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HomePublic-Private Partnership? or “Won’t You Be My Neighbor?”
Posted by Larry Doyle on March 23rd, 2009 9:22 AM |
An oversimplified view of the proposed private-public partnership for investors to purchase toxic assets from banks is as follows:
A couple (private investor) looking for a home finds a piece of property (toxic asset) that seems very appealing. A mortgage broker (the government) is indicating that he can preapprove some very attractive financing terms. The mortgage broker also indicates that he can fortuitously provide a large cushion against potential losses on the property. The buyers inquire how that cushion may work. The broker informs them that he has access to funds from all the other homeowners (taxpayers) in town to offer as incentive to sell this property and others like it.
The couple’s interest increases, but they start to wonder what’s the catch as the property has been on the market for a while.
Upon further review, the prospective buyer discovers that the property may have structural issues. In hearing that, they think about scaling back a potential bid on the property. The broker pressures them to the point where the couple starts personally disliking the broker. (more…)
Audio Recording: NoQuarter Radio’s Sense on Cents with Larry Doyle
Posted by Larry Doyle on March 22nd, 2009 9:36 PM |
In case you missed LD’s Sunday night radio show, just click on the Play button below for the audio recording. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar.
The first portion of the show included a review of the markets and an in-depth analysis of the very critical challenges facing the insurance industry.
The second half of the show included an interview with Chuck Doyle of Business Capital in San Francisco. Chuck is one of the leading professionals in the field of debt restructuring and recapitalization.
Sunday night, March 22nd, 2009
NoQuarter Radio’s “Sense on Cents with Larry Doyle”
Telling It Like It Is
Posted by Larry Doyle on March 20th, 2009 5:32 PM |
I am neither a Democrat, nor a Republican. Amidst all the pandering and nonsense, I think it is beneficial to get a clear review and hear someone tell it like it is. Rep. Thaddeus McCotter (R-Michigan) does a very good job.
Shame on everyone involved in Washington for a poorly written Stimulus Bill, and an equally poor legislative process.
Throwing the Baby Out with the Bath Water!!
Posted by Larry Doyle on March 20th, 2009 3:12 PM |
I questioned a Wall Street friend of mine this morning whether Washington in general and the Obama administration and Democratic Congress specifically could be so myopic or actually are so calculating in attempting to enact legislation that would impose tax rates of 70-90% on certain Wall Street employees. My friend quickly responded that the Washington crowd is not that smart.
Make no mistake, the proposed legislation of taxing certain Wall Street employees at 70-90% rates is targeted at addressing public outrage over improperly allocated compensation. However, Washington is utilizing a bazooka when in fact they need a laser.
In so doing, the politicians pushing this legislation are showing themselves to be misinformed and misaligned in understanding the basic tenets of capitalism and free market principles. (more…)
Kangaroo Court . . . MUST READ!!
Posted by Larry Doyle on March 19th, 2009 4:20 PM |
The kangaroo court on Capitol Hill just passed a bill to tax bonus payments at a 90% rate for employees (with family incomes in excess of $250,000) of AIG and other firms that received $5 billion or more in government bailouts. In my opinion, 
this piece of legislation is a poorly constructed means of recapturing government funds.
I have previously stated that firms which were truly bailed out by the government should be subject to strict government compensation controls. A number of firms – such as Northern Trust, JP Morgan, Wells Fargo, and Goldman Sachs – were compelled to take government funds. If employees of these firms are subject to this tax, it will be a travesty and injustice of unprecedented proportions. I believe that Congress is unknowingly escalating class warfare amidst a facade and charade of protecting the public. I believe we will see public outrage from employees at these firms (JP Morgan, Northern Trust, Goldman, Wells Fargo) that can only be rivaled by our forefathers back in the 1770s. This tax is another means of promoting the income redistribution upon which Obama ran his campaign. Taxation without representation is tyranny!!! (more…)
What About Commercial Real Estate
Posted by Larry Doyle on March 16th, 2009 12:31 PM |
On my radio show last evening, I touched on some of the pressing issues facing our economy and, in turn, our markets. These issues include residential housing, municipal finance, automotive, and commercial real estate. While the first three issues seem to get a wealth of very personal and humanistic coverage from the media, the world of commercial real estate seems much more opaque. The site of large office buildings, suburban shopping malls, upscale hotels, warehouses, and apartment complexes do not evoke the level of human emotion involved in a foreclosed home, municipal layoffs, or factory closings. That said, the problems in the commercial real estate industry should generate just as much concern if not more. Why?
These commercial properties are the glue in our entire world of global finance. While the development of the commercial mortgage-backed securities market brought a large amount of liquidity to this sector, the shutdown of that market has just as quickly sucked the oxygen right back out. What has happened as a result? The lack of a transparent market has caused an overwhelming lack of liquidity and as a result properties are not trading. Why? The disparity between perceived value from the buyers’ and sellers’ perspectives is so wide that we could drive that proverbial Mack truck through it. (more…)
Change The Rules of The Game
Posted by Larry Doyle on March 13th, 2009 8:07 AM |
Well, when you do not like how a game is going, change the rules.
The primary reason for the market rally yesterday was a Congressional hearing pressuring FASB (Financial Accounting Standards Board) to revise its rule known as the “mark-to-market.” Thank you FL for providing a heads up on this hearing.
In layman’s terms, the mark-to-market is the equivalent of inventory valuation. Nobody likes when inventory declines in value but if that is the reality, then so be it. Would your banker laugh at you if you told him you weren’t going to properly mark inventory? Do you think he’d continue to offer you a line of credit? Are we supposed to invest in banks without a credible mark-to-market?
I have VERY mixed feelings about changing this rule. I do think there are merits in never having imposed this rule for certain less liquid assets, such as commercial real estate. However, the pressure banks are applying on Congress and Congress, in turn, on FASB is for a suspension of the mark-to-market on so called super-senior classes of CDOs.
Make no mistake, if this rule is changed it will provide capital relief because the “inventory will not have to be marked down.” However, it comes at the price of a lack of transparency and full understanding as to a bank’s true capital position. I recall writing in my very first piece on October 14th:
if the government accedes to the pressure being applied to suspend the mark to market accounting principle, I would expect that move would only prolong the underperformance of the economy . . . I view a suspension of the mark to market as the equivalent of an agreement to officially allow one to “cook their books”
I hold the same opinion today. We will see a lot more on this topic over the next few weeks as FASB Pledges Mark-to-Market Guidance Soon.
LD
