An Honorable Renter and Saver Rants: "Remember When Republicans . . . ?"

Housing Crash Survivor Asks, "Remember When Republicans . . . ?"

As readers of this blog know, I am a big fan of Motley Fool message boards.

The collective wisdom of investors who are doctors, lawyers, armed forces members, stripclub DJs, stay at home moms, CEOs of publicly traded companies, retirees, etc., cannot be matched anywhere on the Internet in my opinion.

One of the things which has erupted in the past two weeks is a growing discontent by Motley Fool posters from all political persuasions, Democrats, Independents, Republicans, Libertarians . . . you name it . . . for hints at and calls for government intervention in the Housing Bubble Crash.

Over the past two weeks, posts on the Motley Fool boards which were well written and critical of any government intervention to bailout Wall Street and homeowners who made very risky purchases of overpriced Real Estate and CDOs, MSBs, etc., were recommended so many readers they became "Posts of the Day" read by tens of thousands of Motley Fool readers.

The Anger of Responsible Americans Is Evident Everywhere on the Internet

Yesterday, I laid a link on you from the "Eye on Miami" blog.

If you read the responses to that blog discussing government intervention to bailout homeowners, you would have seen that responders to that blog were all aligned in thought: NO government bailouts.

If you were to read Michael Shedlocks (or Mish as he's known by those of us who still post on the board he founded on Motley Fool) you'd sometimes see 300 responses in which more than 95% of the responders are saying, "No government bailouts." (By the way, to read Mish's blog, check the right hand margin of this blog.)

A Gem of a Piece of Writing from a Motley Fool Board Earlier this Morning. . .

Today, actually just minutes ago, I read another post about this ridiculous pandering by the current Administration to American adults who made unwise life decisions to buy housing when it was obscenely overpriced.

On this blog I constantly ask, "Where are the adults?"

Today, in an outstanding post on the Motley Fool's Political Asylum board, a regular poster there, JimiH3ndrix, asks "Where are the true Republicans?" And then he lays down a rant which is fast collecting "best of" recommendations from readers.

His post, message number #1117035 dated today and posted at 9:38 AM is one of those brilliant posts and rants which you want to print out and put into magazine form for the whole world to read.

Recently, I had that idea. Why not take some of the best posts and responses of Motley Fool and repost them on this blog so as to get more readers involved in the "education, enlightenment, and amusement" of small investors . . . which is Motley Fool's mission statement?

I can use this blog to introduce non-Motley Fool posters to a world of individual investors and freethinkers who have formed one of the most exciting communities of brain power anywhere. Sometimes, the community fights one another like a mongoose and snake. Other times, it seems as the whole community pulls behind a idea which is too big to ignore.

Often, I've urged new readers of this blog to become members of Motley Fool boards.

Recently, Dave and Tom Gardner, founders of Motley Fool, made the discussion boards FREE.

So, you no longer have to pay to read or post there.

Hence, once you read the following post . . . and I'll give you the direct link to JimiH3ndrix's post. . . please, upon completing your read, join the gang at Motley Fool.

When you join, introduce yourself as a new poster and take time to explore the different discussion boards. (I'm usually found on the Macro Economic Trends and Risks board.)

That said, here is Mr. Hendrix's entire post, unedited, word for word.

As soon as I hear from several Motley Fool responders, I hope to add their remarks to the end of this post . . . or you can click on the link and read them for yourselves.

This is the first time I've ever posted a Motley Fool message board piece. I just want Jimi H3ndrix to know it is an honor to post something which was written with so much fire and passion.

So, world, here comes your introduction to Motley Fool's JimiH3ndrix and his rant:

"Remember When Republicans . . . ?"

Politcal Asylum Board on Motley Fool msg. 1117035

(Rock's note: click on the red highlight above and you should be taken to the entire "thread" where Jimi's post shows first and all responses show next. If you have problems seeing this, World, maybe you will first have to become a FREE member of Motley Fool. I don't know. But it would be nice if one of you non-Motley Fool readers would respond to this blog and let me know if you could link directly to Jimi's post and the ensuing thread.)

Everything which follows . . . in blue ink . . . is JimiH3ndrix's words from his post "Remember When Republicans . . . ?"

Remember When Republicans . . . ?

Believed in the primacy of free markets?

Believed in the enforcement of contracts freely entered into?

Believed in individual responsibility for decisions made & actions taken?Believed that government distortion of markets, at best, tended to make them inefficient, and at worst, contributed to moral hazard?

Yeah, me neither.

WASHINGTON -- President Bush, looking for ways to respond to the subprime-mortgage crisis, will outline a series of policy changes and recommendations today to help borrowers avoid default, senior administration officials said.

Among the moves will be an administrative change to allow the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, to guarantee loans for delinquent borrowers. The change is intended to help borrowers who are at least 90 days behind in payments but still living in their homes avoid foreclosure; the guarantees help homeowners by allowing them to refinance at more favorable rates.

Mr. Bush also will ask Congress to suspend, for a limited period, an Internal Revenue Service provision that penalizes borrowers who refinance the terms of their mortgage to reduce the size of the loan or who lose their homes to foreclosure. And he will announce an initiative, to be led jointly by the Treasury and Housing and Urban Development departments, to identify people who are in danger of defaulting over the next two years and work with lenders, insurers and others to develop more favorable loan products for those borrowers.

http://online.wsj.com/article/SB118851742988914064.html?mod=hps_us_whats_news

(Rock's note: Motley Fool posters almost always attribute words from online links in Italics. In the case above, the words in Italics were part of the Wall Street Journal article which JimiH3ndrix is using as a basis for his latest rant.)

It was clear for so long that buyers were stretching to get into the largest & riskiest mortgage they still couldn't afford.

Buyers were complicit.

Lenders were complicit.

Assessors were complicit.

Wall Street was complicit.

Bush doesn't encourage return to responsible real estate markets.

Bush doesn't propose pursuit of the complicit who broke laws.

Bush wants to punish responsible American savers who might otherwise purchase a distressed home through a market transaction. He prefers short circuiting the ability of individuals through such a market transaction from solving the problem in both the short and long run.

In the short run, distressed assets pass from weakly capitalized parties to more strongly capitalized parties.

That is how it should be.

Those who lose their homes were never "home-owners": they were leasing it from the lender who owned the note on the home. In many cases, borrowers were using interest only instruments that established no additional homeowner equity beyond the wager that house prices would continue to escalate.

They made a bet, and they were wrong.

They need to leave the chips on the table and walk away.

Not get bailed out by bloated government.

In the long run, market transactions bring discipline back to lending standards. If the speculators and the liars-on-loans and the lenders get bailed out, there's little reason for them to change their practices.

And if you're struggling to make good on your mortgage today, Bush has just increased the incentives to you to skip some payments so that you, too, can qualify for the handout being proposed.

This is known as "moral hazard."

I rent.

I have saved responsibly.

I have a wife & son in search of a home.

I stand at the ready with liquidity to purchase a home.

I am one of the responsible saving individuals who can help solve this problem. That free markets rely upon to step in to solve the "problem" of distressed assets.

They are not a "problem": they are the natural result of markets acting freely, and they reward those who save.

Bush's proposal punishes me.

Punishes my wife.

Punishes my son.

It punishes markets.

It punishes taxpayers

It rewards the liars, the gamblers & the irresponsible,

Jimi

(end of Jimi's rant)

Now that is the kind of writing you can read for free by people who are not members of the Mainstream media.

It is powerful and to the point.

And that so many readers are already responding to it, shows that there is a groundswell of anger, early on, in this stupid wasteful attempt by politicians to "save" somebody else with the latest socialistic handouts.

If it isn't payments to farmers to not grow crops, it's corporate welfare to un-Patriotic Americans who embezzle billions in Iraq as so called contractors.

If it isn't pork barrel projects to build bridges to nowhere, its handouts to the wealthiest supporters who scored huge bonuses last year on Wall Street but who are standing with palms outstretched this year.

I can tell you this: the first politician who steps up to the plate and says, "Enough" instead of "Let's give everybody free money so they can make risk free bets," is going to win a landslide of votes from honorable Americans who work their asses off and who scrimped and saved to attain their wealth.

This is a huge groundswell of anger facing politicians on both sides of the aisles.

The middle is no longer going to vote Republican or Democrat.

But I can tell you this: George Bush, go ahead, push through these bailouts, and you'll see the Republican Party lose more seats than anyone thought imaginable in the 2008 election.

Mr. Bush, responsible American adults are pissed with this enabling of gamblers from both ends of your voting block spectrum. If you think catering to speculators' interests can go unnoticed by the great mass of Americans who play by the rules, you've got another thing coming, Sir.

Think of the villagers with torches and pitchforks in the old Frankenstein movies. They are going to torch what's left of the Grand Old Party.

And it can't come soon enough.

May a new Barry Goldwater emerge from the ashes.

Humbly yours,

Rock Trueblood . . . Key West

(disclosure: I don't make a red cent off recommedning people to read Motley Fool boards . . . or any other writer listed in my Honor Roll of Links. I simply provide a watering hole for your brains. I can't make anyone drink.)

p.s. Thanks to JimiH3ndrix again for his great post and thanks to everyone at Motley Fool for making it possible for so many wonderful people to congregate and argue in ways which show how a true Democracy works.

Watchworld Welcomes "The Key Noter" to Honor Roll of Links With Latest on Cay Clubs

Key Noter's Top Story from Few Days Ago: "Investors Sue Cay Clubs"

I was trying to access another link online from the Key West Citizen with no luck when I thought, "Isn't there another voice for Keys news online?"

So I googled news for the Florida Keys and got a link to a paper I've never read, "The Keynoter".

I've seen Key Noters in newstands, but I never bought one as I thought it was like some kind of once a week paper. However, after I opened the link on Google, I discovered "The Keynoter" online was not only covering stories the Citizen was covering, but "The Keynoter" online was also offering those stories in their entirety and in a chronicled (by date) order with no monkey business of links not opening, top headlines not appearing in the list of archived stories, etc.

So, to introduce mainlanders and Key West residents to another Keys Newspaper, here is a top story from "The Keynoter" online posted late Tuesday 28 September 07.

The story is titled . . .

Investors sue Cay Clubs

By Sam Nissen snissen@keynoter.comPosted-Tuesday, August 28, 2007 5:57 PM EDT

Nineteen owners of condominiums at Sombrero Cay Club Resort and Marina in Marathon have sued the resort owners and others, alleging multiple counts of fraud.

The owners say Cay Clubs and affiliated companies misrepresented what it owned, what was offered, the company's future plans and how much owners stood to make by investing in the Marathon property.

In the suit filed Aug. 22 in Monroe County Circuit Court, owners allege Cay Clubs utilized their money as an investment, which real estate agents are banned from doing. The suit also lists three appraisal companies the plaintiffs believe inappropriately valued the property based on projected worth tied to promised renovations.

Rock's note: Here we go again. More bad news about Cay Clubs from the claims of disgruntled investors and their lawyers.

Before we get going on this one, let me point what I've read so far:

• The buyers of these condos at Sombrero Beach (called owners) bought these condos as investments.
• These owners are claiming Cay Clubs took their money and "invested it".
• These owners claim Cay Clubs (and affiliated companies) misrepresented what it owned, what was offered, the company's future plans and how much owners stood to make by investing in the Marathon property.

This befuddles me.

These "owners" were "investing" to "make money" off the rentals of their condos, right? Exactly what are they saying Cay Clubs inappropriately invested their money in? (I'm hoping the article will explain all this)

Onward.

In the suit filed Aug. 22 in Monroe County Circuit Court, owners allege Cay Clubs utilized their money as an investment, which real estate agents are banned from doing. The suit also lists three appraisal companies the plaintiffs believe inappropriately valued the property based on projected worth tied to promised renovations.

“I don't know how you could perform an appraisal for something that doesn't exist,” said Tom Wright, a Marathon attorney who specializes in real estate law.

Cay Clubs spokesman Chris Brown said the company had not been served with the complaint and therefore could not comment on it. A lawyer for some of the plaintiffs said Cay Clubs would be served by the end of today.

The owners say they were told Sombrero Resort, then a moderate-end hotel, would be upgraded to a “world-class” facility. But the only upgrades performed on the property were new coats of paint, the owners allege.

“The idea of it being a world-class resort and marina - I don't think many people would characterize it as such,” Wright said. “If you saw these units, I don't think anyone would pay this much except based on representations of improvements.”

All right, now we are getting somewhere.

Attorney Wright has a beef with three appraisal companies contracted by Cay Clubs to assign a true value of the condos after they were renovated.

Wright says, “I don't know how you could perform an appraisal for something that doesn't exist,” said Tom Wright, a Marathon attorney who specializes in real estate law.

To which I will defend Cay Clubs by saying this: they used three appraisers, not one. Appraisers are similar to stock market analysts. Using forward looking models of stocks's compounded annual growth, balance sheets, income statements, and cashflow statements, analyst constantly try to project future stock values.

You know when you hear "Analyst Joe Schmo gives Amazon and new target of $150"? That analyst has just appraised the future worth of the stock 12 months or 18 months down the road based on what he believes future revenues and income will be.

I don't know how a lawsuit can sue appraisers who were basing their assumptions on the data given to them by Cay Club executives. Secondly, that Cay Clubs used three appraisers to guess future value shows a modicum of good faith by them to assign a true future value after renovations were done.

On the other hand, Attorney Wright has got one thing right when he said, "If you saw these units, I don't think anyone would pay this much except based on representations of improvements."

I say this as my ex-wife's aunt owns a condo just down from the Sombrero Resort.

The last time I saw Sombrero Resort, it looked like a Days Inn or Comfort Inn. Nothing special to look at. It didn't give off any air of "exclusivity" with its boring boxy look. (Although I will say the old Sombrero Resort has more charm than the monstrosities Spottswood has built to replace the old Holiday Inn Beachside.)

Why anyone would want to buy a boxy looking, un-renovated, hotel suite called "condo" is beyond me . . . unless . . . of course . . . they were sold on the idea of making this income producer pay for itself.

So how much were these rooms . . . units, suites, whatever . . . going for back in the day when all was well with Real Estate?

Units sold for between $600,000 and $800,000 in late 2005.

Yikes.

I hope those un-renovated boxes came with a slip out front for the boat.

Man, even by 2005 money, there is no way in hell I would have ever paid that much money for a Sombero Resort room . . . unlesss, of course . . . I had a written contract showing the room and building were to have a major, major facelift with loads of new extras injected into each property.

So, how's the renovation going? How fast is Cay Clubs moving to upgrade the Sombrero Resort?

The Keynoter answers with more tidbits from the lawsuit:

Cay Clubs also has not applied for building permits to begin renovations, the suit alleges. The property is far from being world-class, some owners allege.

“When the Cay Clubs Defendants failed to renew their leaseback agreement for the second year, [Scott] Rathbun and [Stanley] Ahn retained an independent rental agency,” according to the lawsuit. “Upon inspection of the property, the independent agency declared the unit un-rentable.

“All previously included furniture was missing, the old mattresses were pushed up against the walls and the bathroom was severely dilapidated and damaged,” according to the lawsuit.

Owners say they were told they could save money by purchasing the property for a reduced price and that Cay Clubs would give them 8 percent of their investment back over the next year, with payments continuing monthly until upgrades were completed - also described as the leaseback program.

Rock's note: I am assuming Scott Rathburn and Stanley Ahn are owners of one sorely lacking unit. I am also bemused that they hired an outside rental agency to rent their unit after the first year of their Cay Clubs "leaseback program" ended.

Obviously there is some baaaaaaaaaaad blood between these two and Cay Clubs if their room was cleaned out of furniture and other belongings and they were never notified of this.

I know that if I had bought a condo on future projections, that the furniture, fridge, etc., were all included in the price (and here, I am assuming they were), that I would certainly expect those furnishings to remain in my condo every time a renter vacated my unit.

So somebody somewhere, either renters or Cay Clubs, made this unit of Ahn's and Rathburn's "unrentable". Whoever is at fault, you can bet the law will be on the side of Anh and Rathburn in this slice of the lawsuit.

One more thought: why didn't Rathburn and Ahn simply take money generated by the Cay Clubs leaseback program and plow it back into a plane ticket or two to see how their supposed renovations were coming along?

Some litigants allege payments came late or not at all, while others complain Cay Clubs stopped paying even though renovations were never completed.

Oh, that might be why. I forgot about the 140 people in the Cay Clubs leaseback programs not receiving any payment or getting small "stop-gap" payments owed to them.

At least some of those other owners have upgraded units not needing renovation.

Next, we read why litigants are claiming Cay Clubs took their money and invested it improperly:

The Sombrero owners allege the sales tactic amounts to a security or an investment, a type of transaction which must be registered with the state Department of Banking and Finance. According to the suit, salesmen Ricky Stokes and Barry Graham are accused of using fraudulent sales and investing tactics.

Hold on. I don't get that.

Selling condos as an investment is strictly a Real Estate proposition in my mind.

Are you telling me time shares are registered by the Department of Banking and Finance too?

So why is Cay Clubs supposed to be in the wrong selling condos as "an investment" in Real Estate?

I don't understand how "owners" can be howling about Cay Clubs "investing" their money. I must be missing something here.

To me, this sounds like more speculators wanting a bailout because they didn't do their due diligence before they purchased.

Real Estate, like stocks, like cattle futures, like betting on a Heat/Lakers game, is no slam dunk.

Where are the adults?

Cay Clubs is a corporation which has to use any revenue it can scrounge to stay solvent.

Salaries must be paid.

Leaseback stop-gap payments are being paid. (At least Cay Clubs is making that attempt as we read in the Miami Herald story.)

Everything we read in the Miami Herald and Key West Citizen (and now Keynoter) paints a picture of a company which is on the ropes because inventory is exploding, prices are dropping and most importantly the credit crunch has dried up the liquidity builders and developers need to tide them over.

Sombrero Cay Clubs is neither the first or last condotel project to run into the Housing Crash. Just last year, Islamorada's Holiday Isle's major renovation into a condotel project was canceled by new owners just a few weeks after it was announced.

I know these owners of Sombrero Beach condos want to seek redress of their problems, and I would to. But I also have to point out to these owners the following: they could possibly force the company out of business if they win a lawsuit and force a sale of Cay Clubs assets.

We've seen this before in NYSE and NASDAQ listed companies, big and small, where shareholder lawsuits seeking redress for share value loss simply helped to speed up the bankruptcy of a company which might have fought its way out from behind the 8 Ball had shareholders been more patient.

I once asked a bankrupted shareholder who partook in a fruitless shareholder suit, "What did you expect to do? Squeeze blood from a steamrolled turnip?" He gave me crap for being so cold. I shoved it back in his face and said, "You know, you can't get even 1% of Zero. One-percent of something is better than nothing.

You know who makes out the best in shareholder lawsuits? Lawyers. Then the vultures who descend on the carcass of a bankrupted company or near bankrupted company.

I learned this lesson the hard way staying invested in Sirius Satellite Radio stock way back in 2001. The company almost went bankrupt. Meaning my holdings would be worthless. However, Lehman brothers did a debt for equity swap, Lehman suddenly became 93% owner of Sirius, and I and all the other shareholders were left holding 7% of the company with our newly devalued shares.

Trust me. The $700 I had left over was better than nothing.

So was the education I received at the hands of unstoppable market forces.

Sombrero Beach Owners Should Chill, then Meet with Cay Clubs Execs

All I'm suggesting here is this: Sombrero Beach owners of condos might want to sit down with company officials without going to court and see if they can work things out. Because if Cay Clubs goes bankrupt, what good does it do for these owners who won't ever see any renovations of their rooms, who will have to wait for a vulture to buy the empty units in their building for pennies on the dollar, and so on and so forth?

You think this looks complicated now? Go ahead, help bankrupt the Sombrero with a lawsuit and see how fast the bankruptcy lawyers and judge get to the true remaining value of assets left to liquidate. This will take years.

I mean, yeah, maybe a judge will make Sombrero owners first in line for liquidated assets, but then again, being first in line might mean a few pennies on the dollar. But that's probably even wishful thinking as it is usually bigger lenders such as banks, bondholders, preferred shareholders, etc., who are always paid back first after a bankruptcy . . . it there's anything left over to payback.

If owners of these condos are pissed about low values now, wait until the words "bankrupt" are attached to their building. Condo values will fall 50% or more.

So, were I a Sombrero Beach condo owner, I'd think long and hard about this lawsuit.

I'd advise them to sit all 19 of the plaintiffs and company execs in a big room and then have a civil give and take and see where they can get from there.

That would be my first choice.

Think of it as a divorce. The best divorce happens when both sides don't contest the divorce, they simply have an amicable workout of who gets what, knowing that a long drawn out divorce proceeding doesn't allow either party to get on with their lives while divorce lawyers keep hitting them with growing bills.

Hell, maybe you can think of it as marriage counseling too. Maybe the owners of the condos and Cay Clubs can work out some kind of agreement where renovations start as long as the company can meet certain metrics, such as payments to leaseback operators.

Who knows? Maybe the company execs can have members of the other company attempting to merge with them sit in on a meeting and explain to condo owners, "Look, the reason this merger is so important is we will be supplying much needed capital to Cay Clubs in return for a big hunk of ownership. If you guys will call off the lawsuits and give us til the end of the year to ram this merger through, we promise to start an impressive renovation on your units on such and such a date."

I'd call this a win/win/win situation.

Lastly, the last few paragraphs about the management team at Cay Clubs makes me scratch my head:

Stokes heads Cay Clubs Wholesale, which Brown said is a wholly separate company from Cay Clubs, but has a working relationship. But Stokes billed himself as the National Director of Cay Clubs International, a defendant in the suit, in a presentation last summer not involving Sombrero Resort.

Calls to Stokes are directed to Brown. Graham is a principal officer of the main Cay Clubs brand, according to documents filed with the U.S. Securities and Exchange Commission.

Lawyers who specialize in condominium and securities law said previous offers made by Stokes for different properties and in other states exist in a legally gray area between real estate law and securities law, and some of the promises made cross recommend guidelines for avoiding legal problems.

Stokes did not return messages by press time.

The defendants listed in the suit are DC 709 JV, LLC, a company owned by Cay Clubs owners Dave Clark and David Schwarz; Cay Clubs International LLC; Benchmark Appraisal Services Inc.; Pelican Appraisals Inc.; Rosendale Appraisers Inc.; and Cristal Clear Realty LLC, a company also owned by Clark and Schwarz.

To which I will say, "Hey Keynoter, you got your next story right there. How about digging up what all these different companies do, how they are structured in the scheme of things, and give us a diagram or two?"

Where are these LLCs incorporated?

And how about explaining LLCs to the common day reader who never picks up a Wall Street Journal?

p.s. Keynoter, welcome to the Watchworld's Honor Roll of Links. Thank you for not making your main headlines and stories inaccessible to those who wanna be in the know. May your online marketing work for you and allow your stories to be mass distributed with no fuss.

Now if only the Key West Citizen would take your lead . . .

Watchworld Welcomes "Eye on Miami" to Honor Roll of Links

Watchworld Welcomes "Eye on Miami" Blog to Honor Roll of Links

I just added a blog, "Eye on Miami", to the righthand margin of this blog.

The two writers for the blog are Gimleteye and Genius of Despair.

In an attempt to get readers of my blog to put the "Eye on Miami" blog on your reading list, I hereby will post word for word their latest entry titled,
"Let the prices fall, let markets find their equilibrium" by gimleteye.

The latest post is dated 28 August 2007.

Here it is in it's entirety with comments from readers (my own included) tossed in at the bottom:

Let prices fall, let markets find their equilibrium

by gimleteye of the "Eye on Miami" blog

28 Aug 07

The subprime mortgage sector is cooked to a fare-thee-well. Across the globe, hedge funds and financial institutions are blowing up on long-delay fuses as combustible toxic mortgage waste is repriced to meet redemption calls by anxious investors.

Still, it's just a start to what began unfolding in Florida at the start of 2007: the implosion of the biggest housing boom in state history.

But as pilloried as the subprime sector has been, it makes just as much sense that home buyers deemed to be credit-worthy who bought jumbo loans and far too much home than their incomes could reasonably support are next in line for default rates in excess of bond insurance (for investors in the derivatives cobbled together from the asset bubble) and that these mortgage-holders represent a far bigger problem to markets for securitized debt assembled from large pools of the giddy, the unrealistic, and delusionary.

The question now arises as to the moral responsibility of governments and financial institutions to pick up the pieces of the massive asset bubble they created in the first place. So far, not so good.

It has been difficult for the financial press and for politicians to get a handle on the extent of the economic crisis triggered by the housing boom now in cinders.

The debate about what to do is ironic in the context of the debate about the nation’s moral responsibility to continue the war in Iraq.

Strange that the nation that elected a president based on values is now possessed by a government debating its moral responsibility to rescue voters and taxpayers from its own values.

The writer James Howard Kunstler calls America “clusterfuck nation”, and he won't get any argument from me.

The mainstream media is finally catching on that the housing market crisis will be the major issue in the 2008 election cycle.

It has finally teased from the Goldman Sachs of the world that we are only beginning to see the waves of economic casualties from the implosion of the housing boom.

“This is really just the beginning… there’s a big wave of defaults coming over the next 12 to 18 months,” said Karen Weaver, global director of securitization research for Deutsche Bank to the New York Times (“In Washington, Measuring a Lifeline”, August 28th).

The Times article goes on to describe discussions in Congress, over what shape and form a government bail-out should take and the fundamental question, “should the government ride to the rescue”.

For a better review, the economist Nouriel Roubini blogs on the same topic.

In the Financial Times, Larry Summers – former secretary of the Treasury –writes: “what is the role for public authorities in supporting the flow of credit to the housing sector? The lesson learnt during the S&L debacle was that it was catastrophic to finance home ownership through insured banking institutions that borrowed short term and then offered long-term fixed-rate home mortgages. Now a system reliant on securitisation, adjustable rate mortgages and non-insured financial institutions has broken down.

It is undeniably true that the system of securitization, or financial derivatives as they are generically called, financed the asset bubble in housing in the United States. But Summers doesn't offer any prescription.

Warren Buffet called derivatives “weapons of mass financial destruction”: was he ever right.

The financial institutions that securitize mortgages are like the Department of Transportation for growth and development: immune from any measurable criticism.

Economists—far from the battleground in communities and civic activists who tried, over the past decade, to protect their neighborhoods from greedy local developers and bankers and consulting engineers and land use attorneys—are trying to fit a round peg in a square hole by recommending expanded authority for the government sponsored entities like Fannie Mae and Freddie Mac.

If anything emerges from a regulatory response to the credit crisis, it should start with backing down those weapons of financial mass destruction. Does Congress have the guts to confront Wall Street: we'll see.

at 9:36 AM
Labels: Federal Reserve, Gimleteye, Housing crash

6 comments:
Anonymous said...
Bail out? What is this the Savings and Loans II? No bail out, let them fold in on themselves: Implosion.
August 28, 2007
lunkhead said...
Agreed. Taxpayer money should not be used to rescue greedy and moronic policies in the private sector.
August 28, 2007
No bail out said...
No bail out. Period.
August 29, 2007
Anonymous said...
Jay in Ma. Burn Baby Burn Free Markets
August 29, 2007
Anonymous said...
No bail out. It is not fair for people who saved and played by the rule.
August 29, 2007
Rock said...
Bailouts would only reinforce worse behavior.Everytime the damn Federal government allows corporate policy to direct foreign and domestic policy, we the taxpayers and cannon fodder for the Armed Forces get screwed.Supposedly 9/11 changed everything. It didn't change squat. If 9/11 really changed everything there would be a draft going on right now and all the College Republicans would be having their limbs blown off forcing Daddy Warbucks or the GOP and this corrupt Administration to bring the troops home.Instead we have a volunteer force of poor kids on the front lines while friends of Bush disappear billions of dollars in Iraq on no big contracts which are as anti-American and un-patriotic as anything ever recorded in history. Iraq is blood money.A bailout of homeowners who are being hammered by the invisble hand of Capitalism makes us more socialistic.It's ironic that China is moving towards a purer form of Capitalism at this point in time while America coddles and enables losers with more and bigger handouts, corruption and injections of free money.
August 30, 2007

Miami: Ground Zero for America's Condo Crash

Miami's Condo Crash Worst in the USA?

A few days ago, the Sun Sentinel ran a great piece on the Condo Crash in Miami. As I recently visited the condo glut in Miami on this blog, I wanted to add this Sun Sentinel piece for an update on that overheated and crashing market just North of the Florida Keys.

The Sentinel piece Boom of condo crash loudest in Miami gave us vignettes of investor dreams dying in flames.

We read about one couple who made so much money off their first condo flip, they threw themselves a $100,000 wedding. However, today, Mr. and Mrs. Living Large are now faced with an either/or proposition which must give them nightmares:

A) Either they walk away from a $117,000 deposit on an expensive "investment" condo in the tony downtown Miami Bal Harbour project

OR

B) Do they go ahead and close on the condo and pay the $585,000 price when they ordered the condo . . . eventhough the market has tanked for expensive condos in a market where 23,000 are now on the market and fewer qualified buyers are materializing as the crash worsens?

As the Sun Sentinel ponders,

Just how many other speculators face the same dilemma in the nation's most glutted condo market will become clear during the next two years. That is when 25,000 new condo units, most of them rising in or near Miami's downtown, will flood an area already saturated with 23,000 condos listed for sale. An additional 40,000 units have been approved, but analysts doubt the majority will break ground.

Well, if you add 25,000 new condos to 23,000 units for sale now, we get a total of 48,000 units for sale by 2009 in a market where lenders are tightening up on lending criteria.

Fewer qualified buyers and more foreclosed owners means prices are going to fall like an aircraft carrier anchor in deep blue water. So, I would say several tens of thousands of "speculators" in Miami's former "can't lose" condo market will soon be chum for the few smart speculators sitting on the sidelines with cash in pocket.

Furthermore, the coming bloodbath will be so bad in Miami, Orlando, and other urban areas of Florida that many honest Economists, Realtors, Homebuilders, Politicians and the like are banking on the Condo and Housing Crashes igniting a statewide Recession.

You are not going to hear this kind of thinking from upside down CEOs, investors or homeowners who are still in denial . . .

The Sun Sentinel throws this at us:

Orlando and other Florida cities -- Naples, Fort Myers, Tampa and Sarasota among them -- also have huge condo gluts. With 4,440 condos listed for sale, Orlando has an unprecedented 29-month supply, and last month sales plummeted 64 percent lower than a year ago.

But Miami, with its unmatched volume and untold number of speculative buyers, is ripe for the hardest fall in the U.S.

"Miami is the poster child for the condo bust," said Jack McCabe, CEO of McCabe Research & Consulting, a real-estate market-analysis firm located in Deerfield Beach. "There are probably only two cities in the world with more construction: Shanghai and Dubai. Unfortunately, there is (sic) going to be a lot of foreclosures . . ., and developers, lenders, title companies and real-estate companies will go under."

Many analysts, McCabe among them, predict the area's condo collapse will drag the rest of the state into recession. Other experts scoff at that notion. But nearly all agree grim times lie ahead.

As McCabe points out, many jobs will evaporate as the Crash spreads.

This can be seen every day with mortgage lenders going out of business. As the founder of the Implode-O-Meter website says in this interview,

"I honestly don't know how many at-risk outfits are left….dozens, perhaps. We're trying to gather together ALIVE and stable lenders for our industry readers to bring their business to.

But as far as continued fallout, I'm more worried about banks at this point. Banks are between 50 and 60% exposed to real estate by their net assets. Banks have held up thus far because they have much deeper pockets than the non-bank lending specialists, though a few have taken sizeable write-downs on mortgage portfolios. But it is well known the write-downs have been largely put off by delaying the mark-to-market process; even the bulk of the ratings downgrades have still not happened, so the real balance sheet hit is yet to come. And banks will see their real estate holdings of all sorts deflate in value.

Those that weren't sufficiently diversified or aren't considered "important" enough for a bail-out could see failure. After an interlude since the last recession, we've already had a few small credit union and bank failures. I expect this to turn into a tidal wave, short of a massive intervention by the government (i.e. a blanket bailout which the public will shoulder-this would not be a "good" thing)."

Think about all the folks dependent on a healthy housing market for work:

Realtors

Lenders

Bankers

Carpenters

Contractors

Plumbers

Appriasers

Home Depot Workers

Sheetrock factory workers

Truckers

Cement workers

Heavy Equipment Operators

Laborers

Accountants

Tax Preparers

. . . and the list could go on and on.

Housing is a major gear in our Economic machinery. When Housing strips teeth off its gear, the whole machine suffers.

My list above doesn't even include the biggest loser of all in the Housing crash: the speculator.

As the Sun Sentinel said,

Usually joyous milestones, closings in Miami are about to become somber days of reckoning for electricians, waiters, retirees and other amateur speculators who counted on making a quick killing in a market they thought would rise forever.

No one knows how many units speculators bought. But as early as 2004, McCabe and Lew Goodkin of Miami-based Goodkin Consulting warned that up to 70 percent of the condos rising in Miami were being snapped up by people who didn't plan to hold on to them, much less live in them.

That was evident from the hordes who camped overnight, fought over lottery numbers, even paid homeless men $20 and a pack of cigarettes to hold their places in long lines, all for the chance to put 20 percent deposits on condos that existed only in brochures. The frenzy for some projects was so fevered that some developers raised their prices hourly.

"It was a nightmare. Lines around the corner. People screaming into phones. I would look at them, and think, 'You don't know what you're doing,' " said Mark Zilbert, president of Zilbert Realty Group.

Many told a similar story: They had a friend who made $100,000 flipping a new condo, and they planned to ride the same wave of escalating prices. All they had to do was put down $60,000 on a $300,000 pre-construction unit and resell it when the value climbed to $400,000 -- before the building opened, and before closing and mortgage payments, maintenance fees, insurance and taxes kicked in.

That meant anyone could risk $60,000 and pocket $100,000 without actually buying anything.

One of my memories of the heady rush to buy . . . any and everything Real Estate in Key West . . . is the story of a guy I know who works as a jet ski tour guide.

Before his current line of work, this guy tried to open three or four businesses on his own. He failed in all attempts because he simply didn't have a head for simple math, nor did he have a mind for marketing.

Anyway, he ends up working as a tour guide for a local jet ski operator, and one night, he comes into the bar, drunk, telling me how he was going to make a mint flipping houses and how I should get into the same game.

To make a long story short, this blue collar worker bought his first and only home in 2005 for $550,000. He put no money down. He used a "Liar's Loan" and a local mortgage mill in Key West got him $575,000 or more than 100% LTV.

He took that extra $25,000 and used it to upgrade his home right before the flood of Wilma.

The loan is an interest only loan for the first three years. He and his wife (a hotel worker) pay more than $4,000 a month in "interest" and not one penny of that goes to paying off any principal.

Not only this, but homes in his area are now asking . . . not fetching when one actually sells . . . about $499,000. So he's upside down by $75,000 already and hasn't paid one penny to lowering his principal.

In June of next year, this interest only loan kicks over to an ARM loan.

His house is on stilts, so he didn't get crushed by Wilma; however, all that money he spent on landscaping his yard was washed away. He still hasn't replaced all the plants destroyed.

This guy is still a 34 year old tour guide operator. He makes $100 a day, rain or shine, with tips. His days are anywhere from 20 minutes long to 12 hours long, depending on whether the business is there.

And business? Business isn't good.

Business isn't good because fewer middle class Americans are coming to Key West.

Fewer middle class Americans are coming to Key West because fewer cheap hotel rooms are available.

Fewer cheap hotel rooms are available because developers went apeshit knocking down perfectly profitable hotels in the chase for bigger short term gains by building condotels.

And fewer middle class Americans are coming to Key West because their Housing ATM on their own homes on the mainland are now empty as housing equity disappears in the Housing Crash.

Thus, when you read about other amateur speculators in Real Estate, you know we can multiply these "losses" by an easy 2 million Americans in the next two years as ARMs adjust.

As the Sun Sentinel finished:

Owners of a gourmet shop, the transplanted New Yorkers poured their life savings into deposits on four condos they had planned to flip for a quick profit.

The plan worked for a one-bedroom condo conversion at The Residence in Hollywood. They agreed to buy it in 2004 for $207,000 and sold it before closing for $330,000.

But they were forced to close on a condo in Boynton Beach, where they now live, and they face the prospect of losing nearly $200,000 they put down on two condo conversions at the Harbour House in north Miami-Dade County. One is a $350,900 studio, which Natalie Luongo said is smaller and in a different location than the one she agreed to buy in December 2005. It is the subject of litigation.

The other is a $585,000 one-bedroom unit similar to others now available for about 25 percent less. As the September closing looms, the Luongos are distraught. If they can't secure another mortgage, the decision will be made for them. They will have to walk away from their $117,000 deposit.

But if they secure financing, they know they will be stuck with a property that could be as difficult to rent as it is to sell. Gregg and Mary Mullins, 70-year-old retirees living near Fort Myers, learned that the hard way.

Last month, they finally rented out the two-story $885,500 penthouse they closed on last year in Blue, a concave tower overlooking Biscayne Bay. But the $2,800-a-month rent they're collecting is less than half their monthly mortgage payment, maintenance fees and property taxes. Yet, as Mary Mullins said, something is better than nothing.

The couple never planned to live in the condo, but jumped at buying it at pre-construction prices in 2004 after friends shared a familiar story."They said they made lots of money, so they told us to try it and maybe we could make lots of money, too," Mary Mullins said. "But that didn't happen. We don't know what happened."

A sheepish Tom Leon says he knows. The retired businessman from Illinois said he knew he had made a mistake about six months after he put down $200,000 on two $500,000 condos at the end of 2004.

"Every 2 inches, I'd see another [construction] crane, and I knew: There is no market that can absorb these many units," said Leon, 72. "It doesn't take a rocket scientist to say, 'Gee, who's going to live in all these buildings?' "

To which I'll answer, "Those of use who were content to rent, who saved cash, who educated ourselves using the Scientific Method of observation and forming hypothesis, who read history books and who waited for the bottom to fall out of the Housing elevator." That's who.

If the math doesn't work, we will not put our cash into play.

It's that simple.

Why pay an outrageous price for a condo which has only lost 25% off its pre-built cost, especially when pre-built cost was set at a market top?

I mean, I buy stocks of great companies which have lost 50% or more from ten year averages and ride them up after they bottom. Why should I be antsy to enter Real Estate now when inventory is about to continue growing like a mushroom cloud over Ground Zero?

Some of the Biggest Upside Down Flippers are Realtors

"I'm A Classy Realtor"

Every once in a while you read a story which makes you stop and think, "How can you allow yourself to say things like this to a reporter?"

After reading this story from today's St. Petersburg Times, I can now understand why so many houses for sale in Key West classifieds say, "Realtor owned".

It appears that Realtors were not only some of the biggest cheerleaders for rocketing Real Estate during the Bubble Years . . . they were also some of the biggest flippers who are now upside down on their bets.

Today's St. Petersburg Times brings us a story about two Realtor/Flippers headlined . . .

Down, but not out: "I'm not a real estate bum," Realtors say

The story begins with staff writer James Thorner giving us a close up of a harried Realtor with creditors breathing down her neck:

"Like an operator working a buzzing switchboard, Liz Seither deftly juggles the two phones that never stop ringing in her kitchen.

The 67-year-old Clearwater Realtor's eyes are puffy below unkempt flaming orange hair. She begs your pardon for not looking like one of Pinellas County's top home sellers, but her allergies flared up when her dog's fleas bit her.

Equally irritating are the bank warning letters laid out before her on the kitchen table. Seither invested - unwisely it turns out - in expensive Clearwater waterfront property at the peak of the recent boom. Lenders are after her for millions of dollars in debts.

After juggling 15 calls from debtors, creditors and clients, Seither lays the phones aside and delivers a pep talk to herself.

"I'm not a real estate bum," the president of Executive Preferred Properties announces. "I wear diamonds, Rolexes and necklaces. I'm a classy Realtor.""

This woman is 67 years old and she was playing Real Estate Roulette? Is she an innocent or an insider who let greed get the best of her?

Moreso: many a drug dealer, murderer, Mafia don, dictator, corrupt Religious leader, scam artist, etc., have covered themselves in bling to make up for their lack of self-esteem. MTV is wall to wall with lame Rap artists who rap about diamonds, Rolexes, Cristal champagne, high priced hos, cars, expensive wheels and cribs all day.

There is not one shred of difference in attitudes about what comprises "class" with these shallow rap artists's and this poor 67 year old woman who seeks "class" through expensive doo-dads. She's 67 years old and her development is still arrested at the teen level.

But this post isn't about bling and shallow beliefs, it's about Realtors as Flippers.

Real Estate Roulette

Clearwater Realtor Anthony Marottoli's voice betrays a touch of envy when he recalls his 30-something neighbor who made the big score.

He recites the exact dollar amount the guy paid for his Mandalay Beach Club condominium - $475,000 - and how much he sold it for two years later - $1.65-million.

A 64-year-old Connecticut native, Marottoli entered the real estate roulette game a bit late. Despite asking almost $700,000 less than his neighbor, Marottoli hasn't found a buyer for his Mandalay condo. Doubling down, he's on the hook for another pricey condo at the adjacent Sandpearl Resort for $1.38-million.

His real estate business is down to a dribble of employees, from a peak of 20. He's no longer the "listing machine" that juggled 200 properties at once.

"I've been waiting a year and a half, waiting for something to happen. And it's not happening," Marottoli says.

Rock's comment: Buy more Real Estate now, Mr. Marottoli. You should double down on your double down as the Key West NAR is telling us every weekend " . . . there has never been a better time to buy Real Estate!"

Oh, and you know, Real Estate always goes up, right? Plus they aren't making any more land in Florida, right?

Chin up. Don't listen to the naysayers. Go all out and quadruple down, octuple down, and leverage yourself like a Master of the Universe at a Bear Stearns hedge fund. You're a Realtor and you know real estate is the surest way to big wealth. Screw those people you owe money to. They will just have to wait.

New Realtor Proverb: "People don't know you have too many until you have too many."

Brokers in Clearwater area waterfront property, that thin but rich slice of the real estate pie, were among the elite earners until about a year ago. Six-figure pay days were a matter of course as home prices, powered by speculative purchases, doubled and tripled.

But these days the waterfront runs red. Properties linger three times as long on the market as they did two years ago. Brokers like Seither and Marottoli have taken it doubly hard: They didn't just represent buyers and sellers, they dabbled in the investment arena themselves.

The housing slump has left the market oversupplied with million-dollar homes relative to demand. Listings on Clearwater area beaches approach 1,000. Sales in July numbered 30. As new condo towers open, the glut grows.

Says Virgil Sweet, a 24-year Realtor with Rutenburg Realty in Belleair Bluffs: "People don't know you have too many until you have too many."

Well, Verge, you'll learn later in life that wise people don't set themselves up to be slaughtered like hogs by making bad life decisions based on greed.

This is history in the making, Verge, and this is the kind of thing you should tattoo on your forearm so that any time in the future when someone is yanking your eyebrow ring to sign on the dotted line, you stop, look, read your tat and think about consequences.

Jesus Loves Mutli-Million Dollar Producers, But Can He Sell a Home?

It's a no makeup day for Liz Seither at her home on Island Estates, a barrier island washed by Clearwater Harbor. She's still in slippers, but a diamond anklet dangles from her leg. That and the diamond crucifix around her neck bespeak better times when she prided herself as a "Multi-Million $$$ Producer."

She dials a prospect, a movie theater owner from Alabama who's been hunting for beach deals. His voice mail picks up. Seither leaves a message:

"Hey you bottom feeder you. Call Liz. Call Liz. I'm still your best Florida friend!"

She hangs up the phone and deflates. It's not been her lucky year. Banks threaten to repossess six of seven investment properties. She slashed millions off prices, but still no buyers. Of her 40 home listings, no sales are pending.

She rented her private residence to a guy who fell $15,000 behind in rent.

The guy arranged to pay Seither. But when she arrived he had vamoosed with her high-end washer, dryer and refrigerator.

One a recent day Seither took her dog for a walk and a neighbor flagged her down.

"Don't worry, Liz, you're the only one making money," the woman reassured her.

Seither hated to disappoint her.

"My heart was beating 100 miles per hour," Seither recalls. "It was hard to tell her I'm suffering like everyone else."

Liz, if your neighbor reads the paper, the jig is now up. It's going to be hell trying to keep up appearances after this one makes the neighborhood grapevine.

Flip, profit, repeat. Flip, profit, repeat. Flip . . . uh-oh.

Anthony Marottoli sits in the lobby of Mandalay Beach Club. White caps curl and crash on Clearwater Beach behind him. He's tanned and dapper in a starched cream-colored button down shirt, slicked back gray hair and loafers without socks.

Families dally in the Mandalay pool, but Marottoli says they're all renters.

The plan seemed so simple. Buy a condo for $500,000 in Mandalay. Hold it a couple years. Flip it for big money. Invest the proceeds in another million-dollar condo. Flip. Profit. Repeat.

A lot of people had the same idea.

Of the 153 units at Mandalay fewer than 50 are owner-occupied. "The lights are off at night," Marottoli says.
By the end of the month, he has to come up with $1.38-million for a condo he reserved at Sandpearl Resort. He hopes to work out a deal with developer JMC Communities. He can't afford the unit.

One of his biggest frustrations as a Realtor is the sellers who cling to high asking prices. On the beaches around Clearwater, the average list price for single-family homes is $1.46-million, up over last year's $1.3-million.
"Out on Gulf Boulevard on Belleair Beach there are folks still looking to triple their money. Even in this dead market. See how greed plays?" Marottoli says.

This guy is 64 years old and he was playing the Real Estate Roulette wheel?

What is going on here with retiree Realtors playing in the lava flows of the Housing Meltdown?

From fine dining to all-you-can-eat meatloaf

Seither's agency is a shell of its former self. The 10 agents she once employed are mostly gone. She survives by managing rentals, 150 properties at last count. Rentals: It's a growth market.

At the end of another hectic 12-hour day, she's heading off to dinner. It won't be seafood on the beach, but $7 all-you-can-eat meatloaf next to Kmart.

She laughs a rare laugh before heading off to the feast: "We're economizing these days."

I don't know how people like this can keep hope alive. It reminds me of sociopaths who have no conscience, although in the case of this woman, some of you will think, "Yeah, but she's only harming herself."

Not true.

She's on the hook for millions. She owes other business people for her bad choices. Those business people have debts. If she's late paying back what she owes, its very possible, she might be the one debtor who puts one of them out of business.

She was "in the biz". She should have known how to do simple math. She had plenty of historical data to thumb through which showed the Housing Bubble was an obscene aberration for all time.

How in the world can anyone feel sympathy for this woman who could pawn off her jewelry (Rolexes, diamond encrusted crucifix, etc.) to help pay her debts?

Am I the only one here who feels this person is not being honorable?

Cake dreams

Behind the wheel of his Cadillac, Marottoli cruises Clearwater Beach. He observes the parade of lots set amid ticky-tacky tourist shops, hotels and restaurants. They're condo projects, the hits and misses of the recent real estate cycle: Indigo, Marquesas, Kiran Grand, Aqualea.

Condos figure in Marottoli's plan to revitalize his realty business. He wants to hold regular auctions and places his faith in fractional ownership, where investors pool money to buy million-dollar properties.

Marottoli pulls up at developer Uday Lele's office. Lele labors to get his Enchantment luxury condo project off the ground and displays a giant model of his horseshoe-shaped wedding cake of a building. Exuding confidence, he denies the existence of a slump when it comes to his project.

For a moment, after basking in Lele's enthusiasm, Marottoli perks up.

"I guess it's not all bad," he says as he takes his Cadillac down the strand, toward the condo he can't afford. "Good to see some life."

How do you break through to someone stuck on Real Estate that the game has changed?

How do you deprogram brainwashed Realtors into seeing what is happening and what is about to happen?

Is this guy not listening to CEOs of homebuilders? Does he not pick up a newspaper and read of the liquidity crisis which is now threatening commercial real estate and Wall Street?

How do you sober up those who spent too much time at the Housing Bubble punch bowl?

How?