There’s always something to howl about

Archive for March, 2009

It’s Springtime in Madison, Wisconsin. The trees are in blossom, the students are protesting — and I have a no-fee referral for an investment-savvy agent who works like a Bloodhound…

An old friend, very smart, very good with numbers, has landed in Madison, Wisconsin. He’s sitting on way too much cash, and he realizes he needs to capitalize that dough before it gets inflated away to nothing.

That much is a silver platter. Deep pockets and unlimited future earning power, a client to die for. But: He’s an attorney, non-practicing, and an MBA, also non-practicing. He can handle the truth, no matter how ugly, but you will never slide even the smallest lie past him. You need to know what you’re talking about, and you need to be able to back up what you say.

He’s living in Middleton Hills, but he’s interested in investment opportunities anywhere in the Greater Madison area. He’s never been a landlord, so he’ll need education in that regard — and it’s plausible to me that he’s a better candidate for commercial properties than for rental housing. That’s something you’ll have to work out.

What I’m looking for, in exchange for a no-fee referral, is an agent who works like a Bloodhound. If you’re willing to work hard for a serious, motivated, monied investor, give me a howl. I’ll put you and my friend in touch.

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Don’t Discount Points As A Strategy To Lower Mortgage Costs

Discount fees (sometimes called “points”) are considered pre-paid interest.  Points are generally tax-deductible and are used to lower a buyer’s mortgage rate.  Most real estate agents have been taught that “points” are “padded profit” to a lender or loan originator and should be avoided at all costs.  Jeff Belonger debunked that myth yesterday; I was surprised to see the misinformed opinions being offered by the real estate agents and mortgage originators.

Today’s low interest rate environment combined with low expectation of immediate home price appreciation offers a perfect opportunity for buyers to secure a low mortgage rate by employing a strategy of “buying the rate down” through a discount fee.

Let’s look at an example, from today’s rate sheet-$400,000 purchase price, $100,000 downpayment, for a 720 credit score borrower with adequate income documentation:


5.00%                            0                          $0

4.75%                            1%                     $3000

4.5%                              1.5%                  $4,500

The proper way to perform this analysis is to determine the expected minimum hold time for the mortgage.  Most real estate agents will agree that in this environment, transaction costs combined with low expected appreciation rates suggest that five years is the absolute minimum to hold the property.  Buyers may elect to move (and rent) the property but few agents would be so bold as to suggest that the buyer could make a profit in less than the five year time frame.

It is my opinion that refinancing the mortgage loan will be difficult and unprofitable, during those same five years because:

  • low price appreciation will limit buyers ability to “harvest home equity
  • interest rates are at a 35-year low.
  • rapid inflation seems likely due to massive government borrowing and the Federal Reserve’s “printing money” policy of the past 8-12 months.  Inflation leads to higher mortgage rates.

Five years will be our minimum hold time for the mortgage loan then. This amortization schedule helps us determines what the lowest total costs are over five years.  Simply add the cumulative interest (at month 60) plus the discount fee to determine the total costs:


5.00%         $72,114                  $0                       $72,114

4.75%         $68,391                  $3000                  $71,391

4.50%         $64,677                 $4500                   $69,177

You can perform a similar analysis for four years:


5.00%         $58,192                   $0                      $58,192

4.75%         $55,207                  $3000                  $58,207

4.50%         $52,228                   $4500                 $56,728

Or even three years:


5.00%         $44,007                    $0                        $44,007

4.75%         $41,765                    $3000                  $44,765

4.50%         $39,525                    $4500                  $44,025

As you can see, somewhere around year three, the 4.5% option starts really paying off in this scenario.We can conclude then that paying the 1.5% discount fee for a 4.5% rate is more profitable after three years and indisputably more profitable for the expected five year holding time of the mortgage loan.



No, that’s not me with The Hoff and a Google Search Appliance, that’s Google’s UK Sales Mgr. will be a network of Independent brokers connected by a unique function – a natural language Real Estate search engine. Our goal is to create a true consumer benefit: A Google-inspired (and powered) natural language search experience that leads to a good, local independent broker.

The success of our network will be determined by Word of Mouth (or, more accurately, Word of Email, Word of Facebook, Word of IM, Word of Twitter…).

Here’s the thing about that: We, as the technical force behind the network, have no control over what happens after we hand a homebuyer off to a broker, but that is the part of the experience that will drive WOM for both the broker and the network.

Since we work on an exclusive territory basis to preserve the competitive advantage of a unique user experience, we need to be sure that we are working with the right brokers if we want to see that WOM, so we are being selective about who we hook up to the network.

That’s why I am announcing RealSearchUSA here on BHB: If we can network Web-smart brokers together at the Search Result level, not only would we be off to a good start, we would be taking concrete steps to strengthen the independent brokers who are poised to shake up this industry whenever a recovery gets going.

In most cases, we can place a Google-powered Real Estate Search box on an existing Web site, as we have done here for Mike DiMella at Charlesgate Realty in Boston. It is a network based on an upgrade to Search, which is the function that most Real Estate Web site users are looking for in the first place, but here is the kicker: This search function will also make you a node on a network of independent brokers like you.

Allow me to explain the node thing:

We build Real Estate Search Engines using Google’s Enterprise technology. Our goal is to provide the best Real Estate Search experience for people who like the way Google works.

In January we tried something new: We created a “Search Engine Referral network” by decentralizing one popular domain and using it as a hub to direct traffic to localized Search Engine domains, AND we assigned every listing in our database to just ONE of those local domains.

As you would expect, the numbers for the local Search Engines shot up at the expense of the hub, but here’s where it gets interesting: There was a corresponding increase in direct Google Organic Traffic. 70% over 30 days in one case.

Based on what we know about Google’s PageRank, I thought configuring the sites this way would have an impact. I was not, however, expecting such a large bump so quickly. The beauty of it is that the bump consisted of highly targeted traffic because the vast majority of that Google traffic landed on a property detail page after a specific search for that property on Google.

It makes sense: Since the local sites only have local listings, and they refer people interested in a listing in another area to the appropriate local site at the search result level, we have increased the relevance of each site as it relates to local Real Estate and given the GoogleBot a way to see that. Google craves relevance, so it sends traffic.

It’s Google 101 and, other than our technology (and Google’s), the only other thing this strategy needs is a network of brokers who understand it, and therein lies the opportunity: This is a classic disruptive scenario where a small, nimble technology company can team up with small, nimble businesses to exploit an opportunity faster than the big guys in the industry can react to it. And this is a great economic climate for disruption.

In the beginning, the benefit to an indie broker is having an exclusive on a familiar, Google-powered user experience and the SEO tools that go with it.

In the long term, If Web-smart Independent brokers are, as I suspect, more likely to collectively provide better content and take full advantage of our SEO tools, as we plug in “nodes” to create a network of optimized Real Estate Search engines — who knows? We may find ourselves behind the wheel of a large automobile.

But first we must find out, where does this highway go to?, and that conversation continues at


The mapmaker’s dilemma: What the hell are you doing with your time?

That’s a screen shot of the user interface of the beta version of the mapping software I talked about on Friday.

This version:

  • Creates a Google Maps KML file from a list of street addresses
  • Assigns a user-selectable map marker to those addresses
  • Optionally creates a folder on the file server for that address — to serve as an engenu folder
  • Optionally creates folders and folder structures, thus to create an engenu hierarchy
  • Optionally builds links from the map markers to the individual street address folders

This is me writing to the Swallow Hill Gang last night, a very brief outline of features and capabilities:

Any valid addresses, one to a line, will produce a KML file that can be imported into Google Maps.

Like this, which is me and my best beloved:

314 East El Caminito Drive, Phoenix, AZ 85020

You’ll have the map marker you choose. I’ll be adding more.

If you select Folders, a folder will be created for that address:


If you select Links, the folder will be linked from the map marker.

If you select Links without Folders, neither one happens, for obvious reasons.

If you precede a line with a tilde — “~” — a folder is created, and subsequent address lines and their respective folders and links are created hierarchically. Like this:

~Top Level Folder

would create a folder at the top level named “Top_Level_Folder”.

This structure:

~Top Level Folder
314 East El Caminito Drive, Phoenix, AZ 85020

would create a link to a folder from the map marker for my house inside of the “Top_Level_Folder” folder, hence:


If you do this:
~Top Level Folder
~Top Level Folder/Second Level Folder
314 East El Caminito Drive, Phoenix, AZ 85020

You would get this:


You have to build each level of the hierarchy as you go. No harm, no foul if you try to create a folder that already exists.

You can do this:

~Love/Barefoot Boy With Cheek
314 East El Caminito Drive, Phoenix, AZ 85020
~Love/Barefoot Boy With Cheek/Girl Next Door
322 East El Caminito Drive, Phoenix, AZ 85020
~Love/Barefoot Boy With Cheek/Girl Next Door/And Baby Makes Three
402 East El Caminito Drive, Phoenix, AZ 85020

and you will have created what I hope will be a by-now obvious hierarchy.

If all you want to do is create a folder hierarchy, you don’t have to add any addresses. You’ll make a KML file, anyway, but it won’t do anything.

You don’t have to use the map, in any case, whether or not your hierarchy includes addresses.

You don’t have to create folders. If you were mapping schools or Starbucks locations, you probably wouldn’t.

A Google Maps map can be accretive, which means that you could add one database of addresses after another — schools, hospitals, fire stations, etc., each with its own marker.

Here’s live work from me:

~The Bannister Home Search
~The Bannister Home Search/Day One – Laveen and Ahwatukee
~The Bannister Home Search/Day One – Laveen and Ahwatukee/Laveen
1721 West Magdalena Lane, Phoenix, AZ 85041
9709 South 46th Drive, Laveen, AZ 85339
2205 West Harwell Road, Phoenix, AZ 85041
2514 West Darrow Street, Phoenix, AZ 85041
4521 West Paseo Way, Laveen, AZ 85339
4419 West Lodge Drive, Laveen, AZ 85339
~The Bannister Home Search/Day One – Laveen and Ahwatukee/Ahwatukee
15830 South 33rd Place, Phoenix, AZ 85048
16813 South 28th Place, Phoenix, AZ 85048
16040 South 18th Avenue, Phoenix, AZ 85045
11439 South 45th Court, Phoenix, AZ 85044
~The Bannister Home Search/Day Two – The East Valley
~The Bannister Home Search/Day Two – The East Valley/Gilbert
383 South Ironwood Street, Gilbert, AZ 85296
448 South Bay Shore Boulevard, Gilbert, AZ 85233
989 South Roles Drive, Gilbert, AZ 85296
3577 East Vaughn Ct Gilbert, AZ 85234
920 North Blue Marlin Drive, Gilbert, AZ 85234
431 South Laguna Drive, Gilbert, AZ 85233
745 East Barbarita Avenue, Gilbert, AZ 85234
~The Bannister Home Search/Day Two – The East Valley/Mesa
720 South Glenview Circle, Mesa, AZ 85204
2833 East Downing Circle, Mesa, AZ 85213
1017 East Fairfield Street, Mesa, AZ 85203
7830 East Portobello Avenue, Mesa, AZ 85212
11332 East Fairbrook Street, Mesa, AZ 85207

That site is about half built right now. I’ll be doing the other half today. And I could end up adding more later.

This is all about engenu, of course. You can use this software for lots of purposes, but my ideal deployment is to create the hierarchies and the maps, then dump the photos into the folders, then auto inherit everything into engenu, then go in any do any needed touch-ups. This cuts my engenu time in half for projects like the one shown above.

Let me repeat that: “This cuts my engenu time in half for projects like the one shown above.”

Just using engenu, my time to build that web site — 29 web pages documenting 22 houses and four neighborhoods — would have taken less than an hour. With this new software, my time will be cut to less than half an hour, with a very sexy, rigorously-linked map for every neighborhood.

Permit me to repeat another section from the text above: “A Google Maps map can be accretive, which means that you could add one database of addresses after another — schools, hospitals, fire stations, etc., each with its own marker.”

On Christmas Eve, I pointed out that Realtors have a publishing problem. This software takes away a big piece of that problem: Once I make this available, you will have the ability to pound out as many maps as you need, as quickly as you need them. Zillow or Redfin have resources you don’t have, so they can map the damn Mohave Desert. But you’re selling Agoura Hills, and you can map that patch of turf better than anyone.

All of which leads me to this question: What the hell are you doing with your time?

I’m just one piece of the program at BloodhoundBlog Unchained in Phoenix, but everyone teaching with us will be like me: Very smart people doing insanely original work at the bleeding edge of real estate marketing technology. If you want to go to New York or San Francisco and get drunk, rock on. If you want to go to some punter’s event and get in touch with our world as it existed three years ago, take heart: It might be worthless, but it’s FREE! But if you want to learn how to leverage your limited resources to maximum marketing advantage, we’re the only game in town.

We’re down to the wire, and down to our last few spots. If you want to learn how to leverage your time into vastly greater marketing reach, you know what to do.

CyberProfessionals: $397

Unchained Alumnus: $597

Regular Price: $697

The event runs from April 28th to May 1st, 2009. Many more details can be found at the BloodhoundBlog Unchained in Phoenix weblog.

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Building customized Google Maps and engenu folder structures from lists of addresses

I have very alpha software that makes a KML file that Google Maps will eat to make something like this:

View Larger Map

It’s kinda-sorta like ZeeMaps, except I get a true Google Maps map, which I can then customize and embed.

I start with a list of addresses, which I can type if I absolutely have to.

There’s more: I’m going to build in the ability to create an engenu folder structure from the list of addresses, so that a site like this essentially builds itself.

For that kind of engenu site, I’ll cut my time from 40 minutes to 20 minutes, on the order of two minutes a page for brand new, original, knock-your-socks-off content.


Wheaten Terrier Picks Agent for $150m Listing

How long before the “Real Estate Coaches” are advising their clients to walk into listing appointments with a pocketful of snausages?

LOS ANGELES (AP) – The widow of producer Aaron Spelling is placing “The Manor” in the exclusive Holmby Hills neighborhood on the market for a jaw-dropping $150 million, making it by far the most expensive home for sale in the U.S…

…Candy Spelling’s late husband produced hit shows such as “Charlie’s Angels,””Dynasty” and “Beverly Hills 90210.” He died in 2006…

…Candy Spelling told The Associated Press that she let her dog Madison, a soft-coated Wheaten Terrier, help pick out the best real estate agent for the task. She had her security bring the dog into the room every time she met one of the candidate agents and watched how the dog reacted. If Madison didn’t like them, Spelling crossed them off the list.

Prospective buyers won’t have to worry about passing such scrutiny, Spelling jokes.

“Not at all,” she says.

Too bad her late husband didn’t have the dog sniff the shows he produced.

What a laugh Candy is having at our expense. She thinks all agents are the same. One of them is going to get let’s say a cool 1% of $150m ($1.5m). That’s probably Madison’s yearly grooming budget, so let’s let the dog decide. What a lark.

I’m not sure what the take-away is, here.

Part of me realizes the problem isn’t that Candy let her dog pick her Real Estate agent. The problem is that Candy, widow of Aaron, mother of Tori, knew it would play.

If she thought for a second that the general public or prospective buyers would think she was an idiot for letting the dog pick a Realtor, she wouldn’t be laughing about it with the AP. It’s not that she made the joke, its that she knew the audience would get it.

On the other hand, it’s Friday. If you have spent the week trying to be the best agent or broker you can be, trying to build your business in this market, and then you find out that a dog decided who got the most expensive listing in the US, it does put things into perspective.

Have a great weekend. And buy some snausages.


Reflecting upon the Obamanation: “Love of our brothers? That’s when we learned to hate our brothers for the first time in our lives.”

I’ve been thinking about the disgusting spectacle of millions of Americans presuming to have an opinion about whether or not some AIG employee deserves to be paid a bonus. This was once a country where the idea of minding one’s own business was virtually a sacrament. And then I can’t turn on the television without seeing some grandmother bragging that Medicare makes it possible for her to dine on her own grandchildren. And to top it all off, tonight I’ve been trading depressing emails with Joe Strummer about our progress down the Road to Serfdom.

I know people think they understand what I’m talking about, when I talk about political philosophy, but I’m pretty sure that’s not true. The simple truth is this: I am sovereign in my person — and so are you. I do not have the right or power or privilege or duty to push you around by force, and you do not have that right or power or privilege or duty with respect to me. That’s easy to understand when we’re only talking about we two: If I overstep the boundaries, you will surely help me find my way back to the righteous path. But there’s no difference whether we’re talking about two people or two billion people. Each one of us is free in our person, free as a necessary consequence of being what we are.

Does that mean that other people cannot try to push us around by force? Obviously not. It simply means that failing to respond to human beings as sovereign entities, each one of us a unique end in himself, is wrong — epistemologically incorrect, morally unrighteous, politically criminal.

All of economics is based in collectivist premises, which leads to statements that are true but fundamentally irrelevant. Smith taught us that leaving men free to produce is better for everyone — which does not matter, because each one of us is free regardless of the benefits freedom yields for other people. Hayek among others points out that enslaving us is bad for everyone, which also does not matter. The impact upon the collective is meaningless. The only political philosophy appropriate to human beings is individualism.

Ayn Rand understood this better than anyone before her. I’ve been thinking about this particular passage from Atlas Shrugged for a while, and, bless the net, I was able to find a transcript. If you read this, strive to focus not on the particulars but on the principles. What we seek from here is a return not to our accustomed prosperity, but, much more fundamentally, to our all-but-forgotten civilization.

From Atlas Shrugged by Ayn Rand

“Well, there was something that happened at that plant where I worked for twenty years. It was when the old man died and his heirs took over. There were three of them, two sons and a daughter, and they brought a new plan to run the factory. They let us vote on it, too, and everybody – almost everybody – voted for it. We didn’t know. We thought it was good. No, that’s not true, either. We thought that we were supposed to think it was good. The plan was that everybody in the factory would work according to his ability, but would be paid according to his need. We – what’s the matter, ma’am? Why do you look like that?”

“What was the name of the factory?” she asked, her voice barely audible.

“The Twentieth Century Motor Company, ma’am, of Starnesville, Wisconsin.”

“Go on.”

“We voted for that plan at a big meeting, with all of us present, six thousand of us, everybody that worked in the factory. The Starnes heirs made long speeches about it, and it wasn’t too clear, but nobody asked any questions. None of us knew just how the plan would work, but every one of us thought that the next fellow knew it. And if anybody had doubts, he felt guilty and kept his mouth shut – because they made it sound like anyone who’d oppose the plan was a child-killer at heart and less than a human being. They told us that this plan would achieve a noble ideal. Well, how were we to know otherwise? Hadn’t we heard it all our lives – from our parents and our schoolteachers and our ministers, and in every newspaper we ever read and every movie and every public speech? Hadn’t we always been told that this was righteous and just? Well, maybe there’s some excuse for what we did at that meeting. Still, we voted for the plan – and what we got, we had it coming to us. You know, ma’am, we are marked men, in a way, those of us who lived through the four years of that plan in the Twentieth Century factory. What is it that hell is supposed to be? Evil – plain, naked, smirking evil, isn’t it? Well, that’s what we saw and helped to make – and I think we’re damned, everyone of us, and maybe we’ll never be forgiven. . . .

“Do you know how it worked, that plan, and what it did to people? Try pouring water into a tank where there’s a pipe at the bottom draining it out faster than you pour it, and each bucket you bring breaks that pipe an inch wider, and the harder you work the more is demanded of you, and you stand slinging buckets forty hours a week, then forty-eight, then fifty six – for your neighbor’s supper – for his wife’s operation – for his child’s measles – for his mother’s wheel chair – for his uncle’s shirt – for his nephew’s schooling – for the baby next door – for the baby to be born – for anyone anywhere around you – it’s theirs to receive, from diapers to dentures – and yours to work, from sunup to sundown, month after month, year after year, with nothing to show for it but your sweat, with nothing in sight for you but their pleasure, for the whole of your life, without rest, without hope, without end. . . . From each according to his ability, to each according to his need. . . .

“We’re all one big family, they told us, we’re all in this together. But you don’t all stand working an acetylene torch ten hours a day – together, and you don’t all get a bellyache – together. What’s whose ability and which of whose needs comes first? When it’s all one pot, you can’t let any man decide what his own needs are, can you? If you did, he might claim that he needs a yacht – and if his feelings is all you have to go by, he might prove it, too. Why not? If it’s not right for me to own a car until I’ ve worked myself into a hospital ward, earning a car for every loafer and every naked savage on earth – why can’t he demand a yacht from me too, if I still have the ability not to have collapsed? No? He can’t? Then why can he demand that I go withoutk cream for my coffee until he’s replastered his living room? . . . Oh well . . . Well, anyway, it was decided that nobody had the right to judge his own need or ability. We voted on it. Yes, ma’am, we voted on it in a public meeting twice a year. How else could it be done? Do you care to think what would happen at such a meeting? It took us just one meeting to discover that we had become beggars – rotten, whining, sniveling beggars, all of us, because no man could claim his pay as his rightful earning, he had no rights and no earnings, his work didn’t belong to him, it belonged to ‘the family,’ and they owed him nothing in return, and the only claim he had on them was his ‘need’ – so he had to beg in public for relief from his needs, like any lousy moocher, listing all his troubles and miseries, down to his patched drawers and his wife’s head colds, hoping that ‘the family’ would throw him the alms. He had to claim miseries, because it’s miseries, not work, that had become the coin of the realm – so it turned into a contest among six thousand panhandlers, each claiming that his need was worse than his brother’s. How else could it be done? Do you care to guess what happened, what sort of men kept quiet, feeling shame, and what sort got away with the jackpot?

“But that wasn’t all. There was something else that we discovered at the same meeting. The factory’s production had fallen by forty per cent, in that first half-year, so it was decided that somebody hadn’t delivered ‘according to his ability.’ Who? How would you tell it? ‘The family’ voted on that that, too. They voted which men were the best, and these men were sentenced to work overtime each night for the net six months. Overtime without pay – because you weren’t paid by time and you weren’t paid by work, only by need.

“Do I have to tell you what happened after that – and into what sort of creatures we all started turning, we who had once been human? We began to hide whatever ability we had, to slow down and watch like hawks that we never worked any faster or better than the next fellow. What else could we do, when we knew that if we did our best for ‘the family,’ it’s not thanks or rewards that we’d get, but punishment? We knew that for every stinker who’d ruin a batch of motors and cost the company money – either through his sloppiness, because he didn’t have to care, or through plain incompetence – it’s we who’d have to pay with our nights and our Sundays. So we did our best to be no good.

“There was one young boy who started out, full of fire for the noble ideal, a bright kid without any schooling, but with a wonderful head on his shoulders. The first year, he figured out a work process that saved us thousands of man-hours. He gave it to ‘the family,’ didn’t ask anything for it, either, couldn’t ask, but that was all right with him. It was for the ideal, he said. But when he found himself voted as one of our ablest and sentenced to night work, because we hadn’t gotten enough from him, he shut his mouth and his brain. You can bet he didn’t come up with any ideas, the second year.

“What was it they’d always told us about the vicious competition of the profit system, where men had to compete for who’d do a better job than his fellows? Vicious, wasn’t it? Well, they should have seen what it was like when we all had to compete with one another for who’d do the worst job possible. There’s no surer way to destroy a man than to force him into a spot where he has to aim at not doing his best, where he has to struggle to do a bad job, day after day. That will finish him quicker than drink or idleness or pulling stick-ups for a living. But there was nothing else for us to do except to fake unfitness. The one accusation we feared was to be suspected of ability. Ability was like a mortgage on you that you could never pay off. And what was there to work for? You knew that your basic pittance would be given to you anyway, whether you worked or not – your ‘housing and feeing allowance,’ it was called – and above that pittance, you had no chance to get anything, no matter how hard you tried. You couldn’t count on buying a new suit of clothes next year – they might give you a ‘clothing allowance’ or they might not, according to whether nobody broke a leg, needed an operation or gave birth to more babies. And if there wasn’t enough money for new suits for everybody, then you couldn’t get yours, either.

“There was one man who’d worked hard all his life, because he’d always wanted to send his son through college. Well, the boy graduated from high school in the second year of the plan – but ‘the family’ wouldn’t give the father any ‘allowance’ for the college. They said his son couldn’t go to college, until we had enough to send everybody’s sons to college – and that we first had to send everybody’s children through high school, and we didn’t even have enough for that. The father died the following year, in a knife fight with somebody in a saloon, a fight over nothing in particular – such fights were beginning to happen among us all the time.

“Then there was an old guy, a widower with no family, who had one hobby: phonograph records. I guess that was all he ever got out of life. In the old days, he used to skip meals just to buy himself some new recording of classical music. Well, they didn’t give him any ‘allowance’ for records – ‘personal luxury,’ they called it. But at the same meeting, Millie Bush, somebody’ s daughter, a mean, ugly little eight-year-old, was voted a pair of gold braces for her buck teeth – this was ‘medical need,’ because the staff psychologist had said that the poor girl would get an inferiority complex if her teeth weren’t straightened out. The old guy who loved music, turned to drink, instead. He got so you never saw him fully conscious any more. But it seems like there was one thing he couldn’t forget. One night, he came staggering down the street, saw Millie Bush, swung his fist and knocked all her teeth out. Every one of them.

“Drink, of course, was what we all turned to, some more, some less. Don’t ask how we got the money for it. When all the decent pleasures are forbidden, there’s always ways to get the rotten ones. You don’t break into grocery stores after dark and you don’t pick your fellow’s pockets to buy classical symphonies or fishing tackle, but if it’s to get stinking drunk and forget – you do. Fishing tackle? Hunting guns? Snapshot cameras? Hobbies? There wasn’t any ‘amusement allowance’ for anybody. ‘Amusement’ was the first thing they dropped. Aren’t you always supposed to be ashamed to object when anybody asks you to give up anything, if it’s something that gave you pleasure? Even our ‘tobacco allowance’ was cut to where we got two packs of cigarettes a month – and this, they told us, was because the money had to go into the babies’ milk fund. Babies was the only item of production that didn’t fall, but rose and kept on rising – because people had nothing else to do, I guess, and because they didn’t have to care, the baby wasn’t their burden, it was the ‘the family’s.’ In fact, the best chance you had of getting a raise and breathing easier for a while was a ‘baby allowance.’ Either that, or a major disease.

“It didn’t take us long to see how it all worked out. Any man who tried to play straight, had to refuse himself everything. He lost his taste for any pleasure, he hated to smoke a nickel’s worth of tobacco or chew a stick of gum, worrying whether somebody had more need for that nickel. He felt ashamed of every mouthful of food he swallowed, wondering whose weary nights of overtime had paid for it, knowing that his food was not his by right, miserably wishing to be cheated rather than to cheat, to be a sucker, but not a blood-sucker. He wouldn’t marry, he wouldn’t help his folks back home, he wouldn’t put an extra burden on the ‘the family.’ Besides, if he still had some sort of sense of responsibility, he couldn’t marry or bring children into the world, when he could plan nothing, promise nothing, count on nothing. But the shiftless and the irresponsible had a field day of it. They bred babies, they got girls into trouble, they dragged in every worthless relative they had from all over the country, every unmarried pregnant sister, for an extra ‘disability allowance,’ they got more sicknesses than any doctor could disprove, they ruined their clothing, their furniture, their homes – what the hell, ‘the family’ was paying for it! They found more ways of getting in ‘need’ than the rest of us could ever imagine – they developed a special skill for it, which was the only ability they showed.

“God help us, ma’am! Do you see what we saw? We saw that we’d been given a law to live by, a moral law, they called it, which punished those who observed it – for observing it. The more you tried to live up to it, the more you suffered; the more you cheated it, the bigger reward you got. Your honesty was like a tool left at the mercy of the next man’s dishonesty. The honest ones paid, the dishonest ones collected. The honest lost, the dishonest won. How long could men stay good under this sort of a law of goodness? We were a pretty decent bunch of fellows when we started. There weren’t many chiselers among us. We knew our jobs and we were proud of it and we worked for the best factory in the country, where old man Starnes hired nothing but the pick of the country’s labor. Within one year under the new plan, there wasn’t an honest man left among us. That was the evil, the sort of hell-horror evil that preachers used to scare you with, but you never thought to see alive. Not that the plan encouraged a few bastards, but that it turned decent people into bastards, and there was nothing else that it could do – and it was called a moral ideal!

“What was it we were supposed to want to work for? For the love of our brothers? What brothers? For the bums, the loafers, the moochers we saw all around us? And whether they were cheating or plain incompetent, whether they were unwilling or unable – what difference did that make to us? If we were tied for life to the level of their unfitness, faked or real, how long could we care to go on? We had no way of knowing their ability, we had no way of controlling their needs – all we knew was that we were beasts of burden struggling blindly in some sort of place that was half-hospital, half-stockyards – a place geared to nothing but disability, disaster, disease – beasts put there for the relief of whatever whoever chose to say was whichever’s need.

“Love of our brothers? That’s when we learned to hate our brothers for the first time in our lives. We began to hate them for every meal they swallowed, for every small pleasure they enjoyed, for one man’s new shirt, for another’s wife’s hat, for an outing with their family, for a paint job on their house – it was taken from us, it was paid for by our privation, our denials, our hunger. We began to spy on one another, each hoping to catch the others lying about their needs, so as to cut their’ allowance’ at the next meeting. We began to have stool pigeons who informed on people, who reported that somebody had bootlegged a turkey to his family on some Sunday – which he’d paid for by gambling, most likely. We began to meddle into one another’s lives. We provoked family quarrels, to get somebody’s relatives thrown out. Any time we saw a man starting to go steady with a girl, we made life miserable for him. We broke up many engagements. We didn’t want anyone to marry, we didn’t want any more dependents to feed.

“In the old days, we used to celebrate if somebody had a baby, we used to chip in and help him out with the hospital bills, if he happened to be hard-pressed for the moment. Now, if a baby was born, we didn’t speak to the parents for weeks. Babies, to us, had become what locusts were to farmers. In the old days, we used to help a man if he had a bad illness in the family. Now – well, I’ll tell you about jut one case. It was the mother of a man who had been with us for fifteen years. She was a kindly old lady, cheerful and wise, she knew us all by our first names and we all liked her – we used to like her. One day, she slipped on the cellar stairs and fell and broke her hip. We knew what that meant at her age. The staff doctor said that she’d have to be sent to a hospital in town, for expensive treatments that would take a long time. The old lady died the night before she was to leave for town. They never established the cause of death. No, I don’t know whether she was murdered. Nobody said that. Nobody would talk about it all. All I know is that I – and that’s what I can’t forget! – I, too, had caught myself wishing that she would die. This – may God forgive us! – was the brotherhood, the security, the abundance that the plan was supposed to achieve for us.

“Was there any reason why this sort of horror would ever be preached by anybody? Was there anybody who got any profit from it? There was. The Starnes heirs. I hope you’re not going to remind me that they’d sacrificed a fortune and turned the factory over to us as a gift. We were fooled by that one, too. Yes, they gave up the factory. But profit, ma’am, depends on what it is you’re after. And what the Starnes heirs were after, no money on earth could buy. Money is too clean and innocent for that.

“Eric Starnes, the youngest – he was a jellyfish that didn’t have the guts to be after anything in particular. He got himself voted as Director of our Public Relations Department, which didn’t do anything, except that he had a staff for the not doing of anything, so he didn’t have to bother sticking around the office. The pay he got – well, I shouldn’t call it ‘pay,’ none of us was ‘paid’ – the alms voted to him was fairly modest, about ten times what I got, but that wasn’t riches. Eric didn’t care for money – he wouldn’t have known what to do with it. He spent his time hanging around among us, showing how chummy he was a democratic. He wanted to be loved, it seems. The way he went about it was to keep reminding us that he had given us the factory. We couldn’t stand him.

“Gerald Starnes was our Director of Production. We never learned just what the size of his rake-off – his alms – had been. It would have taken a staff of accountants to figure that out, and a staff of engineers to trace the way it was piped, directly or indirectly, into his office. None of it was supposed to be for him — it was all for company expenses. Gerald had three cars, four secretaries, five telephones, and he used to throw champagne and caviar parties that no tax-paying tycoon in the country could have afforded. He spent more money in one year than his father had earned in profits in the last two years of his life. We saw a hundred-pound stack – a hundred pounds, we weighted them – of magazines in Gerald’s office, full of stories about our factory and our noble plan, with big pictures of Gerald Starnes, calling him a great social crusader. Gerald liked to come into the shops at night, dressed in his formal clothes, flashing diamond cuff links, the size of a nickel and shaking cigar ashes all over. Any cheap show-off who’s got nothing to parade but his cash, is bad enough – except that he makes no bones about the cash being his, and you’re free to gape at him or not, as you wish, and mostly you don’t. But when a bastard like Gerald Starnes puts on an act and keeps spouting that he doesn’t care for material wealth, that he’s only serving ‘the family.’ that all the lushness is not for himself, but for our sake and for the common good, because it’s necessary to keep up the prestige of the company and of the noble plan in the eyes of the public – then that’s when you learn to hate the creature as you’ve never hated anything human.

“But his sister Ivy was worse. She really did not care for material wealth. The alms she got was no bigger than ours, and she went about in scuffed, flat-heeled shoes and shirtwaists – just to show how selfless she was. She was our Director of Distribution. She was the lady in charge of our needs. She was the one who held us by the throat. Of course, distribution was supposed to be decided by voting – by the voice of the peope. But when the people are six thousand howling voices, trying to decide without yardstick, rhyme or reason, when there are no rules to the game and each can demand anything, but has a right to nothing, when everybody holds power over everybody’s life except his own – then it turns out, as it did, that the voice of the people is Ivy Starnes. By the end of the second year, we dropped the pretense of the ‘family meeting’ – in the name of ‘production efficiency and time economy,’ one meeting used to take ten days – and all the petitions of need were simply sent to Miss Starnes’ office. No, not sent. They had to be recited to her in person by every petitioner. Then she made up a distribution list, which she read to us for our vote of approval at a meeting that lasted three-quarters of an hour. We voted approval. There was a ten-minute period on the agenda for discussion and objections. We made no objections. We knew better by that time. Nobody can divide a factory’s income among thousands of people, without some sort of a gauge to measure people’s value. Her gauge was bootlicking. Selfless? In her father’s time, all of his money wouldn’t have given him a chance to speak to his lousiest wiper and get away with it, as she spoke to our best skilled workers and their wives. She had pale eyes that looked fishy, cold and dead. And if you ever want to see pure evil, you should have seen the way her eyes glinted when she watched some man who’d talked back to her once and who’d just heard his name on the list of those getting nothing above basic pittance. And when you saw it, you saw the real motive of any person who’s ever preached the slogan: ‘From each according to his ability, to each according to his need.’

“This was the whole secret of it. At first, I kept wondering how it could be possible that the educated, the cultured, the famous men of the world could make a mistake of this size and preach, as righteousness, this sort of abomination – when five minutes of thought should have told them what would happen if somebody tried to practice what they preached. Now I know that they didn’t do it by any kind of mistake. Mistakes of this size are never made innocently. If men fall for some vicious piece of insanity, when they have no way to make it work and no possible reason to explain their choice – it’s because they have a reason that they do not wish to tell. And we weren’t so innocent either, when we voted for that plan at the first meeting. We didn’t do it just because we believed that the drippy old guff they spewed was good. We had another reason, but the guff helped us to hide it from our neighbors and from ourselves. The guff gave us a chance to pass off as virtue some thing that we’d be ashamed to admit otherwise. There wasn’t a man voting for it who didn’t think that under a setup of this kind he’d muscle in on the profits of the men abler than himself. There wasn’t a man rich and smart enough but that he didn’t think that somebody was richer and smarter, and this plan would give him a share of his better’s wealth and brain. But while he was thinking that he’d get unearned benefitsfrom the men above, he forgot about the men below who’d get unearned benefits, too. He forgot about all his inferiors who’d rush to drain him just as he hoped to drain his superiors. The worker who liked the idea that his need entitled him to a limousine like his boss’s, forgot that every bum and beggar on earth would come howling that their need entitled them to an icebox like his own. That was our real motive when we voted – that was the truth of it – but we didn’t like to think it, so the less we liked it, the louder we yelled about our love for the common good.

“Well, we got what we asked for. By the time we saw what it was that we’d asked for, it was too late. We were trapped, with no place to go. The best men among us left the factory in the first week of the plan. We lost our best engineers, superintendents, foremen and highest-skilled workers. A man of self-respect doesn’t turn into a milch cow for anybody. Some able fellows tried to stick I t out, but they couldn’t take it for long. We kept losing our men, they kept escaping from the factory like from a pest hole – till we had nothing left except the men of need, but none of the men of ability.

“And the few of us who were still any good, but stayed on, were only those who had been there too long. In the old days, nobody every quit the Twentieth Century – and somehow, we couldn’t make ourselves believe that it was gone. After a while, we couldn’t quit, because no other employer would have us – for which I can’t blame him. Nobody would deal with us in any way, no respectable person or firm. Al the small shops, where we traded, started moving out of Starnesville fast – till we had nothing left but saloons, gambling joints and crooks who sold us trash at gouging prices. The alms we got kept falling, but the cost of our living went up. The list of the factory’s needy kept stretching, but the list of its customers shrank. There was less and less income to divide among more and more people. In the old days, it used to be said that the Twentieth Century Motor trademark was as good as the karat mark on gold. I don’t know what it was that the Starnes heirs thought, if they thought at all, but I suppose that like all social planners and tike savages, they thought that this trademark was a magic stamp which did the trick by some sort of voodoo power and that it would keep them rich, as it had kept their father. Well, when our customers began to see that we never delivered an order on time and never put out a motor that didn’t have something wrong with it – the magic stamp began to work the other way around: people wouldn’t take a motor as a gift, if it was marked Twentieth Century. And it came to where our only customers were men who never paid and never meant to pay their bills. But Gerald Starnes, doped by his own publicity, got huffy and went around, with an air of moral superiority, demanding that businessmen place orders with us, not because our motors were good, but because we needed the orders so badly.

“By that time, a village half-wit could see what generations of professors had pretended not to notice. What good would our need do to a power plant when its generators stopped because of our defective engines? What good would it do to a man caught on an operating table when the electric light went out? What good would it do to the passengers of a plane when its motor failed in mid-air? And if they bought our product, not because of its merit, but because of our need, would that be the good, the right, the moral thing to do for the owner of that power plant, the surgeon in that hospital, the maker of that plane?

“Yet this was the moral law that the professors and leaders and thinkers had wanted to establish all over the earth. If this is what it did in a single small town where we all knew one another, do you care to think what it would on a world scale? Do you care to imagine what it would be like, if you had to live and to work, when you’re tied to all the disasters and all the malingering of the globe? To work – and whenever any men failed anywhere, it’s you who would have to make up for it. To work – with no chance to rise, with your meals and your clothes and your home and your pleasure depending on any swindle, any famine, any pestilence anywhere on earth. To work – with no chance for an extra ration, till the Cambodians have been fed and the Patagonians have been sent through college. To work – on a blank check held by every creature born, by men who you’ll never see, whose needs you’ll never know, whose ability or laziness or sloppiness or fraud you have no way to learn and no right to question – just to work and work and work – and leave it up to the Ivys and the Geralds of the world to decide whose stomach will consume the effort, the dreams and the days of your life. And this is the moral law to accep? This – a moral ideal?

“Well, we tried it – and we learned. Our agony took four years, from our first meeting to our last, and it ended the only way it could end: in bankruptcy. At our last meeting, Ivy Starnes was the one who tried to brazen it out. She made a short, nasty, snippy little speech in which she said that the plan had failed because the rest of the country had not accepted it, that a single community could not succeed in the midst of a selfish, greedy world – and that the plan was a noble ideal, but human nature was not good enough for it. A young boy – the one who had been punished for giving us a useful idea in our first year – got up, as we all sat silent, and walked straight to Ivy Starnes on the platform. He said nothing. He spat in her face. That was the end of the noble plan and of the Twentieth Century.”

The man had spoken as if the burden of his years of silence had slipped suddenly out of his grasp. She knew that this was his tribute to her: he had shown no reaction to her kindness, he had seemed numb to human value or human hope, but something within him had been reached and his response was this confession, this long, desperate cry of rebellion against injustice, held back for years, but breaking out in recognition of the first person he had met in whose hearing an appeal for justice would not be hopeless. It was as if the life he had been about to renounce were given back to him by the two essentials he needed: by his food and by the presence of a rational being.


Meet My New BFF: GoToWebinar

Hate cold calling?  No, not you Chris Johnson.  I mean the rest of us.

Me too.  So I invested a few dollars into GoToMeeting and a few hours promoting a few educational Webinars with Brian Brady on Facebook and LinkedIn.

If you can deal with my goofball face and occasional blabbering, you’ll find a couple of nuggets in the 19 minute video below.


1)  Pick a hot Webinar topic.  Find an industry expert.  And give the goods.  You don’t need to sell anything.  Just give.

2)  Have your friends, referral sources and counterparts help you promote your webinar.  Return the favor when they ask.

3)  Use the Webinar registration process to build your database and collect valuable data on your attendees.

4)  Record your Webinar, use video editing software like Camtasia to reformat, and post your Webinar onto your blog.

5)  Promote your Webinar on high traffic blogs.  Drive registrants to your blog to fill out the Registration Form.

1 comment

Hey Sunshine! Tell Me About Your Day

I’ve not only been a broker since January of 1977, but the designated broker since then too. For those not familiar with the term, a designated broker is the one with the dotted line drawn on their neck. The buck stops with the DB. Though not all DB’s are office/company managers, my guess is most are. Ironically, in my first decade as a DB the only thing I was allowed to be in charge of was the coffee room, as Dad pretty much called the shots back then — as he should’ve. Besides, who puts a 25 year old in charge of a real estate investment firm? I generally rated solid reviews as Executive Vice President of coffee room operations.

When Dad finally rode into the real estate sunset, making golf the only line on his daily to-do list, it fell to me to be the DB more than just on paper. Calling Brown and Brown a small firm is the working definition of redundant, as the most folks we’ve ever had working, including me, is four — counting the secretary. However, shortly after Dad’s handicap began it’s downward descent, I was headhunted by a local C/21 owner to create and run a separate and unattached commercial division. I was 35, and ready for a challenge. Creating something from scratch appealed to me.

This post’s title is how Dad used to greet me as I walked into the room, when I was asked to join his cadre of old merciless bastards at the 19th hole. This happened about three times a week, and was literally a graduate course in real estate, management, business in general and performing under pressure. I learned pretty quickly my job was to share my fries, speak when I was spoken to, and most of all, listen. There were about 16 of ’em. They were affectionately known at the club as The Bandits, as they regularly schooled the assistant pros, often leaving the poor guys poorer.

In this group were three former real estate board presidents, land, income property, and leasing specialists — all but one who’d been DB’s and owned their own companies. The lone exception was the head of SDSU’s business school. See what I mean about speak when spoken to?

I give you all this preamble to underline the importance of my response to Dad’s greeting — timed to coincide with me finishing my respectful hello sirs to the old bastards. They tried to be nonchalant about it, but things quieted down as I’d begin to tell about my day. If I wavered, or they thought I was enhancing my answer with typical real estate office crappola, (and you know exactly to what I’m referring) my afternoon would very quickly turn to what comes outa the south end of a northbound horse.

Class was in session, and my homework was due — now. No excuses. Put up, or shut up.

There were a few basics my response had to include or I was toast — and those guys were like hungry teenagers on a leftover burrito. Making listing appointments, seriously prospecting, writing listing or purchase contracts, analyzing properties, or meeting with folks belly to belly. Saying anything else produced the same looks you now see on guys’ faces as they’re forced to watch Beaches with their wives. Abject boredom and/or disappointment.

The best days were when I got a few “Atta boys” then listened as they began smoothing the sharp edges of my various skill sets, of which there were many. There were days at the club I learned more in a few hours than during half a dozen seminars. Almost everything they said back then was of gold nugget quality — very few ‘tidbits’. Their generation pretty much preferred cutting to the chase. In fact, it was while at those meetings I learned about skinnin’ cats, and that nobody gave a damn how you did anything ’till they found out if the damn cat was indeed skinned. They had time for results, and not much else.

If I was to greet you with ‘Hey Sunshine, tell me about your day’, what would your response be?


South Park reveals Department of Treasury decision-making tools


Is your business about to take a quantum leap? So is mine, so all I have time for is this: Whip your on-line and off-line marketing message into shape now, to make the most of the business coming your way

If you’re looking for the long, newsy pitch, I’ll try to get to it later this week. But for now I am working with and incubating more solid money work than I have in three years. I expect your dance card is starting to fill up, too.

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By applying CDSs to CDOs, did AIG go MIA? Or could the SEC, the OTS and one unhired CFO have kept it from turning up DOA?

A totally killer run down of the Wall Street mess from — you’ll never guess it — Rolling Stone magazine:

There are plenty of people who have noticed, in recent years, that when they lost their homes to foreclosure or were forced into bankruptcy because of crippling credit-card debt, no one in the government was there to rescue them. But when Goldman Sachs — a company whose average employee still made more than $350,000 last year, even in the midst of a depression — was suddenly faced with the possibility of losing money on the unregulated insurance deals it bought for its insane housing bets, the government was there in an instant to patch the hole. That’s the essence of the bailout: rich bankers bailing out rich bankers, using the taxpayers’ credit card.

The people who have spent their lives cloistered in this Wall Street community aren’t much for sharing information with the great unwashed. Because all of this shit is complicated, because most of us mortals don’t know what the hell LIBOR is or how a REIT works or how to use the word “zero coupon bond” in a sentence without sounding stupid — well, then, the people who do speak this idiotic language cannot under any circumstances be bothered to explain it to us and instead spend a lot of time rolling their eyes and asking us to trust them.

That roll of the eyes is a key part of the psychology of Paulsonism. The state is now being asked not just to call off its regulators or give tax breaks or funnel a few contracts to connected companies; it is intervening directly in the economy, for the sole purpose of preserving the influence of the megafirms. In essence, Paulson used the bailout to transform the government into a giant bureaucracy of entitled assholedom, one that would socialize “toxic” risks but keep both the profits and the management of the bailed-out firms in private hands. Moreover, this whole process would be done in secret, away from the prying eyes of NASCAR dads, broke-ass liberals who read translations of French novels, subprime mortgage holders and other such financial losers.

It’s a long read, but completely worth your time. The left can’t get a grip on the Rotarian half of Rotarian Socialism, so the writer mostly sees the world through a Marxist lens — big versus small, as against connected versus clueless. Even so, this is a nice little snapshot of oligarchy aborning.


Inquiry Bump?

Yesterday, after the housing data came out, there was spike in the number of web-generated inquiries we see.

I’d have to take the time to aggregate the data across all clients to put a number on it, but just looking at the inbox we use to keep an eye on “Ask our Agent” questions, the jump was significant.

Obviously, people are influenced by the news. I could look at Q4 traffic graph from last year and show you the day Lehman went down, but I don’t remember a good news bump like this in the five years I’ve been managing Real Estate Web sites.

Are you seeing the same thing?


The “Bad Bank” Plan…..(complete with music and video)

I’ve copied the announcement from the Treasury that sent the markets on a moonrocket today and thought that I would “walk you through it” so that we can get a better feel for whether this is a relief rally or something sustainable (and therefore what it means for mortgage rates).   So, here goes.  As usual, my comments are in bold and italics…..

The Financial Stability Plan – Progress So Far:

Over the past six weeks, the Treasury Department has implemented a series of initiatives as part of its Financial Stability Plan that – alongside the American Recovery and Reinvestment Act – lay the foundations for economic recovery: and spend about how many trillions?  I’ve lost count.

* Efforts to Improve Affordability for Responsible Homeowners: Treasury has implemented programs to allow families to save on their mortgage payments by refinancing I’m glad that they didn’t characterize Fannie and Freddie’s 105% plan as a foreclosure prevention step because only one of the borrowers I’m doing that type of a refi for is anywhere near close to “at risk”, assist responsible homeowners in avoiding foreclosure through a loan modification plan, and, alongside the Federal Reserve, help bring mortgage interest rates down to near historic lows. This past month, the 30% increase in mortgage refinancing demonstrated that working families are benefiting from the savings due to these lower rates.

* Consumer and Business Lending Initiative to Unlock Frozen Credit Markets: Treasury and the Federal Reserve are expanding the TALF in conjunction with the Federal Reserve to jumpstart the secondary markets that support consumer and business lending. Last week, Treasury announced its plans to purchase up to $15 billion in securities backed by Small Business Administration loans.  The fact that the Fed and the Treasury are buying these “packages” of consumer and business loans doesn’t mean that 1) Consumers and businesses are going to start, en masse, living on borrowed money again and 2) That the banks are going to find consumers and businesses who are credit worthy enough to write loans to.

* Capital Assistance Program: Treasury has also launched a new capital program, including a forward-looking capital assessment undertaken by bank supervisors to ensure that banks have the capital they need in the event of a worse-than-expected recession. We want to make sure that Goldman and JP Morgan and Bank of America and Citibank don’t run out of money if things get really really bad.  If banks are confident that they will have sufficient capital to weather a severe economic storm, they are more likely to lend now – making it less likely that a more serious downturn will occur.  We believe that JP Morgan, Bank of America, Citibank and the rest will be more likely to start lending more money if they know that they can come to Uncle Sam for more cash if they run out.   Uh, hang on a minute.   Isn’t that what the first TARP was supposed to do?   We’d give the banks billions and then they’d turn around and lend it again?   How’d that work out again?   Oh, but this time it’s different, right?

The Challenge of Legacy Assets: Despite these efforts, the financial system is still working against economic recovery.  A true statement.  Fed Chairman Bernanke said we “could” see a turn around in the economy later this year IF the financial system gets cleaned up.  One major reason is the problem of “legacy assets” – both real estate loans held directly on the books of banks (“legacy loans”) and securities backed by loan portfolios (“legacy securities”). How’s a good way to describe this?  The banks made a lot of stupid loans and a lot of ill advised transactions that shouldn’t have been done or were done under faulty assumptions.   Check this out, it describes it pretty well…..

These assets create uncertainty around the balance sheets of these financial institutions, compromising their ability to raise capital and their willingness to increase lending.  Yep, until we know how much these assets are worth, we don’t know how healthy or sick these (all) banks are.

* Origins of the Problem:  The challenge posed by these legacy assets began with an initial shock due to the bursting of the housing bubble in 2007 I think it’s being a little, shall we say, presumptious to infer that the problem began in 2007, the problem began much earlier than that, but everyone woke up in 2007 and said, “Houston, we have a problem.”, which generated losses for investors and banks. Losses were compounded by the lax underwriting standards wasn’t it the lax underwriting standards that caused a large portion of the unsustainable rise in housing prices? that had been used by some lenders and by the proliferation of complex securitization products, some of whose risks were not fully understood agreed that the risk wasn’t completely understood, but if you followed the “if it sounds too good to be true, it probably is” that would have helped.. The resulting need by investors and banks to reduce risk triggered a wide-scale deleveraging in these markets and led to fire sales. As prices declined, many traditional investors exited these markets, causing declines in market liquidity.

* Creation of a Negative Economic Cycle: As a result, a negative cycle has developed where declining asset prices have triggered further deleveraging, which has in turn led to further price declines. Uh, yeah, that’s what’s called, “Being in over your head and having to cut back.” The excessive discounts not to sound Clintonian, but it seems that the word excessive is debatable, isn’t the market value what they could be sold for?  embedded in some legacy asset prices are now straining the capital of U.S. financial institutions there are a lot of banks who are troubled because they are running out of money,

limiting their ability to lend and increasing the cost of credit throughout the financial system. The lack of clarity about the value of these legacy assets has also made it difficult for some financial institutions to raise new private capital on their own.  I’m not sure that it’s so much the lack of clarity as it is the astounding amount of losses that the banks have undergone that has made private capital

The Public-Private Investment Program for Legacy Assets

To address the challenge of legacy assets, Treasury – in conjunction with the Federal Deposit Insurance Corporation and the Federal Reserve – is announcing the Public-Private Investment Program as part of its efforts to repair balance sheets (another term for bailout – repair balance sheets) throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery.  Am I the only one who doesn’t necessarily see that infusing the banks with lots of cash will get them to go back to lending?  

It’s sort of like someone who gets hurt rock climbing actually falling down the mountain and sustaining closed head injuries, they get taken to the hospital and are put on life support.   They get the necessary treatment, the necessary transfusions because of significant internal bleeding and are eventually healthy enough to leave the hospital.  Do they immediately go back to climbing Mount Everest?  Nope, they start with a walk in the park, then maybe a stroll in the country and they might never get back to Mount Everest…….

Three Basic Principles: Using $75 to $100 billion in TARP capital and capital from private investors, the Public-Private Investment Program will generate $500 billion in purchasing power to buy legacy assets – with the potential to expand to $1 trillion over time.  The math confuses me a bit here.  $100 Billion becomes $500 Billion becomes $1 Trillion?  Isn’t that the kind of leverage that got us in trouble originally?

 The Public-Private Investment Program will be designed around three basic principles:

* Maximizing the Impact of Each Taxpayer Dollar: First, by using government financing let’s call it what it is, subsidized financing aka – We’re going to encourage people to buy these assets by offering them 0% (or close) financing in partnership with the FDIC and Federal Reserve and co-investment with private sector investors, substantial purchasing power will be created, making the most of taxpayer resources.

* Shared Risk and Profits With Private Sector Participants: Second, the Public-Private Investment Program ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns.   If you read what Yves Smith has to say over at Naked Capitalism, I think it’s safe to say that the ratio of profits/losses aren’t going to be divided equally between private sector and tax payers.

* Private Sector Price Discovery: Third, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program. This is intriguing.  So they actually think that there is going to be an auction and they can get a price that will allow the banks to remain financially stable while at the same time generating a profit for the investors?   Then why don’t the banks just keep the assets and be profitable at them?

The Merits of This Approach: This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly. Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience.  This is very true.   We don’t want to relive the Japanese experience.  But if the government acts alone in directly purchasing legacy assets, taxpayers will take on all the risk of such purchases as opposed to this plan where the government takes on say, 90% of the losses and 10% of the profits? – along with the additional risk that taxpayers will overpay if government employees are setting the price for those assets.  I find it kind of humorous that a government employee acknowledges in writing that if government employees did the job, they would screw it up……

Two Components for Two Types of Assets: The Public-Private Investment Program has two parts, addressing both the legacy loans and legacy securities clogging the balance sheets of financial firms:

* Legacy Loans:The overhang of troubled legacy loans stuck on bank balance sheets has made it difficult for banks to access private markets for new capital and limited their ability to lend.

* Legacy Securities: Secondary markets have become highly illiquid, and are trading at prices below where they would be in normally functioning markets. Are these normally functioning markets according to the way that things were from 2004 to 2007 or from the rest of the relatively normal markets?  These securities are held by banks as well as insurance companies, pension funds, mutual funds, and funds held in individual retirement accounts. So we’re going to bailout anyone we want to.

The Legacy Loans Program: To cleanse bank balance sheets of troubled legacy loans and reduce the overhang of uncertainty associated with these assets, the Federal Deposit Insurance Corporation and Treasury are launching a program to attract private capital and how do you attract private capital in today’s market?  Either by means of lowering prices on the assets or by means of financing incentives (non-recourse loans or subsidizing the interest rates and lowering the equity requirements) to purchase eligible legacy loans from participating banks does anyone know whether participation is mandatory or voluntary? through the provision of FDIC debt guarantees and Treasury equity co-investment. Treasury currently anticipates that approximately half of the TARP resources for legacy assets will be devoted to the Legacy Loans Program, but our approach will allow for flexibility to allocate resources where we see the greatest impact.

* Involving Private Investors to Set Prices: A broad array of investors are expected to participate in the Legacy Loans Program. The participation of individual investors, pension plans, insurance companies and other long-term investors is particularly encouraged. PLEASE, PLEASE, PRETTY PLEASE COME BUY OUR JUNK!  The Legacy Loans Program will facilitate the creation of individual Public-Private Investment Funds which will purchase asset pools on a discrete basis. The program will boost private demand it says it will boost demand but it doesn’t say how? for distressed assets that are currently held by banks and facilitate market-priced sales of troubled assets.  I find it interesting that at the same time that the Treasury is talking about market prices sales, they are also talking about repealing mark to market accounting so that banks can say the assets are worth more.   Anyone bothered by that?
* Using FDIC Expertise to Provide Oversight: The FDIC will provide oversight for the formation, funding, and operation of these new funds that will purchase assets from banks.
* Joint Financing from Treasury, Private Capital and FDIC: Treasury and private capital will provide equity financing and the FDIC will provide a guarantee that means that you and I are on the hook for the financing that these funds get from the government. for debt financing issued by the Public-Private Investment Funds to fund asset purchases. The Treasury will manage its investment on behalf of taxpayers to ensure the public interest is protected. The Treasury intends to provide 50 percent of the equity capital for each fund, but private managers will retain control of asset management subject to rigorous oversight from the FDIC.  So let me throw some numbers to that.   If I were to form the Straight Talk Investment Fund and come up with $5 Million, the government would come up with another $5 million, loan me another $100 million and then guarantee the loan?  That’s pretty sweet terms…..
* The Process for Purchasing Assets Through The Legacy Loans Program: Purchasing assets in the Legacy Loans Program will occur through the following process:
o Banks Identify the Assets They Wish to Sell: To start the process, banks will decide which assets is this going to be sort of like the stress tests?  If a bank wants to dump loans, are they going to be “blacklisted?”– usually a pool of loans – they would like to sell. The FDIC will conduct an analysis to determine the amount of funding it is willing to guarantee. Leverage will not exceed a 6-to-1 debt-to-equity ratio.If they are saying they won’t exceed a 6 to 1 debt to equity ratio, then how do they turn $100 Billion into $1 Trillion?  Assets eligible for purchase will be determined by the participating banks, their primary regulators, the FDIC and Treasury. Financial institutions of all sizes will be eligible to sell assets.
o Pools Are Auctioned Off to the Highest Bidder: The FDIC will conduct an auction for these pools of loans. The highest bidder will have access to the Public-Private Investment Program to fund 50 percent of the equity requirement of their purchase. Read that carefully, 50% of the equity requirement, not 50% of the cost.   That is sort of like putting 10% down on a house and the government comes up with the other 10% to get you to 20%.
o Financing Is Provided Through FDIC Guarantee: If the seller accepts the purchase price, the buyer would receive financing by issuing debt guaranteed by the FDIC. The FDIC-guaranteed debt would be collateralized by the purchased assets and the FDIC would receive a fee in return for its guarantee.
o Private Sector Partners Manage the Assets:Once the assets have been sold, private fund managers will control and manage the assets until final liquidation, subject to strict FDIC oversight.

Sample Investment Under the Legacy Loans Program

Step 1: If a bank has a pool of residential mortgages with $100 face value that it is seeking to divest, the bank would approach the FDIC.
Step 2: The FDIC would determine, according to the above process, that they would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio.
Step 3: The pool would then be auctioned by the FDIC, with several private sector bidders several – optimistic? submitting bids. The highest bid from the private sector – in this example, $84 are they just pulling a number out of a hat or are they trying to suggest that these assets would sell for 84 cents on a dollar?  From what I’ve heard of mortgage portfolios, 84 cents on a dollar would be a wonderful result. – would be the winner and would form a Public-Private Investment Fund to purchase the pool of mortgages.
Step 4: Of this $84 purchase price, the FDIC would provide guarantees for $72 of financing, leaving $12 of equity.
Step 5: The Treasury would then provide 50% of the equity funding required on a side-by-side basis with the investor. In this example, Treasury would invest approximately $6, with the private investor contributing $6.
Step 6: The private investor would then manage the servicing of the asset pool and the timing of its disposition on an ongoing basis – using asset managers approved and subject to oversight by the FDIC.

The Legacy Securities Program: The goal of this program is to restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit. The resulting process of price discovery will also reduce the uncertainty surrounding the financial institutions reduce the uncertainty surrounding the financial institutions?  Isn’t that going to put the banks into this kind of situation?

 holding these securities, potentially enabling them to raise new private capital.

Potentially is the operative word here……

The Legacy Securities Program consists of two related parts designed to draw private capital into these markets by providing debt financing from the Federal Reserve under the Term Asset-Backed Securities Loan Facility (TALF) and through matching private capital raised for dedicated funds targeting legacy securities.

1. Expanding TALF to Legacy Securities to Bring Private Investors Back into the Market: The Treasury and the Federal Reserve are today announcing their plans to create a lending program that will address the broken markets for securities tied to residential and commercial real estate and consumer credit. The intention is to incorporate this program into the previously announced Term Asset-Backed Securities Facility (TALF).

o Providing Investors Greater Confidence to Purchase Legacy Assets:As with securitizations backed by new originations of consumer and business credit already included in the TALF, we expect that the provision of leverage through this program If we make it easy to borrow, then they’ll buy it?  Isn’t that sort of like, “Buy this house with no money down and a 620 credit score” and don’t worry about the price…..  will give investors greater confidence to purchase these assets, thus increasing market liquidity.
o Funding Purchase of Legacy Securities: Through this new program, non-recourse loans non-recourse loans are loans that, if defaulted on, don’t require the borrower to pay it back, they can just walk from the loan.  will be made available to investors to fund purchases of legacy securitization assets. Eligible assets are expected to include certain non-agency residential mortgage backed securities (RMBS) that were originally rated AAA and outstanding commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) that are rated AAA.
o Working with Market Participants: Borrowers will need to meet eligibility criteria.  But they don’t way what those criteria are yet.  Haircuts will be determined at a later date is this sort of like a plan to have a plan? and will reflect the riskiness of the assets provided as collateral. Lending rates, minimum loan sizes, and loan durations have not been determined. These and other terms of the programs will be informed by discussions with market participants. However, the Federal Reserve is working to ensure that the duration of these loans takes into account the duration of the underlying assets The Fed is working to make sure that the loans take into account the life span of the assets?  Is it that difficult to determine?  Sorry, getting a little cynical here…...

2. Partnering Side-by-Side with Private Investors in Legacy Securities Investment Funds: Treasury will make co-investment/leverage available to partner with private capital providers to immediately support the market for legacy mortgage- and asset-backed securities originated prior to 2009 with a rating of AAA at origination.

o Side-by-Side Investment with Qualified Fund Managers: Treasury will approve up to five asset managers with a demonstrated track record of purchasing legacy assets though we may consider adding more depending on the quality of applications received. Managers whose proposals have been approved will have a period of time to raise private capital to target the designated asset classes and will receive matching Treasury funds under the Public-Private Investment Program. Treasury funds will be invested one-for-one on a fully side-by-side basis with these investors.

o Offer of Senior Debt to Leverage More Financing: Asset managers will have the ability, if their investment fund structures meet certain guidelines, to subscribe for senior debt for the Public-Private Investment Fund from the Treasury Department in the amount of 50% of total equity capital of the fund. The Treasury Department will consider requests for senior debt for the fund in the amount of 100% of its total equity capital subject to further restrictions.

Sample Investment Under the Legacy Securities Program

Step 1: Treasury will launch the application process for managers interested in the Legacy Securities Program.
Step 2: A fund manager submits a proposal and is pre-qualified to raise private capital to participate in joint investment programs with Treasury.
Step 3: The Government agrees to provide a one-for-one match for every dollar of private capital that the fund manager raises and to provide fund-level leverage for the proposed Public-Private Investment Fund.
Step 4: The fund manager commences the sales process for the investment fund and is able to raise $100 of private capital for the fund. Treasury provides $100 equity co-investment on a side-by-side basis with private capital and will provide a $100 loan to the Public-Private Investment Fund. Treasury will also consider requests from the fund manager for an additional loan of up to $100 to the fund.
Step 5: As a result, the fund manager has $300 (or, in some cases, up to $400) in total capital and commences a purchase program for targeted securities.
Step 6: The fund manager has full discretion in investment decisions, although it will predominately follow a long-term buy-and-hold strategy. The Public-Private Investment Fund, if the fund manager so determines, would also be eligible to take advantage of the expanded TALF program for legacy securities when it is launched.

Okay, Tom here.   If you’ve read the entire thing, thank you.   I consider it a compliment.

There are two main points that I’d like to make about this:
1. For the investors to be interested in throwing their capital at these assets, they need to either get them for a song or they need to get a whale of a deal on the financing and guarantees from the government.    They won’t pay a song for them because if they did, then the government would have to bailout the banks who are no longer solvent.  Oh wait, isn’t that what the FDIC needs another $500 Billion for?

2. If the private investors get a whale of a deal on the financing, guess who’s going to be left holding the bag on this?

I hate to always be negative, but I really don’t like the way that this is shaping up for the US Taxpayer.  

Now to quickly wrap it up and tie it into the mortgage world:
If the government/you and me ends up footing a large part of this plan (and I believe we will) that will end up in additional borrowings by the Treasury and the FDIC.   Additional borrowings will put added pressure on interest rates.   Added pressure on interest rates isn’t good for mortgages.

I’ll be quite honest with you, I didn’t see the housing bubble coming in 2005 and 2006.  I was too busy with real life and the two kids we adopted in 2004.   However, I see another bubble coming and it scares me.

Oh well, there’s always…..
(hint – make sure you listen to at least the first two lines)

Stay tuned,

Tom Vanderwell



Just when you think the comedy can’t get any more rich…

So I told them how badly they had screwed up, and, god help ’em, they set about to fix their mistake:

Good grief. How sad…

The Arizona Association of Realtors has some kind of event coming up, too, and, it goes without saying, I’ve been snubbed from that, too.

Listen up, functionaries: It’s totally cool. I’m not going to do anything that gives aid and comfort to any branch of the NAR, nor to any exponent of the co-broke. I’m sure the more intelligent members of AAR and ARMLS might like to hear what I have to say, but — taking account of where your eyes are right now — what do we need you for?

Even so, you have to admit the whole thing is funny…


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