The most read article posted on Real Clear Markets recently was one from Forbes with an idea about how to move capital trapped in the real estate market into more productive sectors of our economy.
Here’s an outline of the article:
- Problem: Underwater loans for commercial properties that are either overbuilt or vacant.
- Goal: Convert ‘in the red’ properties into green space and hold for development.
- Solution: Permit banks to deposit some of their excess real estate securities with the Fed, remove those properties from the market, convert to green space, and hold until the market recovers. A $200 billion land bank fund, provided by the banking system and backed by the Federal Reserve, would be established to help finance this conversion.
- Effect on Fed: The Fed would be shifting some of its Mortgage Backed Securities (MBS) purchases to new Land Backed Securities (LBS) – long-term assets backed by the eventual redevelopment of most of the green space. This would be a straightforward way to redirect capital out of bad investments and eye sores like dead-end malls, empty stores, and vacant factories, so that the capital can be redeployed into our new asset-light economy.
- How this differs from TARP: The stimulus money changed nothing. Jobs were protected but not stimulated. No one gets anyplace faster, no new productivity improvements were generated like the Interstate Highways did. Stimulus projects were not transformational. Converting real estate to green space and freeing that capital would have three positive effects.
- Direct job creation for demolition and green space conversion.
- Strengthening the banking system by removing bad real estate loans so banks can make new loans.
- Real estate owners will spend and invest more, knowing their properties have stabilized in value.
The article by Michael Messner — who runs a hedge fund, Seminole Capital Partners — is copied in full at end of post. Continue reading
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Perception: GM’s recent profits means that the federal bailout worked.
Reality: The bulk of the profits came from the sale of two divisions. GM’s stock is still trading below the IPO price paid by the government.
Economist brainiac Megan McArdle makes her usual impressive points. The highlights:
- GM sold off big stakes in companies to generate the bulk of their profit.
- GM still excessively dependent on big incentives and fleet sales to move cars.
- GM’s most profitable sales are heavily dependent on gas guzzling SUVs and trucks, not the best position to be in when gas prices are exploding.
- Even though GM’s largest competitors just had their supply chain badly damaged by an earthquake/nuclear meltdown, GM’s stock is trading below the IPO price.
The entire McArdle column is copied at end of post. Continue reading
Perception: Free Wi-Fi should be part of the benefits of staying at higher priced hotels.
Reality: Hotel companies offer free Wi-Fi [Wireless Fidelity?] at lower-cost properties because those hotels are generally newer which means the infrastructure was built to accommodate wireless access. They also usually have fewer rooms, so bandwidth needs are smaller.
A Wall Street Journal article examines how and why those policies are changing. Article is copied at end of post.
Perception: Warren Buffett is a business icon and media favorite. There is no appetite to hold him to the same ethical standard as, for example, oil executives, let alone those espoused by his own company.
Reality: True. Being an elderly white Midwestern supporter of the first African-American president buys you a lot of understanding.
A James Stewart column details how Buffett blatantly ignored his own company’s ethical standards and possibly insider trading laws. The column is copied at end of post. Continue reading
Perception: The Troubled Assets Relief Program [TARP], created in October 2008 at the height of the financial crisis, was a disaster and cost the taxpayers $700 billion.
Reality: Out of the $700 billion authorized, only $410 billion was used. All but $19 billion of that amount has been recuperated. TARP basically worked as intended.
The economist Robert Samuelson examines how and why the TARP Federal program cost much less than initially feared. Key points:
- TARP invested $245 billion in banks [99% recovered].
- TARP invested $165 billion in other programs.
- Perception remains that TARP creates a problem economists refer to as a moral hazard.
- Moral hazard defined – The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.
The entire Samuelson column is copied at end of post.
Perception: Economy is in the dumps nationwide and Miami can’t compete with wealthier cities.
Reality: Step outside, it’s beautiful here. The economy is so diverse, many good trends can go undetected before they register on a macro level.
A New York Times article provided some interesting facts about commercial office space in the downtown Miami and Brickell area — which the article alternately referred to as the “central business district:”
- In 2010, Miami’s growth in commercial office space was 2nd nationwide, to Washington DC — 1.3 million sf to their 2.5 million sf.
- A delayed 40-story office tower will now be completed by August 2011, adding 600,000 sf in office space.
- Downtown Miami’s vacancy rate is currently 22 percent, about twice that of Washington DC.
- Asking rents in the new buildings are considerably less than $40 a square foot, when concessions are taken into account.
The New York Times article is copied at end of post.