, and then only because they couldn’t help but see the folly of what they’d done.

  If you were Fed Chairman, what would you do in the next few months?

  Thanks for chiming in Sandy - please come back.

BawldGuy on September 7th, 2007 at 3:08 pm said:

• Athol - Absolutely correct.

  But, of course, it’s totally unfair to blame the new soccer coach for losing with the crappy players the old coach recruited, isn’t it?

  Bernanke wasn’t in charge during this whole buildup - Greenspan was.

  I still agree with your point though. It would’ve been nice, say five years ago for the Fed to have said: “The current trend in loan underwriting is dangerous, and will, in our judgment, lead to loss of capital and equity, sooner or later. We will not be there to pick up the individual pieces, but will take steps to right the economic ship. The consequences of individual and/or Wall Street actions will be realized, regardless of any action we may or may not take. ”

  Let’s see what the new coach does, and how it works out.

Sock Puppet on September 7th, 2007 at 4:26 pm said:

• I’d set my sights a little higher up the food chain for guy to blame for this mess Jeff.

  I mean being President must be a heck of a lot easier riding an economic bubble than not riding one. Specially if you’re like the poster child for “foreign affairs dude wtf??!?”.

  -Athol

Patrick Hake on September 7th, 2007 at 5:28 pm said:

• Whatever they are going to do, I think they need to get it over with.

  If they are going to cut rates, do it. If not, they need to state clearly that they will not cut rates unless X happens. Enough with the double speak.

  They should give clear guidance and provide clarity to their position. There is already too much uncertainty in the markets. Adding in a Fed that speaks in codes and provides very little leadership is only compounding the problem.

  I have spoken with 3 people interested in buying a property in the last week that said they wanted to wait and see what the Fed was going to do with rates. I can’t blame them for waiting.

  The expectation of falling prices has been tough enough on the markets. Now with a building expectation that rates will be cut at least once, if not multiple times, over the next 3 to 6 months is causing further hesitation.

  It seems as if each variable involved is compounding upon the others.

BawldGuy on September 7th, 2007 at 5:48 pm said:

• Athol - It’s Friday, and I must be a little slow on the uptake. Once again, with clarity.

BawldGuy on September 7th, 2007 at 6:03 pm said:

• Patrick - I feel your pain.

  I think you might be attaching the Greenspan mode of 1984-speak to Bernanke though. When Bernanke was in front of the Senate, they were literally speechless at a few of his answers. Why? Because they were short, transparent, and to the point. Frankly, there was one time, (sorry, I forget the question) when the Senator was caught off guard by such a candid and forthright answer.

  He was used to Greenspan’s nonsense.

  Listen to Bernanke closely when he speaks. He doesn’t obfuscate. He’s an honest guy, who has a clear sense of his mission, right or wrong.

  When you speak so clearly in a Senate hearing that you stun the Senators themselves, you’re certainly not using doublespeak.

  I’m with you though Patrick. Let’s just get things done. Your wish that the Fed would telegraph its moves are a little too hopeful I fear.

  Thanks - and please come back.

Lani Anglin on September 7th, 2007 at 9:13 pm said:

• I’m with Kathy on this one- I feel a tad bit like I’m straddling a fence…

  On one hand, I feel strongly that a government bailout is just a band-aid, PLUS the people at the top of mortgage companies that lent shadily shouldn’t be rewarded with governmental hugs and kisses.

  Another angle against a bailout: if I’m asleep in my home and my teenage son decides that he and his three moron friends staying over are going to sneak liquor from someone’s house and the spiteful uninvited girlfriend tattles on them to the cops. The boys get in trouble, but I too get in trouble because it was in my house and I was negligent for not cavity searching my son’s friends and for not hanging out in his room until they fell asleep. It’s unfortunate, but as a parent, I’m responsible, I accept that (doesn’t mean I wouldn’t be infuriated).

  On the other hand, I sincerely feel compassionate for the real losers in this battle- the homeowners who failed to read/understand their mortgages that are struggling as well as the entry level employees of the folding mortgage brokerages.

  From where I sit, it’s tough in the real estate environment right now because a LOT of people are frozen, unwilling to buy right now because they want to see what the FRB does. I have a feeling the rental market might be heating up (good news for you investors).

  Bottom line- despite my emotions, I feel that regardless of ignorance (buyers that didn’t understand their mortgage terms) or greed (brokers who basically committed fraud), everyone has to be held accountable for their actions. I get in trouble for my teen being a moron and others get in trouble for being ignorant or greedy. I don’t feel that the people who were NOT ignorant or greedy should be penalized by Bernanke shackin’ up with Wall Street. He’ll make the right call.

BawldGuy on September 7th, 2007 at 9:22 pm said:

• Lani - There are a lotta things that might happen under Bernanke’s watch. Shackin’ up with Wall Street? Ain’t on the list.

  He’s already got ‘em whining like the nine year old who’s always picked last to play kickball at recess. He’s a real believer in allowing the market to clean up its own messes.

  He also won’t take that to the extreme of watching all of us go over the falls. I’m cautious, but so far so good. He seems to have the courage of his convictions.

  Love your analogy by the way.

Cher on September 8th, 2007 at 10:45 pm said:

• I will just talk about what I would like to see as the end result. Keep in mind I am a flower child and idealist. I agree with Patrick. We need to get this over with. We need to get the market out of limbo and “waiting mode”. Buyers are stuck waiting for lower prices and for the “bottom” to buy. Sellers are stuck with inventory and since the current “waiting Period” I hear voiced is one to two years (for inventory to be absorbed), this is too long for investors/builders to be stuck with inventory that is not moving. Many investors and homeowners cannot sell unless they sell at a loss and Pay money to get out of the property. We need to get the market moving again.
  Government is there to help soften the blow. If builders and investors get too burned, they may not enter the market again (as stated above) y
  There will be more blood on the streets if properties don’t move for a year or so. Many overextended investors need to get some badly needed liquidity because the market has been stuck for too long.
  I also think that a plan for relief for homeowners should be a top priority…something like..40- 50 yr loans interest only at a low interest rate guarenteed by the government. Next, a a soul searching and some regs to insure this does NOT happen again. What good is it to have the great American dream of homeownership and all the progress we’ve made in the last years, only to see that progress blown up by lack of quick action.
  There is one exception to this: There is a group of “home owners” that should never have bought a home.
  Bernanke would do a service if he would address a social mishap that has been perpetuated in our culture: That everyone should be a homeowner and that there is something inferior about being a renter. In many cases it makes sense to rent and salt away money in a retirement plan. Allot of this mess was brought about by someone’s unrealistic dream that everybody can be a homeowner. This is a bunch of bunk. Until this fundamental falacy is included in the financial dialogue and this misguided notion that seems to be rooted in our culture is discussed, we are bound to go through this cycle again and again.

BawldGuy on September 9th, 2007 at 11:05 am said:

• Cher - The Fed walks a real economic tight rope don’t they?

  I think we’d all agree with you about softening the cycles. The question is - to what degree?

Sandy on September 10th, 2007 at 9:55 pm said:

• Bawldie–if I was Bernanke, I think I’d continue to be very careful walking that tightrope.

  I expect he will lower rates in September. I would. I don’t think it will turn things around though. I have a lender friend who said something that made a lot of sense. The market got overheated for three reasons and those three reasons need to each be dealt with before things can normalize–sub-prime, jumbo loans and option/arms. Sub-prime and jumbo are being worked through now. Option arms will be next. Only then can the market stabilize.

  Not sure Bernanke dropping rates will make much difference since the problem isn’t rates, it’s too many people being lent too much money who have no business having that money and who, apparently, can’t pay it back.

Jeff Brown on September 10th, 2007 at 10:46 pm said:

• Sandy - Options ARM’s, in my humble opinion, aren’t going anywhere.

  As with many things in life, it wasn’t sub-prime that caused the problem, it was the rampant, and unconscionable abuse of sub-prime lending.

  Cars are fine too, until the driver is drunk.

  That said, the underwriting changes will, for the most part, eliminate those underwriting abuses. There will be no more middle school teachers qualifying for loans based upon their claim of a $155K salary.

  Before next summer, (maybe way before) you’ll see the relaxation of the current fear-based underwriting standards. I think we’ll revert to what anyone reasonable person would label as prudent and documented underwriting practices.

  Sandy, what do you think the rate will be after Bernanke stops talking?

Doug Quance on September 11th, 2007 at 6:55 am said:

• I don’t want a lot of governmental intervention, Jeff.

  The taxpayer should not have to bail out investors nor homeowners that bought homes that they could not afford.

  As will all things market-related: the market will correct this.

Jeff Brown on September 11th, 2007 at 7:41 am said:

• Whatever the name of the hymn is Doug, you and I know all the verses. It’s the opposite of Kumbuya.

Sandy on September 12th, 2007 at 3:57 pm said:

• Good point on relaxation of standards. Sometime around year end I predict that lenders will remember how they make their money…which is by loaning money, not by NOT loaning money.

  Some predictions are saying he’ll drop twice this year, to 5 in September and maybe to 4.75 in December at the next quarterly meeting. I’m no economist but that sounds reasonable. I’ll go 5 definitely…if the economy doesn’t respond, then he’ll go further.

  I think what market watchers are looking for is a sign that the Fed will do what’s necessary to keep us out of recession. Inflation is a lesser issue right at the moment. Sez me.

Jeff Brown on September 12th, 2007 at 5:34 pm said:

• Sandy - That scenario is as plausible as any. The job news, (not good) and the high volume whining on Wall Street, especially re: commercial paper, might be the impetus for a 4.25-4.5 by Christmas.

  We’ll just have to wait and see.

Patrick Hake on September 13th, 2007 at 11:41 am said:

• A discussion about Ben Bernake’s policies would not be complete, if we did not includ this Youtube video: http://www.youtube.com/watch?v=3u2qRXb4xCU

  An oldie but goodie

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